Simple can be harder than complex

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“Simple can be harder than complex: You have to work hard to get your thinking clean to make it simple. But it’s worth it in the end because once you get there, you can move mountains.” Steve Jobs

Unfortunately when it comes to Government policy on Superannuation, Retirement funding and Pensions, it seems the more complexity the better. At times it can seem like you have to be a rocket scientist to work out the rules, and what the continued changes mean to you and your family.

In the recent budget, the government argued it is seeking to better target tax concessions for superannuation and to bring the system in line with its objective of “providing income in retirement to substitute or supplement the age pension”.

The changes include:

– A $1.6 million cap on how much individuals can contribute into retirement accounts;

– The lowering of the cap on tax concessional contributions to $25,000;

– A $500,000 lifetime cap on non-concessional contributions.

On the first point I have to agree with this change, and with the government’s restatement of the purpose of superannuation. When John Howard implemented the tax free environment of the superannuation pension phase with no ceiling, it seemed incredibly generous to me.

On the second and third point I think these changes are ill conceived and poorly targeted. As Professional Financial Advisers we understand that the majority of people struggle in the third phase of their lives (post kids) to punch as much money into super, to achieve some form of self-sufficiency and non-dependence on the aged pension.

Given the fact that the government cannot simply afford to support our aging population via the aged pension, it is incredible that the target of the second two points are those mums and dads that need to save more now.

Ross Clair, Director for Research from the Australian Superannuation Funds Association in the 2015 research paper; Superannuation account balances by age and gender1, stated that the mean superannuation balance for 50-54 year olds in 2014 was $146,608 for males and $84,288 for females. If I take those numbers and apply them to Mr and Mrs X aged 54 they have $230,896 in super. These people are hardly rich individuals trying to avoid tax by using superannuation strategies.

As they stand, these proposed changes not only add complexity to the rules around retirement strategies, they will by default secure many peoples reliance on the age pension to supplement their income. On the strategic side of things the proposed changes will require many people to completely review and in some cases change their current strategies.

As your Professional Financial Advisers, we understand that change can be unsettling and makes many of us anxious. But the unpredictability of government policy, like the unpredictability of markets, will always be with us.

Like a sailing boat skipper who knows how to set the sails to deal with shifting winds and choppy seas, our role is to help you navigate through this sea of constant change and enjoy the journey. The outcome is a degree of comfort and security that you might otherwise miss if you attempted to navigate the complex policy maze all on your own.

1ASFA: Superannuation account balances by age and gender 2015.

Stephen Lowry CFP, DFP, FAIM, is a representative of Alman Partners Pty Ltd, Australian Financial Services Licence No: 222107.

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