Money Matters,  Retirement

Super Snoop

If you have super perhaps you would like to join me in being a “super snoop”.  It is not advisable to turn a blind eye to what is going on with your super and leave it only to the “experts”.

If you are like me and retired there are no further earnings from your employment. At the moment money in bank accounts is earning very little. For example, if you invest $10,000 – $50,000 with the major banks you will get anywhere from 2.50% – 2.80% for a 12 month term deposit (paid at the end of the term). Investing $20,000 with a bank on this basis will return around $520 per year. Therefore, when the cash rate is at such a low level, superannuation and other investments are a better option for monetary gains.

Become a “super snoop” and keep more money in your wallet for the things that count
Become a “super snoop” and keep more money in your wallet for the things that count

One of the recent government changes is in regard to Centrelink deeming rules for financial assets. Currently, how the system works is that the deemed rate calculates your level of earning on a financial asset. There is a small incentive to manage your money wisely. If you earn more than the deemed rate on an investment then this income is not counted in Centrelink assessing your entitlement to a pension, allowance or benefit. The downside at the moment is that the deemed rate is not much different to returns on term deposits. As of 1 January 2015 the deeming rules were extended to any new superannuation income accounts or income product changes.  If you had an income account prior to 1 January then don’t let a financial advisor talk you into converting your income account into a new product without finding out the impost in lost cash as a result of the change. The heaviest impact due to the change will be felt by retiree’s on part-pensions. Any new income account as of 1 January 2015 will be subject to the deeming rules. The capital component of superannuation is counted under the assets test and then any income drawn from this through an income/pension account is deemed. This will reduce the Centrelink entitlement amount, through what has essentially become a “double-dipping” by the Federal Government, as a result of the changes to the deeming rules.

Being a “super snoop” means keeping across what is happening with superannuation and any changes that the Australian Federal Government is proposing.  Superannuation changes can have a deleterious impact for those who have recently retired or are close to retirement age. Fortunately, most changes to the superannuation rules are grandfathered, meaning that if you came under a previous rule you are not subject to the new rules. However, people close to retiring can have little notice about a change in superannuation rules with the consequence they may have less to live on in retirement.

The Association of Superannuation Funds of Australia (ASFA) is the peak body representing all superannuation fund sectors, service providers and fund members. ASFA have worked out a standard of income needed for retirement. For a modest lifestyle: $23,469 (single); $33,766 (couple). For a comfortable lifestyle: $42,604 (single); $58,364 (couple). For a retiree on a full government pension they would receive $22,365 (single); $33,717 (couple) per year. For any retiree’s who rely only on the government pension in retirement they will have a modest lifestyle which means less money for items such as transport, clothing, household goods and groceries.  To live a comfortable lifestyle you need superannuation or other investments to live independently of the government or you qualify for a part-pension. To live independently on superannuation for a comfortable lifestyle it is estimated $790,000 (single) and $1,080,000 (couple) would be required. But even then Jeremy Cooper from Challenger states that people are being misled by the debate about the lump sum required for a comfortable retirement. Read what he has to say here. 

The other area that has been unofficially canvassed by the Federal Government is taking the family home into consideration when determining a person’s worth. For now this suggestion has been shelved. The goal post then shifted to the likelihood of changing the assets test. The proposition is that anyone who has $1.1 million, now entitled to a part aged pension, would not receive any government support unless their assets are reduced to around $800,000. As you can see from the information provided earlier $800,000 will not provide a “comfortable” retirement lifestyle. Also, if there are unfavourable economic conditions the capital can quickly become eroded.

The point in question here is that the area of superannuation, managed by the Federal Government, is like the pendulum on a clock, forever changing back and forth. It creates a very unstable decision-making environment for everyone, but particularly those close to and within the retirement phase of their life. In my view the change required is to rectify the systemic instability created by political decision-making within the superannuation sector. What then can be done to create stability and strengthen this area?

Jeff Kennett (former Liberal Premier of Victoria and Chairman of Beyond Blue) has a very worthwhile contribution on the topic. Kennett’s view is that the Federal Government should set up an independent statutory body with powers to make decisions covering the issues surrounding superannuation. This would take the decision-making out of the hands of politicians. Kennett, given his background in politics, understands the political landscape and the insecurity created for consumers and the sector when decision-making is solely in the hands of politicians.

I hope that his suggestions are given some traction by the Federal Government. That does not mean that the government cannot contribute to making the system better, it just means that they don’t hold all the power. The power of the independent statutory body can then be shared though consultative mechanisms with the government, peak bodies, lobby groups, consumers and the superannuation sector. As Kennett stated “sadly, the political process in this country over recent times has proved itself to be unable to decide on the three competing interest of individual need and fairness, personal responsibility and the national interest”.

By writing this post I am not claiming I am an expert when it comes to financial matters in retirement. But what I do know is that my money matters and your money matters and it will make a difference if you become, like me, a “super snoop”.  I totally support Kennett’s proposal for an independent statutory body to manage superannuation. Let me know what you think.

Thought for the day: It’s good to have money and the things that money can buy, but it’s good, too, to check up once in a while and make sure that you haven’t lost the things that money can’t buy (George Lorimer).

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