Change and opportunity Retirement income planning considerations - PowerPoint PPT Presentation

Change and opportunity Retirement income planning considerations 2019 FPA National Roadshow Challenger

Some context for retirement planning Post-retirement is big, and getting bigger

Some context for retirement planning Post-retirement is big, and getting bigger 4 ($bn) Market growth supported by Australian superannuation growth • Mandatory and increasing contributions 8,000 • Earnings compounding • Population growth and ageing demographics 6,000 4,000 Resulting in • 9% CAGR growth over last 10 years 1 • 4 th largest global pension market 2,000 2 • Assets expected to double in next 10 years 3 1. Growth in superannuation system assets, based on APRA data. 2. Willis Towers Watson Global Pension Study 2018. 3. Rice Warner 2017 superannuation projections. 3 4. 1997 to 2018: APRA data. 2019 – 2032: Based on Rice Warner 2017 superannuation projections applied to 2018 APRA superannuation assets.

Some context for retirement planning Post-retirement is big, and getting bigger Mandatory and increasing contributions • Increasing from 9.5% to 12.0% 1 1 Superannuation Guarantee contribution rate 2021 2022 2023 2024 1992 1997 2002 2015 2025 3.0% 6.0% 9.0% 9.5% 10.0% 10.5% 11.0% 11.5% 12.0% Demographics • Ageing population Number of Australians 3 • Australians have one of world’s longest life expectancies 2 over 65 increasing +33% over next 10 years • Medical and mortality improvements increasing longevity +59% over next 20 years 1. Percentage of gross wages required to be contributed to superannuation. Contribution rate increases to 10% on 1 July 2021 and increases by 0.5% per annum until reaching 12% on 1 July 2025. 2. World Health Organisation. 4 3. Australian Bureau of Statistics population projections (Cat No. 3222.0 Series B middle projections).

Some context for retirement planning Post-retirement is big, and getting bigger 2 ($bn) Projected superannuation assets Post-retirement (super spending) phase • 7,500 Supported by • ageing demographics • rising superannuation savings • Government and industry enhancing 5,000 retirement phase 2,500 Annual transfer from pre to post 1 in 2018 retirement phase ~$60bn 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 Post-retirement assets - superannuation spending phase Pre-retirement assets - superannuation savings phase 1. Australian Taxation Office. 2. Based on Rice Warner 2017 superannuation projections applied to 2018 APRA superannuation assets. 5

Some context for retirement planning Post-retirement is big, and getting bigger • Superannuation guarantee system 10 largest super funds – average retiree member balance 2 not fully mature – established 26 Unisuper 509k years ago AustralianSuper 387k • Operating for only half the Qsuper 367k working life of today’s retirees SunSuper 323k BT 301k • One in four superannuation First State Super 277k dollars now supporting 1 REST 262k retirement MLC 254k • Super system starting to make a AMP 239k significant contribution to the lives Colonial First State 226k of Australian retirees 1. Based on APRA and ATO data. 2. APRA’s Annual Superannuation Bulletin June 2018 edition and Annual Fund-level Superannuation Statistics report June 2018. 6

Some context for retirement planning Post-retirement is big, and getting bigger • Average household wealth at retirement $350k 2 Portion of retirees reliant on age pension 1 (excluding family home) to $500k range 30% • Age pension subject to assets and income tests 42% 44% • 2.5m Australians receiving some age pension support 30% • Portion of retirees on full age pension expected to 27% 29% reduce from 42% to 30% over next 7 years Fully Fully self • However Fully self sufficient self sufficient 40% sufficient 31% • number of retirees receiving support increasing 27% 2010 2018 2025 • Government age pension cost increasing Actual Actual Forecast Full rate Government age pension • Super system increasingly supplementing or Part rate Government age pension No Government age pension substituting age pension 1. Average household wealth includes superannuation and non-superannuation assets and excludes the family home. 2. Source – 2010 and 2018 Actual: Australian Government Department of Social Services and Department of Veteran Affairs; 2025 Forecast: The Association of Superannuation Funds of Australia (ASFA) projection. 7

Some context for retirement planning The Government’s Retirement Income Framework Retirement Income Framework Boosting retirement income choices – new retirement product rules 1 July 2017 1. New means test rules – for lifetime products from 1 July 2019 2. Retirement Income Covenant – member retirement strategy by 1 July 2020 3. 1 – Superannuation funds required to offer CIPRs by 1 July 2022 4. CIPRs 1. Comprehensive Income Products for Retirement (CIPRs) – a feature of the Government’s new Retirement Income Framework. 8

Change and opportunity Retirement income planning considerations

Change and opportunity Retirement income planning considerations Now to 30 Other 2019/2020 June 2019 change 10

Retirement planning considerations Now to 30 June 2019

Retirement income planning considerations Now to 30 June 2019 • Maximising super contributions • Pre-1 July 2019 applications of lifetime income streams 12

Maximising super contributions The opportunity before 1 July 2019 Concessional super contributions • $25,000 annual cap • 10% rule no longer applies • Remember the paperwork • Remember other concessional contributions • Additional tax for higher income earners Non-concessional super contributions • $100,000 annual cap • Up to $300,000 bring-forward • TSB restrictions may apply Eligibility • Age limits apply • Gainful employment may be required Downsizing super contributions available since 1 July 2018 13

Pre-1 July 2019 applications of lifetime income streams Interaction between the assets and income tests Assumes all assets are financial investments and subject to deeming. Rates and thresholds current at 20 March 2019 14

Pre-1 July 2019 applications of lifetime income streams Social Security assessment of lifetime income streams purchased pre-1 July 2019 1 • Deduction amount reduces both assessable asset value and income • Consider pre-1 July 2019 Assets and Income test planning opportunities Assessed asset value Term elapsed 1 Lifetime annuity purchased on or after 20 September 2007 and before 1 July 2019 70-year old male, no reversionary benefit. Deduction amount is $6,532 ($100,000/15.31), based on Australian Life Tables 2010-12 15

Pre-1 July 2019 applications of lifetime income streams Last opportunity to access current means test assessment for Liquid Lifetime Annuity (Regular income option) - 15 year withdrawal period 65 year old female. Challenger Liquid Lifetime annuity, monthly payments, CPI indexation. Regular income option with maximum withdrawal guarantee 16

Retirement planning considerations 2019/2020

Retirement income planning considerations 2019/20 • Carry-forward super contributions • Super work test exemption • Expansion of the Pension Loans Scheme • Means testing of lifetime income streams • Means testing of certain life insurance benefits 18

Carry-forward super contributions Optimising pre-retirement contributions Since 1 July 2018 • Start to accrue unused CC cap amounts (based on rolling 5-year basis) From 1 July 2019 • Access previously accrued unused cc cap amounts if: • Total super balance 1 on 30 June of prior FY is less than $500,000 threshold (not indexed) • Used after current year’s cap is exhausted • Total super balance 1 assessed each year, opportunity to access unused amount may vary year to year 1. Total super balance includes accumulation phase balance, adjusted transfer balance account, balance of account-based income streams, rollovers in transit less structured settlements. 19

Super work test exemption Increased flexibility for super contributions • An exemption from the super work (gainful employment) test from 1 July 2019: • For individuals aged 65-74 • With a total super balance of less than $300,000 (prior 30 June) • For 12 months from the end of the financial year in which they last met the work test • Subject to existing concessional and non-concessional caps • Bring-forward provisions available • No prior contributions under this arrangement 20

Expansion of the Pension Loans Scheme Borrowing for additional income in retirement • From 1 July 2019 eligibility of the PLS extended to all Australians of Age Pension age • Under the PLS fortnightly payments are available to supplement income • Payments are drawn down from equity in a property and accumulate as a debt with interest • Current interest rate is 5.25% p.a. • Payments are non-taxable and generally not means tested • Repayments are generally made from eventual sale proceeds of the property • Increase maximum combined Age Pension and PLS to 150% (from 100%) of the Age Pension rate • The Government estimates around 6,000 eligible pensioners to take up a loan over the next four years 21