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Planning for Retirement
Willis Towers Watson, May 2016
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Planning for Retirement Willis Towers Watson, May 2016 Disclaimer - - PowerPoint PPT Presentation
Planning for Retirement Willis Towers Watson, May 2016 Disclaimer - - PowerPoint PPT Presentation
Planning for Retirement Willis Towers Watson, May 2016 Disclaimer The information in this presentation is general advice only. It is not personal advice. This presentation is not intended to and should not be taken as a recommendation of any
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Agenda
2016 Budget Update Superannuation contributions, benefits and tax Retirement income streams Centrelink’s Age Pension Investing in a low return environment Ceasing employment with Nissan Nissan Superannuation Plan Questions
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2016 Budget Update
The Government indicated the 2016 Budget aims to:
– Boost economic and job growth – Get the budget back on track to surplus – Ensure “modernised” and “sustainable” superannuation and taxation systems
The Budget proposals are not yet legislated The majority of proposals will require legislative amendments and therefore approval
from both houses of parliament
Upcoming Federal election may also impact which proposals are ultimately legislated
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2016 Budget Update – Superannuation Reforms
Proposed changes to superannuation contributions: Effective 7:30pm AEST 3 May 2016:
Non-concessional lifetime cap of $500,000
– Takes into account non-concessional contributions made after 1 July 2007
Effective 1 July 2017:
Concessional contribution cap reduced to $25,000 regardless of age Able to make additional concessional contributions where concessional contribution
cap has not been reached in previous five financial years
Individuals up to age 75 able to claim tax deduction for concessional contributions up
to the $25,000 cap, regardless of employment arrangement
Additional 15% tax to apply to concessional contributions for individuals with
assessable income (plus concessional contributions) in excess of $250,000 per annum (Division 293)
– Assessable income threshold for Division 293 currently $300,000
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2016 Budget Update – Superannuation Reforms
Proposed changes to superannuation pensions: Effective 1 July 2017:
The amount individuals can transfer to retirement phase accounts (pensions) capped
at $1.6 million
Tax exemption for earnings on assets supporting Transition to Retirement Pensions
will be removed and earnings will be taxed at a maximum of 15%
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2016 Budget Update – Other Measures
Effective 1 July 2016:
Upper limit for the middle income tax bracket of 32.5% will increase from $80,000 to
$87,000 per annum Effective 1 July 2017:
Low Income Superannuation Tax Offset (LISTO)
– Will reduce tax on superannuation contributions for individuals with taxable income less than $37,000 per annum – Refund of tax on concessional contributions up to cap of $500 per annum
Low income spouse contribution tax offset
– Income threshold to be increased from $10,800 to $37,000 per annum – Provides tax offset of 18% on after-tax contributions of up to $3,000 made by the contributing spouse (maximum offset of $540 per annum)
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Superannuation Contributions
2015/16 and 2016/17 Concessional Contribution Cap
─ < 50 years $30,000 ─ > 50 years $35,000
2017/18 Concessional Contribution Cap
─ $25,000 regardless of age
Employer Contributions (accumulation members), Notional Taxed Contributions
(defined benefit members) and Voluntary Salary Sacrifice contributions count towards the concessional cap
Excess contributions taxed at your marginal rate plus relevant levies and ATO
interest (less 15% tax already paid by the super fund)
Up to 85% of excess contributions may be withdrawn from super You may use superannuation to pay the excess tax assessment Excess contributions not withdrawn count towards non-concessional cap Classified as taxable component
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Superannuation Contributions
The Superannuation Guarantee (SG) rate will remain at 9.5% until 30 June 2021 and
then increase by 0.5% each year until it reaches 12% from 1 July 2025
Depending on your employer contribution rate or NTC you may have the capacity to
make additional voluntary contributions
For example, if your 2015/16 employer contribution/NTC is $8,550 per annum and:
– You are < 50 years, capacity to salary sacrifice $21,450 per annum – You are > 50 years, capacity to salary sacrifice $26,450 per annum
Effective Date SG % Prior to 30 June 2021 9.5% 1 July 2021 10.0% 1 July 2022 10.5% 1 July 2023 11.0% 1 July 2024 11.5% 1 July 2025 12.0%
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Superannuation Contributions
Notional Taxed Contribution (defined benefit members only)
For members of a defined benefit fund like the Nissan Superannuation Plan, the
Plan’s actuary is required to report a Notional Taxed Contribution to the Australian Tax Office
The notional amount counts towards the concessional contribution cap, rather than
the company’s actual contributions
Any pre-tax compulsory contributions are included in notional amount If you require more information on your Notional Taxed Contribution, please contact
Marcus Wappet
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Superannuation Contributions
Non-concessional Contributions
$500,000 non-concessional lifetime cap
– Includes contributions made on or after 1 July 2007 – Commenced 7:30pm AEST on 3 May 2016 (if legislated)
Invested in accumulation account in accordance with your selected investment
strategy
Excess contributions may be withdrawn, earnings taxed Excess non-concessional contributions that are not withdrawn are taxed at the top
marginal rate, plus applicable levies
Classified as tax-free component
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Superannuation Tax (2015/16 and 2016/17)
Accumulation Phase Income A maximum of 15%, which can be reduced by deductions and other offsets such as imputation credits Capital gains 15% for asset held less than 12 months 10% for asset held more than 12 months Pension Phase Income Zero Capital gains Lump Sum Withdrawals < preservation age Tax-free Tax-free Taxable 20% plus relevant levies Preservation age to age 60 Tax-free Tax-free Taxable First $195,000 tax-free, remainder taxed at 15% plus relevant levies > 60 years Tax-free Tax-free Taxable Pensions Preservation age to age 60 Tax-free Tax-free Taxable Marginal tax rate less 15% rebate plus relevant levies > 60 years Tax-free Tax-free Taxable
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Superannuation Preservation
Preserved benefits cannot be accessed until a condition of release is met:
– Leave employment after age 60 – Attain age 65 – Leave employment after preservation age with the intention of permanently retiring – Death, Permanent Incapacity or Terminal Medical Condition – Other approved circumstances (e.g. severe financial hardship or compassionate grounds)
Born Preservation age Before 1 July 1960 55 Between 1/7/60 and 30/6/61 56 Between 1/7/61 and 30/6/62 57 Between 1/7/62 and 30/6/63 58 Between 1/7/63 and 30/6/64 59 After 1/7/64 60
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Account-Based Pensions
From 1 July 2017, maximum benefit transfer cap of $1.6 million (if legislated) Taxable and tax-free components are fixed when pension commences No maximum limit on annual pension payments (except Transition to Retirement
Pensions – 10%)
Minimum pension requirements calculated when pension commenced and 1 July
each year:
Age MinimumAnnual Pension Under 65 years 4% 65 – 74 years 5% 75 – 79 years 6% 80 – 84 years 7% 85 – 89 years 9% 90 – 94 years 11% Over 95 years 14%
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Transition to Retirement Pensions
Ability to access superannuation prior to full retirement Pension is non-commutable whilst working Minimum pension based on age/pension factors Maximum pension of 10% of July 1 account balance each year Available for accumulation members of Nissan Superannuation Plan, but not defined
benefit members (unless you elect to convert to accumulation)
Taxed as follows: Investment Returns Current From 1 July 2017 (Proposed) Income Zero maximum of 15% Capital gains 15% for asset held less than 12 months 10% for asset held more than 12 months Pensions Preservation age to age 60 Tax-free Tax-free Taxable Marginal tax rate less 15% rebate plus relevant levies > 60 years Tax-free Tax-free Taxable
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Centrelink Age Pension
Eligibility
Men and women born before 1 July 1952 are eligible at 65 For people born after 1 July 1952:
Men and women born between Eligible for age pension at 1 July 1952 and 31 December 1953 65.5 years 1 January 1954 and 30 June 1955 66 years 1 July 1955 and 31 December 1956 66.5 years After 31 December 1956 67 years
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Centrelink Age Pension
Current Legislation – as at 20 March 2016
* Inclusive of Pension and Clean Energy Supplements Excludes family home and superannuation assets prior to eligibility Income Test excludes up to $250 of employment income per fortnight ($6,500 per
annum). Unused exemption is accumulated throughout financial year.
Above the lower threshold, pension entitlement reduces:
– Asset Test: $1.50 per fortnight per $1,000 of assessable assets – Income Test: $0.50 per fortnight for a single and $0.25 for each member of a couple, for each $1.00 of assessable income Homeowners Lower Threshold Upper Threshold Maximum Pension Single Asset Test $205,500 $788,250 $22,721.40* Income Test (pa) $4,212 $49,655 Couple Asset Test $291,500 $1,170,000 $34,252.40* Income Test (pa) $7,488 $75,993
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Centrelink Age Pension
The Income Test currently applies a deeming rate to all financial assets regardless of
actual income derived:
Deeming applies to Account-Based pensions:
– Of eligible individuals not entitled to an age pension at 1 January 2015 – Where the Account-Based pension commenced on or after 1 January 2015 Status Threshold Deeming Rate Single Up to $48,600 1.75% Over $48,600 3.25% Couple Up to $80,600 1.75% Over $80,600 3.25%
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Centrelink Age Pension
From 1 January 2017:
Increase of the lower asset test threshold for homeowners and non-homeowners Increase of the asset test taper rate from $1.50 per fortnight to $3.00 per fortnight per
$1,000 of assets over the lower asset test threshold, resulting in a reduction in the upper asset test threshold for homeowners and non-homeowners
Individuals who lose their entitlement due to the Asset Test changes will retain the
Commonwealth Seniors Health Card
Lower Threshold Upper Threshold Current Proposed Current Proposed Single Homeowner $205,500 $250,000 $788,250 $547,000 Non-homeowner $354,500 $450,000 $937,250 $747,000 Couple Homeowner $291,500 $375,000 $1,170,000 $823,000 Non-homeowner $440,500 $575,000 $1,319,000 $1,023,000
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Investment Options
The Nissan Superannuation Plan offers three investment options to accumulation,
defined benefit (additional accumulation benefit only) and retained benefit members:
– Growth: 75% growth assets / 25% income assets – Balanced 50/50: 50% growth assets / 50% income assets – Cash: 100% income assets
From 1 March 2016 members are able to split their eligible accounts across the three
investment options
Whilst assets supporting defined benefits are invested in the Balanced 50/50 option,
defined benefit members may exercise Member Investment Choice for additional voluntary and rollover benefits
Your investment choice can be changed monthly (subject to buy/sell spreads) by
completing the Changing Your Investment Choice Form
Completed forms must be received by the Plan’s administrator at least five working
days before the end of the month, with investment switches effective at the beginning
- f the following month
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Investment Options
The following piecharts detail the target asset allocation for each option:
Balanced 50/50 Cash
Growth
Asset Class Growth Balanced 50/50 Cash Australian shares 28% to 42% 16% to 30% 0% International shares (hedged) 10.5% to 24.5% 5% to 19% International shares (unhedged) 10.5% to 24.5% 5% to 19% Global listed property 3% to 7% 0% to 10% Australian fixed interest 8% to 12% 13% to 27% International fixed interest 8% to 12% 13% to 27% Cash 3% to 7% 3% to 17% 100%
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Investment Performance
* SuperRatings SR50 Balanced (60-76) Index median return. Source: SuperRatings Pty Ltd’s Survey published
- n 19 April 2016, www.superratings.com.au. This is not financial product advice, independent professional
advice must be obtained before making any financial decisions.
Period ending 31 March Growth Balanced 50/50 Cash 2016
- 4.12%
- 2.09%
1.72% 2015 16.14% 13.38% 2.20% 2014 12.17% 8.98% 2.26% 5 year average return (pa) 7.96% N/A N/A Peer fund median* 7.19% N/A N/A
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Investing in a Low Return Environment
Outlook is for muted economic growth and inflation supported by low interest rates Cash rates set the risk free rate of return and therefore are a major driver of
expected returns over the medium to long term
With low cash rates predicted, medium term returns are likely to around 1.5% to
2.0% pa lower than the long-term (normative) average
Investors may need to:
– Review their investment strategy – Reduce their investment return expectations – Consider whether to reallocate away from low yielding asset classes – Consider whether to take on more risk in order to achieve return objectives – Review their lifestyle objectives / expenditure
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Investing in a Low Return Environment
Risk- free rate Risk premium
Impact of market being wrong
Asset return
Risk-free rate is the rate of real return that can be generated by investing in risk-free assets - assumed to be the cash rate
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Investing in a Low Return Environment
Risk- free rate Risk premium
Impact of market being wrong
Asset return
Risk premium is the return in excess of the risk-free rate that is expected given the risks associated with the asset
Cash Fixed Interest / Bonds Property Australian Shares International Shares
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Investing in a Low Return Environment
Risk- free rate Risk premium
Impact of market being wrong
Asset return
Potential for assets to be overvalued/undervalued by the market due to incorrect or overstated expectations of future economic conditions
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Australian Share Market
Bear Markets since 1900 Months % fall Months after low to make new high 12 month % gain from low Average since 1900 18
- 33
37 +29 Average since 1950 14
- 33
36 +30 April 2015 - ? 12?
- 20?
? ?
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Things to consider when ceasing employment with Nissan
If your superannuation benefit is > $10,000 you can:
– Leave it invested in the Nissan Superannuation Plan’s Retained Benefit Division – Transfer benefit to another complying superannuation fund
If your superannuation benefit < $10,000 you have 90 days to nominate another
complying superannuation fund, otherwise your benefit will be automatically transferred to the Plan’s nominated Eligible Rollover Fund (currently AMP Eligible Rollover Fund)
Defined benefit (if applicable) will be converted to accumulation benefit on cessation
- f employment and invested in the Balanced 50/50 option – may need to review your
investment choice if leaving benefit in the Retained Benefit Division
Depending on your age, you may be eligible to continue your insurance cover via a
personal policy without medical underwriting:
– < 50 years: can apply to continue your Death and Total & Permanent Disability Cover – > 50 years: can apply to continue your Death Cover – > 65 years: not eligible to continue your insurance
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Estate Planning
A regular review of your Estate Planning arrangements ensures assets are
transferred appropriately and tax effectively upon death
– Will – Enduring Power of Attorney – Medical Power of Attorney – Superannuation death benefit nomination Estate Assets Non-estate Assets Owned individually Jointly owned property Superannuation and Pensions Owned as tenants in common Life Insurance Assets owned by trusts and companies
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Your Action Plan
Have you…
Reviewed your capacity to make voluntary superannuation contributions? Assessed the appropriateness of your current investment choice? Reviewed whether you have sufficient personal insurance? Got a valid superannuation death benefit nomination? Is it binding? Got a current Will and Power of Attorney?
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