In our last CPE article we talked about the recent changes the government has made to the previously proposed non-concessional contribution life-time cap of $500,000.  To re-cap, the Government has back tracked on this proposal and has instead changed it to an annual cap of $100,000, with the ability to bring-forward 3 years’ worth of contributions from 1 July 2017. Your super balance must also be below $1.6 million to be able to make the contributions.

Since then the government has provided further direction on how the proposed bring forward rule and the $1.6 million cap will work.

Under current rules you can make a total of $180,000 in one year or $540,000 if you bring-forward 3 years’ worth of contributions. If you as an individual have triggered the bring-forward rule in FY16 and FY17, but you have not used it fully by 30 June 2017, transitional rules will apply.

If you trigger the bring-forward provisions in FY17, the transitional cap will be $380,000 (which is the current $180,000 cap plus the new $100,000 annual cap for FY18 and FY19). If you triggered the bring-forward rule in FY16, the transitional cap is $460,000 (current annual cap of $180,000 for FY16 and FY17, plus the $100,000 for FY18).

The below table provides an example of how this may work in specific situations, with example one and two outlining how the $380,000 bring-forward cap may work, and example three highlighting how the $460,000 cap works with the example contributions:

In relation to the $1.6 million eligibility threshold, you are unable to make further non-concessional contributions if your super account is above $1.6 million.  Your balance will be determined as at the 30th of June in the previous financial year.  If your balance is close to $1.6 million, you can only make a contribution or use the bring-forward rule to bring your balance up to $1.6 million without going over, this is summarised below.

As always these measures are not yet legislated and therefore could change yet again.  The draft legislation is expected in the next few weeks.

If you have made any non-concessional contributions in the previous three financial years and are concerned how this may affect you and your future contributions, feel free to contact any of the team here at JBS.

Last week, the Government made further announcements in relation to proposed changes to the superannuation system. From Budget night, we had a list of changes that they sort to bring in, however, after industry and community consultation, the Government have made changes to these proposed changes….confused yet?

Ok, well some of the main changes include:

–  The $500,000 lifetime cap on Non-Concessional (NCC) (after tax) Contributions has effectively been scrapped.

–  The $100,000 annual cap replaces the existing $180,000 annual cap for Non-Concessional (after tax) Contributions from 1 July 2017

–  The bring forward rules still apply, so an individual under age 65 can contribute up to $300,000 over a 3-year period

–  The current work test rules still apply for those over 65. This means they cannot contribute, unless working at least 40 hours in a 30 consecutive day period. The removal of the work test proposal has been scrapped until future notice

–  It is expected that the current $180,000 NCC cap still applies until 30 June 2017, meaning that you can trigger a bring forward provision in the current financial year and be able to contribute a maximum of $540,000 over the three (3) financial year period

–  From 1 July 2017, those with a superannuation balance of more than $1.6 million will not be able to make non-concessional (after tax) contributions to their super

–  The 5 year catch-up concessional contribution proposal, that would see those with a balance less than $500,000 able to access their unused concessional contribution cap to make additional before tax contributions to super, has been delayed until 1 July 2018.

The ultimate aim of the Government’s changes are two fold; (1) to avoid superannuation being used as an estate planning vehicle where people are saving their wealth in a tax free environment to pass to children rather than for retirement funding, and (2) to strengthen the idea of superannuation being a mechanism to provide an income in retirement, which includes supplementing the Age Pension.

We must note again, however, these proposals are not legislation and therefore could again change before they are enshrined into our super system, however it can assist us to forward plan your contributions and superannuation options better by providing a strong indication of what the Government is wanting to achieve.

If you are considering any large contributions to super or would like to discuss your personal situation and what these changes could mean for you, please contact us here at JBS.

Are you coming up to retirement? During the December 2015 quarter, the Association of Superannuation Funds of Australia (ASFA) issued new figures, which showed an increase in the costs of retirement. The average cost of retirement for people retiring at age 65 is approximately $59,236 per annum for couples and $43,184 for singles for a ‘comfortable standard of living’, both up 0.5% from the previous quarter.

So then the question is raised, how much money do you need when you retire? It seems to be the age old question. Based on the figures released by ASFA, an average single retiree would require approximately $545,000 in super benefits in order to fund their retirement and couples would require around $645,000. But what do all these numbers mean to you and your retirement? Well, really all these numbers are just that, ‘numbers’. It’s important to understand that a comfortable lifestyle for one person may not be the same for the next.  Some retirees may require $100,000 per annum to live comfortably and others may only require $30,000.  One thing that is certain however is thecost of living will go up in the future and more importantly you will have to prepare for it.

Instead of worrying about the large sums of money required to retire on, it’s more important to have an understanding of the level of income you require once you’ve retired and work out from there how much you require in order to retire comfortably, taking into account your assets and other entitlements such as the Age Pension. A good starting point to determining how much you’ll need is to take into account your current living expenses. A common mistake here is most people will use the “off the top of my head” figures to determine expected living expenses. The issue with that is, often we under and over estimate expenses, which leads to very misleading results.

At JBS, we use technology to assist us to determine the exact expenses of our clients. This results in both efficiency as clients’ spend less time having to deal with their budgets and at the same time we attain very accurate information on our client’s actual living expenses. Once you’ve determined your living expenses, the next step is to review whether certain expenditures you’re paying today will still be payable once you’ve retired. Often these expenditures include your mortgage repayments, which we all want repaid as soon as possible, and work related expenses, such as commuting costs. Once retired, there’ll be of course no need to pay the tax man for income generated from employment and savings you’ve been putting away each month for retirement will also cease. It’s important that we capture all these points in order to get an accurate figure of your expected retirement expenses.

Take this example for instance.  Say you’re a 45 year old male, you’ve done your sums and calculated you’ll require $40,000 per annum in retirement. How do you then determine the following?

–   How much do you require to put into super each year to meet your retirement goals?
–   Will your super benefits be enough to fund your retirement expenses until your life expectancy?

–   When is your life expectancy?

–   How often should you review your retirement benefits to ensure you’re on track to meeting your goals?

From what you’ve read so far, we’d imagine you’re beginning to understand the complexity in determining how much you require to retire on.  The main point we wish to highlight is that you need to take time and be realistic with your budgeted retirement expenses. Know what your money goes on now (before your retire) so you can determine if you will spend the same in retirement. Doing all this yourself can become very complex and seeking professional advice is the best way to get an accurate estimate.  Having a professional on your side means there’s someone there to assist you in achieving your retirement goals by implementing different strategies to suit your needs. And more than anything, you don’t have to worry about your retirement as you’ve outsourced that!

The retention of key documents is an important requirement for the trustees of self-managed super funds. In this day and age, technological advances have seen the ATO update their record-keeping requirements to allow for electronic storage.

What do trustees need to know about record-keeping?
The ATO, on its website, emphasises that it is the responsibility of the trustees to maintain records of documents in such a way that they are accurate and easy to access. This includes all tax documents and records of the super fund, especially minutes of all investment decisions ensuring that all trustees have acknowledged the decision and the reasons of the choice of investment are noted. This specifically ensures that any disputes between trustees over failed investments within the fund, should not occur since trustees cannot claim they were not involved.

What are the benefits of storing SMSF records electronically?
The ATO’s decision to allow the electronic storage of documents was primarily as a way to minimise the cost of running an SMSF, since it can potentially reduce the costs of maintaining the collection of records. Additionally, a well organised collection may help reduce the cost of any audits required.

What are the negatives of storing SMSF records electronically?
There is a need to ensure that all documents stored electronically can be easily verified for authenticity and are easily accessible. In particular, unknown authenticity of documents held digitally may result in issues when lodging documents with the ATO. Keeping a copy of key documents without the originals may result in difficult questions regarding whether the original was destroyed for the reason other than to simply reduce paperwork. For this reason trustees should strongly consider whether to keep original copies of important documents. The loss of a trust deed, or the existence of one with questionable accuracy, for example, has potentially major implications in case of disputes between trustees, often requiring court decisions for solutions to be achieved.

For how long do documents need to be kept by trustees?
The ATO specifies the need to maintain various documents for various lengths of time.  Should any of these documents not be available within the time period then a penalty must be paid based on penalty points.

Records required to be held for at least five years:

–  Accounting records with the transactions and financial position of the SMSF (If not held, 10 penalty units must be paid)
–  Annual operating statement and an annual statement of the SMSF’s financial position (10 penalty units)
–  Copies of all SMSF annual returns
–  Copies of other statements required to be lodged with the ATO or provided to other super funds

Records required to be held for at least ten years:

–  Minutes of trustee meetings and decisions (10 penalty units)
–  Changes of trustees (10 penalty units)
–  Trustee declarations acknowledging the obligations and responsibilities for any trustee, or director of a corporate trustee, appointed after 30 June 2007 (10 penalty units)
–  Members’ written consent to be appointed as trustees
–  Copies of all reports given to members (10 penalty units)
–  Documented decisions about storage of collectables and personal-use assets

Ultimately the responsibility of retaining key SMSF records falls onto the trustees.  Should any doubts be predicted to exist over the authenticity of a document then care must be taken if making the decision to store SMSF records electronically.

If you’re receiving full service SMSF administration from JBS, you’ll be happy to note that we do all the recording of documents for you electronically, however we still keep a copy of the original documentation of key documents such as trust deeds, pension documentation and binding death benefit nominations. This allows easy access to documents for members, trustees, auditors, and the ATO. If you are running your own SMSF, make sure you adhere to all document storage requirements or alternatively, contact JBS to discuss how we can help.

Some of you may have seen my ‘Why’ video and know that part of why I chose to do what I do is the fact that I like puzzles.  For those who haven’t seen my video, I see financial planning as a puzzle, you build a relationship with your client and to get to know the different pieces of the puzzle in their life.  Then it’s my job to put those pieces together to help them achieve their goals.  But you may ask, what keeps me going? Surely I’d get sick of doing puzzles all the time.  Well to me the answer is simple, what keeps me going is being in it for the client…

Sure there have been and unfortunately probably still are, some bad eggs in the industry (like most professions), financial planners who are only in it for their own self-reward.  For me and I’d say a majority of others in the industry, it’s not about what I get out of it but what you as the client gets out of it.

The best reward for me in my role is seeing the joy on the faces of clients and the sense of calm that comes over them when they know they have someone on their side.  Someone who’s looking after them and helping guide them on their financial journey.  Whether it’s to help them towards having a comfortable retirement, buying their first home or simply steering them in the right direction.

That joy and calm is what keeps me going, putting the puzzles together is just an added bonus.  The best part of my day is when I can reflect on it and know that I’m helping my clients, that I’ve put a smile on their faces and they have the knowledge that they’ve always got someone there who will help them out and put them back on track.

If you’re approaching retirement or looking to undertake a Transition to Retirement Pension you may want to consider whether to have a reversionary or non-reversionary pension.

A non-reversionary pension is an income stream paid to a superannuation member that ceases upon the member’s death.  Upon the member’s death, their benefits will need to be paid out of their super either as a lump sum or income stream. Under the super laws, the deceased’s superannuation can’t remain in their super account and must be paid out as soon as practicable.

With a reversionary pension, upon the member’s death, the pension will continue to be paid to a nominated reversionary beneficiary (e.g. spouse). In this case the pension does not stop upon the death of the deceased member, but continues to be paid to the reversionary pensioner. The only thing that changes with the pension is that when the pension is paid in the financial year following the member’s death, the minimum pension payment requirement is based on using the reversionary pensioner’s age.

For members of a self -managed super fund (SMSF), you need to make sure that your SMSF Trust Deed allows for a reversionary pension to be put in place and you must follow the procedures outlined in the Trust Deed to be able to access the pension.

You also need to have the relevant documentation completed to indicate your nomination at the commencement of the pension. This is required by all superannuation funds, including SMSFs that must satisfy their auditor and the ATO. For an industry, retail or other super fund, it will be their standard pension application forms with the reversionary beneficiary nominated. For an SMSF, the documents required are things such as the notification to your SMSF that you’ve commenced a pension, trustee minutes documenting the decision, and a pension agreement.

You need to take into consideration that you can’t nominate just anyone to be a reversionary pensioner.  The reason for this is that under the Income tax law, only certain people are eligible to be paid a pension. These allowable reversionary beneficiaries include a spouse, a child under 18, a child between 18 to 24 who is financially dependent, or a child over the age of 24 with a disability can be nominated.  With reversionary pensions you can only nominate one beneficiary.

A reversionary pension has many benefits such as ensuring your super benefits stay within the tax-free pension environment and most importantly an income continues to your surviving beneficiary to help them support their lifestyle.  However, a main disadvantage in receiving a reversionary pension is that in situations where a member divorces or separates from the reversionary beneficiary, the member will need to stop the pension and begin a new one and nominate a new reversionary beneficiary, which could come at a cost.

If the reversionary beneficiary decides that a pension is not the most appropriate strategy for them, dependent on the rules of the fund, they can choose to take the funds as a lump sum and pay the tax accordingly.

Feel free to contact the team at JBS to discuss your options with Reversionary or Non-Reversionary Pensions.

Bring on 2016 – the JBS team have all enjoyed some time off and are now ready to kick start the year.

For many of us, the start of a new year allows us a fresh start, a new beginning or a clean slate. This time of year also presents a great opportunity for you to review your financial strategies and goals.

Financial reviews should take place regularly when you have the opportunity to make informed decisions and factor any changes into your financial plan. Below are some simple tips to tidy up your finances for the year ahead.

Have your key financial goals changed?
Our lives are not constant and our goals change slightly (or greatly) from year to year. Also, major life events such as serious illness, the birth of a child, inheritance, marriage and the death of a parent or spouse can all result in significant changes to our wealth management goals.

Prioritise your goals
It is important to rank and prioritise goals and decide in what timeframe you want to achieve them. Being realistic about your timeframe is essential to ensuring that your goals will be achieved.

Short, medium or long term?
Most industry experts agree that a short-term goal is one that can be achieved within a year or so. Medium term goals typically require two to five years, and long-term goals usually take longer than five years.

If your financial goals have changed, how will this affect your financial strategy?
This is where the advice of a financial adviser is critical. Advisers have the tools and knowledge to create projections that take into account changes to your goals and changes to your timeframes for achieving them. These projections will help you to see where your plans for savings, assets or investment contributions may need updating.

Be savvy
Make sure that your investments and level of protection support your level of risk and your goals.

Be sure to contact the JBS team if any of your circumstances have changed to ensure you are on track to reach your financial goals.

JBS would like to wish you a fabulous year ahead and hope that you are sticking to all those resolutions and goals you have set yourself for 2016.

No matter where you are on your financial journey, you need to know that it’s possible for anyone to turn their financial life around. As with most things, sometimes that very first step is the hardest part. We have created a list of tips to start saving money today.

None of these tactics will be life-changing on their own, but they can make a difference over time if you are able to implement more than one. Some of these suggestions take just a few minutes, while others require a bit of regular effort. Still, they’re all incredibly simple – anyone can do them.

So here we go with our money saving ideas:

 
– Have a save buddy. Saving while hanging out with spenders can mean your money goes on impulsive or unnecessary items

 
– Review your bank accounts. Are you paying fees? Are there cheaper offerings? Are you restricted on what you can do with your money?

 
– Master the 30-day rule, waiting 30 days to decide on a purchase can give you better perspective on whether it’s truly worth the money, often the urge to buy the item has passed

 
– Write a shopping list before you go shopping to avoid impulse buying

 
– Lock up your credit card for a month and only pay for things with cash

 
– Set a limit for birthday and Christmas presents and don’t go over

 
– Buy in bulk

 
– Have a portion of your salary paid directly into your separate savings account

 
– Set a savings goal

 
– Pay your bills on time to avoid late fees

 
– Shop around for necessities such as car insurance, house and contents insurance, gas, electricity, phone, etc.

 
– Unsubscribe from sale email alerts. This is just constant temptation

 
– Stop buying bottled water! Buy a water filter instead if you can’t drink tap water

 
– Only purchase classic clothing that you can wear again. If you know you’ll only wear it once or twice, consider borrowing from someone rather than buying that sequent and lace floor length ball gown

 
– Empty your pockets and wallets of coins at the end of each day into a jar. But make sure to deposit into your savings account and not dive into because you want a coffee

 
– Double down. If you do have to buy luxury items, like makeup, wine or clothes, try saving the same amount. $15 on that gorgeous red lippy you had to have might not seem so great when it comes with another $15 savings requirement. If you can’t afford both, then you have to step away.

If you struggle to manage your money and wonder where your savings disappear to each month, fear not! Our comprehensive program will put you back into the driving seat, using high impact track and reporting technology teamed with expert advice. We’ll help you get your finances on track, so you can achieve your goals, plan for the future and say hello to a happier, healthier life where YOU are in control.

Cash Coach is a program run by JBS Financial Strategists. We believe that the biggest influence on achieving your goals is how you use your cash flow, so we start from there and help you develop great money management skills. Our aim is for you to consistently have money left over at the end of the month, so you can direct it towards the stuff that really counts!

If you’re not sure where to start – contact the team at JBS and we can run through a financial health check with you. This is a great way to understand your financial position and the team can identify any trouble areas, offer possible solutions and could also find growth areas you may not have considered.

Happy Saving 🙂

Life insurance is an effective way to protect your family against financial hardship if the unthinkable event happened and you pass away prematurely. Unlike other forms of insurance, such as income protection or critical illness insurance, life insurance can be put in place relatively easily depending on your health status and age.

Having appropriate life insurance policy in place, will mean your beneficiaries receive a lump sum payment to fund for everyday expenses, such as mortgage / rent, bills, childcare costs and kids’ education. The thought of losing our partner is unbearable, which makes the topic of implementing life insurance one we prefer to avoid however is necessary. Most Aussie families would find it difficult and almost impossible to meet daily living expenses should the main income earner pass away. This often leads to families having to move back in with relatives, increasing debt levels and even losing the family home.

Latest studies on the underinsurance issue of Australian families suggest the average household should have at least $680,000 of life insurance in place. This is because it takes into account not only debt and possibly medical costs but also lost income, even for the surviving spouse as the likelihood that you would need to take additional time on top of the obligatory 2 days bereavement leave is very high. In reality however the average household has less than half the required cover or even no insurance at all. Most Aussies believe that they have automatic insurance inside their Super Fund and this is sufficient enough. Furthermore hurdles such as having a perception of life insurance being expensive or time consuming to implement, further deters us from implementing life insurance covers.

Depending on your health and age, Life insurance is one of the most simple and cost effective types of personal insurance to put in place. It’s understandable that most of us would prefer to avoid the topic, however you do so at the risk of leaving your families without financial protection in the future. There are lots of options out there for setting up insurance; inside superannuation, through your bank, online or over the phone cover or insurance through an adviser. Any options outside seeing an adviser means that you have to determine the levels of cover and structure yourself, which is usually the part with the greatest benefit. Knowing how to calculate the level of cover required, including additional amounts if held through super and is ongoing to be paid to a non-tax beneficiary to cover tax, or making sure it’s structured right to pay the least amount of tax or even gain a tax deduction, is very important and shouldn’t be overlooked. This is more important than the product that you choose to take up.

So, before you go out and purchase life insurance, we strongly recommend you speak to an expert. Everyone has different needs for personal insurance and therefore it’s important to visit a financial adviser, like your friendly JBS team member, to discuss your own personal situation.

One of the major concerns for people when they retire is, ‘how long will my savings last in order to support my lifestyle of choice’? This is what we often refer to as ‘Longevity Risk’, or the risk of outliving our money.

We are advised of the importance of putting money away into savings or superannuation to ensure that we are able to enjoy our retirement. However there is another perspective to consider – your health.

We need to take one step back and remember our health in retirement is just as important as our wealth. In the same way that we are diligent about saving for retirement while we are working, we need to also focus on our health during our working life.

A person’s health experiences later in life can be affected by their behaviours during their younger years.

So, you may ask ‘what is the health experience that could reduce longevity risk’? It could have something to do with our growing waist-lines:

More than five million Australians are obese;

– If weight gain continues at current levels, by 2025, close to 80% of all Australian adults and a third of all children will be overweight or obese;

– Obesity has overtaken smoking as the leading cause of premature death and illness in Australia;

– Obesity has become the single biggest threat to public health in Australia;

– On the basis of present trends, by the time our kids reach the age of 20 they will have a shorter life expectancy than earlier generations simply because of obesity.

Dr. Joanna McMillan a leading nutrition and healthy lifestyle expert was recently speaking about the obesity epidemic and emphasised the need and importance of a balanced diet and the dangers of a sedentary life.

Inactivity is the second silent killer which can contribute to a person’s shortened life expectancy. Evidence is emerging that sedentary behaviour, such as sitting or lying down for long periods of time is not good for your health. Technology has made our lives easier, but also made us lazy. There are fewer of us doing manual work, many of us have jobs which involve very little physical effort. As a general guide, we should be looking to achieve 150 minutes of moderate intense physical activity in a week.

Tips for a healthy and happy retirement:

– Maintain a balanced diet, including vegetables and legumes, fruit, bread, cereals, rice, pasta and noodles, lean meat, fish, poultry, eggs, nuts and tofu, milk, yoghurt and cheese;

– Try to limit fizzy drinks, alcohol, chocolate, chips and fatty fast foods;

– Stay active – try to get 30 minutes of physical activity every day;

– Get involved with a social group or sports club, this can have many benefits – meeting new people, learning a new skill and overall keeping your mind and body active.

Whilst a planner can assist you with building a sufficient amount of assets to fund your retirement, your health is about you.   You are the one who has most control over a healthy lifestyle.  So get out there, get active, and enjoy life to the fullest, for the longest amount of time possible.  That’s what retirement is all about!