Prepare for three waves of change as the super reforms arrive

Smart practice

Monday 03 April 2017

Understanding what financial advisers need to do right now and in the long term

With the Government’s superannuation reform package locked in, most financial advisers are focused on the 30 June deadline. But according to HLB Mann Judd Wealth Management Partner, Michael Hutton, the ramifications of the new raft of super reform measures will ripple through the wealth management industry for years to come.

Although the provisions around super have changed, Michael Hutton says that super remains enormously important for people’s personal wealth management.

“The Government has retained many of the tax concessions. People still have a maximum tax rate of 15% on superannuation fund earnings. Payments from super remain tax free to recipients aged 60 and over. And the changes include the positive step that people will be able to top up their employer contribution to the maximum limit with a deductible personal contribution.”

As a result: “No matter how much the Government tinkers with the system, for the vast majority of Australians, super remains the best place for retirement funds to be invested.”

The conversation is not ‘what are the super reform measures’ but ‘what do they mean for you?

This is not to suggest that the super reform won’t affect wealth managers. Michael Hutton believes financial advisers and their clients will face three waves of change, requiring them to:


1. Optimise client positions before the fast-approaching 30 June 2017 deadline

“The first priority is to help your clients take advantage of any opportunities that will cease on 30 June 2017. Planning issues to consider include:

  • an opportunity for eligible individuals with available funds to make a one-off non-concessional contribution of up to $540,000 this current financial year, before the lower limits apply
  • individuals with pension account balances above $1.6 million need to roll the excess amount back into an accumulation account on 1 July 2017 – or out of super altogether
  • those with self-managed super funds (SMSFs) with pension accounts will need to review their assets and decide which assets will have their cost base reset to market value
  • transition to retirement pensions may no longer be worthwhile for some individuals as the tax exemption on the related associated earnings will be removed.”


He says education is key. “These days, our clients tend to be well informed about the big picture of financial changes because the media covers the top line. But when you sit down with people, you realise that individuals often don’t interpret the rules correctly for their own situation.”

“One of our goals is to keep it as simple as possible. The conversation is not ‘what are the super reform measures’ but ‘what do they mean for you?’ Everybody’s circumstances are different, so the individual permutations are endless.”

He says HLB Mann Judd required additional resources to execute this first phase.

“We put on an intern over the summer to coordinate the project for us. First, we identified all the clients we needed to talk to, segregated between wealth management, SMSF and general accounting tax clients. Next, we implemented a communications program, including emails and client seminars, which were very popular. Finally, we made sure the reform was on the agenda in a series of face-to-face client meetings.”


2. Change salary sacrifice arrangements from 1 July 2017

“Once we get beyond the 30 June deadline, people will have to get their heads around the new contribution limits. Typically, this takes a while to settle in. We’ll be checking in with clients during the next financial year to make sure they’ve reduced their contributions where needed or are using personal contributions appropriately.”


3. Revisit estate planning to reflect the new cap

“In the longer term, people who could have more than $1.6 million in super at the time of their death need to put their estate planning in order. They need to make provisions in their will to move any excess funds into an appropriate vehicle, like a testamentary trust. Otherwise, their grieving spouses will be left to rearrange their financial affairs at the worst possible time. This will mean people will require advisers to focus more on wills and non-super estate planning.”

For Michael Hutton, the changes ultimately offer new opportunities to deliver value to his clients.

“The super reform will slowly percolate away as an issue for our clients for years to come. Our job is to help them make the best and most informed decisions in light of the new rules.”

View our super reform adviser toolkit to access more insights and information regarding how the changes may affect Macquarie super products.

 

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Unless stated otherwise, this information has been prepared by Macquarie Bank Limited ABN 46 008 583 542 AFSL and Australian Credit Licence 237502 and does not take into account your client’s objectives, financial situation or needs. 

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