Like you, we were expecting some tinkering with super in the Federal budget. But we didn’t quite get what we expected!
Whether it’s Labor or Liberal in power after July 2, I think it’s safe to say that the super party has just come to an abrupt halt.
When RBLs were abolished in 2007, it seemed as through the super party was going to go on forever. The combination of generous pre and post tax concessions, a very nifty transition-to-retirement option and absolutely no limit on the size of an individual’s balance in super meant that super was without a doubt the best place to be pouring in as much money as possible.
Unfortunately though, the outcome of all this is that the top 20% of income earners have been getting 80% of the tax benefit, and that’s just too skewed. When I first realised just how skewed (and only at the CSRI conference last year I’m sorry to say!) I was a bit horrified.
Like most of the industry, I had been going on my merry way, promoting superannuation to anyone who would listen, and I really hadn’t stopped to think about which consumers are getting the benefits from all this. It’s no wonder that deeper thinkers were well ahead of me and could see that super had gone from being a way to save for a decent income in retirement, to a way for people who already had substantial wealth to get even further ahead.
So, here we are. Super is going to be brought back to where it should be (possibly a step too far with the $1.6m limit but you can read my thoughts on that here) and for us in the wealth management industry, it’s time to broaden our horizons and think more holistically.
It’s always been known (although frequently forgotten!) that the average SMSF has the same level of investible assets outside their super as inside. And now, that split is probably going to become even more towards ‘outside super’. Although, 15% tax on assets over $1.6m in drawdown is still a good outcome if your total income is on the high side.
Quality financial advisers have always taken a ‘whole of wealth’ approach to retirement planning, and now the rest of us have to get with the program. And by rest of us, I mean super providers, investment managers, advice givers, accountants and technology companies.
So, what are we going to have to do differently? Here’s a few ideas:
- Super companies might want to report on total ‘expected’ income in retirement including the aged pension for some clients and/or non-super savings for wealthier clients. Yes, I know that’s tricky! But we’re all smart people right?
- Accountants with limited licenses are going to need to look at their client base and see if that’s really going to be a workable solution going forward. If they have wealthy clients, then a full license is probably going to be required so they can advise on the client’s total position. And I think clients will be keen on this anyway.
- Advice givers will need to stop talking super and start talking retirement (noting that lots do already). For once, I think advisers are going to be the least affected by the changes! They will have lots of clients wanting to talk to them, and help them through, but that’s a benefit not a cost.
- Investment managers will need to think more broadly than just super. And this is going to be difficult. Super is just easy. It’s a ready-made market. But again, there are lots of very smart people in investment management, so this could be seen as an opportunity to differentiate and stand out.
- And tech providers, robo-advisers, platform back ends, etc are going to need to stop thinking super OR investment. And start thinking in terms of a global view. What is the overall asset allocation for this client? What does the retirement income look like? How can we assist big super funds to move through this change?
So in all, it’s time to pack away the party hats and champagne, and time to do some deep thinking. What does the future look like? And how are we going to play our parts in it?
Personally, I’m excited about these changes. Super was getting a bit boring and, as they say, with change comes opportunity.
Bring on the next 10 years!
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