Legislation has been drafted to increase the Superannuation Guarantee (compulsory employer contributions) from 9% to 12% of an employee’s earnings.

If passed, the legislation plans a gradual increase in the SG rates  from 2013.  The Federal Government has also proposed increasing the upper age threshold of compulsory SG contributions (currently 70) so that super will be payable for older workers who choose to continue working.

For many Australians, this increase will be a welcome increase in their super savings. Related research by the ASFA in August 2011 shows the increase SG will positively impact real GDP levels and add $5463million to our economy by 2025.

We are monitoring the progress of this legislation but have raised concerns with our industry lobby groups for higher income earners who may already be subject to additional tax because of excess concessional contributions. Unless the contribution thresholds are increased in line with the SG rate, we suspect a small number of AvSuper members will have to pay more tax on their super.   We will keep you informed as the legislation progresses.

Many AvSuper members have been watching stock markets fall since 30 June 2011 and given related events around the world, including the downgrade of the US triple-A credit rating and ongoing worries about European debt, there is quite reasonable concern about their  super investments.

It is important to remember that superannuation is a long term investment and short term falls are to be expected. Good advice perhaps but we acknowledge it can be very hard for some members to sit and watch their super nest egg decrease, especially as financial markets in Australia fall close to levels last seen at the height of the GFC in 2008.

While there may be things you can do, we caution against panicking or making hasty decisions without thought for the long term consequences of your actions.

In addition to the information below, you may find our last member bulletin a useful guide to recent investment performance, while our monthly investment update and the other investment information and fact sheets you’ll find on our website may be helpful for understanding what has been happening in the financial world, especially as it relates to your AvSuper investments. Of course, you can also contact us to discuss your concerns.

Thinking of taking action

We understand the often emotional urge to flee volatile markets and transfer your investment assets to cold, hard cash – but we strongly recommend you think about your options and their consequences before you take any action. You could end up realising your losses by ‘selling at the bottom’ and then miss out on any market increase that eventuates.

Particularly if you are retried or approaching retirement, now may be the time to talk to our Member Advice Manager to get some advice about choosing AvSuper investment options to best suit your investment needs and risk tolerance (free appointments with our Member Advice Manager are available to all members).

AvSuper’s returns for the 2010-11 financial year were amongst the top 10 funds in Australia so we are well positioned for the future, notwithstanding the current downturn.

Most importantly, remember that trying to time investment markets’ peaks and falls is very hard and very risky, especially in such turbulent markets as we are now seeing. Also, while cash investments do offer lower risk than most other investments, they are unlikely to give your super sufficient growth over the long term, so carefully consider your investment timeframe and long term needs before switching to cash when markets are falling, or have fallen dramatically.

Superannuation and financial markets

Remember: superannuation has performed extremely well over the long term. Super has considerable tax advantages and it can be hard to get back into if you leave the system.

Given that most Australians will spend 15 years or more in retirement, super is still a long term investment even if you are retired or nearing retirement. Over time, you will likely require some growth, and therefore some exposure to growth assets in your super, even while in retirement.

In the short term, the AvSuper Trustee considers that the current situation is not likely to be a repeat of the 2008-09 GFC and notes the corporate world is now in an even better position to deal with downturns than it was three years ago. In the past, we’ve seen that “scared” markets have provided the best opportunities for those who remain focussed on their medium to long term investment objectives.

What AvSuper is doing

The AvSuper Investment Committee is watching investment markets very closely, taking sound investment advice on the key issues and carefully considering the long term growth of your super as they monitor AvSuper’s investment portfolio. We will make any adjustments that may be prudent or appropriate to the circumstances to ensure your super savings are invested soundly with an eye to the long term, and try to take best advantage of the current economic climate.

As the financial situation develops over coming weeks, we will keep you informed. Meanwhile, you can look at the investment section of our website for updated returns, investment managers and related information at any time, or you can call us on 1800 805 088.

Michelle

Michelle Griffiths
CEO, AvSuper

On 10 July 2011, the Federal Government announced the long-awaited carbon tax to mixed reaction from industry. It is important to note that these are only proposals only until the legislation is passed. They have suggested we will have a transition period until 1 July 2015 when a market-based pricing mechanism is expected to begin.

While it may be good news to have the proposal available for review, it is too soon to predict with any certainty the impact of the carbon tax on AvSuper and superannuation in general.

The AvSuper Trustee will be reviewing the carbon tax in detail over the coming months to get a full understanding of the costs, opportunities and any relevant compensation promises for the Fund and for all our investments. In particular, we will look at Australian shares as individual company’s market valuations settle down, infrastructure investments and possible clean technology investments.

Actual costs for companies are yet to be seen but we hope there will negligible impact on super funds at least for the short to medium term.

As we learn more about the carbon tax and analyse the included risks and rewards for your retirement savings, we will keep you informed about these developments.

Michelle

Michelle Griffiths,
CEO

Following the floods across Australia and cyclone Yasi in Queensland, the Government introduced a temporary Flood Levy to raise money to help rebuild devastated areas and assist affected communities. The Flood Levy will only apply from 1 July 2011 to 30 June 2012.

The levy will also apply to super withdrawals (where paid in cash) made during 2011-12. Generally speaking, you may have the Flood Levy deducted from any cash payments made to you by AvSuper if you:

• are under 60 and receive an income stream
• are under 60 and take a cash amount from your super account
• receive a super payment on compassionate release or hardship grounds
• receive a disablement benefit (including any insurance component) from AvSuper

Note that payment of a death benefit to a non-dependant beneficiary or your estate may also incur the Flood Levy.

The levy will generally not apply if

• you are taking a cash amount less than $200
• you are over 60
• you are taking a terminally ill payment
• you are rolling over money between super funds

The Flood Levy will generally affect people earning more than $50,000 pa - however those in flood affected areas can apply for an exemption at the time of receiving their payment.

*Note that the levy will apply to your total income for the year, including these super withdrawals, so a shortfall may be part of your tax return as AvSuper will only make deductions based on each super withdrawal made during the year.

The Federal Government announced today that income stream members can continue to chose a minimum drawdown amount lower than their legislated minimum pension withdrawal for 2011-12.

Generally, income stream members must withdraw a minimum amount of their account balance each year. Since the GFC, the Government has provided some relief by reducing the minimum annual withdrawal amount. This has allowed income stream members to avoid capitalising investment losses generated during the GFC .  This has been useful to many AvSuper members with other sources of income in retirement. 

For 2011-12, income stream members can now choose to drawdown 75% of their mandated annual minimum.

We will be contacting income stream members in July 2011 with details of their annual minimum withdrawals. AvSuper members who have taken advantage of the drawdown relief during 2010-11 will automatically have it applied to their 2011-12 income stream minimum. These letters will include details on how to adjust your drawdown payments if you wish to do so.

The Government has said that drawdown relief will not be available for the 2012-13 year.

Superannuation was not a key focus of this year’s Federal Budget, but some proposed changes were announced which may impact some AvSuper members. Of course at this stage the changes are proposals only and not yet law and as always we will keep you informed as the legislation progresses. 

A full break down of the relevant changes in is our 2011 budget fact sheet, but some of the highlights are:

• Income stream members can still access drawdown relief, although the level of relief is halved for the 2011-12 year and removed altogther from 1 July 2012
• A refund of contributions mechanism to allow members who inadvertently break their concessional contributions limits to make adjustments to avoid excess tax
• from 1 July 2012, if you are over 50 and have less than $500,000 in super, your concessional contributions limit will be $25,000 above the main concessional limit
•  Co-contribution thresholds are not changing for the 2011/12 year

The Federal Government has proposed maintaining the higher concessional contributions cap for members over 50 years with a total super balance under $500,000. This should be a great outcome for many AvSuper members who want to put more into their super savings, however the legislation is yet to get through the current Parliament. 

The current arrangement of a maximum concessional contribution per year of $50,000 for members over 50 is due to end on 30 June 2012, so this proposed adjustment effectively preserves the higher limit of concessional contributions for members over 50. There is no change to the annual limit for members under 50. (more…)

The Government has announced that the reduced minimum drawdown for income stream members has been furthered extended to 30 June 2011.

Under Legislation, minimum payments must be made from super-based pensions or income streams at least annually. The minimum is set by the member’s age and account balance each July.

Due to the GFC, a 50% reduction in drawdown minimums has been in place since 2009. This reduction was due to end in June but has now been extended another year to assist income stream members rebuild after capital losses which occured while the market was low.

AvSuper members who have already requested drawdowns based on the reduced minimum will automatically continue on that level. Annual income stream drawdown letters will explain how all eligible members can access this reduction for 2010/11.

On 2 May, the Government released the Henry Tax  Review report along with its recommendations. As well as replying to the Review’s recommendations , the Government announced the following superannuation reforms:

• The maximum age for the Superannuation Guarantee (SG) is to increase from 70 to 75 from 1 July 2013

• The SG rate will gradually increase to 12% (this was not in the Henry Review recommendations): (more…)

The Ripoll Inquiry, established because of recent financial product and service provider collapses, reviewed the role played by commission arrangements for product sales and advice, the potential for conflicts of interest and the need for appropriate disclosure and remuneration models for financial advisers.

The focus of the Inquiry was on non-superannuation products and services, but its recommendations may have flow-on effects for super fund members in the future. (more…)