Having a financial plan in action is one of the most important things you can do in…
In the Federal Budget on Tuesday night, the Treasurer announced a number of tax reforms to superannuation.
Mr Morrison said the Turnbull Government’s objective is to ensure tax concessions are better targeted to those who need incentives to save for their retirement, increase confidence in the system and make retirement savings more fiscally sustainable.
However, Newcastle Certified Financial Planner, Elliot Watson, said that while some of the changes, the Government has forecast, are good news for low income earners, other changes, along with similar rhetoric from the opposition, indicates that both sides of politics fail to understand the basic fiscal requirements of an individual’s superannuation savings – if they are to fund a sustainable retirement income stream.
Mr Watson said, ‘that while the goal of superannuation policy is to remove the tax burden of the Government funding retirement, the decision to limit concessional contributions, that is; salary sacrifice amounts, to $25,000 and the introduction of a lifetime cap of $500,000 on non-concessional contributions, will significantly handicap, most Australians’ pre-retirement saving strategies.’
The Government clearly fails to understand that, for most Australians, there is a short window of opportunity during their life, usually between 50 to 65 years, when they generally have some disposable income that can be allocated to boost their retirement nest egg. Prior to this age, the majority of families are straddled with home mortgages, the costs of raising children and other living expenses.
Mr Watson points out that, according to the Association of Superannuation Funds of Australia (ASFA) Retirement Standard (which benchmarks the annual budget needed to fund either a comfortable or modest standard of living in retirement), the average couple will require an annual net income of $59,236 and a single $43,184. At a 5% annualised return this represents a minimum accumulated amount, at retirement, of $1,184,720 and $863,680. If a prospective retiree’s superannuation, falls short of this amount, they will be partially reliant on the age pension.
Mr Watson said, ‘that these particular changes, announced in the budget, will only hinder an individual’s ability to fully fund their retirement. By removing incentives, such as salary sacrifice and capping non-concessional contributions, people will be less motivated to contribute surplus disposable income to their retirement.
About Elliot Watson Financial Planning Pty Ltd
Elliot Watson, the owner and operator of Elliot Watson Financial Planning Pty Ltd, is a Certified Financial Planner (CFP) and the winner of the NSW Charter of Financial Planning Value of Advice Award 2013. Elliot has over nine years of industry experience and holds the Advanced Diploma of Financial Planning and the Master of Financial Planning.