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Heffron Blog

Heffron's Blog is a collection of comments related to the latest superannuation comings and goings.

Why do old people still have large super balances?

by Meg Heffron

Why do old peopleSocial services minister, Scott Morrison, has called upon pensioners to “use up” their super balances during their lifetimes rather than hanging on to it to provide a tax effective inheritance to the next generation.

At one level, this is not unreasonable.  To the extent that we have a shared understanding of the purpose of super (and I’d argue there’s work to be done on this!), there would probably be broad agreement that it’s NOT supposed to be an estate planning vehicle.

So are people who don’t spend their super during their lifetime being deliberately annoying or breaking the rules in some way?

Why do people end up still having so much in super when they die? Click Here To Read More

Terminal medical condition – budget change but there is a trap

by Meg Heffron

Terminally ill traps

One of the very few direct changes to superannuation announced in the 2015 Federal Budget was an improvement to the rules surrounding access to super for terminally ill client.

Currently, it’s possible for anyone to access their preserved super if they meet two conditions:

  • two registered medical practitioners have certified the individual is likely to die within 12 months from an illness or injury; and
  • at least one of the registered medical practitioners is a specialist practicing in an area related to the individual’s illness or injury.

The Government proposes to extend the period to 24 months.  It’s a sensible tweak and while it won’t necessarily affect many people, it will make a big difference to those it does with – realistically – no revenue impact for Government.

Being aware of this option for very ill clients allows practitioners guiding clients during a challenging time to add significant value but there are some important quirks and traps to watch. Click Here To Read More

Are Australians pension converts or lump sum junkies?

by Meg Heffron

pensioners or lump sum junkiesAccording to a recent article in SuperReview the vast majority of SMSF members take their balances as pensions rather than lump sums.  Who’d have thought?

When I first started in SMSFs, this was absolutely not the case.  A really common question I was asked by accountants and advisers alike in 1998 was “my client has turned 65, now what do I do with their SMSF?  Do we have to wind it up and take the money out?”.  I’ll bet a heck of a lot of unnecessary capital gains tax was paid by people who just didn’t realise they had the option to take one of these newfangled things called “allocated pensions”. Click Here To Read More

Sustainability of the retirement incomes system

by Meg Heffron

Sustainability of the retirement incomes systemRetirement and ageing policy in Australia is in a mess right now.

There seems little or no integration between the policies affecting superannuation, the age pension and aged care (including health). Policy announcements such as the one made by Federal Labor on superannuation tax recently focus on one issue only and ignore other areas of retirement and ageing policy or the impact the proposed changes could have on those policies.

However, some of the points made in Labor’s press conference got me thinking.

Click Here To Read More

Is “saving” worth saving?

by Meg Heffron

Is “saving” worth savingJeremy Cooper and Challenger have done us all a huge favour by doing the calculations many of us should have done a long time ago to work out exactly what the age pension is worth in lump sum terms.  It’s difficult to have a sensible discussion about the costs of our longevity and what we should do about it until we know what is already being funded by the public purse.  Well, it turns out that someone with nothing is actually worth $1m.  Who’d have thought?

Click Here To Read More

Industry funds and DIY investment options – can they compete with SMSFs?

by Meg Heffron

compete with SMSFsIt would seem that industry funds are starting to work out that just adding a wide range of investment options in order to look more like a self managed fund is not the way to minimise leakage to SMSFs (http://www.smsfadviseronline.com.au/news/12954-diy-options-a-flop-for-apra-funds-bosses-admit).

I’d agree – in fact, I wonder if the industry funds who have done so are facing some probing questions from members along these lines :

Why have you spent all that money (that could have been used to reduce my fees) on doing something that was only ever going to be beneficial for a small group of people?  As it happens it’s been a flop but even if it hadn’t, how is it acting in the best interests of members to focus on features that are just not likely to be used by the majority of members?

Click Here To Read More

You may think you’re ready…

by Meg Heffron

Heffron Blog - You may think you're ready...

A funny thing happened when we were preparing our last Heffron SuperNews article (Issue #116 – SuperStream update).

We decided we would track the journey of the contribution and electronic service message from an employer to us (as a fund administration provider).

We knew what happened when it arrived with us – but was the process beforehand exactly as we thought?

We found an employer who was confident they were SuperStream ready.  They had dutifully reminded their employees of the need to provide an Electronic Service Address (ESA) some time ago (because as an employer with more than 20 staff, they had actually been subject to the SuperStream rules since 1 July 2014, albeit they knew they had a 12 month transition period).

Click Here To Read More

There’s risk and then there’s risk

by Meg Heffron

There's risk and then there's risk

Our last Heffron SuperNews looked at what options would be available for funds wanting to buy assets they can’t quite finance yet in a world that no longer included Limited Recourse Borrowing Arrangements.  It got me thinking about why there’s such a focus on killing LRBAs in the first place.

Much of the debate has focussed on risk.  In fact, the FSI report’s recommendation to remove borrowing from superannuation was predicated on an objective of “prevent[ing] the unnecessary build-up of risk in the superannuation system and the financial system more broadly” [p 86].

So it would be interesting to explore what exactly is meant by risk.

Click Here To Read More

Real time auditing – an exciting possibility or a service yet to find a value proposition?

by Meg Heffron

I’ve read a few articles on the prospect of real time auditing recently and have followed the debate with some interest. Real time auditing - good or bad?

So far, a lot of the discussion in the articles themselves has been about whether auditors can do it and whether they would like to in order to add more value.  What hasn’t been discussed in the particular articles I’ve read – other than as comments at the end – has been whether the trustees, advisers, administrators or regulators would like them to.

There is no doubt in my mind that the gradual move to real time information for trustees and those advising them is a good thing.  No doubt even Don Argus now thinks it’s better to know in advance that you’re in danger of failing to meet the minimum pension requirements, or that an asset the fund has just bought is probably a breach.  I know in our practice we’ve found the ability to have discussions about how contributions and pension payments should be allocated before 30 June highly useful!

Click Here To Read More

Cross insurance – red lighted by the ATO

by Meg Heffron

The rules on what types of insurance super funds could take out changed from 1 July 2014.  One strategy put at risk by the new rules was “cross insurance” – a common approach in funds with limited recourse borrowing arrangements where:

  • the fund has more than 1 member
  • it also has a loan
  • if Member A dies, the trustees don’t want Member B to be forced to sell the asset (either to pay out a death benefit or because they can no longer support the loan)
  • the trustee therefore took out insurance on Member A’s life (and vice versa) with the intention of using any proceeds to effectively pay out the loan or the death benefit or both, rather than adding it to Member A’s balance and paying it to his / her beneficiaries as part of a death benefit.

It is this last step – not paying the proceeds to Member A’s beneficiaries but rather keeping it in the fund for the long term benefit of Member B that raised questions. Click Here To Read More


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