New financial year, new you!

Your Future, Your Super

In the current financial year, the Government is introducing the following key changes to superannuation:

• When you change jobs any time from 1 November 2021, in the absence of an explicit choice by you, your new employer will contribute to your existing ‘stapled’ superannuation fund rather than to your new employer’s own ‘default’ fund.

• The Government will require superannuation products to meet an annual objective performance test. Those that fail will be required to inform members and persistently underperforming products will be prevented from taking on new members. Members will be notified by 1 October 2021 if their fund has failed this test.

• The Government will make it easier to choose a better performing fund[1], by providing access to a new interactive online YourSuper comparison tool. This will commence from 1 July 2021.

Also, many of the dollar limits relating to superannuation will change in the new financial year (for example, the Concessional Contributions Cap will be increased from $25,000 to $27,500). Non-Concessional Contribution limits will also increase as will the Transfer Balance Cap and the Total Superannuation Balance limit. 

Given these changes, you might like to consider the following actions early in the financial year:

• are you in a ‘well-performing fund’? Take a look at your fund’s performance in the government’s new YFYS comparison tool. It’s true that past performance isn’t necessarily indicative of future performance, but if your existing fund appears to under-perform chronically, perhaps it may be time to consider switching to a strongly performing fund;

• are you one of the estimated 4.4 million Australians who are paying fees on multiple superannuation accounts? Unless there is a sound reason to maintain a second account (for example, to retain access to your preferred insurance arrangements), having multiple accounts is likely to result in multiple administration fees and a sub-optimal outcome at retirement;

• do the higher superannuation limits leave you with any opportunity to take additional advantage of the tax-favoured superannuation tax environment (e.g. via additional concessional contributions)?; and

• is it time to consider switching to a self-managed super fund (SMSF)? A ‘rule of thumb is that the ‘breakeven’ size of a fund, above which the fixed costs of running an SMSF are likely to be less than the largely variable costs of membership of a public fund, is somewhere between $200,000 and $500,000. But running your own SMSF also requires substantially more time and effort than membership of a public fund.

Other aspects of your personal finances…

But why stop at re-thinking your super arrangements? There are other aspects of your personal finances which may also be worth reviewing.

For example, home lending rates are at historical lows in this current, ultra-low interest rate environment. Whilst banks have reduced borrowing rates for variable rate borrowers, it sometimes happens that the best borrowing terms are offered to new rather than existing borrowers. To avoid the ‘lazy tax’, you might consider the following:

• consult the websites that provide mortgage comparisons such as Canstar, Mozo, RateCity or Infochoice, and look for the best currently available borrowing rates;

• perhaps put a call through to one or two of the apparently most competitive options to confirm whether you would be eligible to refinance to their offering and investigate any conditions that they might impose; and

• then pick up the telephone to your existing lender and tell them “I’ve noticed that I qualify for a borrowing rate of x% with ‘ABC Lending Co’, but I’m paying y% on my current loan. What is the best rate that you can offer on my existing loan?”

Anecdotally (and in the author’s own experience), existing lenders may go at least some way towards matching a lower rate that you have located elsewhere. If your existing lender matches the alternative offer, or at least ‘goes close’, you might decide to accept their offer. The alternative is to commence the process of applying for a refinancing loan from the alternative lender. Refinancing is likely to involve some imposition on your time (perhaps half a day or a day, in total) to deal with the application process, even if you have the assistance of a competent and supportive mortgage broker.

Another option to consider may be to fix your interest rate for a two to five-year period.  You may have just missed the absolute nadir of the fixed-rate offerings, as some banks have recently increased their fixed rates in response to concerns about sooner-than-expected rises in the cash rate. Even so, some borrowers may find the appeal of repayments that are guaranteed not to increase over the next three, four or five years quite attractive.

There are many other aspects of your personal finances that you might also consider reviewing. Many of those aspects are covered in much more detail in my book Slow and Steady: 100 wealth-building strategies for all ages, including the following:

• Save systematically

• Establish an emergency fund

• Buy shares

• Reduce unnecessary expenditure

• Buy your car using a novated lease

• Pay down your mortgage fast

• Buy an investment property

• Invest in managed funds

• Get your asset allocation right

• Diversify

• Keep your investment costs low

• Buy Exchange Traded Funds (ETFs)

• Put assets in the name of the lower earning partner

• Consider private health insurance

• Buy only the types of insurance you need

• Negotiate your insurance renewal premiums

• Write a will

• Establish Enduring Powers of Attorney and Guardianships

It may not take too much effort to produce a new, financially fitter you. Good luck!

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