Smart Investing
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The Federal Budget’s confirmation that the annual cap on concessional superannuation contributions for all fund members over 50 will halve to $25,000 from the 2012-13 financial year, has some investment commentators envisaging that more investors will turn to negative gearing.
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We've been told by the financial community at large that it's a tough time to be an investor. The financial markets are extremely volatile. Bond yields are near historic lows. The outlook is uncertain.
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The latest bouts of sharemarket volatility and this month’s cut in official interest rates once again highlight the crucial role of bonds in a properly diversified investment portfolio.
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Self-managed super funds typically have a much high exposure to cash than fixed interest.
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The Australian superannuation industry reverted this week to its unwanted status as one of the government’s favourite Budget ‘hollow logs,’ with billions of dollars in savings extracted from the system by reneging on a tax break meant to encourage higher retirement savings, and a doubling of the concessional tax rate on the super contributions of those earning more than $300,000.
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News & Commentary
Taking advantage of opportunities 01 Dec 11
Sometimes negative news can jolt you into taking positive action to improve your finances.
Take the Government’s latest super proposals – announced this week in its Mid-Year Economic and Fiscal Outlook – to freeze the indexation of the annual cap on concessional contributions and to cut back government co-contributions for lower-income earners.
Both these measures, taken to assist the Government to meet its target of producing a Budget surplus in 2012-13, will no doubt encourage some astute fund members to take more advantage of the contribution cap and co-contributions.
The Government intends to:
- Halt the indexation of the concessional contributions cap for one year in 2013-14. This means the standard cap will remain at its current level of $25,000 for longer. (Under the indexation arrangements, the cap is to rise only in multiples of $5000.)
- Cut matching government co-contributions for eligible members from 100 per cent to 50 per cent, beginning from July 2012. In other words, personal contributions will no longer be matched dollar-for-dollar. And the maximum co-contribution payable will be halved to $500.
- Reduce the maximum income threshold for eligibility for co-contributions from $61,920 to $46,920, again from July 2012.
These cutbacks may trigger super fund members to ask themselves several pertinent questions such as: Given my circumstances, should I be making higher concessional contributions?
And should any of my family – such as a lower-income spouse or any of my children who may be new in the workforce – be making voluntary contributions to build their savings and to attract co-contributions?
Keep in mind that every year that a fund member doesn’t take appropriate advantage of the contribution cap and co-contributions is an opportunity lost.
* Written by Robin Bowerman, Principal, Corporate Affairs & Market Development at Vanguard Investments Australia.
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