Navigating the Policy Maze – Part 1By Anthony Warr

Navigating the Policy Maze – Part 1 By Anthony Warr

Along with market ups and downs, government policy is one of those things you can’t control. However, with expertise and objectivity, an independent financial advisor can still help you navigate successfully through a constantly changing environment.

The risks that policy change poses to clients were dramatically highlighted by the recent federal budget in Australia, where a cash-strapped government announced the biggest shake-up in superannuation in at least a decade.

This came just hours after another surprise announcement as the Reserve Bank of Australia cut its official cash rate to a record low of 1.75%.

In the budget, the government argued it is seeking to better target tax concessions for superannuation and to bring the system in line with its objective of “providing income in retirement to substitute or supplement the age pension”.¹

The key changes include:

  • A $1.6 million cap on how much an individual can transfer into retirement accounts.
  • The reduction in the income threshold to $250,000 (from $300,000) for paying a 30% (instead of 15%) tax on concessional super contributions.
  • The lowering of the cap on tax concessional contributions to $25,000.
  • A $500,000 lifetime cap on non-concessional contributions.
  • Individuals will be able to claim a deduction for personal contributions to superannuation, regardless of their employment status.

Many of these measures had been flagged, but the $1.6 million retirement account cap was a genuine surprise to most observers, as was the RBA’s rate cut. Indeed, Bloomberg reported on the morning of the central bank meeting that 15 out of 27 economists expected no change in rates.²

While the government says the changes in the tax concessions will not affect 96% of superannuation fund members, there clearly will be implications for many more people in the future as they progress to higher incomes.

Others can argue the rights and wrongs of these particular changes, but there is no question that the complexity and flux in superannuation rules highlight the value that expert, independent advice can bring to individuals and families.

And this is where WARR HUNT comes in.

  • We believe in achieving true financial independence, without reliance on government support.
  • We have always stressed the importance of maximising super contributions, and despite these announcements, it is still better to have been maximising than not. With careful planning, nothing has changed.
  • For those with longer timeframes, we have always embraced wealth accumulation in other structures, and utilised appropriate levels of gearing. This is now even more important.
  • We free our clients’ from worrying about finances and investments, so they can focus on the things that really matter to them.

All of this takes a human advisor, as no robot or sophisticated algorithm can be programmed to lead our clients through the policy maze with objectivity and creativity.

Yes, change can be unsettling and makes many of us anxious. But the unpredictability of government policy, like the unpredictability of markets, will always be with us.

WARR HUNT can provide the right combination of structure and flexibility in your financial and wealth strategy to help you cope with policy change.  The outcome is a degree of comfort and security that you might otherwise miss if you attempted to navigate policy maze all on your own.

Read our 2016 Budget Wrap here.

¹ ‘Tax and Super’, Federal Budget 2016-17

² ‘Australia’s Central Bank Cuts Rates to Record Low’, Bloomberg, 3 May 2016