Here is a forecast you can rely on: investors are in for a super year, financial advisers can expect an even better one.
That has nothing to do with what investment returns you can expect. It has everything to do with the range of changes to our superannuation system that will affect most of us - but particularly pre-retirees - this year.
Now when you start talking about superannuation and rule changes most sensible people's eyes glaze over. But it is worth spending a little time understanding just how much more attractive the super system will become as these changes take effect.
For a start the detested super surcharge has gone - abolished since July 1 last year - but for people caught by it there will be one more reminder because the ATO sends out statements confirming how much your fund paid for the last financial year.
So this year's letter is something of an historical artifact - you may even want to have it framed as a keepsake.
Then there is the ability to split your superannuation with your spouse - a major step forward to help couples equalise their superannuation and use the concessional power of the super system to provide for their joint retirement. It is up to individual funds to offer the service and this may take some time to be implemented but it allows you to split 100 per cent of your personal (after tax) contributions to your spouse and 85 per cent of your employer (pre-tax) contributions. Why is that important? Well it lets you access two reasonable benefit limits for example.
Other changes are more complex such as the transition to retirement rules that allow super funds to pay benefits to a member who have reached their preservation age which is either 55 or 60 depending on when you were born. The reason for this change was to allow people who are "downshifting"or "seachanging" to reduce their work commitments and supplement their incomes from their super via a pension.
But if it is going to be a good year for super investors then it may be an even better year for advisers. Whenever there are a range of changes to the super system financial planners are always winners for the simple reason that the system's complexity means it is virtually impossible for someone not involved in the industry to stay abreast of all the changes.
The transition to retirement rules is a case in point. The government's motivation was sound but sensible legislative moves can open up other planning opportunities -and the task of smart lawyers, accountants and financial planners is to maximise any advantages. Hence we are seeing strategies aimed at arbitraging the difference in tax rates between normal income tax and a super fund.
The other positive move was in the changes to the pension rules that extend the maximum term of market linked income streams so that payments can continue until you reach 100. That makes a lot of sense as people are living longer and need to provide income for much longer than simple average life expectancy.
Perhaps the next major frontier for the federal government is to simplify the whole super system - they are attempting it with tax law perhaps super should be next.
Finance Minister Nick Minchin has already floated the idea of abolishing the contributions tax - that would both simplify and dramatically increase the appeal of super in terms of voluntary savings. Our system is unusual around the world in that we tax money on the way into the super fund, we tax the earnings in the fund and then we tax it on the way out.
Research by ASFA shows that for someone earning $60,000 a year removing the contributions tax would lift their super balance by almost $40,000 after 30 years. More importantly that would mean an extra $40 a week to spend in retirement.
