Superannuation and government – a recipe for disaster!
Treasurer Scott Morrison delivered the Federal Budget on Tuesday night. After many months of speculation, the detail (such as it is) finally came to light. And how short-sighted the document turned out to be – especially for those with superannuation.
Having worked in and around superannuation since 1991, I have witnessed so many changes and it is little wonder that the average punter tends to tune out when the word “superannuation” is used. It is therefore not surprising they really don’t seem to care and become easy prey for financial planners and industry superannuation funds.
The changes being proposed by the Turnbull government in the budget can be summarised as follows (note that I’m not covering all of them here – just the major ones that will impact our clients).
I preface all this by stating that the policy platform relating to superannuation is somewhat confusing – the government wants people to provide for their retirement so that there will be less strain put on the welfare system when they retire. Fantastic!
Why then do they limit the amounts that people can put into superannuation? This flies against any and all forms of logic. If you want to create a welfare replacement vehicle, encourage people to use it – don’t restrict them.
Over the past 20 plus years, we have seen limits – some very generous, others less so. Passing strange it is that superannuation limits tend to reflect the underlying state of the budget! When things are going pretty well, the limits are up, when things tighten up, so do the amounts people can contribute.
So here goes:
$500,000 Lifetime Limit on “private contributions” (in the legislation, these are called “Non-concessional contributions”)
The idea has always been that there were opportunities for people to add to their superannuation accounts during the year using tax-paid/after-tax money that they might have saved up. This can also include amounts withdrawn and re-contributed to the fund when it is in pension phase. Prior to Tuesday this week, people could deposit $180,000 per year into their fund or, elect to “bring forward” a couple of years contributions and put $540,000 into their fund. This works really well for people who haven’t been able to build big balances in the superannuation system as they were running businesses, bringing up families and generally contributing to the wealth of the nation. Now, the government, in their wisdom, is placing a “cap” on the amount they can contribute in this way.
The net effect of this is to restrict the ability of people to put money into their superannuation accounts for their retirement.
Remember when it was possible (some years ago) to put $1,000,000 into superannuation? Lots of people took that opportunity up.
Now, if you’re one of the lucky ones who have made contributions of this type since 2007 and are currently over the new $500,000 limit, good for you. It just means that you won’t be able to make any more. If you’re not at the new $500,000 limit yet, well, you can make additional contributions to get you there – but PLEASE don’t go over the limit or you will get stung with Penalty Tax.
One interesting note – the budget papers make reference to the fact that the date of 1 July 2007 was chosen as this is the date from which the Tax Office has “reliable contributions records”.
I am not sure whether backdating a limit commencement start time is valid Constitutionally. Watch this space!
Limiting the Size of your Pension Fund
The government refers to this as a “Transfer Balance Cap” – what they really should call it is “You can’t have a pension bigger than this”.
What it means is that, from 1 July 2017, you will be able to transfer a maximum of $1.6 million into your retirement account. Subsequent earnings on the amount transferred will not be subject to tax.
I don’t know about you, but I have found that where you segregate assets, it becomes difficult to “un-segregate” them. Let’s say you have a fund with $2m in it. You transfer $1.6m of shares into the new “Maximum Pension Fund” box. The share market tanks – all of a sudden, you have well less than $1.6m in that account. Can you top it up?
Conversely, you transfer $1.6m into your “Maximum Pension Fund” box and the shares appreciate markedly so that the balance in that “box” is now well over $1.6m. Do you have to transfer funds out?
Or, riddle me this one – your single asset in your superannuation fund is a building worth $2m. Do we have to transfer 80% of that building into the “Maximum Pension Fund” box?
Apparently the government is going to “consult” on how this will all be implemented. Good luck with that. This has all the hallmarks of an absolute mess and will result in uncertainty for the superannuation industry for years.
I find it somewhat galling that the government will be effectively trying to legislate how much you can save in your pension fund to access the tax-free earnings. Many people have saved and worked hard over decades to give them a retirement that they can enjoy. To come in and take this away from them is unfair – especially for those who are already in pension phase and who have planned their lives and activities around what they thought was some level of certainty.
As mentioned above, the government keeps telling everyone to put more money into superannuation. Then they place a limit on how much you can contribute before you run into penal tax rates.
If you have a look at the levels of allowable (read “deductible”) superannuation contributions over the past years, you will see it is a dog’s breakfast. Starting (for the under 50 year olds) at $50,000 in 2008/9, it has reduced to $25,000 from 2009/10 then increased to $30,000 from 2014/15 and it reverts to $25,000 from 2017/18. It’s a bigger mess for those aged over 60!
If the government wants people to contribute to superannuation to fund their retirement, set a limit and stick to it. For younger people with a plan to put money aside, it becomes impossible for them to budget to achieve this.
I will point out there are some positive proposals in the budget with regard to superannuation, however, the issues highlighted above are so short-sighted and ill-thought-through that the government is making the superannuation system even more unwieldy than it was previously.
“You’ve got a gift” – so said one of my guys after a fantastic meeting with one of our customers.
Don’t know whether I agree with him. Whatever gifts I may have, I probably don’t use as much as I should. However, I digress.
The real essence of this post is that we, as professionals, need to be aware of the issues that are confronting our customers and, if we are unclear, ask better questions to enable us to get to the guts of the issue. This is a skill that I am still learning – although I understand that I will never perfect it.
The discussion with our customer was meant to be about getting some clarity about their goals for their business. We had the meeting booked in for a while and had let them know that this was the purpose of the discussion. They arrived late (normally not a great sign – putting it off), which flagged a possible issue with the process about to be undertaken.
The discussion opened up with them identifying some frustrations they were experiencing with one of their team members. It then progressed on to analysis of the communication styles adopted by both people and, how not fully appreciating the communication style of the recipient and tailoring the message for their needs might have been the actual cause of the frustration in the first place.
This then led to a discussion about the style of the owner of the business. They started to open up as our discussion developed around why they were aware of the style they had and the impact it could have on their team, they made the statement “I know this, but I’m not doing it”. That then caused the question to be asked “why not”?
And that’s when the really positive stuff started. Suffice to say, the tissue box got a bit of a hammering as they opened up about external issues (non work-related) that were impacting on them and had been impacting on them for some time. It was fantastic as we could now understand why the business, which has incredible potential, has been stagnating and not exploiting the numerous opportunities that have presented themselves.
The owner of the business has simply not been in the emotional state they needed to be in to enable them to drive and direct the business. Powerful. Meaningful. Honest.
So, we did what all accountants do, and walked through the journey they have been on (isn’t that what all accountants do?) to enable them to fully verbalise the feelings they had been having and to enable them to understand that they had massive opportunity in the team – if only they could trust themselves to “let go” a bit. About half way through this discussion, they indicated that they would go home and cry all afternoon. That’s not necessarily a bad thing.
However, as we continued to talk through the issues and acknowledge the impact they had on the owner and the business, the air seemed to clear a bit. By getting the issues out in a non-judgmental and non-confrontational environment, we were able to help them see that the “fork in the road” wasn’t actually anything to be feared and that the way they were feeling was OK.
The discussion eventually returned to the communication with the team (that’s where it all started remember) and how it can be improved. They will be undertaking some Trimetrix Reporting with the team to allow everyone to better understand and appreciate the differences in the team communication styles and create an environment for better communication within the group.
Our customer could then see that there was a path forward and, whilst acknowledging the impact of the issues outside of work, started to get refocused back on their business. We made commitments as far as setting some goals (some wonderful additional opportunities came out in this discussion) – the big battle will be getting the goals prioritised over the coming month or so – there are so many opportunities for this business we have to narrow them down and align them to the goals that will be fleshed out.
At the end of the meeting, we recommended that they go home to enable them to have the big cry they had earlier said they needed. “No – don’t need that now. I’m feeling a lot better”.
A really positive outcome was achieved by creating the environment and asking better questions (usually the ones starting with “why”) to get to the core of an issue. Unless you carve up the elephant in the room, it crowds everything else out.
Don’t think I have a gift, but I’ve got a dead elephant in meeting room one and I need more tissues.
It is a very simple but direct discussion about her journey through business and deeply personal challenges. When reading the article, reflect on her journey and what we can all learn from it. Inspiring.
Very interesting article from the BBC on the effects of exercise for people with depression. The consensus view is that exercise is very helpful in combatting the effects of depression – the article casts some doubt on the veracity of this view.
You can read the article here.
A couple of weeks ago I was at a function and heard some interesting feedback from a great friend of mine regarding the behaviour of a couple of people there (admitedly – after I had left!)
The people concerned were “socially excited” and proceeded to belittle and laugh at my friend who was trying to be gracious and friendly to them. They hung it on them about where they went to school, about where their kids went to school, about the house they lived in and even had a go at their “hotshot” father – who was dying of cancer!
I find this type of behaviour obnoxious and offensive and it serves as a very unflattering measure of the people “dishing it out”. The people concerned are well known in the Ballarat community – given the fact that people tend to behave as they really are when they’ve had a few drinks, the insight obtained into their conceit and arrogance was illuminating!
The fact that some people think they’re better than others and then proceed to belittle them is just objectionable.
By their rudeness, they show their ignorance.
Had some interesting experiences in recent times associated with a range of people which have caused me to think about different approaches to life and what you receive as a consequence of the approach you take.
There are people who get great satisfaction from giving – be they people who work in charities, social support, education, healthcare and the like. There are people who give in other ways too – I know we help out a number of our customers who are going through hard times in many ways – we’ll do their work “pro-bono”, we’ll help them deal with their banks and customers and we’ll also work with the owners, managers and staff to develop strategies to assist them get through the rough times they find themselves in. I am aware of a number of our colleagues in the legal profession who do this.
The giving of time, service and care is a great gift that I know I gain a great deal of satisfaction from.
There are also those who take. These people have an approach whereby they are always seeking to get things for nothing or at big discounts. They’re always seeking out opportunities to “get a bit ahead” by getting something for nothing. I’ve seen examples of this type of behaviour often over my life (both persoanlly and professionally).
Having observed this over many years, there seems to be some rough sort of pattern in the behaviours that are exhibited. These people are always ready to be at the front of the queue, they’re notionally supportive when people do well, but they position themselves to take advantage of what has been achieved. I know that I’ve helped people like this numerous times over the past and it has always come back and “bitten me on the bum”. They rationalise their behaviour on the basis that they’re entitled to geet this help, support and the like because they are who they are.
That’s all fine and I am not preaching on how people should run their lives – far from it – each to their own. Having been bitten numerous times, I am not going to change the way I do things or the approach I take. I will however be far more circumspect in the future as to my behaviour in dealing with people like this. It is sad, but in this environment where a lot of people have an unjustified sense of “entitlement”, I think we all need to be prepared to consider what the motivators of people are. If they’re the “needy and greedy” – let them stuff someone else around – there are too many people out there who WILL appreciate what you do for them.
I will always give rather than get. I’ll just be a lot more careful whom I do it for from here on in.
Following from posting this, I received an email from Russell Wylie of Becoming Better (www.becomingbetter.com.au) who wrote:
I just read your latest blog posting, Matt. Well written!
The Moody Blues had an introduction to a song on one of their albums
that went something like this “… Face miles and miles of trials with
smiles, for it riles them to believe, that you perceive the web they
Generosity and contribution are incredible strengths to be able to
You’ve got those things and may they continue to reward you … as I’m
sure they will.
The mean-spiritedness of others is its own karma.
People who operate from that point of view never really get to
understand or appreciate the truth and beauty in things.
And they are always, in some way or another, operating from a state of
tension, pain and disturbance. What an incredibly miserable way to have
to live a life?
The trick is to never let those “takers” have a diminishing, or
restrictive effect upon your life, or your style of going about doing
the things that you do. In a sense they begin to “win” when you react
that way. The chipping away at belief and faith will have begun – in a
very subtle manner.
Rather than becoming more circumspect in your approach to generosity and
goodwill, I would actually recommend you become more generous and even
more of a contributor.
Because I believe will serve you far far more richly than the initial
alternative, annoy the crap out of the takers (… and it will help to
make sense of the aforementioned Moody Blues line). Your style is about
expression and creating things, not repression and restriction.
Life is far too serious to be taken seriously … And the world is
definitely a better place with a “constantly adding-value Matthew Tol” –
no doubt in mind whatsoever!
As we charge through life being all enthusiastic and focussed on goals, we often forget the liberation that can be had from being vulnerable.
People perceive vulnerability as a bad thing with connotations of not being “up to it” or being somewhat incapable. I must admit to having a different perspective on it.
Allowing people (not everyone!) around you know that you’re vulnerable in certain circumstances has a couple of very positive outcomes:
- it lets them see that you’re “human”;
- they will identify with you more strongly as they will honour the trust you have placed in them;
- it will establish a communication method that will be better than that which existed previously; and
- you will both have a more open and effective relationship.
I have seen the benefits that vulnerability provides in relationships over the years. There have been many occasions when customers of our business have come in to discuss issues and have made themselves vulnerable to us. The response to their offering this has always been very positive and supportive – the outcomes we have helped them achieve through this process have in all cases been outstanding.
You can be vulnerable with your family, close friends and close work colleagues. The combination of honesty and trust that comes from the admission of your vulnerablity is truly wonderful.
So, in amongst the mad rush through life and the focus on achievement, remember to be a bit vulnerable – you’ll be surprised at just how empowering it can be!
Much has been written and pontificated about regarding the entry of Gen Y into the workforce. For those of us in the “professions”, this poses a real challenge. These guys have grown up “connected” like no generation before them. They are far more flexible and open to things than our generation and don’t necessrily do some of the “traditional” things well. This is one of the reasons businesses such as Google do so well – they allow their people to have time to be creative and explore things.
One interesting thing about the Gen Y’s is that many of them have grown up playing computer games. Whilst this might not have done much with regard to their ability to climb trees, it has taught them, from an early age, things like strategy and considered approaches. Their modus operandi seems to be that they’ll source out the process to get to Level “x” on the internet and then start challenging themselves. There is some thought that this may be an issue in that they haven’t learned the process themselves – I’m not sure whether this is the case – they have learned how to “short circuit” the approach.
Anyway, the issue then becomes one where they hit the workforce and some rusty old guy with grey hair tells them they have to account for every 6 minutes of the day and this will be the basis on which their performance will be assessed. Given their more relaxed approach to things, this doesn’t sit well – they’ll be needing some flexibility to attend to their mobile phone, their facebook, their twitter and the various other social networking sites they inhabit. An employer who tries to stifle this will face challenges.
I had an interesting experience with one of my young guys the other week – we visited a “traditional” accounting firm to do some due diligence work on a business one of our customers is looking at acquiring. They had the timesheets and they had the workpaper files (about 6 inches thick). He’d never seen this stuff (came to us from Uni) and could not get over the fact that people worked like this in todays’ environment. Our discussions afterwards were quite enlightening!
I have found that Gen Y people are (usually) creative and flexible. A timesheet will make sure that this creativity and flexibility gets killed stone dead in the name of “productivity”. Removing the obligation for them to record their life in increments will create the opportunity for them to do what their computer games have trained their minds to do – learn, strategise and work out the best approach. Isn’t this more useful and effective in a “professional” office enviroment than being able to climb a tree?