Grant Hackett, chief executive of Generation Life, said on an episode of The ifa Show that, with this potential change to superannuation taxes, more Australians are in need of guidance to help them understand if and how it could impact their retirement savings.
“People don’t really understand the complexity of the Australian tax system or the super system and all of the changes that are coming with that. We’re seeing with superannuation, and this is for really wealthy individuals, of course, Division 296 and that’s the double taxation for balances above $3 million,” Hackett said.
“But again, people go, ‘Oh, there’s change in super. What does that mean for me?’ Even if they don’t totally understand, that again creates a level of anxiety.”
Rebecca Pritchard, senior financial planner at Rising Tide Financial Services, explained that because her clients generally fall within the late 20s to late 40s age bracket, many have not raised concerns about the proposed Division 296 superannuation tax reforms.
Despite this, she said it’s important for her to bring it to their attention as it could have considerable bearing on their future finances.
“I would say, our client cohort, they’re not worried, but it’s like an alert but not alarmed state. They’re like, ‘We know things are moving … should I be worried about this?’ They’re like, ‘I’m hearing this on the news. What do I need to be thinking about?’” Pritchard said on The ifa Show.
“It’s not an issue for you today, but if we don’t take action, it will be an issue. We know that those aspiring Australians, they’re heading to that top marginal tax rate faster than the generation before. So bracket creep, it’s not hurting them today, but it’s going to be a problem for their future selves.”
She added: “You can’t turn the Titanic when you’ve seen the iceberg, you actually need to be taking steps early.”
Easing financial stress
Pritchard maintained that as financial stress and the cost of living continue to rise, financial advisers play an important role in providing peace of mind to their clients.
“Most people coming to a financial adviser, it’s the first time they’re doing it, right? They understand that they need something, they don’t know what it is. And I think, firstly, it’s really helpful to validate that feeling,” she said.
“The generation that we primarily work with at Rising Tide, the aspiring Australians and the sort of early high-net-worth clients, they have more goals than the previous generation. Like, there is more complexity. They’re competing. Everything is screaming for money. Right? Like, they want to do things today. They’ve got medium-term goals, they’ve got long-term goals. And all the external media, the systems are telling them, it’s hard.
“It’s harder than ever. It is harder for you than it was for your parents, and it was harder for them than it was for their parents. So, there’s a lot of competing tensions here.”
She explained that most Australians across the board are managing some form of financial stress at the moment regardless of their income, making financial advisers a critical resource for reducing financial anxiety.
“Even people who have wealth behind them, then their goal posts probably have moved and their goals have expanded, and so it’s still a sense of struggle,” Pritchard said.
“That’s something that I think is really important for financial advisers and planners to be helping their clients with, helping them identify what their goals are, articulate them, make sure that they’re really clear, developing strategies to actively reach them, and understanding that in some cases, more is not always better.”
Pritchard added that, in order to accommodate for the shifting economic environment and the needs of clients, advisers should be adopting a complementary approach to clients’ life savings, providing them more flexibility with their finances rather than concentrating too much on super.
“I think a really interesting conversation we’re frequently having with clients is educating them to understand the role of an investment bond or similar strategy alongside super. Super is fantastic at what it’s designed for,” she said.
“We see it with the aspiring Australians and those high-net-worths, they value flexibility almost above all else. And superannuation is notoriously inflexible and changing.
“It’s not about, we’re not competing with these strategies. They’re quite complementary. Let’s create and use an investment bond to create flexibility, create tax effective wealth, in your 30s, 40 and 50s before super becomes available. And that’s quite an eye-opening experience for a lot of clients. But even a lot of advisers are sort of wrapping their heads around, how do you play with these two strategies side by side?”
Hackett added: “It’s a really good point, right, because nothing in isolation works well to cover off everything. It takes a complementary set of structures and underlying solutions to be able to achieve your goals in all the different parts of your life.”
He said it seemed inevitable that the government, regardless of which party is in power, would, at some point in the near future, be making changes to the superannuation system and advisers need to be prepared for this.
“Whether it’s a $3 million plus sort of taxation and taxing on the unrealised component, not indexing it, whether it ends up like that or some other form, I think the point is, there are going to be continual changes there,” Hackett said.
To hear more from Grant Hackett and Rebecca Pritchard, tune in here.
Go, Grant.
There will be few advisers available for younger super fund members unless Hackett starts pushing to get rid of the Annual Adviser Fee Renewal red tape, that doesn’t exist in any other nation on earth, except here.
This is all well and good, but what’s the point of following the rules today when the morons in Canberra will change them again tomorrow?