Positive Economic & Political News
You are likely aware that stock markets have been doing very well in recent times – the US market is at an all time high and Australia at a 6 year high. Perhaps you are wondering why this is happening and can it last given such things as the tragic events in eastern Ukraine and the Israel – Hamas conflict and in Australia the Government’s political challenges and difficulties in reducing the budget deficit. Central bank monetary stimulus, which has driven down interest rates worldwide, is a major factor in the rise of stock markets but encouragingly there has also been both positive economic and political news. For example:
- China reported economic growth of 7.5% in the second quarter. Because the Chinese economy is 65% larger than it was as recently as 2008, growth of 7.5% in China today is equivalent to 12% growth in 2008. No wonder that despite China’s overdue housing slowdown BHP iron shipments are at record levels.
- Unemployment continues to fall in the US with job growth of over 200,000 per month for the last 5 months, the best since the late 1990’s. Unemployment is down to 6.1%, a six year low (Australia is at 6.0%).
- US economic growth to be announced later this week is forecast to be around 4.0% for the 2nd quarter reversing the slowdown in the 1st quarter caused by bad winter weather.
- India has a new Prime Minister, Narendra Modi, who many forecast to be the catalyst for improved growth in that country which will be of increasing importance to Australia. Respected commentator Jonathan Pain has said that under Modi India will grow faster than China over the next decade.
- Our near neighbour Indonesia recently elected a new President, Joko Widodo, who is regarded as competent and honest which hopefully will see a reduction in corruption and stronger growth which should benefit Indonesian citizens and trading partners, like Australia.
- There are even some more positive signs coming out of Europe. For example, Spain, the eurozone’s fourth-largest economy, is belatedly emerging from a six-year slump. In the second quarter employment growth was 402,400, the highest number in any quarter since 2005.
- Australia’s record stretch of 26 years of economic growth continues despite the end of the mining boom. GDP growth for the year ended March 2014 was a respectable 3.5%.
- The just released 2014 United Nations Human Development Report ranked Australia second only to Norway among all nations in the world. The report measures a number of criteria including income, health, education and gender equality. Similarly, the OECD’s Better Life Index rank Australia first.
Superannuation – Re-contribution Strategy
You may have heard about what’s known as a ‘re-contribution strategy’ but be unsure as to how it works and whether it is relevant to you.
Firstly, what is it and who is eligible?
A re-contribution strategy is where you withdraw money from your Super and re-contribute the money back into Super. Below I’ll explain why you might do this. To implement this you need to be age 55 or older and need to be able to access your Super money by satisfying a “conditions of release” .These include:
- You have reached your preservation age (between 55 to 60 years) and permanently retired
- You have reached age 65, whether you are working or not
- You have ceased work as a result of permanent incapacity
- You are eligible to access some of your Super under the “transition to retirement” arrangements.
Secondly, why bother to do this?
The two main reasons a re-contribution strategy may make sense are:
- To reduce the tax payable on your superannuation pension, including a transition to retirement pension, if you are under the age of 60
- To lower the tax payable on benefits paid to your beneficiaries, such as children age 18 or more, in the event of your death.
Money in Super is comprised of two components. One component is the tax-free component which is made up of non-concessional contributions (e.g. money you voluntarily contribute to boost your retirement savings). The other component is the taxable component which is made up of concessional contributions, such as employer, salary sacrifice or tax deductible contributions received by your Super account plus earnings from all your Super investments.
A re-contribution strategy involves withdrawing some of your superannuation – it consist of both a taxable and tax-fee component (you can’t cherry pick) – and re-contributing some or all of the money back into Super as a non-concessional contribution. This increases the amount of tax-free money in your superannuation account which provides tax savings if you are accessing a pension while under the age of 60. It may also provide significant tax savings should you pass on your superannuation savings to non-dependant beneficiaries after your death.
Re-contributions to Super can’t exceed your non-concessional contributions cap, currently $180,000 p.a.. If you are aged 65 to 74 you will also need to meet the “work test” i.e.be at least working 40 hours in a period of 30 consecutive days to be able to make non-concessional contributions into your superannuation fund.
|Low Income Super Contribution (LISC) to continue for now|
The low income superannuation contribution (LISC) payment is a government superannuation contribution of up to $500 per year on behalf of low income earners. The Government refunds the 15% contributions tax, up to a maximum of $500, on contributions made for people earning up to $37,000 p.a. The Federal Government planned to stop LISC payments but was rebuffed by the Senate so the Low Income Superannuation Contribution remains in effect.
Some brief reflections on our Medical System
Over the weekend I was visiting a friend who suffered a major spinal injury while surfing earlier this year and it caused me to reflect on the high quality of our medical system. While the media is always publicising issues such as wait times for surgery or for treatment in emergency departments, and they are valid issues, my friend received outstanding care while at Royal North Shore for 3 months. He is now at Royal Rehabilitation centre in Ryde and not only are the staff of high quality and generally very caring, the physical facilities are excellent. The ward at RNS was new and the same is true of the Ryde facility and in both cases these are public facilities and my friend has incurred no costs. My mother-in-law recently suffered a broken hip and she also received high quality care at Concord hospital and her only negative comment was about the food. Oh well. There are very few countries that offer all citizens the high standard of care we take for granted; we should be thankful.
This newsletter contains general advice. It does not take account of your individual objectives, financial situation or needs. You should consider talking to a financial adviser before making a financial decision.