Super scams: What to look out for

The market for super funds is extremely competitive.Scammers take advantage of this by promising unrealistic benefits to acquire personal or account details. They are able to use this information to steal your identity or transfer your super to an account they can access.

Scammers can approach you in various ways. You could receive a phone call, email or be contacted online.

This is what you should be weary of:

• Advertisements promoting early access to super
• Offers to ‘take control’ of your super
• Offers to invest your super in property
• Offers of quick and easy ways to access or ‘unlock’ super

The best way to spot a scam is to know what the rules about your super fund are. Knowing when you can legally access your super will protect you from false promises. Additionally, the ASIC website lets you check if someone is licensed, if they are not licensed, more likely than not, they should not be trusted.

If you believe that you’re being targeted by a scam, then rather than simply ignoring approaches and not engaging, you should report the scam. You can do this by calling the ATO or completing the online complaint form on the ASIC website.

First home super saver scheme

The first home super saver (FHSS) allows individuals to save up for their first home in their super fund. The money saved in the super fund is taxed concessionally and therefore, individuals are able to save faster.

Individuals can make voluntary concessional (before-tax) or voluntary non-concessional (after-tax) contributions into their super fund. They can then apply for those contributions to be released. This also releases any earnings associated with those contributions.

This scheme can only be used by a first home buyer if both of the following apply:

• They are living in the premises they are buying/intend to buy (when practicable)
• Intend to live in the property for at least 6 months within the first 12 months (when practicable to move in)

The eligibility criteria to participate in FHSS is as follows:

• Make super contributions from any age BUT only request a determination or release of amounts after 18 years of age
• Never have owned a property in Australia (includes investment property, vacant land, commercial property, lease of land in Australia, company title interest in land in Australia) other than if there has been financial hardship as deemed by the Commissioner of Taxation.
• No previous request to the Commissioner to issue an FHSS release authority in relation to the scheme.

Eligibility is assessed on an individual basis; couples, siblings, or friends can access their FHSS contributions to purchase the same property.

There are many other considerations for FHSS which individuals should take into account if they plan to use the scheme.

Consolidating your super

Consolidating your super can save you time and money. Consolidating your super means that rather than having multiple different accounts, all your super is in one account.

Why you should consolidate your super:

• Choosing to consolidate your super means that you will no longer be paying fees to multiple super funds.
• There is also less paperwork to complete each time
• You will be able to track your super more easily

Before you consolidate your super:

• Consider how changing super funds affects employer contributions: Certain employers may contribute more to one fund than another. In which case, you should consider switching to the fund that your employer is most compatible with.
• Consider how changing super funds impacts insurance you have through the fund: Changing funds might mean you no longer receive benefits of the insurance. Double checking the details of this is particularly important if you have a pre-existing medical condition or you are aged 60 or over.
• Inform your employer of any change in details they may need, to pay to your chosen super account.

Don’t simply choose the account with the highest balance. Rather, take into consideration the performance of that super fund, the fees you are required to pay, whether it is linked to any insurance and any other factors. Upon reviewing this, you may find that rather than choosing between your current super funds, starting with a completely new fund might be the best way to go.

How to consolidate to one of your current super funds:

• Create an account on the myGov website
• Link your myGov account to the ATO
• Go to ‘Super’ and then ‘Manage’
• Select ‘Transfer Super’

Transferring to a new fund

In the case you decide that transferring to a new fund is the best option, you can consolidate either by contacting the new fund directly, or using an ATO rollover form.

What property investors need to look out for

All investments have an aspect of risk and property investment is no different. How comfortable you are with the risk is generally an indication of your financial situation, age and expertise. There are a few common areas that pose risks to properties that investors should be aware of before entering into the market.

Market risk

Like other forms of investing, there is the danger of the market crashing or seeing a significant turn. By investing solely in property, you run the risk of lack of diversification, meaning if the market were to shift, so would your investments. You can slightly combat this by purchasing properties in different states all over Australia, but if the wider property market crashes this is unlikely to relieve risk.

Lack of liquidity

Liquidity is how accessible your money within the investment is. Real estate investment lacks liquidity, meaning an investor needs to be thinking for the long term. From this is the possibility that an investor may be unable to buy or sell an investment quickly when they wish due to limited opportunities. Liquidity risk in Australian property can be lessened through investing in capital city suburbs with high demand and limited supply.

Tenants and damage

Tenants are apart of the deal when investing property. Particularly bad tenants can affect your cash flow if they don’t pay their rent on time and may leave your property damaged. A tangible asset, such as property, can face risks like natural disasters, fire, damage by tenants, robbery or vandalism. Finding a good insurance policy is a means of managing the physical risks associated with real estate investment.

Maintenance

Property investment isn’t one that you can set and forget, it requires attention and upkeep. Landlords and property owners have a responsibility to keep their buildings safe and livable for tenants. Good time management and a solid knowledge of the property will better equip you to handle these hidden problems.

Choosing a super funds

Choosing a super fund requires taking multiple things into consideration. Such as its performance, the fees you will be required to pay, details of the insurance, and different investment options that are available.

Performance

Performance is one of the most important things to consider when choosing a super fund. Take a look at how the super has been performing over the years. Compare how one super compared to others, but remember to compare within categories.

Low fees

All funds will charge a fee – this could be amount or percentage or even both. Checking to make sure that you aren’t paying excessively high fees when there are lower cost options is integral. Fees will usually be charged at the end of every month, or actions such as switching investments.

Insurance

Super funds will have three different types of insurance for members: Life (or death cover), total and permanent disability (TPD), income protection. When selecting a super, you should check the premium rates, the amount of cover and any exclusions or definitions that might affect you in the future.

Investment options

Funds will provide you with a range of options as to how you would like to conduct investment. Such as: growth, balanced, conservative, ethical, etc. Some funds may also allow you to choose the weighting of different asset types or direct investments.

Taking all of these factors into account is difficult. Comparison websites for superfunds make this process a bit easier. These websites may have vested interests, so you should take this account before making a decision based purely on one website.

The 2020 Budget also announced provision of ‘YourSuper’ which will be a tool the government creates to compare super products. This might further help in comparing and deciding which super fund you choose or change to.

Insurance for your super

Most super funds offer insurance as part of their super plan. It is important to be aware of what types of insurance you are covered by through your super fund to help you determine if you need extra cover outside your super and if you have adequate support in the event that you cannot work. There are three types of insurance that can be available through super funds:

Life insurance (also known as death cover):

This is the most common of all personal super insurances and is part of the benefits your beneficiaries will receive when you die. Life insurance is typically applied to your super account by default. It is not compulsory with your super, however, if you have a self-managed super fund (SMSF), then you are required to consider insurance as part of your investment strategy.

Total and permanent disability (TPD) cover:

This insurance pays a lump sum if you become permanently disabled and are unable to work again, protecting you against the risk that your retirement income is cut unexpectedly short. TPD cover is often automatically joined with life insurance as a default cover.

Income protection (IP) cover:

This pays you an income stream for a period of time that you are not able to work due to temporary disability or illness. It is only available as a default cover in about one-third of super funds. It may be particularly useful if you are self-employed or have debts.

You can check what insurance you have with your super fund on your annual super statement, your online super account or by contacting them. Through these you can see the type and amount of cover you have, and how much you are paying for it.

What is Salary Sacrificing for Super

One of the most effective ways to add to your super balance is through salary sacrifice. Salary sacrifice involves the employee agreeing to exchange a portion of their salary (before tax) for an increase in superannuation contribution by their employer.

Contributions made through salary sacrifice are classified as employer contributions, not employee contributions. These are taxed at a maximum of 15% (if you earn under $250,000 per year) which is lower than the marginal tax rate most employees are charged. The amount that you ‘sacrifice’ cannot be assessed for taxation purposes i.e. it is not subject to PAYG. Employees should ensure that their contributions per year are not above $25,000 as this is the cap on concessional contributions and if surpassed, will require additional tax to be paid.

Salary sacrifice is an effective way to minimise tax liability and increase super contributions if individuals are earning a greater amount than they require for annual expenses.

After beginning the salary sacrificing process, employees should keep a look out for two important matters. First, the calculation of ordinary time earnings by your employer that super applies to, does not change. Second, the amount which is paid to your super through the salary sacrifice agreement does not contribute towards any super guarantee contributions that are required of your employer. Employees should verify that neither of these occur, and verify any confusion with their employer.

Salary sacrifice is a trade off between income earned in the present, and contributions made for the future. Employees may experience difficulty in finding a balance which suits them or taking different aspects of their finances into consideration for the agreement with their employer. Asking for professional assistance to determine specifications for the agreement could help simplify this procedure.

Amnesty means that 24,000 businesses own up to underpaying Aussies superannuation

An amnesty scheme which ended earlier this month has caused around 24,000 businesses to admit to underpayment of their worker’s super. A total of 588 million dollars will be distributed to almost 400,00 individuals.

The scheme, which covered payments from the introduction of super in 1992, gave employers the opportunity to come clean without any consequences as long as they paid the unpaid super as well as 10% interest for every year the money was overdue.

The ATO will be directing its attention at any businesses that did not admit fault and these businesses will face severe penalties.

Many individuals are looking to access their superannuation early in order to have support during these times. Although there is criticism of early access to super, this facility has been helpful to many families to keep afloat.

What to consider when consolidating your super

The ATO reported that 45% of working Australians were not aware that they had multiple super accounts in 2016. Having multiple super accounts is particularly common for individuals who have had more than one job. If this is you, it is important to identify and manage your super accounts because having more than one can be costly as a result of account fees from multiple funds.To combat this, you may want to consolidate your super, which moves all your super into one account. Not only does this save on fees, but it also makes your super easier to manage and keep track of.

Before consolidating your super, it is important to do the following:

Research your funds’ policy
Compare your active super accounts so you can make the right choice about which one you should close. Things to assess include:

• Exit fees
• Insurance policies
• Investment options
• Ongoing service fees
• Performance of the funds

Check employer contributions
Changing funds may affect how much your employer contributes, as some employers contribute more to certain funds. Check your current accounts to see if changing funds will affect this. Once you have selected a super fund, regardless of whether you choose a new super fund or one of your existing ones, provide your employer with the details they need to pay super into your selected account.

Gather the relevant information
When consolidating your super, you will need to have the following details ready:

• Your tax file number.
• Proof of identity. This could include your driver’s license, birth certificate or passport.
• Your fund’s superannuation product identification number (SPIN).
• Your fund’s unique superannuation identifier (USI).
• Details of your previous fund.

What is an SMSF auditor and what do they do?

Self-managed super fund (SMSF) trustees are required to appoint an ATO-approved SMSF auditor no later than 45 days before lodging their SMSF annual return. An SMSF auditor is a professional who assesses your fund’s compliance with superannuation law and examines your fund’s financial statements.

SMSF auditor eligible requirements
Your SMSF auditor must be:

• Independent. SMSF auditors cannot audit a fund that they hold financial interest in, or have a close personal or business relationship with the SMSF members or trustees.
• Registered with ASIC (Australian Securities & Investments Commission) and holds an SMSF auditor number for you to provide on your annual return.

What will your SMSF auditor do?
An SMSF auditor provides you with an independent opinion on the existing assets in your SMSF and whether or not your fund complies with the rules outlined in the Superannuation Industry (Supervision) Act 1993.

When preparing for an audit, an SMSF auditor will issue a Terms of Engagement Letter to the trustee(s) of the fund, which includes the roles and responsibilities for parties involved in the audit as well as the range of the audit. In the case that your SMSF auditor’s primary contact is your accountant, your accountant will be issued a separate Terms of Engagement Letter.

By clearly outlining each parties’ capabilities, a Terms of Engagement Letter helps you, your accountant and your auditor to avoid any misunderstandings and also protects audit evidence provided by your auditor from unintended alterations. In turn, SMSF auditors who fail to follow standards or take shortcuts can be sued or imposed penalties by the Court.

The Terms of Engagement Letter also acts as a contract to keep parties accountable during compliance breaches and prevents cases of ‘opinion shopping’ where trustees look to other auditors for unqualified opinions. Trustees may end up being audited by the ATO in the event that they breach the Terms of Engagement Letter and ‘opinion shop’, as it comprises auditor independence.