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the new school of super podcast series

Episode 33

2020-21 federal Budget – how the announcements might affect your super

October 2020

Looking for a simple summary of last week's federal Budget announcements? Don't miss Sunsuper's National Education Manager Joshua van Gestel and Head of Advice and Retirement Anne Fuchs as they discuss what the Treasurer announced and how it might impact your super and retirement planning.

Hello. Thank you for tuning in. Welcome to Sunsuper’s webcast and podcast series covering investment markets, money matters, superannuation and helping you achieve your retirement dreams. I’m Anne Fuchs and I’m Sunsuper’s Head of Advice and Retirement.

At Sunsuper we know that those members who get financial advice as early as possible are the ones that have the best outcomes in retirement. They’re living their retirement with financial security and comfort and that’s what you deserve at the end of your working life, so we encourage you to get financial advice.

Now, with me today is a man who normally would be travelling around the country wowing crowds of Sunsuper members talking about all the exciting things to do with the budget and financial strategies, our National Education Manager, who I haven’t seen in a really long time, Joshua van Gestel, my friend, how are you?

I’m wonderful, Anne. Although we’re not together, it is so good to see you again.

It’s great to see you too and, look, the one thing about this medium that we are doing, you know normally you’d be in every regional town and city around the country virtually, is that your family get to see you more and more members get to see you more as well, so that is a great thing.

That’s absolutely true and I think especially there have been times, Anne, where we’ve had to really get some strong messages out.

Yes.

And help our members. So it’s been wonderful that we’ve had this channel to do that.

And, look, we’ve got some really big things to talk about today because we just had the Federal Budget and we want to talk to you about that. It’s very important that as our members you understand what this means for you and your retirement savings, but before we do that we have to cover something off, don’t we, Josh?

Certainly do. So just a reminder that everything that Anne and I are going to talk about in this webcast, that it is of a general advice nature only. So we really ask you that if we say anything or talk about anything that does prick some thinking for you or give you some food for further thought, that you just reach out to us. So if you give one of our advisers a call on 13 11 84 or we also encourage you to jump on to our website and look at our PDS.

And we know many of our members too have their own financial advisers. So you can, of course, call them as well and ask them that question and they will be able to help you. So, I think, let’s start. We are - we’re talking about the budget. Just reminding - reminding our members about that. The principles, the things they need to keep front of mind when it comes to their super.

So with the Federal Budget, I think there was nothing particularly sexy or, you know, some years there are some really exciting things in the budget from a financial advice perspective and strategies that can help members prepare better for retirement, but there was not much this year, was there, Josh?

No, there wasn’t. And I’m actually quite a budget junkie, so the Federal Budget it is.

Poor you. Poor you.

It is probably my favourite night of the year.

Yeah.

But this year’s was, for some of the reasons you actually mentioned, quite uninspiring. It was less inspiring than my beard, I think. I did find there wasn’t, to your point, anything for people to consider around strategy. There wasn’t anything there that any financial adviser would really be chewing over or thinking about, but I think it was a budget with some quite implication and there were things that were mentioned, that I still think people need to be aware of, and that it will flow through to many of them in some way.

So there’s a couple of themes and the first one to me sounds like something from American - Housewives of America stapling. It sounds like some form of plastic surgery, I don’t know why I conjure that up, but this concept of stapling in superannuation and best and show and fun for life. These terms have now, kind of, popped up out of the budget. Are you able to just, at a high level, Josh, break down what these things mean? And what, I guess, the government is seeking to achieve, I guess.

So I’ve now got...

Sorry to interrupt you.

Well, I’ve now got images of Joshy Frydenberg doing plastic surgery.

Yeah - no. Sorry. That’s my fault.

So there was - to your point. There was a couple of things that were announced that are really important for members to know and the first one is that concept of stapling or a fun for life. That what the Government’s now saying is that traditionally what we’ve seen is that a person moves from job to job. They don’t really think about taking their super with them to their next job, as they would normally do with a bank account.

Superannuation is very much back of mind and not really thought about. So what the Government said is - in their announcements this week - that when you move on to a new job, where you’ve got an existing superannuation fund, that your new employer will be obligated to pay your ongoing contributions to that fund.

For those people who don’t yet have a fund, then they’ll actually have the ability to choose a fund, and you’ve made a comment there about best in show and that, sort of, plays into that. That the Government has announced a new portal, which we’re assuming will be part of myGov, that is called Your Super and you’ll be able to go into Your Super and actually see your list of superannuation funds that you can choose from and those superannuation funds will be listed based on their investment performance, based on their fees. As you say, Anne, it is going to be a best in show. That members can then choose from those, who they want to be a part of.

Now, there’s a bit to play out in that. There are, from an industry perspective, possibly some pros and cons, but if I go to the heart though of the policy announcement, what it is intended to do is actually reduce people having these multiple accounts when they move from job to job. So I do think that is a wonderful outcome and it might actually see that, super funds themselves. They’re going to be a bit more focused on helping members as they move through those transitions as well.

The concept about fun for life, I think probably young people don’t pay as much attention. Maybe they will now but we know at Sunsuper, members particularly pay attention to their superannuation when they’re having a life event. They’re going through a divorce or they’ve had a redundancy or they can see retirement actually - they can feel that it’s getting closer.

Josh, what would you be saying, if you were standing up in front of an audience in Cairns or in Wollongong, what would you be saying to those members, in terms of - does this budget matter, if they’re going through a life event or they can see retirement, and what should they really be thinking about?

I think that budgets - although they sometimes do make - excuse me - make major announcements around super, often they don’t affect the majority of people and - like the majority of people, I think, still need to be thinking about their super, not from a budget perspective but, to your point, more from a life change perspective.

I think it’s timely to think about, regardless of the budget, we have a lot of people who are out there, who have seen their circumstances change, and I would actually say that when your circumstances change there is the potential for opportunity with your super. And what I mean by that is that, firstly, if your circumstances have changed in a way that maybe you’ve seen your income reduced, you might have access to certain benefits with super, such as government co-contributions or even a spouse benefit in from making spouse contributions, that you may previously not have had.

So there are opportunities there that have maybe raised themselves but older people and older members who are maybe having to think about their plans for retirement and changing those plans, I think it’s a really good opportunity for them to actually engage with their super fund, to see what they’ve got and see how that can translate to income and what it may mean for them, but there may also be an opportunity there where they can access more age pension if there’s been other changes in their life or circumstances.

The other thing I would say though, Anne, there is also consideration, as well as opportunity. That if your circumstances have changed, you need to make sure you’re still engaged with your super. Make sure that if you’re finding yourself out of the workforce, for example, that you don’t just disregard your super. Make sure that they still are connected with you. Make sure that you’re still aware of it and when circumstances change, that you can very quickly start trying to make amends for that gap that you may be in and taking advantage of those opportunities that I did mention.

This is the time of year where people are receiving an email from Sunsuper hopefully, and hopefully not paper, but hopefully an email with their annual statement and what, you know, Josh is really saying to members is that it’s so very important that you as members read that, understand it and look at what your future lifestyle looks like in retirement.

I think, Josh, if I can throw - if I just pause and reflect about my own life, and I turned 45 recently and a lot of my friends - we all have kids and mortgages and there are two cohorts of people. People that have been hit really hard by COVID because they’re in travel or the airline industry and then those people that are actually doing really well and the ones who are doing well have been drawing on their super to survive.

But there are those people who are doing well that I think are questioning, should I be putting more money into super. Is that still a viable investment vehicle of the future? What is so great about super? What would you say to my friends if you were at a barbecue this weekend up here in QLD?

Oh, I’d love to be up there in QLD.

Yeah, for a barbecue at the moment, Anne.

Yeah.

But I think, to your point, there’s people who are in two extremes here and probably my point to both of them would be the same. When you have the ability and opportunity, take it. And what we know with super is that generally things change a lot, either through legislation or through your own circumstances. So when the opportunity presents itself, take it. So

So when you say "the opportunity presents itself", you mean putting money into super, is that what you mean, or what?

Absolutely.

Yeah. Okay.

Absolutely. So I think - I think, especially those people that may have found their circumstances haven’t been impacted, and this is something Brian, our Chief Economist, has spoken to. That there are opportunities in low markets. There are opportunities with investing in these times. So that’s what I really encourage those people to think about.

For those that are maybe in a situation where they’ve had to consider drawing down or having fat drawn down from their super, then what I would be saying to them is when their situation actually improves, when they find themselves with that opportunity to contribute more to super, that they do take that and do think about then where there may be government co-contributions in support of that nature that could actually help them recover in part what they’ve withdrawn.

So I think it’s really important that, regardless of your situation, when you have that ability to engage with your super, and I acknowledge that there’s a lot of other financial pressures, especially at the moment, but when super can be part of that mix that you do consider it and that you do take that. I think it’s very important, particularly for those people who may be younger, even of our generation, Anne, in our mid-40s, that decisions we make today, contributions that we make today, the value of those in 20 years when we are retiring, in 30, 40 years when we are well into our retirement, that money that we put in today with compound interest, with long-term investment growth, will make a fundamental shift to our incoming retirement.

Absolutely. Josh, one thing I certainly know is that those members that are interested in putting money into super and they worry a bit about investment returns, and I would encourage our members too, if you are worried about investment returns and money markets, to watch our webcast and listen to our podcast with our Chief Economist Brian Parker who will give you great comfort around that.

But, Josh, there is this, sort of, fear that the government is going to meddle again with superannuation and if you put your money in, what are they going to do next. So the question is, what do you think they are going to do next, because we’ve got another Federal Budget in May of 2021?

Dare I admit, Anne, it’s actually the constant tinkering of super that keeps me in a job as Education Manager talking to people about what it means.

Yes.

But unfortunately I would actually say that people should expect there will be tinkering or there will be announcements, perhaps leading into, but certainly within the budget next year in May. And the reason why I say that, there were a couple of things which were not mentioned, as part of the budget, which the media had, to some extent, commented on previously, but we saw three things really.

Firstly, we know superannuation guarantees are legislated to increase to 10%, July 2021. The government has been toing and froing a bit on that, about whether it will increase to 10% and then go on to 12%. They’re going to have to address that one way or the other, is it in or is it out, and that’s going to have to happen, if not before May next year, it will have to happen in the budget.

The second thing is that we’ve seen a lot of people draw down on their super during COVID through early release. There was some expectation that the government may allow that to continue beyond the 31st of December this year. That wasn’t announced. Though I take some sense that that may mean the government won’t make any additional changes, I wouldn’t say that it won’t be looked at, depending where COVID goes over the coming months, we may still see that as a live issue.

Third thing though, and I think this is the more important one when it comes to potential tinkering, if I can use that word, the government some months ago got this review into retirement incomes in Australia and the review was pretty much tasked to look at superannuation and how superannuation works alongside the age pension and people’s ordinary investments, excluding the family home.

Now, as I said, Josh Frydenberg has had that for some months and has said nothing to this point. They’ve obviously had a chance to digest it, think about it. It will be in their policy thinking and their agenda thinking. I have a feeling that very soon they’re going to have to come out in some way and start discussing what that is. So I think potentially, Anne, for those of us, of our age group or younger, more likely we may actually see some tinkering occur with what’s going to happen with us going forward as we enter into our retirement, I would think.

All right. Calm down. Can you not ever, ever say that sentence to me again. I don’t want to - you and I talking about our retirement, Lord have mercy. It’s just too scary. You know, Brian, you and I, will always be young and vibrant, in my head anyway. So speaking...

I always feel younger when I look to Brian so...

Yeah, that’s all. So, if we are heading towards the older years, if we imagine - so there was one thing out of - a bit of good news from the budget for the older - in our elder in our community, the age care supplement.

Yeah - no. That’s right. Any of our members who are age pension recipients, as well as there are others who will receive this entitlement beyond aged pensioners but the government’s announced two additional COVID supplement payments. The first of those is $250 that they’ll pay out in November and - so just in time for Christmas shopping, and the second is going to be 250 paid out in March next year. So that was a small piece of good news by a stretch for our members to think about.

And I did trip up on my words.

I think, importantly.

Sorry, you go.

Sorry. I was just going to close off, Anne, by saying that something that Brian has said in his update around the budget, the government’s really doing that to try and encourage people to spend that money, so certainly I would just say to people as they’re receiving that to do weigh up where they’re at and think about what they’re going to do with that.

And just to clarify, I tripped up on my words before. I had visions of Brian, you and I in aged care, later in life, having a glass of champagne over on the grass but, in fact, it was the age pension and I certainly hope in my older life, because of the great financial advice I’ve had, I am not having to rely on the age pension.

Now, many of our members, I’ll probably just - a reflection. Is that many of our members, and Josh just spoke about spending money and - that many of our members die with their starting balance intact when they’re in retirement and, you know, there is the opportunity to spend a lot more and enjoy that retirement that you really do deserve and, I guess, holding on to that money probably comes from a bit of fear and a need to have security, but this is where financial advice really comes to the fore. That the adviser, whether it’s an external adviser or an adviser on the phones at Sunsuper, can give you that comfort about how much money you can spend so that you’re not worried about it running out.

Josh, we have covered some really big ticket issues. I have loved having a chat to you via Zoom today.

It’s been wonderful just to be here, Anne, and again to everyone who’s watching, it is in my DNA to be out travelling around the country and talking to you face-to-face. I have missed it dearly and I look forward to being out there meeting with you all again soon and I can’t wait to see you again soon as well.

Absolutely, and just for the record, my favourite night of the year is not budget night. It’s State of Origin, but only when QLD wins. So to all of our members, thank you so very much for tuning in to the new School of Super. We do have just a wealth of information that will help you understand your biggest financial asset, probably outside of your family home.

So we encourage you to take an active interest in it. We hope that you’ve enjoyed this episode and we look forward to you tuning in again soon. Thank you.

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