How an increase in Superannuation Guarantee may result in a pay cut

Superannuation guarantee (SG) rates will increase from 1 July 2021. While this is good news for our retirement nest eggs, some employees may feel the impact with a deduction to their take-home pay. This article explains the SG rate changes, salary differences, and options available to those who are affected by a deduction to their wage.

The superannuation guarantee (SG) is the minimum percentage of ordinary earnings that employers must contribute to superannuation for their eligible employees.

After years being stuck at 9.5% the Superannuation Guarantee (SG) rate is on the move again. It increased from 9.5% to 10% on 1 July 2021, and will increase by a further 0.5% each year until it reaches 12% from July 2025.

More money into super to provide a more secure retirement? What’s not to like about that? Well, it depends on your employment contract as to whether you are in for a welcome bonus or a nasty surprise when each annual increase in the SG kicks in.

Salary plus super, or super included?

If you are paid a base rate plus super then your employer should increase your super contributions by 0.5% with no change to your take-home pay. This is the likely to be the most common (and the best) outcome. It’s possible some employers may take the increases in SG into account when negotiating future wage increases, but this is an indirect and by no means certain outcome.

It’s a different story if you are paid on the basis of a total package, including super. In this case, and provided it doesn’t drop your pay rate below award minimums or the minimum wage, your employer may deduct the additional SG from your take-home pay. Not such a desirable outcome.

What can you do about it?

Just because an employer can reduce take-home pay to make up for the higher SG doesn’t mean they will. Many employers will wear the cost, and if that’s the case with your employer, all well and good. Also bear in mind that employers may use both types of contract, so just because your colleague at the next desk is paid on a salary plus super arrangement, you may not be.

With the outcome entirely up to your employer it’s important to talk to them. Find out if you are affected, what they plan to do, and if necessary see if you can negotiate an appropriate increase to your total package. If you have union representation this may be helpful.

It will all come down to the strength of your bargaining position. Employers who want to keep good employees and avoid the cost of employee turnover may be more willing to carry the cost of the increase. It’s also possible for your employer to take one approach this year and another next year, depending on business conditions.

While the drop in take-home pay after the initial SG increase may be relatively small, by 2025 it will be a much greater amount. It’s important to have that conversation with your employer as soon as possible.

Learn more about the SG rate increase here.

At Hejaz Financial Services, our Islamic Superannuation has a range of investment options designed to help you achieve your long term goals. We are also known to have outstanding performances and we keep our costs low to pass on your Superannuation returns to you.

If you wish to speak to one of our qualified wealth advisers, you can schedule an appointment or give us a call at 1300 043 529. To find out more about Australia’s Best Performing Islamic Super Option FY19/20* you can visit our website.

We are also Australia’s First and Only Islamic Pension Option, you can count on us to help you retire Islamically.

While it is easy to be discouraged by superannuation and fear you will never have enough money saved to stop working, remember even a modest superannuation balance can make a big difference in retirement.

For every $100,000 saved in superannuation, you can expect these funds to generate a return of 6%, or $6,000, a year. When this is paid out as a pension, it equates to $500 a month tax-free. Of course, this is doubled if both you and your partner have $100,000 each in super. Depending on your overall financial situation, this can be paid in addition to you receiving a full age pension.

Here are six super tips to help you maximise your super balance:

Tip 1. Consolidate your accounts

Consolidate all your superannuation accounts into one account best suited to your needs. The Australian Tax Office says 4 million Australians have multiple super accounts, wasting millions of dollars in duplicated charges.

These unnecessary fees will needlessly erode your super balance. Consolidating multiple accounts is easy. Simply log on to the ATO’s website and with one click, choose one account to accept all your funds. This alone could save you thousands of dollars.

At Hejaz Financial Services, we can help you run a search with the ATO to find your old accounts and help you consolidate them, this will help you save on unnecessary charges which can affect your overall retirement income.

Tip 2. Review your super contributions.

Check your employer is contributing the right amount to superannuation from your wages each week. If you believe there is a shortfall, contact the ATO to investigate on your behalf.

Tip 3. Take advantage of co-contributions

If you earn less than $52,697 a year, consider making additional after-tax super contributions to take advantage of a matching contribution from the government, called a co-contribution. Under this scheme, you can contribute up to $1,000 of after-tax money and receive a maximum co-contribution of $500. This is a 50 % return on your investment.

The government will determine how much you are entitled to when you lodge your tax return, and if you are eligible, the government will then pay the co-contribution directly to your fund. You do not need to do anything more than make the original contribution from after-tax savings.

Tip 4. Benefit from spouse contributions

Review whether you can benefit from making additional contributions to your partner’s super. If you do make contributions to your partner’s super and they are on a low income or not working, you may be able to claim a tax offset of up to $540 a year.

Tip 5. Contribute any long-term savings to super

There are rules concerning how much you can contribute to super, and when, but any savings put into superannuation will be held within a tax benign environment.

While your fund is in accumulation mode, these assets’ income and capital growth are taxed at 15%, rather than your marginal tax rate. Once you start receiving an income stream, these assets are held within a tax-free environment, making your superannuation your own personal tax haven.

And, if you are thinking of selling your family home to downsize to a smaller property, you can take advantage of the downsizer contribution rules, enabling you and your partner to contribute up to $300,000 each to superannuation. This one step can make a significant boost to your superannuation balance just when you need it, as you enter retirement.

Also, if you are looking to make additional contributions the ATO has also announced that as of 1 July 2021, the concessional contributions annual cap is being lifted from $25,000 to $27,500. Individuals under 65 years of age can also make non-concessional contributions up to $110,000.

Tip 6. Seek professional guidance

Of course, there are a raft of rules around superannuation that you must be aware of. To maximise your retirement nest egg, be sure to seek expert advice from a financial adviser or qualified accountant.

While it is never too early to start making additional contributions to super, it is also never too late. Even small steps towards the end of your working life can and will make a difference to the way you live in retirement.

At Hejaz Financial Services, our Islamic Superannuation has a range of investment options designed to help you achieve your long term goals. We are also known to have outstanding performances and we keep our costs low to pass on your Superannuation returns to you.

If you wish to speak to one of our qualified wealth advisers, you can schedule an appointment or give us a call at 1300 043 529. To find out more about Australia’s Best Performing Islamic Super Option FY19/20* you can visit our website.
We are also Australia’s First and Only Islamic Pension Option, you can count on us to help you retire Islamically.

Take a deeper look into an Islamic Account-Based Pension, retire at 65 but don’t retire your money. Whether retirement is just around the corner or still a few years away, we can help you get the most out of your Super.

Top up your age pension with your Super

The Hejaz Islamic Account-Based Pension is designed to help you enjoy financial independence in retirement by paying you a regular income throughout the year at the frequency you choose. This may give you more halal investment returns through your retirement and helps boost how long your savings last, once you’ve reached your preservation age.

What is an account-based pension?

An account-based pension is an alternative option to receiving super as a lump sum. Opening an account-based pension means receiving regular income payments while the balance of your super stays invested – giving you the potential for more investment returns throughout your retirement.

Benefits of an account-based pension

• Turn your Super into income

Receiving regular payments just like when you were working while the balance of your Super stays invested means you can enjoy your retirement. You can also use the income paid from your Hejaz FOC pension account to top up the Government Age Pension payments you’re eligible for.

• Flexibility and control

You can set up your account in a way that suits you with the amount and frequency of your income payments – you’re never locked in. You can withdraw extra money to pay for bills, holidays, or other big-ticket items at any time.

• Keep your Super working for you

Keeping your money invested once you’re retired allows your savings to continuously grow.

• Enjoy tax savings

Investment earnings on age pensions in the retirement phase is non tax payable. As your savings continue to grow, there is no tax payable to that amount.

We know that making the transition to Islamic pension can be new and that is why we are here to keep it simple and support you. The transition is easy, apply online in less than 5 minutes. Retire Islamically with Australia’s first and only Islamic Pension Option here. If you wish to speak to one of our qualified financial advisers call 1300 043 529.

One of the best things about living in Australia is the high level of choice we have in everything from milk to superannuation funds. For many of us, having a choice of where our super will be held is an important part of our investment management and a decision that should not be made without sufficient research.

This feature article details all of the options to take into account before changing super funds. It suggests investigation into investment options, fees, insurance, range of services, etc, and then offers action steps for each point. It can also be used as a detailed checklist and action plan to review your current super fund.

Whether you are changing employment or you’re not happy with the fund your employer offers, below are several key points to consider in selecting a super fund to meet your needs. Also listed are seven actions you can take to help yourself on the path to making the right choice for your future.

Action 1 – Ask your employer if you can choose your own super fund.

It’s your super

There is a range of options available for investing your super – retail funds, industry funds, corporate and public sector funds; or you can choose to manage your own. The choice of fund may depend on your employer or industry. Regardless, this is your money that is being invested for your future use, so it’s crucial that you take a keen interest in your superannuation.

Action 2 – Ask your super fund what investment choices they offer.

Investment options

Super is a tax-effective way to invest. Your super fund should give choices of investments – after all, one way of investing is unlikely to suit everyone. How much choice you need depends on your personal circumstances such as how much money you have in your fund, your attitude to investing, and how much involvement you wish to have in making investment decisions.

Does your fund provide suitable options? Are you invested in the most appropriate way? Your choice can make a big difference. There are generally five or six different investment options which can provide you with varying levels of exposure to each asset class. For example, a capital secure fund may invest your money predominantly in bonds and cash. A balanced or diversified fund on the other hand, might invest your money partly in bonds, cash and partly in shares and property.

Action 3 – Ask your super fund what fees they charge.

Fees

All super funds will charge fees in some way. The key issue is not the fees but the value provided by the fund. Like all things “you get what you pay for”. Some simple funds are cheaper but may not offer the options and facilities you need. Some funds may be too complicated or expensive for your needs.

Do you use the facilities offered by your fund? Are you paying for things you don’t need or missing opportunities from a fund that is too basic?

Action 4 – Determine what personal insurance cover you need. Ask your super fund about what insurance is offered and do the sums. Then talk to your financial adviser.

Insurance

If you have insurance cover via your superannuation you probably think you’re adequately covered, yet if something bad were to happen, you might be in for an unpleasant surprise – and by then it might be too late.

Many super funds provide a simple, low-cost and tax-effective way to get insurance cover in the event of death or disability but you need to determine if the current level is appropriate to you. And review the cover at each stage of your life.

Another point to remember is that a portion of your super contributions is used to pay the insurance premiums. This means that you’re not contributing as much as you believe.

What personal insurance cover do you have now? Is it too much or not enough? Is it better to pay the premiums personally or from your super fund?

Action 5 – What other services does your super fund offer?

Range of services

Super funds have become more competitive and offer a wide range of services to make it easier to keep track of your investment and tailor it to your needs.

Can you access your account online? How easy is it to make contributions or switch investments? How often does your super fund send you statements, updates or news about your fund? What education services such as seminars, online calculators and guides are available? How easy is it to speak to a human being?

Action 6 – What other important choices does your super fund offer?

More super choices

Your superannuation needs to provide for your future – the planned and the unexpected. For most people their super will pay an income when they retire as a pension or “retirement income stream”. When you die the super fund will pay out your super to your dependents or your estate. In some funds, you can advise or direct the fund as to how your super is paid out.

Does the fund allow binding death benefit nominations? Does the fund provide a range of pensions with suitable investment options?

Action 7 – If you have “chosen” the default option, will it meet your individual needs?

Default options

Super funds have to invest, provide insurance and other services for fund members who make no choice – this is called the “default” option.

How will your money be invested if you make no choice? What insurance cover will you have?

As you can see, choosing the right super fund is a major decision. There is a lot to consider. If it all seems too hard, give us a call at 1300 043 529 and we can evaluate your options and help you make the best choice for your specific needs.

At Hejaz Financial Services, our Islamic Superannuation has a range of investment options designed to help you achieve your long term goals. We are also known to have outstanding performances and we keep our costs low to maximise your Super.

Join Australia’s Best Performing Islamic Super Option FY19/20* today!

A lifetime of superannuation – and it’s not just about retirement!

The superannuation guarantee cannot be relied upon to provide a comfortable retirement but not everyone wants to retire! A different way to look at superannuation is that planning ahead will allow more choices later in life. It provides a guide to possible strategies through the different stages of working life.

The key to life is living, not retiring, but there may come a time in your life when you want to change what you’ve been doing and either stop working completely, or take a long holiday and work out what’s next. To be able to have this choice though, it’s imperative that you plan ahead, even if you think retirement is for everyone else.

As a rule of thumb, it is suggested people should aim for a retirement income of between 50% and 70% of pre-retirement salary/wages. Based on this premise, it is estimated you will need to save around 15% of your income for 40 years. The problem here is that your employer is only compelled to provide superannuation contributions for you at the current rate of 9.5% of your income per annum.

How might this be done? You can start contributing to super earlier in your working life, raise the combined rate of your super contributions to 15% by making personal contributions (keeping under the annual limits of course), and take heed of the following tips throughout your working life.

Young, single and independent

• Retirement is something your parents are doing but starting small and early lays the foundation for future choices.
• Maximise your government co-contributions—they can potentially add thousands to your super.
• Choose an investment strategy that suits your long-term risk profile.

A family and home finance repayments

• Your focus may be on repaying your home finance, but don’t forget your super entirely.
• Having home finance repayments and young children mean insurance is a top priority.
• Check eligibility for a tax offset on spouse superannuation contributions and government co-contributions.
• Review your investment strategy and risk profile.

The “in between” years

• A higher income and a smaller finance repayment open up the opportunity to boost your super but take care not to exceed contribution and balance limits.
• Find out if salary sacrifice could boost your super savings.
• Review your insurance cover and investment risk profile.

Retirement is looming (maybe)

• Over 55s enjoy some good incentives to contribute to superannuation but keep an eye on your total balance.
• Consider combining salary sacrifice with a transition to retirement pension if beneficial.
• Review your insurance cover, investment strategy and risk profile.
• Start comprehensive retirement planning or a new career focus.

Down tools or start anew

• You’ve made it. For retirees over 60, withdrawals and pension payments are tax free!
• Review your investment risk. Keep enough growth in your portfolio to ensure your money lasts as long as you do.
• Review your insurance.
• Stay active and enjoy life – or launch into your next career. There are no rules!

Remember, it’s never too late – or early – to start…

Learn more about Australia’s Best Performing Islamic Super Option FY19/20* here.

We understand as people we do not like change, and consolidating your superannuation may be new to you and that is why we are here to keep it simple and support you.

You’ve had a few jobs over the years and been paid superannuation during each one. You have a number of super funds and you forget all about them until the annual statements arrive by mail or pop up in your inbox. Now you feel worried and confused. What does it all mean? Have I got them all? Is my money still safe? Am I paying for multiple insurance policies? What should I do with all this paperwork? And the worst one – am I paying too much in fees?

The usual option is to simply forget about it until next year and then you go through all that confusion again. But there is a better way and if you act now you can sort it all out and potentially save a lot of money.

Here’s a 5 step process to locating your old super accounts and consolidating them into one fund.

Step 1

Collect all the superannuation statements you can find from your “bottom drawer” or print the latest from each of your online accounts.

Step 2

Make a time to meet with your financial adviser to go through the paperwork.

Step 3

Seek advice and select one superannuation fund that suits your needs.

Step 4

Sign transfer forms so your adviser can get the accounts rolled over to your chosen fund.

Step 5

Relax knowing that your super is all in one place.

If you’re looking to move your current super, you can also request a rollover by applying online (if you’re not yet a member) or by sending in our fact find form. We’ll get in touch with your other fund to transfer your super across.

Superannuation is too important to ignore. Getting your super under control can save you money in fees, cut down on paperwork, allow you to get an investment strategy in place, and help you keep track of your money.

The Australian Securities and Investment Commission (ASIC) reports that there are billions of dollars sitting in unclaimed or “lost” superannuation accounts with thousands more accounts added to the list each month. Inactive accounts with balances of less than $6,000 are transferred into the federal government’s consolidated revenue fund, so if you think you might have some old superannuation accounts that you haven’t touched in three years, don’t hand it over to the government, claim it!

Visit the ATO website for more information or check your MyGov account at www.my.gov.au.

Property basics

Australians have long had a love affair with property. According to an Australian Bureau of Statistics report*, owner-occupied properties account for more than 40 per cent of household assets. In addition, almost 20 per cent of households own rental properties and holiday homes.

While direct residential property has been the traditional form of investment for many Australians, listed property trusts or real estate investment trusts (REITs) as they are also called have also risen in favour. REITs are pooled investments with units listed on the stock exchange, which hold a basket of properties in one or more of the property sectors.

The S&P/ASX 300 A-REIT Index provides the broadest coverage of property trusts listed on the Australian share market. It currently includes stocks across the retail, diversified, office, industrial and hotel and leisure sectors.

* Household wealth and wealth distribution in Australia, 2011-12, Australian Bureau of Statistics.

Risk/return characteristics

Property is a long-term investment with higher risk than fixed interest investments but lower risk, historically, than shares.

Direct property potentially offers steady rental income, tax breaks via negative gearing and capital appreciation. At the same time, it has a number of drawbacks. It takes time to buy and sell: Building a diversified property portfolio is an expensive exercise, your property exposure is limited to one sector, locating and keeping good tenants can be difficult and there is always ongoing care and maintenance. There is also the risk of capital loss and lower rentals during times of oversupply.

REITs provide many of the benefits of direct property investment without all the effort. Returns from listed property can include income in the form of rent received from the underlying properties and capital growth (or loss) from changes in the value of the share price. Listed property trusts also offer tax advantages to investors in the form of tax deferred income distributions.

Income-seeking investors often compare the income yields (income as a percentage of capital value) of real estate investment trusts to ten-year bonds when assessing investments. It’s important to remember that while yields are usually positive share prices can fall.

Some trusts have more stable income streams than others particularly those with quality tenants and secure lease terms in a good position.
REITs have similar risks to shares. As property trusts are listed, their share price can rise and fall in value and is subject to swings in investor confidence and other factors impacting sharemarket returns.

Individual REITs are also subject to risk, with investment quality and investment exposure varying across the sector. For example, trusts involved in development projects tend to be riskier with higher gearing levels than other sectors making them sensitive to interest rate rises.
Last decade, the REIT sector underwent considerable structural changes as the focus moved towards development, funds management and leverage opportunities, which increased the sector’s volatility level and risk profile. The sector has since realigned itself to its traditional long-term risk and return characteristics, which has restored its diversification benefits.

Accessing a diversified portfolio of REITs

Managed funds can invest in single or multiple listed property sectors. Some even include some exposure to direct property and international property securities. The main benefits of managed funds are that you can invest in properties you would not be able to access directly yourself and you can hold a diversified portfolio of properties for a relatively small initial outlay.

Those are some property basics that should help you gain a basic understanding on property investment.

To find out more about our investment products, click here.