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Reviewing your trust deed before 30 June

With changes to Australia’s superannuation rules coming into play on 1 July 2017, self-managed super fund (SMSF) trustees would do well to review their fund’s trust deed.

Despite the fact that maintaining an up-to-date trust deed is a vital aspect of managing a SMSF, many trustees fail to do so, usually due to the time and cost restraints associated. However, a SMSF trust deed can only ensure compliance and protect the trustee’s interests if it is regularly updated and reflects current superannuation rules.

As part of the super reforms announced in last year’s Federal Budget, tighter superannuation rules will apply from 1 July 2017, including a $1.6 million super balance cap for after-tax contributions; a maximum of up to $25,000 for concessional contributions; and the removal of the current “bring-forward” rule allowing $540,000 of contributions in one year.

According to some industry analysts, these changes are likely to result in many out-of- date trust deeds. But often changes to superannuation legislation provide the perfect opportunity for trustees to review and upgrade their deed.

One of the major changes to super which will affect traditional SMSF trust deeds is the $1.6 million limit on retirement balances, which the Government also wants to make retrospective. This means those who already have more than $1.6 million saved in their superannuation will need to adjust their strategy and trust deed accordingly to meet the new limit.

Updating a SMSF deed will particularly benefit those SMSF members with money locked in the old term-allocated pension and with a pension balance greater than $1.6 million in a mix of term-allocated pension and account-based pension balances. This is because the term-allocated pension can be converted back (in full or in part) to the accumulation phase to remove any excess over the $1.6 million cap.

Another major change to consider is the deed’s death benefit control mechanisms. The new super rules will allow certain death benefits to be rolled over, so it may be worthwhile reviewing whether the SMSF trust deed has sufficient options in the death benefit payment provisions.

SMSF trustees will also have to consider whether their current trust deed will allow for the terms of the trustee’s pension to change without needing to stop and restart the pension. Many of the upcoming super changes will dramatically affect the strategic landscape of SMSFs in Australia, and some of these changes will challenge old deeds, so, as with any other financial decision, seek professional advice if you are considering updating your trust deed.

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Expert advice on early superannuation access as a result of COVID-19

April 2, 2020

Under the coronavirus stimulus package released and revised by the Australian Federal Government on 22 March 2020, individuals in financial trouble due to the negative economic impacts of COVID-19 will be able to access their superannuation funds early. However, while the option is available, it is recommended that individuals only consider withdrawing from their super in the case of absolute emergencies and treat it as a last resort.

With the new rules on superannuation, workers whose incomes are reduced by at least 20% due to the COVID-19 outbreak are allowed to take $10,000 out of their super for the 2019-20 financial year and another $10,000 for 2020-21. Individuals will also not need to pay tax on any withdrawn amounts and existing welfare payments will not be affected either.

While the introduced early access to superannuation funds may be inviting for newly unemployed workers, it is important to consider whether the temporary relief is necessary and worth foregoing super funds available for long term investment. For example, even when accounting for Australia’s slowing economy in the coming years, $10,000 is predicted to be worth over $65,000 in another 30 years.

Especially for younger workers who are less likely to have access to other savings, the choice to give up future savings for current comfort is a difficult one. Experts instead are recommending Australians to apply for the other payments and benefits made available to vulnerable Australians through the coronavirus stimulus package, such as added $550 fortnightly supplements to Australians on JobSeeker payments and other welfare recipients and pensioners.

Experts also predict that the Australian Government will introduce more stimuli for increased cash flow in the Australian economy and more payments for unemployed, struggling and vulnerable Australians in the case of COVID-19 becoming more of a serious economic issue. Hence, withdrawing funds from your superannuation account should be considered a last resort and not for the sake of unnecessary temporary relief.

In addition to being allowed early access into individual super funds, superannuation minimum drawdown rates will also be temporarily reduced by 50% for account-based pensions and others similar until 2021.

The Government has also reduced the upper and lower social security deeming rates by a further 0.25 percentage points, with upper at 2.25% and lower at 0.25% which will come into effect on 1 May 2020.