The Financial Planning Association of Australia The Financial Planning Association of Australia

Budget 2018: A focus on minor adjustments, rather than sweeping reforms

The Financial Planning Association of Australia (FPA) welcomed measures to simplify income tax and introduce greater flexibility into the superannuation system.

FPA CEO Dante De Gori CFP® said: “Offering relief from household budget pressures allows families to imagine a future in which their financial goals are met, and may even open the door to investment.”

Introducing a Low and Middle Income Tax Offset ranging from up to $530 for an individual and up to $1,060 per family, offers household budget relief in a lump sum following a tax assessment. Individuals will have the choice of where to direct this windfall, be it paying critical bills or investing for the future. Financial planners would likely encourage clients to accelerate debt repayments, invest this tax saving to meet financial goals or as an additional contribution to superannuation.

The reality of low wage inflation over recent years has prompted the Government to act in a manner that returns disposable income to people’s pockets.

Aimed at making personal income tax “lower, fairer and simpler”, the Government’s seven-year Personal Income Tax Plan means more Australians will benefit from lower rates of tax.

The cost of superannuation will come down, making it more cost-effective. Changes include reduced fees on low balances and a ban on exit fees. Young people, particularly those with low balances will also benefit from opting into default insurance rather than automatic cover.

“However, this decision must be an informed one. Young Australians should be aware of the consequences of deciding to not opt in. For example, insurance is easier to get when you are younger and is more affordable. So before you decide to opt out of insurance, do your research and seek advice,” said Mr De Gori.

Capping passive fees at three percent, banning exit fees and reuniting small and inactive superannuation accounts, are further measures welcomed by the FPA.

The FPA also welcomes proposed changes to restrictions on Self Managed Super Funds (SMSFs) outlined in this year’s budget.

“Increasing the maximum number of allowable members in SMSFs and small APRA funds from four to six reduces the need for many families to run multiple funds. Removing complexity saves significant cost in managing retirement savings,” advocated Mr De Gori.

Allowing older Australians to work while not affecting their old age pension entitlement has both financial and mental benefits. It improves financial capacity in early retirement by putting less stress on cash flow and makes retirement savings last longer.

“Remaining mentally active and working in retirement creates a greater sense of purpose and allows for social interactions which might otherwise be missing from the retiree’s life,” said Mr De Gori.

Moreover, FPA members have been urging the Government to create greater flexibility and more options in retirement income products to better support the varied financial needs of older Australians.

“More flexibility for retirement income streams is a measure our members have been requesting over the past 10 years. Financial planners have been critical of inflexible payment options and structures around retirement income streams for their clients.”

Means testing rules were a disincentive for the development of new retirement income products. Amending the pension means test rules will support the development and take up of new, better and more flexible retirement income products.

“The FPA welcomes the Government’s decision to set aside $20 million over the next five years to amend the pension means test rules,” said Mr De Gori.

Greater flexibility, more options and more choice for Australian retirees will make support from a professional financial planner more necessary. Balancing decisions around new retirement income options, managing cash flow and social security entitlements and making decisions around borrowing money, requires understanding and support which can only be provided by a qualified professional.

The Budget also included additional funding for regulators. ASIC will receive $10.6 million and the Tax Practitioners Board will receive an additional $20.1 million over four years. The FPA acknowledges the need for better funded regulators which are severely under-resourced at present. Additional funding means better protection for consumers and fewer delays for FPA members who rely on their services. The FPA noted however that the profession will ultimately bear higher levies and fees.

The FPA is hosting a webinar on Wednesday 9 May, 2:30pm-3:30pm AEST to help FPA members understand how the budget announcements could affect financial planners and clients. For more information, click here.