Noel News 4 Dec

You can’t go back and change the beginning, but you can start where you are and change the ending.

Welcome to December – I must confess I write this with a great degree of frustration. My new book Retirement Made Simple is selling very well – but I’m getting reports from many readers that bookstores just don’t have stock. The distributors have sent me data showing that large amount of books are being delivered to bookstores, but phone calls to  bookstores elicit responses such as “no stock is available.” Now, as one reader pointed out, both Booktopia and their subsidiary Angus and Robertson are showing no stock available until after Christmas. This is despite the fact that there is ample stock, and a further 5000 copies are now on the printing presses.

The message is clear – if you want books before Christmas order straight from our website. We’ve caught up on the backlog, and books are normally shipped within 48 hours of you placing your order. They are all sent express post and are arriving usually within 72 hours of shipping. This may increase as Christmas gets closer.

There have also been questions about what to do if you want to buy a number of books which don’t quite fit the bundles that are on our website. That is simply solved – just email me at tell me what you’re looking for, and I will put together any combination  you require. I will then let you know the cost and the bank account to deposit the money to.  I will post the books the same day from my stock at home. The price will be in line with the reduced prices for bundles on the website.

From my experience the book trade is a giant bureaucracy. If you deal with us direct there are only two people involved – Neil who does the shipping, and myself who handles any issues which arise. I guarantee very fast action if needed.

The Retirement Income Review

Last month Treasury released the latest review of the Australian Retirement Income system.  What made this one unusual is that it made no recommendations – It just provided information. But don’t hold your breath, without doubt it will go the way of all the other inquiries.

Remember the Henry tax review, which was commissioned by the Rudd government in 2008, and published in 2010. The report contained 138 recommendations, most of which have been ignored.

In 2014 we had the 320 page Murray report which made 44 recommendations, most of which never saw the light of day. In 2015 CEDA published a comprehensive paper “The Super Challenge of Retirement Income Policy” which pointed out that “constant tinkering around retirement income policies makes it difficult for those planning for retirement to make informed decisions about how best to fund their retirement.”

Of course, if you’re in government you need to be seen to be doing something. In December 2016 Treasury released a discussion paper titled Development of the Framework for Comprehensive Income Products for Retirement  (CIPR’s) which required fund managers to develop products which would give retirees security in the later years of their life. The May 2018 budget took the process a step further when they announced a retirement income covenant that would require Trustees of superannuation funds to offer CIPRs. As of today, they are still a work in progress.

Just a week ago Reserve Bank Governor Phillip Lowe urged the Morrison government to move faster on reform, and pointed out that the Productivity Commission’s Shifting The Dial report has been languishing in the government is too hard basket for over three years.

A key finding of the latest Retirement Income enquiry was that the present retirement income system, which revolves around the three pillars of age pension, compulsory superannuation, and voluntary savings was serving retirees well. Consequently, there was no urgent need to increase compulsory employer superannuation.

Predictably, reaction by the many stakeholders in our retirement system were mixed as they all fought to defend their own positions.

The Association of Superannuation Funds of Australia (ASFA) strongly disagreed with the inference that raising the employer superannuation to 12% was not of great importance. CEO Martin Fahey claimed “for many Australians the increase to 12% is essential to offset the financial loss from super withdrawn under the Covid 19 early release scheme”

The big debate now is between more employer super, or more money in the pay packet. Valid arguments can be made for both positions, but in my view, most workers spend every dollar they earn, and would be far better off trading smaller pay rises today, for $800,000 or more in their superannuation when they retire. That would give every retiree the equivalent of a big Lotto win.

The main problem with the review is the assumption that our present pension system can continue at its present generous level. Let’s face it, we have a major structural demographic problem. Our fastest growing group is the over 65’s, who demand more and more in welfare as they age, yet  thanks to a wide range of offsets they pay little or no income tax.

Australia, like every other developed nation is in debt to the hilt thanks to Covid. The big question is where will the money to pay all this welfare come from. Raising the GST to 15% with no exceptions is the obvious answer – how to sell that to parliament is the big question.

Taxing Times

Treasury’s recent Retirement Income Review observed that retirees with large superannuation balances receive too much in tax concessions. It noted that 11,000 people currently have over $5 million in super, and claimed that people with incomes in the 99th percentile receive more tax concessions both during their working lives and in retirement than any other group.

The obvious inference is that superannuation concessions should be wound back for those with large balances. But rule changes already made mean that within two decades there will be very few big balances. Cast your mind back to 30 June 2017, when the Turnbull government introduced the Transfer Balance Cap. This restricted the amount that could be transferred to superannuation’s tax-free pension mode to $1.6 million. Earnings on the balance of a fund were to be taxed a flat 15%.

The ability to make contributions was also slashed. A fund member whose balance exceeds $1.6 million can no longer make a non-concessional contribution. For members with lower balances, the annual contributions cap was dropped by 33% — from $150,000 to $100,000 a year. Furthermore, the limit on concessional contributions was reduced from $35,000 a year to $25,000.

Undoubtedly some self-managed funds had the good fortune to invest in shares like Magellan, Fortescue and CSL, which would have given their balances a mighty boost. But keep in mind that these are usually long-term holdings, and the value increases are only paper gains until the shares are liquidated. Until then, CGT on these would contribute virtually nothing to Australia’s tax income, irrespective of what tax bracket the owner was in.

Most members of large super funds are aged at least 70, which means they are likely to die in the next 20 years. And a person with a large balance cannot pass the entire balance to their family within superannuation mode. If their partner is nominated as a reversionary beneficiary, the widow or widower may receive up to $1.6 million, and the rest of the deceased member’s account must be cashed out and paid to the beneficiary. It has left the superannuation system.

If the inheriting partner already has a balance of $1.6 million in pension mode, to receive $1.6 million from the deceased they would need to commute their existing pension balance back to accumulation mode, to make space for the money being transferred in.

Suppose in three more years the surviving partner dies – if leaving money to a non-dependant, the estate may well be liable to pay tax of 17% on the taxable component of the surviving partner’s account. Alternatively, if they had taken advice, their attorney would have withdrawn the money from the fund tax-free and deposited it in their bank account. In both situations the entire balance has left the superannuation system once both members are deceased.

I fail to see how the review can make the comment that tax concessions go disproportionally to the wealthy. If a person earning $400,000 a year was under the $1.6 million cap and wished to contribute $100,000 to super from after-tax dollars, they would have to use gross income of $189,000 to make an after-tax contribution of $100,000. If they wanted to boost their balance further with a $25,000 concessional contribution, they would pay $7500 in contributions tax, leaving just $17,500 as a net contribution.

The pre-tax cost to a high-income earner of contributing a net $117,500 into super would be $214,000. That’s hardly the stuff that tax rorts are made of.

When the Turnbull tax changes became law the industry gave a huge sigh of relief, in the expectation that finally superannuation rules were settled, and no more changes were in the pipeline. Now more than ever Australia needs a superannuation system that gives certainty. We don’t need any more changes.

Wi-Fi Glitches

It’s become a regular occurrence for the Wi-Fi on my iPhone not to work when I am in a busy area,. It is particularly frustrating when trying to use an app such as Uber. It eventually occurred to me to look at the Wi-Fi connection on the phone, and I discovered that each time there was a problem the Wi-Fi provider was shown as Telstra Air. Once I turned off Wi-Fi, the phone returned and able to access all my apps.

Now I’m not a Wi-Fi expert – but it seems to me that Telstra Air automatically attaches itself to your Wi-Fi when you are in range of one of their pink phone boxes. It’s waiting for you to log in but you can’t do that unless you know the password which I neither have nor want. Anyway, I thought I’d pass this on – it’s something I discovered for myself and seems to be happening more regularly. At least the fix is simple.

Books For The Young

Here’s an example of how powerful the right book can be, and just one of the many emails I receive each week:

Hi Noel,

Thanks for sharing all your wisdom through your books.

When I was 10, I read Making Money Made Simple, and couldn’t wait to be old enough to buy shares. I would analyse the share pages in the Courier Mail! Then Mum bought Beginners Guide to Wealth for me, and I have read it many times, and gave it to my husband to read as well, when he was feeling a bit lost career-wise.

I am now 30 years old, married with a baby daughter, and on maternity leave from my job. I have been able to take a full two years off to spend with our daughter, as we have been very fortunate financially. I’ve been buying shares since I was 18, also bought and paid off an investment unit when I was younger and single – we have just paid off our family home.

Having the financial pressure off has made the stress of Coronavirus not so much of an issue, and I believe has lead us to being more relaxed, happier parents. I hope your books continue to inspire for lots of years to come!

Thank you so much, Noel!

A key lesson here is that set for life starts early in life. If you want to give a young person the ability to help themselves, The Beginner’s Guide to Wealth is the perfect place to start.

Available now:

Downsizing Made Simple Ebook

My collaboration with Rachel Lane, Downsizing Made Simple has helped many people “right-size” their home and living arrangements and navigate the legal and financial maze of moving into retirement living. We explain how a move can affect your lifestyle, superannuation, pension and benefits, and we share some real-life stories from readers.

The book is now available in eBook format for those of who who like their library on a phone, table or computer. Click here to view all the Ebooks now available.

And Finally

“Lexophile” describes those that have a love for words, such as   “you can tune a piano, but you can’t tuna fish”, “To write with a broken pencil is pointless.”

An annual competition is held by the New York Times to see who can create the best original lexophile. This year’s winning submission is posted at the very end.
I changed my iPod’s name to Titanic.  It’s syncing now.

England has no kidney bank, but it does have a Liverpool .

Haunted French pancakes give me the crepes.

This girl today said she recognized me from the Vegetarians Club, but I’d swear I’ve never met herbivore.

I know a guy who’s addicted to drinking brake fluid, but he says he can stop any time.

A thief who stole a calendar got twelve months.

When the smog lifts in Los Angeles U.C.L.A.

Police were summoned to a daycare center where a three-year-old was resisting a rest.

Did you hear about the fellow whose entire left side was cut off?
He’s all right now.

A bicycle can’t stand alone; it’s just two tired.

The guy who fell onto an upholstery machine last week is now fully recovered.

He had a photographic memory but it was never fully developed.

When she saw her first strands of gray hair she thought she’d dye.

Acupuncture is a jab well done.  That’s the point of it.

I didn’t like my beard at first.  Then it grew on me.

Did you hear about the crossed-eyed teacher who lost her job because she couldn’t control her pupils?

When you get a bladder infection, urine trouble.

When chemists die, they barium.

I stayed up all night to see where the sun went, and then it dawned on me.

No matter how much you push the envelope, it’ll still be stationery.

I’m reading a book about anti-gravity.  I just can’t put it down.

Those who get too big for their pants will be totally exposed in the end.

I hope you have enjoyed the latest edition of Noel News.

Thanks for all your kind comments. Please continue to send feedback through; it’s always appreciated and helps us to improve the newsletter.

And don’t forget you’ll get much more regular communications from me if you follow me on twitter – @NoelWhittaker.

Noel Whittaker