The super reforms have placed an emphasis on the extent of the role superannuation should play in an individual’s wealth-building strategy, highlighting an issue that should have been addressed when the last set of significant changes to the retirement savings system were implemented, a technical expert has said.
“The changes announced in 2016 that came into effect from 1 July last year clearly have raised the question mark about how much you can use super to solve a client’s [wealth] issue,” BT Financial Group head of financial literacy and advocacy Bryan Ashenden told delegates at the Financial Planning Association 2018 Professionals Congress held in Sydney last week.
“It should always have begged the question realistically because they’re giving up access not being able to touch it, [so you have to ask] does that meet your client’s best interest in what they’re trying to do, but you also have to say that really should have been a consideration back from 2007.”
According to Ashenden, consideration as to the suitability of superannuation in a person’s wealth-building strategy became more relevant in 2006 when contributions limits were introduced.
“Sure the amounts you could put in were much higher than they are now, even still under that regime, but you were limited to the contributions [caps],” he noted.
He pointed out superannuation inflows are now even more strictly governed due to the total super balance restricting the ability to make non-concessional contributions at all.
“So I’d say even more so the changes that we had from last year have highlighted an issue that has probably existed for the last 10 years,” he said.
Further, he stressed the importance for financial advisers to apply the new contribution rules in the context of their clients’ circumstances.
“If we can still say you can contribute $100,000 a year, that’s $100,000 a year and it’s only an issue for people who have more than $100,000 a year to put away into the super regime,” he said.
“But that’s when I say again just because you can put it into super, doesn’t mean that super is going to be the right answer in every single situation.”