Letters of the Week

Super changes, spending in retirement, ASX/200 newbies

Shining some light on super changes

Regarding the proposed tax on superannuation income above $100,000 per annum, I would like to know if the government will take into account losses in previous years similar to company accounts? A superannuation fund that is predominantly in shares experiences wild fluctuations in performance. A $1,000,000 fund comprising mainly shares probably realised 35% gains two years running about 5 years ago before the global financial crisis, followed by two years of 25% losses in the 2008/9 crash. A $1,000,000 fund that holds mainly shares would easily be trapped by this new tax under similar circumstances. So, the question is, if a fund loses say $40,000 in year one and then makes $200,000 in year two, is it taxed on $60,000 ($100,000-$40,000) or are previous years losses ignored?

I have not seen any comments addressing this and hope Eureka Report can shine some light on the issue.

Bob McDonald

Max’s response: Thank you for your question. I addressed a similar query a few weeks ago in my column, Ask Max: Superannuation Reforms Special Edition, as well as a number of other questions on the proposed changes that you may find of interest.

Spending in retirement

I found Scott Francis’ article, Spending in retirement: how much is enough, a good read, but with the majority of SMSF trustees still on a learning curve, I think it would be good if the situation in Australia could be directly addressed. As most would be aware, the percentage of drawdown is mandated and actually increases as you age, with the intent being you leave nothing for your kids.

Paul Dowling

Scott’s response: In Australia, we do have mandated levels of drawing in superannuation that increase with age. However, while these levels of drawings have to be taken from a superannuation fund paying a pension, they do not have to be spent. This means that after being withdrawn from a superannuation fund, they could be invested outside of superannuation. For example, if you were at a stage where your mandated drawings are 6% a year, and you have calculated that a reasonable and sustainable drawing rate from your assets is 4.5% a year, you can invest the surplus 1.5% outside of superannuation in your own name. So, even if you are forced to draw more than you would like from superannuation, you can save some of it. You are not forced to spend it. Further, you should be able to build a reasonable portfolio of assets outside of superannuation and pay no tax - meaning there is unlikely to be any tax penalty in taking this approach.

ASX/200 newbies

Following from Brendon Lau’s article on the out-performance of newbies on the ASX/ 200 and ASX/100, Three small caps morphing into market leaders, could Eureka Report suggest a link or location to find changes to companies comprising these indexes? I've been searching the ASX and other websites with no luck.

Rob Gordon

Brendon’s response: S&P makes these rebalances every quarter and publishes a news release outlining which stocks have been added and dropped. The data is available on the S&P Australian website, usually published in the first week of each calendar quarter. The link to the site is here.

For more Letters of the Week, click here.