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February 2017

Super News - February 2017

Welcome to the February 2017 edition of 'Super News'.

We aim to keep you abreast of all the latest changes and developments facing superannuation and Self Managed Super Funds and trust these selected articles will help you on your road to retirement.

 

 

Recent changes to the asset test for pensioners

From January 1, 2017, the assets test free area and taper rate for pensions increased. The assets test works by reducing a person's age pension payment for every dollar of assets owned over a certain value. The test takes into account most assets, including any property (except your primary home) or possessions owned, or partly owned, in or outside Australia.

The assets test is one of two means tests used by the Department of Human Services (Centrelink) to determine your age pension eligibility, the second being an income test. The results of these tests that produces the lowest pension payment (or zero) is then applied.
 
The asset test free area is the amount of assets you can have without affecting your pension. Centrelink will reduce your pension by $3 each fortnight for every $1,000 of assets you own over the assets test free area. This is the taper rate. Before January 1, this rate was set at $1.50 (so it has therefore doubled).

Some people will have received more or have no change to their pension, but there is also the possibility that people may have their pensions reduced or cancelled. Centrelink states that if you lose your pension due to the January 1 changes, you will automatically get a non-income tested Low Income Health Care Card, and Commonwealth Seniors Health Card if you are age pension age. The former provides concessions on water rates and energy bills, among other discounts, and the latter provides discounts on prescription medicines and bulk-billed doctors' appointments.
 
The information below outlines the before and after assets test thresholds, or disqualifying limits, for the full age pension.
* Single homeowners full pension assets must be less than $209,000 (2016) -  $250,000 (2017)
* Single non-homeowners full pension assets must be less than $360,500 (2016) - $450,000 (2017)
* Couple homeowners full pension assets must be less than $296,500 (2016) - $375,000 (2017)
* Couple non-homeowners full pension assets must be less than
$448,000 (2016) - $575,000 (2017)

The following information the thresholds for a part age pension
* Single homeowners part pension assets must be less than $793,750 (2016) -  $542,500 (2017)
* Single non-homeowners part pension assets must be less than $945,250 (2016) -  $742,500 (2017)
* Single homeowners part pension assets must be less than $1,178,500 (2016) -  $816,000 (2017)
* Single homeowners part pension assets must be less than $1,330,000 (2016) -  $1,016,000 (2017)

 

Is the peer-to-peer lending investment option right for your SMSF

One investment option that has surfaced relatively recently, and that SMSF trustees may consider as a part of their strategy to grow their fund, is investing through peer-to-peer lending.
 
Peer-to-peer lending involves an investor – a trustee of the SMSF in the current case – providing funds to an online lending platform. This platform, which must have an Australian Financial Services License (AFSL), subsequently provides finances to an individual or business that requires a loan, and charges for providing that facility.
 
SMSF trustees considering entering into this kind of financial arrangement are reminded to take appropriate due diligence steps, but also to consider if it fits with the SMSF's investment strategy or risk profile.
 
Security of the investment is another important consideration. Checking professional registers to ensure that the purported peer-to-peer lender has a license that permits them to sell that product is critical, as is checking whether they have a credit license for the borrowing side of the business. These details must be disclosed by the entity itself, even if you are able to access them via the corporate regulator's website.
 
A product disclosure statement (PDS) may be a dry piece of literature, but it provides information that is essential before a trustee decides whether to take the plunge. ASIC suggests potential investors look at issues such as:
- the security of loans;
- interest rates and how they are determined;
- the choice of loans, repayments, and conditions related to a defaulting borrower;
- issues that can arise if a platform fails; and
- fees payable to access the service.

Other issues a potential investor should keep in mind include a borrower's credit risk and how this is assessed by the lending platform. Is the borrower likely to default based on past credit record? Is the borrower a person that would pay the loan amount in full plus interest, based on their credit history?
 
A further and more significant risk in these arrangements, especially for SMSF trustees, is the source of the money changing hands. The lending platform is not lending its own money, and it can be your retirement savings that will bear the brunt if a borrower defaults.
 
ASIC notes that some lending platforms may advertise that they have a compensation fund that can repay some losses in the event of a default, but ASIC warns that if a lending platform has a series of defaults their compensation fund may be unable to meet all the demands.

DSR PARTNERS - 3/227 The Entrance Road, The Entrance NSW 2261

All Client Newsletter Library material is of a general nature only and is not personal financial or investment advice. It does not take into account one individual's particular objectives and circumstances.

No person should act on the basis of this information without first obtaining and following the advice of a suitably qualified professional adviser.

To the fullest extent permitted by law, no person involved in producing, distributing or providing the information through this service will be liable in any way for any loss or damage suffered by any person through the use of or access to this information.

 
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