Issue 10 - SMSF Wealth Newsletter - November 2017
For the last 3 years we have completed an exercise analysing the Self Managed Superannuation Funds (SMSF's) that we provide services to covering the last 3 years and thought that there were some interesting generic statistics to share:
The following conclusions can be drawn from this analysis:
SMSF's continue to grow in both prevalence and size.
- Management expense ratios are, on average, below 1% of fund balance.
- Investment profiles tend to be from balanced to aggressive with few examples of conservative profile. This likely reflects members and trustees looking for growth, franking credits and exposure to direct property and hence the increasing use of SMSFs.
- Returns have solidly exceeded inflation, bond and interest rate benchmarks, and generally exceeded movements in other relevant indices.
With the new super rules that began on 1 July 2017, your requirement to report information about your SMSF and the pensions it pays you and other fund members may be changing. This is driven by the introduction of the new $1.6 million transfer balance cap which limits the amount of assets you can use to pay pensions from your super.
Currently, pensions only need to be reported once a year through the SMSF annual tax and regulatory return to the Australian Taxation Office (ATO).
From 1 July 2018, if a member of your SMSF has $1 million or more in superannuation and a member of the fund is receiving a pension from superannuation assets then your SMSF will be required to report more information about its members' pension than currently required. This is so the ATO can accurately monitor your transfer balance cap to know if you have exceeded the $1.6 million limit. Going over the $1.6 million transfer balance cap limit can result in paying additional tax.
You will be required to report to the ATO the credits and debits that count towards your transfer balance cap. Please contact us for further details on how best to facilitate this based on your specific circumstances.
| The most common credits are:
- The commencement value of new pensions, including death benefit pensions.
- The value of reversionary pensions 12 months from the time the individual is entitled to receive the pensions.
- The value of notional earnings that accrue on excess transfer balance cap amounts.
The most common debits are:
- Ceasing a pension (known as a "full commutation").
- Taking a lump sum out of the pension (known as a "partial commutation")
From 1 July 2018 transfer balance cap credits and debits must be reported within 28 days after the end of the quarter that they occur in. For instance, if you start a new pension on 1 July 2018, then this credit will need to be reported by 28 October 2018.
If your SMSF does not have any members with a superannuation balance of $1 million or more, then you will not need to undertake extra reporting requirements regarding pensions.
How can we help?
We can help you understand how the ATO's new reporting requirements for superannuation pensions may impact you and your fund, either now or in the future. Please contact us to discuss your particular requirements. We can ensure you to adhere to reporting requirements, keeping your fund compliant, whilst keeping on top of the latest changes and information to reach your retirement goals and get the most out of your self managed super fund.
The Consumer Directed Care Regime
The average age of Australia's population continues its relentless march upwards, with the number of people aged 85 and over projected to double by 2032, placing increasing pressure directly on the nation's residential aged care system.
In response, the Federal Government has promoted its support for home care for the elderly and, accordingly, has increased the number of home-care packages available in order to provide care that is more appropriate to specific needs.
Besides being less costly than residential care, receiving home care also has non-financial benefits for recipients such as a greater sense of independence, familiarity of surroundings and receipt of personalised care.
In 2015/16 more than 1.3 million older Australians received some form of aged care. The majority received home-based support. The Government allocated 88,875 home-care packages and more than 640,000 people received support through the entry-level Commonwealth Home Support Programme. Almost 235,000 people were living in permanent residential aged care such as a retirement home.
The average age at admission for a home-care package in 2015/16 was 80.6 years for women and 79.5 years for men. For first admission into permanent residential aged care, the average age was 84.5 years for women and 82 years for men. The main reason for ceasing receipt of a home-care package was to move into permanent residential care.
On 1 July 2015, it became mandatory for all home-care packages to be delivered on a Consumer Directed Care (CDC) basis, meaning that providers had to work in partnership with recipients to deliver services that would fulfil their needs. CDC provided recipients with a greater degree of control over how the funding of their care was allocated.
The Government announced further reforms to home care in its 2015/16 Budget with the introduction of the Increasing Choice in Home Care initiative. The most significant change under "Increasing Choice", which came into effect in February 2017, was to allocate CDC home-care packages directly to consumers rather than through approved providers.
This change gave consumers the ability to choose their care provider and move to another provider if they were not satisfied with the services they received.
Levels of home-care packages under CDC
Eligibility for a home-care package is determined by an Aged Care Assessment Team (ACAT), which includes a healthcare professional. The ACAT also decides which of the four levels of home-care package is appropriate for a particular individual.
Home-care package levels:
The ACAT also decides an individual's level of priority for a home-care package and assigns them a place in the national queue accordingly. Once a home-care package has been allocated, the recipient has 56 days (or 84 days with an extension granted) to enter into a home-care agreement with a provider.
If an agreement is not entered into by this time, the package is withdrawn and the individual must rejoin the national queue.
The services available under home-care packages include, but are not limited to:
- Clinical care, such as nursing, allied health and physiotherapy for mobility and strength (ie services not provided by doctors)
- Support services, such as help around the home, visiting the doctor and attending social activities
- Personal care, such as help with showering, dressing and moving around the home
- Nutrition, such as assistance with preparing meals, including special diets for health, assistance with using eating utensils and assistance with feeding.
There are certain types of care and services that cannot be funded by home-care packages, such as food, payments for permanent accommodation, home-care fees, holiday travel, home modifications not related to care needs, entertainment or items covered under the Medicare Benefits Schedule or Pharmaceutical Benefits Scheme (PBS).
The number of home-care packages on issue is capped by the Government according to national and regional targets. The targets are determined by the "aged care provision ratio" which is based on the number of people aged 70 and over for every 1,000 people in Australia.
Despite the Government's goal of increasing the aged care provision ratio to 125 per 1,000 people by 2021/22, from 113.2 as at 30 June 2016, the waiting times for home-care packages are increasing, especially in regional areas and for high-care packages.
Fees payable for home-care packages
Recipients of a home-care package may be required to contribute a basic daily fee and an income-tested care fee in relation to the cost of their home care.
The basic daily fee is payable by all recipients of basic care packages. It is calculated at 17.5% of the basic rate of single Age Pension, indexed twice a year on 20 March and 20 September. As at 20 September 2017, it was $10.17 per day.
The income-tested care fee is based on a recipient's assessable income, as determined by the social security rules and age pension entitlements, and is payable in addition to the basic daily fee. The Government subsidy will be reduced by the amount of income-tested fee payable.
There are annual caps on fees payable, applied at a daily rate:
- $14.59 per day or $5,313.28 per year for recipients with income below $50,876.80 (as at 20 September 2017)
- $29.19 per day or $10,626.59 per year for recipients with income above $50,876.80 (as at 20 September 2017)
The lifetime cap on income-tested care fees for home care was $63,759.75 as at 20 September 2017.
Selecting a home-care provider
Since 27 February 2017, older Australians have been able to use aged care providers of their choosing and move to another provider if, for instance, they are not satisfied with the level of service they are receiving or they relocate.
The majority of home-care packages are provided by religious and charitable organisations. The only stipulation the Government places on the selection of providers is that they must by accredited.
Home-care package recipients can bid for services through www.myagedcare.gov.au or hotline or an organisation like Anglicare or Calvary, who you can approach directly. If they have a package available, the applicant will need to provide their ACAT Assessment to receive the care.
There can be considerable differences in the fee structures of the various home-care providers in the market. Providers have administration fees that they normally build into the package. For example, if you have a $50,000 Level 4 package, one provider may have $3,000 worth of administration fees and another provider may only use up $2,000 of the package with their administration fees.
Some providers are also charging an exit fee. For example, if you move from one state to another and your provider does not provide their services in your new state, you will need to move from one provider to another provider and may be charged an exit fee by your original provider.
Home-care packages are not appropriate for all
Means testing for care fees can mean that actual out-of-pocket expenses are high for some home-care package recipients. For clients with considerable income and assets, it could be more prudent to hire a private carer rather than waiting for a home-care package to become available, given the financial costs would be similar.