All Ords Report 08 December 2016
Finally, the super reforms legislation has been passed. So, what are you missing out on? Perhaps more than you may think.
The reforms include a cut to concessional contributions by around 16 to 28 per cent, depending on your age, which is interesting when we constantly hear that we need to put more into super for retirement years. Previously, you could contribute between $30,000 and $35,000, but the cap is now $25,000 regardless of age. So what does this mean to you?
Concessional contributions are taxed at 15 per cent. If you earn between $87,000 and $180,000 you pay 37 cents in the dollar in tax. So letís take a look at an example, assuming that prior to the change you could contribute $30,000, and now itís $25,000. After tax you contributed around $25,500, and paid $4,500 in tax. Based on a cap of $25,000 you now pay $3,750 in tax, therefore your contribution is $21,250.
Not only are you missing out on a tax saving of $1,100 between the two scenarios, you are unable to squirrel away an extra $4,250 net, at the concessional rate, you have lost the opportunity to generate a return on that amount, which would compound in your superfund every year. So you could be missing out on thousands over a ten year period, which could be vital to building sufficient savings for retirement.
In my opinion, if you salary sacrificed $30,000 prior to the legislation, you need to consider the difference that making a non-concessional contribution of say $5,000 could make to your retirement savings. The extra $5,000 would be an after tax contribution, so 100 per cent of this $5,000 goes into your super and the earnings are taxed at only 15 per cent.
If you are curious to know whether you are likely to have enough funds in super for your retirement the government website Money Smart is a good place to start. Look for a suitable calculator.
What do we expect in the market?
This week the Australian market made a very positive move, having broken above 5600 points. Recent moves indicate that the market is looking incredibly better than this time last year, which is great news for investors.
At the close of market yesterday, the All Ordinaries Index (XAO) had risen by around 4 per cent since 1 July 2016. By comparison, this time last year the market was in decline, down by around 3 per cent; a move followed by a sharp drop into the low in February 2016.
You may recall that this volatility was brought on by concerns over commodities and the decision by the Chinese government to change its currency settings. Brexit and the US election appear long forgotten.
The recent move up bodes well for the Santa Rally that many market players expect at this time of year. Also, generally the market moves higher in the month of December.
The great positive for our market right now is how our financial sector is rising, particularly as our market is heavily weighted to this sector. The financial sector is following early movers in the Resources and Energy sector. Select stocks in the Materials and Energy sectors are moving higher, such as Alumina (AWC), Billiton (BHP), and Origin Energy (ORG).
Before investors really feel that Christmas cheer, the market must break through an important resistance zone between 5640 and 5670 points. Right now it is poised just below it, and therefore in my opinion this is a really exciting time.
Remember, the share market is about patience. If you donít have it, it will definitely test you. It is wise to build up exposure to equities gradually.
Where to from here?
My analysis indicates that in a couple of weeks the market may push through the before-mentioned levels.
One thing is clear, the market has been building momentum to trade higher, and eventually it will. However, always have a Plan B for your portfolio to manage risk in the event the opposite of what you expect occurs.
Dale Gillham is Chief Analyst at Wealth Within