In last month’s Investor Insight, we explored the idea of ‘secular stagnation’. We considered the prospect that future portfolio returns could be significantly lower than what the experience of the last one hundred years had conditioned us to expect. We asked investors to reflect on what this could mean for their own portfolios.
These challenges will not go away. With the federal election set for Saturday, 2 July 2016, the various political parties are busily arguing for their vision of the future. An important subtext is the same key themes behind the secular stagnation theory. Amidst all the unavoidable noise of the political debates, investors need to keep their eye on the long game.
On the negative side of the ledger (and supporting the secular stagnation theory) is perhaps the most inexorable of empirical facts: demographics. We frequently return to demographic themes because, in the long run, there is a very strong argument that demographics are destiny. And as the two graphs that follow show, Australia’s future is one in which fewer and fewer workers will be supporting a growing number of dependents. Despite all the talk, this remains one of our nation’s most striking challenges.
On the other hand, our nation – indeed our world – has met challenges of this magnitude before. Remember the “Population Bomb” hysteria of the late 1960s and early 1970s? The graph below shows how that worked out. It shows the world population (as an absolute number and as a percentage) who are living on $1/day or less (in 1987 dollars).
The results are startling. For all the fears, conflicts, wars and famines of the last fifty years or so, the world has made real and significant steps towards improving the conditions of the most desperate.
So the best response to the challenges of today is neither denial, nor despair. Rather, it’s to study the issue frankly and focus on real, long term solutions.
EOFY – tax time’s coming
Finally, it’s less than a month until the end of financial year. SMSF investors especially need to consider their position this year, given the raft of changes being championed by the government and the opposition. Some important issues to consider include:
- Concessional contribution caps for FY16 and FY17 are $30,000 for those under 49 and $35,000 for those 49 and over. The Coalition plans to reduce this cap to $25,000 from 1 July 2017.
- The “Division 293” threshold will be lowered from $300,000 to $250,000, which means that concessional contributions, when added to a client’s income that is over $250,000, will be taxed at 30%.
- Both parties are planning to tax super in pension mode. The Coalition will do it via the $1.6 million pension limit, Labour will do it by taxing income drawn from pensions. Equalising super between couples must be considered.
- The Coalition is planning to enhance the spousal rebate program, lifting the income threshold for the lower earning spouse from $10,800 to $37,000. Nothing can be done unless and until legislation is passed, but it’s worth starting to consider now.
- The Coalition is planning to limit lifetime non-concessional contributions into superannuation to $500,000 per person. If a couple is planning on making additional non-concessional contributions, it will be critical to know what each party has already contributed.
As always, make sure you see your tax adviser well in advance of EOFY so that you can take whatever actions are required to optimise your position.
La Trobe Financial unveils a new advertising campaign with the theme:
We know that you have worked hard for your money...
...isn’t it time your money worked hard for you?
For over sixty years, La Trobe Financial has helped Australians achieve financial independence. Our story began in 1952 with one man’s dream. Now, in 2016, we have helped hundreds of thousands of Australians realise their own dream.
Our multi-award winning retail Credit Fund continues to offer investors market-leading returns. It has a track record second to none. Our flagship Pooled Mortgages Option (currently paying 5.20% p.a. variable) is the highest rated fund in the sector and has been judged “Best Mortgage Fund in Australia” for the last seven years by reputable finance journal Money magazine. Our peer-to-peer investment offerings are Australia’s highest rated (“Superior” – SQM Research), largest and most robust.
Underpinning it all, is the conviction that you deserve better – better rates, better income, in every economic cycle.
This week, we launch a new national advertising campaign across television, digital and social media. In this campaign, we tell the story of one of our investors. After a lifetime of hard work, isn’t it time your money worked hard for you and your family?
As one of our valued supporters, we offer you the early opportunity to view one of our commercials – click here.