Author Topic: Australian superannuation  (Read 3521 times)

Julard

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Australian superannuation
« on: March 07, 2016, 01:15:07 AM »
Hi,

Like most people I've got my super in 'balanced'.  I'm wondering about rejigging it so that my super is solely international (returns in a currently tax-friendly environment), and having all my (mostly franked) domestic shares outside of super.

Has anyone done this?  I thought it made sense, but have been hesitating, partly because of the scanty info from my super fund.  I'd like to know exactly what I'd be buying before making this kind of change, but they wouldn't give me any details re what their (my!) 'international shares' are, other than the top five holdings.  This is what I got, after a couple of weeks' waiting:

"We do not use any particular ďproductsĒ as they are active fund managers, and their holdings may change depending on their performance relative to their return target".   

Huh.  So I only know the top five holdings, and that they use Artemis, Blackrock and Morgan Stanley.  But perhaps I should be more trusting and less inclined to dither?

Regards to all,
Julard

steveo

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Re: Australian superannuation
« Reply #1 on: March 07, 2016, 01:25:31 AM »
I don't believe in picking shares. I want the index.

Still your idea about splitting your portfolio for tax purposes sounds right to me. I personally don't do that at this point. In the future that might change but at this point I can't be bothered.

Murdoch

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Re: Australian superannuation
« Reply #2 on: March 07, 2016, 02:03:44 AM »
Hi Julard,

I have done exactly what you are planning. My super is with QSuper, and there is an pure international index option of which 100% of my allocations are with. Their website makes it easy to see what's in the deal.

If your super fund is being evasive, or you aren't happy with the options, then switch. Very few jobs are above the law that allows individuals to choose their own super fund, and even those usually have a work around.

There would be arguments for and against splitting your diversification this way between super and outside super, but for myself it was a way I can live with and ignore in the bad times. This last 8 months has seen little overall increase in value, but the number of units I hold continues to tick away.

Cheers
Murdoch


Julard

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Re: Australian superannuation
« Reply #3 on: March 07, 2016, 02:40:19 AM »
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My super is with QSuper, and there is an pure international index option.

Had a quick look at that, thanks.  Definitely more forthcoming than my super fund.  I note though that the international option is hedged, which I'm tending to lean away from.  I might also have a look at Sunsuper - they seem to have hooked up with Vanguard relatively recently.

I think what may be needed is some serious comparative research and a few more pages in my spreadsheet.  It's nowhere near detail laden, convoluted and boring enough yet.

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at this point I can't be bothered

Yes, I'm somewhat drawn to the idea of shelving the issue for the moment in favour of drinking wine...

marty998

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Re: Australian superannuation
« Reply #4 on: March 07, 2016, 01:27:10 PM »
Australian Super is quite good with publishing the top 20 holdings in the Aussie equities option and the top 20 in the international option.

As you would expect the Australian holdings are dominated by Financials.

International option is a bit more diverse, but there's a tech focus - Apple, Google, Facebook + a few Chinese internet firms: Ten Cent, Baidu...

Don't get much detail at all with the other options, but they do mention their commercial property investments somewhere on the website.

Murdoch

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Re: Australian superannuation
« Reply #5 on: March 07, 2016, 02:43:05 PM »
I'd prefer the international un-hedged, but have to work with what I've got.
It's going to get me where I'm going eventually regardless.

Cheers

potm

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Re: Australian superannuation
« Reply #6 on: March 07, 2016, 03:24:50 PM »
I would do it opposite from a tax perspective. Put the higher yielding aus shares in super and lower yielding int shares outside super.

banksie_82

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Re: Australian superannuation
« Reply #7 on: March 07, 2016, 03:40:10 PM »
Iím interested in this idea. While asset allocation, passive v active stock picking, hedging and merits of different super companies are valid arguments in their own rite, Iíd like to understand the tax implications of 100% international in super while still maintaining your broader AA.

Maybe Iím being a bit dense, but can someone step out the calculations for me. Assuming dollar split between super/non-super is constant and overall AA remains the same.

I canít see how, when it all goes through the wash, it would be much benefit. On the country, given that capital gains is only discounted by a third (?) inside super compared to half outside of it (if assets are held for more than a year). Returns from international shares are made up of more capital gains than dividends compared to domestic stocks (all things being equal) and therefore will benefit more from CGT discount.

Then, for people who donít sell, therefore minimal CGT, the higher yielding (domestic) shares should be in the lower tax environment?


bigchrisb

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Re: Australian superannuation
« Reply #8 on: March 07, 2016, 04:39:50 PM »
I would do it opposite from a tax perspective. Put the higher yielding aus shares in super and lower yielding int shares outside super.

This is what I do.

Highest income stocks (mostly large cap AU stocks and AU ETFs/LICs) in lowest tax environment - super.  Mid income (au stocks, etfs, lics, some VEU, some floating rate bonds, RIETS) in mid tax bracket (trust/company).  Lowest income (au growth stocks like CSL, CPU etc, VEU, VTS and BRK) in highest tax bracket (own name).  For my portfolio, structuring it this way saves about $7k a year in tax on approx $100k of portfolio income., vs having the same asset allocation separate in each entity.  For me that's well worthwhile.  Doing the opposite (putting high income AU stocks in my own name and low income international in super) would increase my annual tax bill over $10k. 

I think people are getting confused about the value of franking credits.  Its pre tax income, regardless of what entity it is earned in.  May as well be pre tax income in the lowest tax environment you have.

Primm

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Re: Australian superannuation
« Reply #9 on: March 07, 2016, 05:11:09 PM »
If your super fund is being evasive, or you aren't happy with the options, then switch. Very few jobs are above the law that allows individuals to choose their own super fund, and even those usually have a work around.

Hi Murdoch.

I work for one of "those" companies. They aren't above the law, it's just that if I choose a superannuation provider they contribute the legislated amount, but if I "choose" their provider and contribute 5% of my own, they contribute 12.75% currently. So free money = a no-brainer.

I'm wondering how I get around the convoluted mess (higher fees, less transparency around what the investments are) that is my current super fund and move it over to my preferred provider, one I already have an account with. I was thinking of just getting my preferred fund to request a rollover once a year or so of an amount slightly lower than the balance in my current fund, but is that possible without closing the other account? If that's not the way to do it how would I go about it?

Cheers, and sorry for hijacking the thread a bit Julard.

Murdoch

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Re: Australian superannuation
« Reply #10 on: March 07, 2016, 07:22:11 PM »
Primm, thanks for clarifying. I have been happy with QSuper and the extra contributions are always welcome. I was unaware that I'd lose those if I went elsewhere, but understand it's possible to go elsewhere.

BigChrisB, POTM and Banksie, I don't have a tax reason for 100% international in my Super. In fact I don't even have a set asset allocation. My partners super is in the 'balanced' fund, mine is in the 'international', and our trust fund is in a Vanguard life strategy setup with Aus and International split as per the fund. I figured this spread me around the Australian, and International indexes enough, whilst keeping it simple and easy to follow. Given the options in Super, and the uneven contributions to Super and other accounts, it would be hard to maintain a strict asset allocation, but of course possible.

BigChrisB, can you expand on the tax implications for Superannuation? I though they were all taxed at 15% for income?
Is that why it would pay to have your high dividend shares exposure in there? Such as Australian shares?

Cheers

bigchrisb

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Re: Australian superannuation
« Reply #11 on: March 07, 2016, 07:50:42 PM »
BigChrisB, can you expand on the tax implications for Superannuation? I though they were all taxed at 15% for income?
Is that why it would pay to have your high dividend shares exposure in there? Such as Australian shares?
Cheers

Ok, take this example.  I have $1,000,000 in invested assets, $500k in Aus stock, $500k in international stock. I have two options to invest, in super at 15% and in my own name as my marginal tax rate.  Lets take the 39% including medicare rate.  Assume a gross yield (including the franking credits) for AUS stock at 7% and international stock at 2.5%

Scenario 1:  Even asset allocation in each basket. 
Personal income = 250000*.07+250000*.025 = $23500. Tax paid = $9262
Super income = 250000*.07+250000*.025 = $23500. Tax paid = $3525
Total tax paid = $12787, post tax = $34213

Scenario 2: International in super, domestic in personal.
Personal income = 500000*.07 = 35000. Tax paid = $13650
Super income = 500000*.025 = 12500. Tax paid = $1875.
Total tax paid = $15525, post tax = $31975

Scenario 3: International in personal, domestic in super
Personal income = $500000*.025 = $12500.  Tax paid = $4875
Super income = $500000*.07 = $35000.  Tax paid = $5250
Total tax paid = $10125, post tax = $37375.

i.e. on these assumed tax rates, sum invested and gross yields, you would be $5,400 a year better off having all international in personal accounts and all domestic in super, than having super 100% international.

My personal belief is that this maths is why the amount of international holdings in SMSFs is so low, as opposed to the financial industry's bleating about under exposure of SMSFs to international stock.

Murdoch

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Re: Australian superannuation
« Reply #12 on: March 08, 2016, 02:27:46 AM »
That's a fantastically simple example to follow. Thanks.

Can it usually be assumed the income from the Aus portion of portfolio will yield higher percentages due to franking credits, than international which may outperform Aus stocks, but doesn't have franking credits?

Cheers again.

Julard

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Re: Australian superannuation
« Reply #13 on: March 08, 2016, 03:53:53 AM »
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people are getting confused about the value of franking credits

Yes, clearly me.  For some reason I was thinking the imputation system mightn't apply so much to super.  And I'd be curious re how directly the refund (had been thinking offset, but that seems to be wrong) is returned to individual accounts vs spread across the fund. I note that my taxable income is reasonably low currently (salary sacrificing to the max) so not much to choose between the two in my case, but I really need to get a grip for the future.  The advice here is much appreciated.

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I'm wondering how I get around the convoluted mess (higher fees, less transparency around what the investments are) that is my current super fund and move it over to my preferred provider... sorry for hijacking the thread a bit

No worries at all.  I've been wondering things like that myself (though motivated by investment options rather than fees), though didn't get further than a couple of nights of googling and trying to get some comparative results.  It's been slow and tedious going and not a huge priority right now but, again, something I need to figure out this year.

stashgrower

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Re: Australian superannuation
« Reply #14 on: March 09, 2016, 04:27:28 AM »
I've got a slight tilt towards international over domestic in super. Wasn't aiming for it at the time, but then wondered if it would help me by not having to think about international tax ex-super. I've got a definite tilt towards domestic ex-super, but will gradually introduce VGS to balance it 50/50 or thereabouts.

OK, now that I read bigchrisb's maths, I see that I've got it backwards in super! But on a different level there is access to a certain range of international stocks that I can get more easily, in a diversified way, in super than ex-super.

I'm in an industry fund that I "have" to be in too. It's definitely one of the better ones, however there are no index options and I still baulk at the (relatively low, but not rock bottom low) fees. I have thought about moving as I am not always in that industry job, but then I'm not sure if I lose out with capital gains tax if I roll it all over, and if I work in the industry again I have to either move it back or put up with two fees. I don't see a good solution - any thoughts??!
« Last Edit: March 09, 2016, 04:38:45 AM by stashgrower »