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Generations X and Y starting to take advantage of SMSFs

Recent surveys have shown an increasing popularity of SMSFs within a younger demographic. Advisors surveyed by Russell Research cite increased demand from 31-40 year olds looking for control and flexibility for their superannuation.

The increasing use and decreasing costs of superannuation fund borrowings, given the longer investment horizon of the Gen X and Gen Ys, is another driver behind the increasing numbers.

Many existing SMSF members nearing retirement are also advocating the use of SMSFs to their children and are able to provide practical guidance in their day to day running.

Remember, SMSFs are not for everyone, but if you are considering talking to your children about their use, feel free to contact our SMSF department.

Time to review salary sacrifice

Five months into the financial year 2014, now is as good a time as any to review your superannuation contribution arrangements.

Whilst everyone was limited to a contribution cap of $25,000 last year, in the current financial year, anyone who will be 60 or over will have that cap increased to $35,000. As arrangements such as salary sacrifice need to be prospective in nature, rearranging your contributions now can help ease any cash flow pressures that may arise by making changes later in the year.

Be careful when trying to maximise your contributions, consider all the contributions that are included in this cap including superannuation guarantee contributions. For example, if your base salary is $100,000, $9,250 will be contributed by your employer, your maximum salary sacrifice will be $15,750 or $25,750 if you will be over 60 during the year.

Matthew Moon

Australia's new comprehensive credit reporting regulations

How will they affect you? In March 2014, Australia will be subjected to new rules and regulations with regard to our credit reporting system. These rules and regulations will affect how banks and lending organisations go about approving loans and credit facilities for every day consumers like you and me.

The new regulations are designed to give lenders access to more information about your credit history so they can more accurately assess your credit worthiness and reduce the risk of you defaulting on a loan or credit card.

What's new?

As of March next year, lenders will be able to review your repayment history as far back as December 2012. They will be able to make a more detailed assessment of your financial situation and use the information to calculate their risk.

In the past, lenders were only able to access a limited amount of information such as major credit infringements and view any credit application enquiries. They were not able to find out whether your credit application was approved or declined, or find out if you made your repayments on time.

In the future, as well as serious credit infringements, lenders will be able to see the last 24 months of your credit repayment history on all open credit accounts in your name. That means they will be able to see your payment history on your rent, telecommunications accounts including your mobile phone, your energy and water bills, credit card payments, personal loan and mortgage repayments and so on.

The information they can access about you will include the amount of credit accounts you have open, the date the accounts were opened/closed and your repayment performance on each account. They will be able to use this evidence to decide whether or not you have too much debt and can afford to take on more.

Why the changes?

These changes are being made so that lenders can get a better idea of your financial situation and therefore make a more informed decision about your capacity to repay your loan. The changes are designed to reduce the number of people defaulting on loans and therefore lower the costs of credit for everyone. In terms of benefits to the consumer, this should help to reduce interest rates on lending facilities like credit cards in the long term.

What does it mean for you?

If you are not very conscientious about keeping up to date with your bills, you may give a lender the impression you are a bad credit risk when you are not. A payment that is as little as five days late could show up on your credit history report as a credit infringement.

So it is now more important than ever to keep your finances in order. If you pay your bills on time, this reform will be of benefit to you because lenders and credit providers will be able to see you as a model borrower, helping your chances of obtaining a loan or credit facilities.

Protect your credit rating.

In light of the new comprehensive credit reporting rules, a few simple precautions will help to ensure you maintain a good credit rating. First of all, always pay your bills on time. Organising to pay your bills using your bank's automatic payment system is a very good idea. You can also get applications for your mobile phone that remind you to pay your bills on time.

Be aware, educated and informed when helping others to obtain credit in case they default. If you are a renter, make sure you pay all of your utility bills when you change residence and if you are living in share accommodation, ensure your name is removed from any bill commitments when you leave.

Last but not least, regularly check your credit report. We can help you with this, and doing so will help you keep track of the information lenders can access about you. You can also take action if any mistakes are recorded by accident.

If you would like more information in relation to how these changes may impact you, please call the office.

Antony Blanch