How the July 1 changes affect YOU + Beware of online ‘finfluencers’

Hi everyone,

Happy new financial year. I’m currently in Townsville talking superannuation, cost of living and a lot of the hacks I’ve written about here on easy ways to find the best deals through using comparison websites like Compare the Market, where I am the Economic Director. 

That hack on reading your energy statement closer is really shocking people up here. The box on your bill where your energy retailer has to show how much you could save by switching to a different plan is a revelation to a lot of people.

The first time I visited Townsville was in 2011 when I was covering Cyclone Yazi for Sunrise and I slept on the floor of the Seven Bureau in the main street. Suffice to say the weather is absolutely beautiful at the moment.

In this newsletter:

• All the financial changes which came in on 1 July that affect you.

• Superannuation performances for the last financial year are in - these are the benchmarks to judge your fund by.

• Do index funds perform better than actively managed funds? Are higher fees worth it?

• How have property values stacked up against those superannuation returns?

• Is the housing shortage being solved faster in some states and not others, and what could that mean for values?

• Be careful about where you get money advice from.

Quick snapshot of all the 1 July changes that affect you

It’s that time of year and a lot of changes to the Medicare surcharge, Stage 3 tax cuts, Family Tax Benefits, aged pensions and energy rebates all started. So here is a quick summary so you’re across everything:

Medicare Levy Surcharge tiers changing

The Medicare Levy Surcharge (MLS) is an additional tax for high-income earners who don’t hold an appropriate level of hospital cover. At present, if you earn more than $93,000 as a single or $186,000 as a couple in a financial year and don’t hold an eligible private hospital insurance policy throughout the entire financial year, you’ll incur a surcharge.

However, come 1 July, the thresholds will increase to $97,000 or more for singles and $194,000 for families. Depending on your annual taxable income for MLS purposes, you may incur a surcharge of 1 per cent, 1.25 per cent or 1.5 per cent. The higher your income, the more MLS you’ll pay if you don’t hold relevant hospital cover.

Minimum wage set to increase

The National Minimum Wage will increase by 3.75 per cent on 1 July to $915.90 a week, or $24.10 an hour. Workers will see these changes in their first full pay period after 1 July.

Centrelink payments increasing

Payment indexation means around 2 million Australians receiving benefits like the Family Tax Benefit, pension or income support will see their payments increase from 1 July.

While the exact amount will vary based on the benefit you’re on, singles receiving an age, disability or carer pension will see an increase of $8 a fortnight and couples will see their fortnightly pay boosted by $12.

Tax cuts

13.6 million Australians who pay tax will see an increase in their wage from 1 July thanks to cuts to tax. The exact amount will depend on your taxable income.

Aspiring home buyer’s borrowing capacity could increase by up to $47,000, thanks to the incoming stage 3 tax cuts, according to new analysis by Compare the Market.

While this is great news for house-hunter hopefuls, there may be some unintended consequences - including higher property prices.

Energy price changes

The Australian Energy Regulator (AER) and Victorian Essential Services Commission (ESC) have confirmed what the electricity market benchmark will be for the 2024-25 financial year for those in Victoria, South Australia, South East Queensland and New South Wales.

The default price is expected to fall in most parts of the country, but will rise in South East Queensland.

Energy rebates

From 1 July, all households will start receiving their $300 energy rebate, which will automatically be credited to your energy account in quarterly instalments. This means that every quarter your household should receive a $75 credit. There’s nothing you need to do to receive this credit, simply ensure your billing details are correct.

Households in Queensland will also receive a $1,000 rebate, which will automatically be applied to your account from 1 July.

Compulsory superannuation contributions

The Super Guarantee rate rises from 11 per cent to 11.5 per cent, adding an extra $340 in employer-paid super contributions to the average Australian worker every year.

The Superannuation Guarantee 0.5 per cent rise could deliver the typical 30-year-old $17,570 more at retirement. When combined with next year’s legislated rise to 12 per cent, the typical 30-year-old could have $34,000 more at retirement.

The Super Members Council analysis found:

• 9.27 million people will get a super boost this year - split almost evenly between men (4.7 million) and women (4.5 million)

• More than half of those receiving the increase are under 40 - and more people in their 30s will get a boost to their retirement savings than any other age bracket.

• A third of those receiving the increase earn less than $50,000 per year and almost 60 per cent of those getting the increase earn less than $75,000 a year.

Before compulsory super was introduced in 1993, only 10 per cent of retirees listed super as an income. Now, about 90 per cent of people aged between 30 and 50 have super.

Winners of the Super Guarantee increasing by 11% to 11.5% - by income

Superannuation funds produced pretty good returns last financial year

Despite the rollercoaster year for investment markets, superannuation funds produced a solid year of returns which were above the long-term average.

Leading superannuation research house, SuperRatings, estimates the median balanced option returned 0.7 per cent over the month of June, bringing the return for the year to 30 June 2024 up to an estimated 8.8 per cent. That’s the magic figure you need to measure your superannuation fund’s performance.

For the balanced option, a return less than 8.8 per cent means your fund underperformed the rest of the industry, and you should be asking questions why.

Top performers will be handing members double digit returns for the year, and most super funds will meet their long-term objective of returning whatever CPI is, plus 3 per cent over 10 years. For example, this year CPI is 4 per cent. That plus 3 per cent on top means the objective is to beat a 7 per cent return.

The median growth option returned an estimated 0.8 per cent over the month (10.5 per cent for the year), while capital stable options, which hold more traditionally defensive assets such as cash and bonds, returned 0.6 per cent and 5.6 per cent for the year.

Pension returns also ended the financial year strongly, with the median balanced pension option up an estimated 0.9 per cent over June. The median growth option rose by 1 per cent, while the median capital stable option is estimated to deliver a 0.6 per cent return for the month.

The chart below shows that the average annual return since the inception of the superannuation system is 7.1 per cent, with the typical balanced fund exceeding its long-term return objective of CPI+3 per cent.

I was speaking at some financial literacy events this week and was asked what happens if the sharemarket crashes and the impact on superannuation returns.

This chart really reinforces the points that:

• Panicking is the worst thing you can do in a crash because you invariably miss the rebound. Crashes are usually short and sharp and the following year often produces great returns.

• Superannuation is a long-term investment. While there are ups and downs, over the long term a 7.1 per cent annual return is the average.

Amongst the investment options available to members, international shares were the standout performers for super funds, with the sector estimated to return 17 per cent as developments in artificial intelligence and associated industries led a small number of technology shares in the US to unprecedented highs.

The Australian share market also made a strong contribution to super fund returns, with an estimated 11 per cent return for the sector. SuperRatings expect all major asset classes to contribute positively to fund returns for the year, although the fixed interest and property sectors had a tougher year and are expected to make the smallest contributions.

Are active super fund managers worth the extra fees?

There is an age old ‘Active versus Passive’ argument within the investment community about whether the extra fees you pay super fund managers - who trade your portfolio aggressively - are worth it.

Compared with just putting your money in a fund that simply replicates a market index and charges a much lower fee, who comes out better?

Trading platform, Stockspot, has studied the performance of both and found that most default super funds, despite charging billions on fund manager fees, actually underperformed by an average of 4-5 per cent when compared to diversified index funds - which simply track the market as a whole.

Stockspot has analysed the data and found the following results for typical default super options:

• Balanced super funds, containing 41-60 per cent growth assets, returned an average of 7-8 per cent over the financial year when indexed balanced super funds returned 12-13 per cent - a difference of 4-5 per cent.

• Growth super funds, with 61-80 per cent growth assets, have seen returns ranging from 9-10 per cent over the financial year when indexed growth super funds returned 14-15 per cent - a difference of 4-5 per cent.

According to Stockspot this significant difference stems mainly from two factors:

• Active stock picking has performed poorly, with the majority of fund managers - particularly in global shares - failing to keep pace, due to their underweight positions in large-cap technology shares. The latest research by SPIVA S&P Global shows that 81 per cent of global fund managers underperformed the market index over one year and 94 per cent over 15 years.

• Active funds have been heavily invested in underperforming private assets, notably unlisted property. Although some super funds have discontinued these as separate investment options, they remain a substantial part of their default funds.

The most successful assets this year were indexed global shares, which increased by 29 per cent, and gold, which rose by 23 per cent. Funds with higher allocations to these assets generally fared better.

How does property compare with your superannuation returns?

Your balanced superannuation return of 8.8 per cent for the year stacks up pretty well when compared with the rise in value of your house, except if you live in Brisbane, Adelaide and Perth.

According to CoreLogic Australia, Australian dwelling values increased a further 0.7 per cent in June, taking growth to 8 per cent for the last financial year. This is the equivalent of a $59,000 increase to the median dwelling value in Australia, which is now $794,000.

The previous financial year (2022/23) saw a 2 per cent fall in values coming out of pandemic lockdowns.

Despite the strong annual gain, the trend growth rate has eased since the highs of mid-2023 when the quarterly rate of change peaked at 3.3 per cent. The most recent June quarter saw dwelling values rise by just 1.8 per cent, which is roughly in line with the March and December quarters.

Melbourne property values fell for the month and quarter, Hobart was weak and Sydney off the boil. But strong conditions have remained a feature of the mid-sized capitals, especially Perth where values surged another 2 per cent in June to be 23.6 per cent higher over the year. Adelaide values increased 1.7 per cent in June (15.4 per cent up for the year) and Brisbane values were 1.2 per cent higher over June (15.8 per cent annual).

Thank goodness for a strong rise in property values for all those home loan borrowers squeezed by higher interest rates and being forced to sell. Property resales are producing the highest profits since 2010.

CoreLogic's Q1 2024 Pain & Gain report analysed approximately 85,000 resales over the March quarter and found 94.3 per cent of sales recorded a nominal gain.

Outside of NT, Melbourne had the highest rate of loss-making sales of the capital city markets (at 9.2 per cent, up from 8.9 per cent in the previous quarter). Adelaide and Brisbane were tied for the most profitable cities, with a loss-making sales rate of just 1.6 per cent of resales.

Perth had shown a remarkable turnaround in the past few years as loss-making sales declined to 6.4 per cent from the 43.8 per cent recorded in the June quarter of 2020.

Short-term resales have become an indicator of how households respond to rising interest rates. The latest figures suggest the short-term selling for properties owned for two years or less has passed a peak, as the value of housing lending on fixed terms had also passed a peak by March 2022.

Properties held for two to four years have made up a relatively high portion of resales in the March quarter at 15.3 per cent, which may be influenced in part by the expiry of three-year fixed terms.

Is the shortage of new housing continuing?

You might be sick of me saying that property is all about demand and supply. Property values are rising because of a shortage of new homes being built. As a nation we need to build 250,000 new homes a year to keep the market in balance. In the 12 months to May only 163,000 were built and building approvals for the next year are at 10 year lows.

So the housing shortage looks set to continue. But the really interesting thing is how quickly that housing shortage is expected to last in the different states.

Perth is leading the nation for rising property values but building approvals over the three months to the end of May are up 51.1 per cent, compared to the same time next year while Victorian approvals were up 10 per cent and the ACT 33.4 per cent

That’s a big turnaround on new building coming down the pipeline over the next couple of years to offset the shortage.

But over the same three months NSW building approvals were down 21.6 per cent, SA down 6 per cent and Queensland down 4.8 per cent.

So factor that in when assessing property investment potential. The shortage in WA and Victoria could be resolved a lot quicker than in other states.

Beware of online ‘finfluencers’

There is a flood of online advice about absolutely anything. Cooking, cleaning, health, gardening, exercise, you name it. And money.

When it comes to following financial advice online, please be careful.

Nearly one in four Aussies are getting financial advice from social media according to new research from Compare the Market .

Zoomers (Gen-Z) aged 18-26 were the most likely to turn to online influencers for money management tips (41 per cent), followed by Millennials (35.8 per cent) and Gen-X (23 per cent). Baby Boomers were the least likely to scroll for guidance (6.1 per cent).

It comes just months after the ACCC announced a crackdown on social media to find deceitful ‘finfluencers’, to ensure they stay legislatively compliant when discussing finance and investing online.

My advice is to err on the side of caution and fact check any advice you have read or seen online to avoid falling into a money trap. It’s absolutely vital to make sure that what you’re seeing is credible because for every helpful tip there could be hundreds of bad ones.

I know that far too many Australians have missed out on a financial education at school and for them the internet is an easy way to access information. Unfortunately, many don’t know how to distinguish between bogus and brilliant advice, especially on a topic they may be unfamiliar with, and there is plenty of unreliable information available that can easily lead you astray.

The survey also revealed that aside from an alarming reliance on social media, more people rely on family and friends for money advice than they do financial professionals. As many as 44 per cent turn to relatives, compared to only 36.6 per cent who speak with accountants, bankers, or financial advisors.

Perhaps unsurprisingly given limited fiscal experience, Gen-Zers are the most likely to rely on family and friends. In fact, they are around twice as likely to do so, as opposed to speaking to an expert. By contrast, Baby Boomers are the only generation that opts for financial professionals over relatives as a source of sound advice.

Other resources that Australians turn to for money advice include traditional media, podcasts, and self-help books.

What’s interesting is that when Compare the Market asked a similar question about health advice rather than financial, it saw just 2.6 per cent say they would turn to social media for answers.

Similarly, there is a much higher number of people who go to medical professionals for health advice than there are people going to licenced financial experts for money advice.

There certainly seems to be a significant difference in trust across the two industries.

As someone who is passionate about financial wellbeing, I would love to see more Australians take control of their finances and seek sound guidance, just as they do when it comes to their physical health.

Compare the Market’s survey also revealed that as many as 27.3 per cent of the population don’t consult any resources when making financial decisions, a statistic that only heightens with age. Baby Boomers, with arguably the most experience in money matters, are most likely to fall into this bracket - 47.5 per cent of the age group makes decisions completely independently.

My top tips to avoid bogus financial advice

Don’t use a broad-brush approach. There is no one-size-fits-all approach to managing finances so take caution when using tactics promoted online. What’s worked for one person might not work for you, so it’s vital to take your own specific needs and circumstances into account.

Seek independent financial advice. By going with an independent provider, you are more likely to receive unbiased advice that is based on your individual needs. Keep in mind that anyone giving personal financial advice in a professional manner must have an Australian Credit Licence (ACL) licence, so it’s a good idea to vet this before proceeding.

Beware of scams and schemes. In the digital age, scams have become harder than ever to spot. Always be wary of an entity that asks for your personal details without first proving themselves to be who they say they are. And when it comes to schemes - if the offer sounds too good to be true, it probably is!