A big reason many people seek the advice of a top-quality financial planner is the assumption that the planner knows more about legislation, strategy and technical issues than the individual does. What they want, in a nutshell, is a trusted professional to take away the burden and the worry of dealing effectively with the myriad financial issues they face in a lifetime.
Accordingly, if there are strategies to minimise tax, maximise the efficiency of investment structures and improve the client’s financial wellbeing, it’s expected that the financial planner will use all that are appropriate – which also means legal – to do so.
It’s not the financial planner’s day-to-day responsibility to second-guess the desirability or otherwise of a policy that allows them to implement strategies that serve their clients’ interests. It might even be regarded as negligent if a planner were to overlook a perfectly legal strategy that would improve the client’s circumstances.
One person’s “smart strategy”, of course, is another person’s “outrageous loophole” – a concept that we’ve seen floating around this week. The so-called transition to retirement (TTR) strategy is well known and well established. And if the numbers published this week are any indication, it is also being used effectively for its intended purpose. This is not an unintended consequence we’re talking about in this instance.
Anyone can use it
Let’s not overlook the plain fact that anyone can use a TTR strategy, assuming it’s appropriate. If you’re a member of an industry superannuation fund, with a relatively modest superannuation account balance, you can probably seek advice from your fund on how to do it. It’s just that, as with all things like this, the strategy benefits the wealthy more than it benefits the less-well-off by virtue of a differential in marginal tax rates.
The Productivity Commission, in supplementary information to a report released last year, found that the TTR strategy is indeed used most by the wealthy, and expressed some puzzlement as to why more people don’t use it. It said, in part: “Why this should be the case is unclear. From the age of 55 years onwards, the tax incentives are strong enough that most who are employed and facing a marginal tax rate of greater than 15 per cent should avail themselves of the transition-to-retirement pension.
“It may be a case that those with lower incomes have less of an incentive to do so relative to those facing higher income-tax liabilities, or it may also be the case that many are unaware of the transition-to-retirement pension arrangements that currently exist.”
Which brings us back to the beginning, and why people go to see a financial planner in the first place: the planner should know all about this, and how to employ it.
Make the case as to why
However, if there’s a growing view that the strategy is unacceptable then it’s up to those who see it that way to make the case as to why, and seek to have legislation amended accordingly. It’s a little disingenuous, if not actually mischievous, to cast the financial planner as the “bad guy” in a scenario where an established, well-understood and effective strategy is being used to benefit individual Australians, and to use this fact as part of any justification for closing it off.
If there’s a sound public policy reason for the policy consequence to be revisited, then let’s do it – and let’s hear from all interested parties on the perceived pros and cons of the strategy, and have them carefully weighed up and considered. Then, if changing the law is considered the right way forward, let’s go ahead and do that, and let’s get on with life and planning under the new arrangements.
