Superannuation Stocks

Macquarie Research Equities (MRE) have highlighted some superannuation stocks that will be advantaged from increased capital inflows from the strong super inflows during this year as well as a consequence over the proposed changes to superannuation regulations announced in the 2006 Budget made superannuation. Those stocks with the greatest exposure to this increase in superannuation capital include Australian listed investment companies like AMP, AXA and Australian banks like National Australia Bank (NAB), Commonwealth Bank of Australia (CBA), Westpac Banking Corporation (WBC) and ANZ.

These superannuation stocks are set to take advantage of the increased super inflows as a result of the radical changes announced in the Federal Budget in May 2006. The main feature of the super package that MRE has pointed out is the planned abolition of tax on superannuation payments on people aged 60 or over. MRE has also noted the following as other key changes to note:

• The abolition of reasonable benefit limits and age-based contribution limits (all people will be limited to annual contributions of $50,000 per year).
• Greater flexibility for individuals as to how and when they wish to draw on their super in retirement.
• Allowing the self-employed to claim a full deduction for their superannuation contributions and to be eligible for the Government co-contribution for their personal post-tax contributions.
• Halving the current pension taper rate to $1.50 from 20 September 2007.

The Australian government undertook a consultation process from which they also announced that the public can now make up to $1 million of post-tax contributions between 10 May 2006 and 30 June 2007.

Following the government’s consultation process, it has also announced that people can now make up to $1m of post-tax contributions between 10 May 2006 and 30 June 2007, which will allow people who were planning a large contribution under the previous rules to do so.

As previously announced, the transitional arrangement whereby people aged over 50 can contribute $150,000 as post-tax super contributions will commence from 1 July 2007 and continue for five years. People aged less than 65 can bring forward two years of contributions, enabling $450,000 to be contributed in one year, with no further contributions in the next two years.

In addition to the annual cap, people can contribute a lifetime limit of $1m from the sale of small business assets which have been held for 15 years; and settlements for injuries resulting in permanent disabilities.

The contribution caps will be indexed to average weekly ordinary time earnings in increments of $5,000. That is, once average earnings have increased by at least 10%, the $50,000 annual limit will be increased to $55,000.

The question remains – will superannuation capital inflows increase? MRE thinks so.If it doesn't it will obviously not advantage the superannuation stocks in question. They have concluded that "in the short term these arrangements are very supportive of inflows." As a result of the increased allowable contribution of up to $1.5m into super in the current year, and $450,000 in the following year of which a similar amount is also allowed into their spouses account. "Younger workers can contribute more into super than they could previously. Whereas now everyone can contribute up to $50,000, previously people under 35 were restricted to $14,603 in annual contributions and people aged between 35 and 49 were limited to contributions of $40,650." MRE also notes that "that there is a strong incentive for people who have owned a small business for more than 15 years to sell up and invest the money into super."

AMP, AXA, NAB, CBA, WBC, ANZ are all listed on the Australian Stock Exchange (ASX), Find out the meaning of the recommendations in this primer. Browse for other broker recommendations. Check your charts and good luck with your share trading!