The role of superannuation in financial planning for farmers
23 January 2023
Over the years, I’ve heard “my farm is my super” more times than I care to admit. But I’ve seen a shift in thinking around the importance of financial planning strategies that help build off-farm assets.
Sometimes, this is driven by the accountant who has worked through obstacles with their clients. Other times, it’s by clients who have experienced a poorly thought-out succession plan with their parents and want to avoid similar challenges with the next generation when they take over the family farm.
My farm is my super
While it may be true that for a lot of farmers, their farm will almost certainly be their biggest asset, and potentially a source of their retirement income, more and more farmers are seeing the flexibility that an off-farm income source can be. We all know that seasons can be tough and unpredictable – do we want to burden the next generation with providing for us in our retirement?
What about the scenario where you’ve got one or more siblings who’ve pursued an alternative (off-farm) career path? When mum and dad are no longer here, do we want to split the family assets equally, or as close as possible when dealing with farmland? If so, how do we do this? Sell off part of the land that you’ve worked so hard to accumulate? Have the on-farm siblings take on debt that you’ve worked so hard to reduce? While I’ve seen both strategies used, they both come with some obvious drawbacks.
A better way forward
As a financial adviser, I help clients come up with strategies to build wealth for retirement. Part of any financial planning process is to identify a client’s goals and objectives. Everyone’s goals and objectives are different; therefore, everyone’s strategy is different based on these needs. The key is to have this discussion early! Building off-farm wealth is not a strategy that’s implemented overnight, rather a 30-year plan that’s tweaked over time as your circumstances change.
For example, I have a farming client who decided a few years ago that they want to both generate an off-farm income stream for their retirement, while also putting some money aside to help them balance out their estate plan. The first step was working out how much they would need to set aside to achieve these goals. This allowed us to come up with a strategy that would allow them to achieve these goals.
The strategy we employed involved setting up a Self-Managed Superfund (SMSF) and maximising their tax-deductible contribution limits (also known as concessional contributions) to grow their super account to their desired balance. The funds were invested across a diversified portfolio of Australian and International Equities, including some Property and a blend of defensive investments (Bonds, Term Deposits etc).
As mentioned above, the key to this strategy is giving yourself enough time to enjoy the benefits of compounding. We’ve implemented alternative strategies for other clients which involved moving some of their farming land into their SMSF, allowing them to pay a deductible Lease payment into their Superfund. This strategy opens the possibility for clients to make additional contributions over and above their Concessional Contribution Limits, resulting in more funds within Super to achieve the desired goals and objectives.
While there’s no ‘one-size-fits-all’, there are a few common themes to the strategies that I help clients develop. One of which is utilising Superannuation as a vehicle to build wealth over time tax effectively. Now, I’m not saying Superannuation is a ‘silver bullet’, but it is a powerful tool to help assist with your retirement and succession plans.
Superannuation, while powerful, has several limits and restrictions. There are various types of Superannuation funds – Retail, Industry or a Self-Managed Superannuation Fund. Each has their pro’s and cons and it’s beneficial to engage a licensed financial adviser to help you use this structure to its full potential.