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The study revealed 42 per cent of Australians believe they need more than $1 million to retire comfortably. However, ASFA estimates a couple requires $730,000 and a single person $630,000 to provide themselves with a comfortable lifestyle when they cease gainful employment.

At the same time, the most recent ASFA Retirement Standard increased by 1.5 per cent over the March quarter for a couple and 2 per cent for a single person, while the consumer price index rose by 1.5 per cent over the same period.

“Inflation is changing how Australians think about their financial futures. When households really feel the pressure of grocery, petrol, energy and other bills [that] keep climbing, people naturally assume that retirement will cost a fortune,” ASFA chief executive Mary Delahunty noted.

“But the reality is that retirement generally costs less than working life. Retirees pay no tax on superannuation pension income after 60, most own their home outright, work-related costs disappear and concessions reduce the price of energy, medicines, transport and council rates.”

ASFA indicated the housing affordability crisis for young people may also be a factor in people’s estimations of how much they will need in retirement. A much larger proportion, 51 per cent, of young people aged between 25 to 34 feel they will need more than $1 million to retire comfortably, with 23 per cent saying they will need more than $2 million.

“House prices have diverged significantly from wages over the last two decades and many people now expect to carry rent or mortgage payments into retirement. It makes sense that they believe they will need much more in super than earlier generations did,” Delahunty said.

For retirees the biggest price increases over the 12 months to the end of March were for electricity, up 25.4 per cent, automotive fuel, up 24.2 per cent, coffee and tea, which rose by 10.7 per cent, and beef prices, which increased by 11.8 per cent.

June 15, 2026
Penny Pryor
smsmagazine.com.au

The post Adequate retirement savings misjudged appeared first on Professional Wealth Services.

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• 48,500 new SMSFs were established in the 12 months to December 2025, the highest annual number on record.
• Nearly 40% of newly established SMSFs reported using AI based tools to assess whether an SMSF was right for them before setting one up.
• Administration remains the top challenge, with trustees citing regulation changes, investment decisions and paperwork as the hardest parts of running an SMSF.
• 58% of newly established SMSFs invest exclusively in more familiar assets such as cash, direct shares and ETFs.

Australia’s self managed super fund (SMSF) sector is experiencing its strongest period of growth on record, driven by digital platforms, online research and the growing use of artificial intelligence. But new research shows that while SMSFs are now easier than ever to establish, the complexity of running and governing a fund remains a significant challenge for trustees.

According to the Vanguard Investment Trends 2026 SMSF Investor Report, 48,500 new SMSFs were established in the 12 months to December 2025, marking the highest annual level of new fund creation since records began. The total SMSF population now stands at approximately 664,000 funds.

The face of new SMSFs is also changing. New trustees are younger, with the average decision making trustee aged 44, and funds are increasingly being established with lower balances than in previous years. Digital channels are playing a central role in this shift, reshaping how Australians assess, establish and manage their super.

“The SMSF market is clearly entering a new phase,” said Rachel White, Head of Financial Adviser Services, Vanguard Australia.

“Technology has lowered the barriers to entry, giving more Australians confidence to take direct control of their super. But this research shows that accessibility and simplicity are not the same thing.”

Digital pathways now dominate establishment decisions

Online research is now the primary gateway into the SMSF sector. Nearly three quarters of newly established SMSFs conducted their own research online to determine whether an SMSF was suitable for them, while close to 40% used AI powered tools as part of that decision process.

“Trustees are coming into SMSFs more informed, often after extensive self education,” Ms. White said.

“That makes the quality of information and education available at the start of the journey more important than ever.”

“AI tools can be a helpful starting point for investors, but unlike professional advisers, they aren’t required to act in best interests or disclose conflicts, so people should treat their guidance with care,” Ms. White says.

Traditional professionals such as accountants and advisers remain important, but they are no longer the sole influence of establishment. Almost three in ten new SMSFs were set up via an online broker or online investment platform, reflecting a broader shift toward digital first financial decision making.

Administration remains the biggest pain point

Despite the rise of digital engagement, administration remains one of the most consistent pressure points across the SMSF lifecycle. Trustees cite choosing what to invest in, keeping track of regulatory changes, and paperwork and compliance as the hardest aspects of running a fund.

“Newly established SMSFs are particularly challenged by regulatory complexity. Keeping up with changes to superannuation rules and compliance obligations is identified as the single biggest challenge for this cohort,” Ms. White said.

Use of online SMSF administration providers has increased sharply, with almost half of newly established SMSFs now using a digital or specialist admin firm. Lower fees and bundled tax and audit services are the strongest drivers of this shift. However, many trustees still describe the experience as manual and time consuming, even when supported by digital tools.

“Digital tools help, but responsibility ultimately still sits with the trustee, and that carries a real compliance burden,” Ms. White said.

More self directed, but still reliant on advice for complexity

The report shows a decline in the proportion of SMSFs using traditional financial advisers, falling to 21%, down from 24% in the previous year. However, this does not reflect a reduced need for advice.

Instead, trustees are increasingly self directed for day to day decisions, while still requiring professional support for complex and high risk areas. Unmet advice needs are most concentrated in tax strategies, retirement planning, estate planning and intergenerational wealth transfer.

“The role of advice is evolving, not disappearing,” Ms. White said.

“Trustees are comfortable managing the basics, but they continue to recognise the value of professional expertise where financial, tax and family outcomes intersect.”

AI and online research are filling some basic guidance gaps, but they are not replacing higher order advice. Around 60% of SMSFs not currently using an adviser say they are likely to seek professional advice in the future, pointing to strong underlying demand.

Simple investments continue to dominate portfolios

Investment behaviour remains conservative in structure, particularly among new funds. The report found that 45% of all SMSFs, and 58% of newly established SMSFs, invest exclusively in ‘simple’ assets such as cash, direct shares and exchange traded funds (ETFs).

Ms. White says, “ETFs have become a core building block for newer SMSFs, offering diversification, transparency and ease of administration. Adoption of more complex or professionally managed investments depends heavily on clear value propositions, transparent fees and trust in providers.”

“Providers who can demonstrate value in simple, transparent terms are best positioned to build long term trust in this market.”

A sector defined by opportunity and responsibility

Overall, the findings of the report point to a market defined by greater self direction, persistent complexity and an ongoing need for education and support.

“SMSFs are becoming more accessible to a broader set of Australians,” Ms. White said.

“But with that opportunity comes responsibility. Trustees need the right tools, education and support to manage that responsibility well over time.”

Vanguard
17 June 2026
vanguard.com.au

The post Record SMSF growth driven by digital access appeared first on Professional Wealth Services.

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The SBSCH closes at 11.59pm on 30 June 2026 and any payments received by it before its closure will be passed on to the relevant employee’s super fund.

The tax office said that as with all due dates, employers must leave enough time for payment processing, so the payment is received by the ATO before the clearing house closes. If in doubt, the ATO recommends employers speak with their financial institution to understand likely payment processing timeframes, and bring forward payments that might otherwise be made close to 30 June 2026.

It is encouraging employers who currently use the SBSCH to switch to an alternative to pay their employees’ super guarantee. It’s also encouraging employers to retrieve their SBSCH records now, as they will no longer be able to access their SBSCH online account from 1 July 2026.

Super guarantee (SG) contributions for the quarter ending 30 June 2026 remain due on 28 July 2026. As the SBSCH will no longer be available, employers should make these payments through an alternative method of payment. If they do not meet this date, they will need to lodge an SG statement and pay the super guarantee charge to us.

If a payment is not received before the SBSCH closes, or if it was received on time but subsequently refunded to, employers will not be able to claim a deduction for it in the 2025-26 year.

Employers who currently use the SBSCH need to switch to an alternative to pay their employees’ SG. They should check their existing payroll software, as it may already include super functions they can use to pay SG. Some large super funds may also have online payment services they can use, or they could use a commercial Clearing House.

Employers must download their SBSCH transaction history before 1 July 2026. After this date, the service will permanently close and records will no longer be accessible. Employers will need their records in future to respond to audits or employee queries.

If the SBSCH received and processed a payment before 30 June 2026, and an employee’s details are incorrect, their super fund may reject the payment or send the payment back to the ATO.

If the super fund sends the payment back to the tax office, it will refund the payment to the employer.

If before 1 July 2026, employee’s details change after a payment instruction has been submitted, but before it’s processed, employers will need to update the employee’s details, delete the payment instruction and lodge a new payment instruction before the SBSCH closes on 11:59 pm AEST 30 June 2026.

Changes to employee details in the SBSCH cannot be made after 11:59 pm AEST 30 June 2026 and any associated payments made will be refunded to the employer.

Keeli Cambourne
June 25, 2026
smsfadviser.com

The post The SBSCH will close from 1 July 2026 appeared first on Professional Wealth Services.

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In a recent webinar, Manzanero-Caruana said with more clients approaching pension age while simultaneously supporting adult children, practitioners say misunderstandings about gifting limits, informal family arrangements and transfers to trusts are creating avoidable compliance risks and long‑term impacts on retirement adequacy.

“Gifting is where the person transfers assets or it could also be a transfer of income to someone other than their spouse, and don’t receive adequate consideration for it. Clients can gift up to a certain amount, but anything over a certain limit, probation rules will apply,” she said.

“They will call that amount a deprived asset, and deprived assets are assessed for five years as an asset and deemed for the income test. So why do the probation rules apply? It is expected that we rely on our own resources for day-to-day needs before calling on the taxpayers for income support.”

Manzanero-Caruana said gifting is quite common, and from the cases she has seen it usually involves parents giving to their children.

“But before gifting, it’s important to ensure that clients have funds for retirement and for aged care needs. I think it’s okay to gift, but if you’re on the age pension, generally you have limited resources, or it is a risk that you may not have enough for your retirement or aged care needs,” she said.

“There’s also sometimes an understanding that a gift could be paid back. I had a case where they said, ‘Well, we’re going to give, but our daughter is going to give back certain amounts every year’. The thing is, if the gift is informal, and there is no legal agreement, there is no control over the money that you’ve given away.”

She added that if the person who received the gift becomes bankrupt, or there is a relationship breakdown, there may be no way to recover the gift.

“You can gift up to a certain limit, and there are two limits that apply at the same time. The same limits apply to both singles and couples, so that means couples will share the gifting limit,” Manzanero-Caruana said.

“The gifting limit is $10,000 per financial year, and there is also a second limit, which is $30,000 over five rolling financial years. So, when your client gifts it’s important to apply both these tests. Did the client give more than $10,000 a year, and did a client also give more than $30,000 over five rolling financial years?”

She said, for example, that if a client gifts $10,000 a year, on the fourth $10,000 gift, that would not meet the $30,000 limit, and would be a deprived asset.

“It’s going to be assessed for five years from the time of gifting and it’s going to be deemed for the asset test.”

Considering how a client may gift, she said they may choose to give $10,000 per year for three consecutive years, then stop for two years. Alternatively, they could give $6000 every financial year.

“For larger sums, and I see this a lot when a client approaches age pension age, they might give large lump sums, ideally more than five years before they reach age pension age, or they might give before they start,” she added.

“They might gift a large amount in order to reduce their age care costs, but then most of them would already be pension age, and they would still have deprived assets.”

For transfers to trusts and companies there are Centrelink implications which need to be considered, Manzanero-Caruana said.

“If Centrelink thinks you’re the source and you still control the trust or company, it’s not gifting,” she explained.

She continued: “They’ll attribute assets to you, the assets and income that those assets in the trust or company generate. However, gifting rules can apply if you transfer assets to a trust or company for less than market value, and you don’t benefit from it, you’re not a shareholder of the company.”

“It’s important to figure out whether you want to gift, you want to retain control of the trust or the company, because that’s going to impact your Centrelink,” she said.

“There’s also another option that I think, instead of gifting, would you loan it? Loans will be assessed as an asset, also deemed for the income test and you can still ask for it to be paid back. When you die, you can still give the loan, you can say you forgive the loan in your will.”

Keeli Cambourne
June 23, 2026
smsfadviser.com

The post Rules apply to gifting in superannuation appeared first on Professional Wealth Services.

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“In practice, an SMFS can choose to reset the cost base of all their assets as at 30 June 26. If they do so, then going forward the SMFS will have two cost bases, one for normal capital gains tax and a different cost base for Division 296,” Manning said.

“This is going to be quite difficult. If you remember back in 2017 when we reset the cost base for the transfer balance cap, that was a hell of a thing to do, but at least with that we only had one cost base. We were resetting cost bases for everything, whereas for this, we’re going to be having two cost bases going forward, and doing so is an irrevocable election.”

Manning said that an SMSF going into 30 June 2027 with an unrealised loss may not decide to reset.

“Also, we don’t have to be immediately affected by Division 296 to make that election, but you might say, for an example, if you’ve got a husband and wife fund, each have $500,00 and the unrealised capital gains are maybe a few grand, then is the benefit of that in the future?” he said.

“It’s probably going to be nil, because they’re probably never going to be in Div 296 territory, but even if they are, is the advantage of that resetting the cost base, if it’s only a small amount, are going to be worth it when we consider perhaps the cost and the hassle involved on maintaining two cost bases in the future.”

He continued that, for large APRA funds, it’s only going to be a portion of the realised net capital gains that are included in the earnings.

“Basically, the key thing there is that it’s for large APRA funds which will be the majority of people apart from SMFS, we don’t reset the cost base. The APRA funds simply can’t do that. We only reset the cost base for SMFS,” he said.

Manning gave an example of Ingrid, the single member of an SMSF which, as at 30 June 2026, has assets of $3,900,000 (consisting of a $3,300,000 property and $600,000 cash).

The property was purchased in 2015 and has a cost base of $1,800,000. If Ingrid’s SMSF decides to reset the cost base for Div 296 purposes, going forward, the property will have a cost base of $1,800,000 for “normal CGT” and $3,300,000 for Div 296.

Ingrid’s TSB as at 30 June 2027 is $4,300,000; as at 30 June 2028, it’s $5,000,000. During 2027/28, Ingrid’s SMSF sells the property for $4,200,000. The SMSF has other income of $100,000 (rent and interest) and the SMSF’s ECPI is 45 per cent.

“If the cost base is reset, Ingrid’s TSB as of 30 June 2027 is $4,300,000, her Div 296 super earnings are $700,000 and her TSB on June 30 2028 is $5,000,000. If there is no cost base reset, her Div 296 super earnings would be $1.7 million,” Manning said.

“In this instance, by resetting the cost base, the earnings are $1 million or less, so when we subsequently sell the property, we still pay the normal CGT based on the true cost base. But our adjusted cost base for Div 296 is different.

“We’re going to have the advantage of resetting the cost base, but to reiterate, whether we do or don’t reset the cost base for normal CGT, it’s going to be the same. But in this instance, we’re approaching 30 June 26 with a large, unrealised capital gain and as it is an SMSF, we should reset the cost base.”

Keeli Cambourne
June 29, 2026
smsfadviser.com

The post Complications of maintaining two cost bases in Div 296 appeared first on Professional Wealth Services.

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Economic outlook for Australia

RBA tightens as inflation risks intensify

“With energy prices set to push inflation higher, the Reserve Bank of Australia is signaling a clear intent to push policy into restrictive territory to curb demand and re anchor inflation expectations.”

—Grant Feng, Vanguard Senior Economist 

The Middle East conflict has lifted oil prices and intensified supply side cost pressures, and that’s feeding into consumer prices. But the impact on economic growth is more nuanced. Because Australia is a large net energy exporter, higher commodity prices should boost national income through stronger terms of trade, partially cushioning any growth drag. On balance, and considering Australia’s heavy oil dependence, limited petroleum reserves, and tighter financial conditions, we have downgraded our 2026 GDP growth forecast by 20 basis points to 1.8%. (A basis point is one-hundredth of a percentage point.)

Australia’s economic challenge remains predominantly supply driven. The economy has been running beyond its sustainable capacity, with the unemployment rate below estimates of full employment. This raises the risk that elevated inflation becomes embedded in expectations, which is arguably a more pressing concern than it would be in other major economies.

With energy prices rising further to date in the second quarter, near term inflation risks clearly skew to the upside. Three consecutive interest rate hikes (in February, March, and May) suggest a shift by the Reserve Bank of Australia (RBA) from a follower to a first mover. Although indicators of economic sentiment have deteriorated, the RBA appears increasingly focused on its price stability mandate. The priority is clear: Prevent inflation from becoming entrenched and avoid a repeat of the 2022 policy misstep, when inflation materially overshot the RBA’s target.

Whether the RBA tightens further will hinge on how quickly the economy weakens. The combination of higher rates and rising fuel costs has already triggered a sharp deterioration in sentiment, suggesting a downturn may be underway. Our base case is that the RBA pauses to year-end, contingent on clearer evidence of slowing demand and labour market softening. However, if the economy proves more resilient than expected, the risk of an additional hike remains firmly on the table.

Australia economic forecasts
 
GDP Growth

Notes: GDP growth is defined as the annual change in real (inflation-adjusted) GDP in the forecast year compared with the previous year. Unemployment rate is as of December 2026. Trimmed mean inflation is the year-over-year change in the Consumer Price Index, excluding items at the extremes, as of the fourth-quarter 2026 reading. Monetary policy is the Reserve Bank of Australia’s year-end cash rate target. 

Source: Vanguard. 

Capital Markets Model® forecasts

Our 10-year annualised nominal return and volatility forecasts are based on the 31 March 2026 running of the Vanguard Capital Markets Model®.

Australia (Australian dollar)

IMPORTANT: The projections and other information generated by the VCMM regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results. Distribution of return outcomes from VCMM are derived from 10,000 simulations for each modelled asset class. Simulations as of 31 March, 2026. Results from the model may vary with each use and over time. For more information, please see the Notes section below.

Notes: These return assumptions depend on current market conditions and, as such, may change over time. We make our updated forecasts available at least quarterly.

Source: Vanguard.

Note: All investing is subject to risk, including the possible loss of the money you invest.

Economic outlook for the United States

A constructive outlook with a close eye on inflation

“Inflationary pressures have remained elevated early in the year, while the Federal Open Market Committee’s bias to ‘look through’ recent price pressures appears to have narrowed.”

—Josh Hirt, Vanguard Senior U.S. Economist

The U.S. economic outlook remains constructive, supported by continued strength in business investment and generally resilient household demand. That said, energy prices have remained elevated. We’d need to see some near-term moderation for recent economic trends to continue. 

We continue to view the labour market as fundamentally resilient, albeit transitioning toward a slower growth phase. Heavily concentrated job creation in health care continues to reflect structural demand in health care services, a trend we expect to persist over the coming years. We continue to see AI related displacement as a limited risk in 2026.

Inflation has remained stubbornly elevated early in the year, prompted by continued pass-through of tariffs and early energy-spike effects from the Middle East conflict. We expect elevated non housing services inflation to moderate in the months ahead. Should that remain sticky, it will be difficult for core inflation to fall below 3% this year.

For now, continued conflict in the Middle East and high energy prices will bias the Federal Reserve toward inaction, although elevated inflation will keep the central bank vigilant to potential changes in inflation expectations. We retain our expectation for a single policy rate cut in 2026, consistent with where we anticipate a narrowed and slim bias of the Federal Open Market Committee to remain. 

United States economic forecasts
 

Notes: GDP growth is defined as the fourth-quarter-over-fourth-quarter change in real (inflation-adjusted) GDP in the forecast year compared with the previous year. Unemployment rate is as of December 2026. Core inflation is the year-over-year percentage change in the Personal Consumption Expenditures price index, excluding volatile food and energy prices, as of December 2026. Monetary policy is the rounded midpoint of the Federal Reserve’s target range for the federal funds rate at year-end.

Source: Vanguard. 

Note: All investing is subject to risk, including the possible loss of the money you invest.

Economic outlook for Canada

Solid growth despite increasing headwinds

“Canada’s economy has remained resilient through a period of significant uncertainty, with strong export performance helping offset emerging headwinds from softer hiring and higher energy costs.”

—Adam Schickling, Vanguard Senior Economist

Continued resilience in export-oriented industries and supportive fiscal policy have Canada’s first-quarter GDP growth tracking at 1.7%, extending the better-than-expected momentum from 2025. A key driver has been the breadth of United States-Mexico-Canada Agreement (USMCA) tariff exemptions, which have preserved a relative advantage versus other U.S. trading partners on about three-quarters of Canadian exports. We expect these exemptions to remain a modest tailwind through 2026, even as the USMCA renegotiation window opens midyear.

Consumer resilience has been another cornerstone of Canadian economic strength since last year’s U.S. tariff announcements, though signs of moderation are emerging. Employment growth has softened, and the unemployment rate has risen to 6.9%. While the composition of unemployment among younger and less-tenured workers tempers the near-term impact on consumption, continued housing market weakness is likely to amplify negative wealth effects. As a result, consumer spending should become more sensitive to real income growth, which we expect to soften alongside the labour market and amid rising energy costs.

On the external front, elevated uncertainty and the energy price shock associated with the Middle East conflict has dampened global growth expectations. While Canada is among the few advanced economies we expect will see a modest near term GDP boost from higher oil prices, these benefits can be offset by declining external demand and Canadian household cost pressures from prolonged higher energy costs. These elevated energy prices also represent an inflationary shock, raising headline price pressures and the risk that disinflation stalls, complicating the near term monetary policy outlook. Although risks have tilted modestly toward a rate hike, we continue to expect no change in policy rates through 2026.

Canada economic forecasts
 

Notes: GDP growth is defined as the annual change in real (inflation-adjusted) GDP in the forecast year compared with the previous year. Unemployment rate is as of December 2026. Core inflation is the year-over-year change in the Consumer Price Index, excluding volatile food and energy prices, as of December 2026. Monetary policy is the Bank of Canada’s year-end target for the overnight rate. 

Source: Vanguard.

Note: All investing is subject to risk, including the possible loss of the money you invest.

Economic outlook for Mexico

Recovery continues amid more uncertain global environment

“Mexico’s structural strengths should help sustain recovery in 2026 despite a more uncertain global environment.”

—Thiago Ferreira, Vanguard Senior Economist

The conflict in the Middle East has elevated both commodity prices and uncertainty about the economic outlook. Mexico’s exposure is mainly indirect, operating through higher global energy costs—particularly refined petroleum products and natural gas—rather than direct supply links to the region. Still, we have revised our GDP growth forecast downward and our inflation forecast upward. A prolonged conflict would pose further upside risks to inflation, downside risks to growth, and depreciation pressure on the peso.

GDP contracted by 0.8% in the first quarter on the back of disappointing services and industry sectors. Household consumption, an important driver of growth last year, has shown less momentum, as have some high-frequency indicators for the second quarter. We continue to expect GDP to post a modest rebound in 2026, supported by solid demand from the U.S. and a resilient labour market. 

We anticipate that the midyear review of the United States-Mexico-Canada Agreement on trade will influence sentiment, though negotiations may generate bouts of volatility. Recent U.S.-Mexico engagement has advanced into a bilateral negotiating track—with an agreed-upon first official negotiating round during the week of May 25—including discussions on rules of origin, economic security, and critical minerals.

Although inflationary pressures remain uneven, we expect a gradual decline in the pace of inflation. Headline inflation has moved higher recently, driven largely by non core components. Given the recent developments in global energy markets, we have raised our year end 2026 core inflation forecast to 4.1%. Contained real wage growth, stable long-run inflation expectations, and the past appreciation of the peso should help push inflation lower over time, although higher energy prices remain an upside risk. 

After making a 25-basis-point cut to the overnight interbank rate in late March, the Bank of Mexico lowered the rate by 25 basis points again on May 7—to 6.5%—citing near term economic weakness and the evolving inflation outlook. (A basis point is one-hundredth of a percentage point.) As disinflation is proceeding only gradually, the approach to further cuts remains cautious.

With the U.S.-Mexico policy rate gap expected to remain relatively stable and the peso’s growing role in global carry-trade dynamics, we anticipate the peso ending 2026 with an exchange rate between 17.5 and 18.5 against the U.S. dollar, which is slightly above the level seen for most of the past month.

Mexico economic forecasts
 

Notes: GDP growth is defined as the annual change in real (inflation-adjusted) GDP in the forecast year compared with the previous year. Unemployment rate is as of December 2026. Core inflation is the year-over-year change in the Consumer Price Index, excluding volatile food and energy prices, as of December 2026. Monetary policy is the Bank of Mexico’s year-end target for the overnight interbank rate.

Source: Vanguard. 

Note: All investing is subject to risk, including the possible loss of the money you invest.

Economic outlook for the United Kingdom

BoE to raise rates to lean against inflationary pressures

“Against the backdrop of a soft labour market, any interest rate increases in 2026 should be viewed as ‘insurance hikes’ for risk management purposes. The Monetary Policy Committee has given a clear signal that it views the magnitude of second-round effects from conflict in the Middle East to be lower than during the 2022 Ukraine shock given the current weakness in the labour market.”

—Shaan Raithatha, Vanguard Senior Economist

The Middle East conflict remains front and centre for the U.K. economic outlook. Compared with the Ukraine shock in 2022, the labour market is looser, wage growth is softer, and inflation is starting from a lower level. We forecast GDP growth of 0.6% in 2026, down 0.4 percentage points from our forecast prior to the outbreak of hostilities in the Middle East, reflecting tighter financial conditions and a drag from higher energy prices. This forecast assumes a scenario in which oil prices average $90–$100 per barrel for one to two quarters.

Early evidence suggests higher energy prices are feeding into consumer prices quickly, with annual Consumer Prices Index (CPI) inflation rising from 3.0% in February to 3.3% in March. Moreover, medium-term inflation expectations have edged up. Accordingly, we have upgraded our 2026 headline CPI forecast by 0.8 percentage points to 3.6%. We expect core inflation to finish the year at 2.8%.

We also now anticipate that the Bank of England (BoE) will raise rates by 50 basis points in 2026 and that these hikes are likely to materialize later than in the euro area. This is because the BoE was in cutting mode before the Middle East conflict and the policy rate is still marginally restrictive at 3.75%.

United Kingdom economic forecasts
 

Notes: GDP growth is defined as the annual change in real (inflation-adjusted) GDP in the forecast year compared with the previous year. Unemployment rate is as of December 2026. Core inflation is the year-over-year change in the Consumer Prices Index, excluding volatile food, energy, alcohol, and tobacco prices, as of December 2026. Monetary policy is the Bank of England’s bank rate at year-end.

Source: Vanguard. 

Note: All investing is subject to risk, including the possible loss of the money you invest.

Economic outlook for the euro area

ECB to deliver “insurance hikes” in 2026

“With consumer prices now rising sharply and supply chains being disrupted, the European Central Bank is set to deliver interest rate increases. This risk management approach will lean against inflation becoming embedded in wage- and price-setting behaviour further down the track.”

—Shaan Raithatha, Vanguard Senior Economist

The euro area is relatively exposed to the Middle East conflict as it is a net energy importer. Our 2026 GDP growth forecast is 0.8%, down 0.4 percentage points from our pre-conflict forecast, as we expect higher energy prices and tighter financial conditions to slow economic activity. This forecast is conditional on a scenario in which oil prices average $90–$100 per barrel for one to two quarters.

Early evidence suggests the direct impact of higher energy prices is feeding into consumer prices quickly and supply chains are being disrupted. However, the magnitude of second-round effects is likely to be weaker than with the 2022 Ukraine shock. This is because the euro area came into this latest shock from a position of relative strength, with headline inflation close to 2%, inflation expectations well anchored, and a labour market that was not particularly tight.

We now expect the European Central Bank (ECB) to raise rates by 50 basis points in 2026, with the first increase coming as early as its June meeting. We see these as “insurance hikes.” The Governing Council has articulated that it will adopt a risk management approach to lean against potential second-round effects from the Middle East shock. We expect policy to reverse and two cuts to materialize in 2027 as the energy shock fades.

Euro area economic forecasts
 

Notes: GDP growth is defined as the annual change in real (inflation-adjusted) GDP in the forecast year compared with the previous year. Unemployment rate is as of December 2026. Core inflation is the year-over-year change in the Harmonized Indexes of Consumer Prices, excluding volatile energy, food, alcohol, and tobacco prices, as of December 2026. Monetary policy is the European Central Bank’s deposit facility rate at year-end.

Source: Vanguard. 

Note: All investing is subject to risk, including the possible loss of the money you invest. 

Economic outlook for Japan

A hawkish pause with a hiking bias

“The Bank of Japan appears to be transitioning from a highly cautious posture to one that favours steady and incremental policy normalisation.”

—Grant Feng, Vanguard Senior Economist

The Middle East conflict poses the greatest growth headwind to Japan given the country’s large exposure to imported energy. This headwind is likely to weigh on growth momentum in business fixed investment and household consumption. Although the economic impact isn’t negligible, it appears to be manageable, reflecting Japan’s ample oil reserves, improved energy efficiency, and structural resilience. Risks would rise materially with weaker global demand or sustained supply disruptions.

Meanwhile, economic fundamentals for future interest rate tightening remain in place. Of particular importance are the annual union wage negotiations—known as Shunto—which are again poised to deliver average pay increases above 5%. This development reinforces Bank of Japan (BoJ) confidence that inflation is durable amid a tight labour market. 

Beyond that, AI in an upswinging cycle and fiscal expansion in the form of energy subsidies should partly offset the growth drag from energy headwinds, helping to buttress trend growth.

Higher energy costs are a double edged sword. They add to inflation but also weigh on real growth through deteriorating terms of trade, thus arguing for a central bank pause and allowing fiscal tools (e.g., fuel subsidies) to absorb the shock—unless it proves persistent.

With sustained wage growth, the BoJ is laying the groundwork for a gradual resumption of policy tightening this year, having not increased the overnight rate since December 2025. We continue to expect two further rate hikes by the end of 2026, which would take the policy rate to 1.25%. Timing will be data dependent, hinging on incoming inflation, wage, and activity data, as well as the persistence of the energy shock. 

Japan economic forecasts
 

Notes: GDP growth is defined as the annual change in real (inflation-adjusted) GDP in the forecast year compared with the previous year. Unemployment rate is as of December 2026. Core inflation is the year-over-year change in the Consumer Price Index, excluding volatile fresh food prices, as of December 2026. Monetary policy is the Bank of Japan’s year-end target for the overnight rate. 

Source: Vanguard. 

Note: All investing is subject to risk, including the possible loss of the money you invest.

Economic outlook for China

When energy headwinds meet AI tailwinds

”China is better cushioned, though not immune, from the oil shock as higher energy prices still pose risks through adverse terms of trade and downstream margin compression. At the same time, an upswinging AI cycle is providing a strong offset to external shocks.”

—Grant Feng, Vanguard Senior Economist

China’s economic growth strongly outperformed expectations in the first quarter, driven by resilient exports, frontloaded fiscal support, and so far limited spillover from the Middle East conflict. However, a K-shaped divergence widened. The supply side continued to outperform, with industrial production beating consensus by a wide margin, consistent with strong export momentum. That supply side strength reflects resilience in advanced manufacturing and AI linked sectors, supported by policy backing and solid external demand. In contrast, domestic demand disappointed modestly, as retail sales softened.

China is better cushioned, though not immune, from the oil shock as higher energy prices still pose risks through adverse terms of trade and downstream margin compression. The government may continue to frontload budgetary expenditures, and China could gain export market share in selected industries. But these forces offer only a partial offset to softer global demand and deteriorating terms of trade amid elevated energy costs.

Although deflationary pressures have eased materially, driven largely by higher energy prices, the oil shock alone cannot reflate the Chinese economy on a sustainable basis without a notable recovery in demand. Companies are absorbing higher input costs and not passing them on because domestic demand is weak.

The stronger than expected start to 2026 reduces the urgency for further near term stimulus. The emphasis is likely to shift toward policy implementation rather than rapid escalation. We see the People’s Bank of China as likely to remain on hold this year, with a preference for structural tools for targeted sectors rather than a broad-based policy rate cut.

China economic forecasts
 

Notes: GDP growth is defined as the annual change in real (inflation-adjusted) GDP in the forecast year compared with the previous year. Unemployment rate is as of December 2026. Core inflation is the year-over-year change in the Consumer Price Index, excluding volatile food and energy prices, as of December 2026. Monetary policy is the People’s Bank of China’s seven-day reverse repo rate at year-end. 

Source: Vanguard. 

Note: All investing is subject to risk, including the possible loss of the money you invest.

About the Vanguard Capital Markets Model

The asset-return distributions shown here are in nominal terms—meaning they do not account for inflation, taxes, or investment expenses—and represent Vanguard’s views of likely total returns, in U.S. dollar terms, over the next 10 years; such forecasts are not intended to be extrapolated into short-term outlooks. Vanguard’s forecasts are generated by the VCMM and reflect the collective perspective of our Investment Strategy Group. Expected returns and median volatility or risk levels—and the uncertainty surrounding them—are among a number of qualitative and quantitative inputs used in Vanguard’s investment methodology and portfolio construction process. Volatility is represented by the standard deviation of returns.

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They are being billed as the biggest changes in decades to the superannuation system in Australia and the reforms may support improved retirement outcomes for Australians.

From July 1, 2026, a new set of laws known as Payday Super will alter the way compulsory retirement savings are paid, which may have long-term implications for millions of workers and investors. 

Under previous rules, employers were only required to pay superannuation contributions at least once per quarter. In practice, this meant some employers accrued contributions each pay cycle but only transferred them to employees’ funds four times a year. The overhaul, as part of the Superannuation Guarantee Charge Amendment Bill 2025, means employers must pay employees’ super at the same time as wages are paid. 

The contributions must also  be received by your super fund within seven business days, unless special allowances apply (such as for new employees). This means that funds are expected to be directed more quickly to workers, rather than sitting in employers’ bank accounts for months earning interest.

The possible benefits

Treasury modeling suggests that, under the new rules, a 25-year-old median income earner currently receiving their super quarterly and wages fortnightly could be around $6,000, or approximately 1.5% better off at retirement.

Another likely advantage is a potential reduction  of instances of  unpaid Superannuation Guarantee contributions. The Australian Taxation Office (ATO) estimates that around $6 billion is currently unpaid to workers. 

Finally, it should make it easier for employees to stay on top of their super, as contributions are paid at the same time as their salary and can be tracked through their online accounts.

Keep monitoring your super options

What will not change from July is the Super Guarantee percentage for payments – this will stay at 12%.

However, having your  super contributions paid earlier means that there may be more time for your balance to benefit from compound earnings. ASFA also comments that Payday Super should especially help younger Australians and workers such as tradespeople, who are more than twice as likely to miss out on super payments. 

Of course, the returns that super contributions generate will depend on how your fund performs and the fees it charges. 

For that reason, it’s still important  to consider factors such as fees, and investment strategy when choosing a super fund.  

ATO on the lookout

Most employees are unlikely to need to take action as a result of the Payday Super reforms, other than to check your pay slips and online account to ensure the right super is being paid at the right time. If it isn’t, first check directly with your employer and report to the ATO if needed.

The ATO has pledged to monitor employers to make sure they comply with the new rules. That promise provides hope that  super will be paid more often to workers from July 1, potentially allowing them to build a larger nest egg for retirement.

Vanguard
24 June 2026
vanguard.com.au

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Aaron Dunn, CEO of Smarter SMSF, said on a recent online update that SMSF trustees have to ensure they meet the minimum pension payment obligations as part of their compliance, but noted there are other elements that should also be taken into consideration leading up to the end of the financial year.

Tim Miller, head of technical and education for Smarter SMSF, said that in light of the ATO’s position on not paying the minimum pension requirements, it’s important that SMSF trustees ensure they have done their calculations on the previous 30 June/1 July balances, or commencement balances.

“If you commence during the current year, ensure that you meet that minimum pension obligation prior to 30 June to ensure that the fund firstly meets the standards of having a pension, and secondly, in an account-based pension sense, gets its exempt current pension income deduction,” Miller said.

“[It’s important to] recognise that for account-based pensions there’s no maximum versus say a transition to retirement income stream where there is a maximum. Ensure you at least take out the minimum that’s been calculated on either a full year or a pro rata year basis.”

Dunn said another thing to note at this time of year is how benefits are being taken out, especially where there may be multiple pension strategies, or both pension and accumulation accounts.

“There are some important steps that need to be put in play, in particular where those individuals are taking more out than that minimum for the year,” Dunn said.

 “That, arguably, is in light of potentially some of the Division 296 tax measures coming in from 1 July 2026.”

Another element to consider, Miller continued, concerns the transfer balance cap, and whether there is benefit in taking money out as either a pension withdrawal or as a partial commutation from a pension.

“Or if you have an accumulation interest, whether it’s to take a lump sum out of that. It’s not  a set-and-forget rule, but one of those areas that people need to look at on a year-by-year basis, as well as from an estate planning point of view, “ Miller said.

“[You should look at] the breakdown, the components of multiple interests, or various interests as to where it might be beneficial to take any amounts over and above that minimum.”

Miller continued that from a TRIS perspective there is “almost nothing ventured, nothing gained” as they are not linked to the general transfer balance cap until the member meets a further condition of release.

“You would primarily start one because you want to draw down income, and by commencing a pension at any point in time, it’ll give you access to that 10 per cent of the account balance,” he said.

“Therefore, if there’s an income need, starting a TRIS at any point could be beneficial. On the flip side, when we look at account-based pensions, one of the critical rules is that if you start on or after 1 June, there’s no minimum pension obligation for that year.

“That means we can trigger the commencement, which will of course trigger a transfer and balance account reporting moment, where we’ll have to provide the report for that June quarter, but it will entitle the fund to ECPI on the earnings that it generates from that date until the 30 June.”

Additionally, Miller said, there is no minimum pension obligation on the drawdown, so you can commence the account-based pension on or after 1 June, get an income tax exemption within the fund, but not draw down on the capital in the sense of drawing the income from the fund for that month.

“There’s a couple of benefits for it and, of course, subject to the fund’s balance and the number of members, you might be able to do asset segregation. So there may be some significant tax benefits, particularly from a CGT point of view, from commencing a pension on 1 July, if you are looking at some form of asset in that final month,” he added.

Dunn emphasised that the 1 June date is important.

“That balance is going to be integral because of the disregarded small fund asset rules, but it does then provide you with that opportunity to look at the tax position in that final month and determine if the fund may realise assets or get a sizable gain that it can exempt through a deemed segregated period in that particular point in time,” he said.

Keeli Cambourne
May 28, 2026
smsfadviser.com

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