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September 2017

A real-world benchmark for SMSF performance

Loneliness may well be the bane of the long-distance runner's lot, but isolation can be a major challenge for SMSF trustees to manage too.



While most SMSF trustees do not directly manage every administrative detail of their fund, by their very nature self-managed super funds are personalised, if not bespoke. So one of the underlying challenges of a self-managing super fund is knowing whether you are on track to be able to provide for a comfortable retirement.

Being able to benchmark your fund against a peer group is the disciplined way that most professional fund managers measure their success (or otherwise).

SMSFs can use publicly available data to benchmark their fund – picking a major industry fund's MySuper offer, or the diversified investment options that managers like Vanguard offer retail investors, provides a high-level comparison point.

But that may not be an apples to apples comparison as institutional managers have easier access courtesy of their size to certain types of asset classes or investments – infrastructure or commercial property for example.

Which is what makes research released this week by the SMSF Association and Accurium a valuable resources for SMSF trustees.

Accurium is an actuarial business specialising in the SMSF sector and as a result has more than 65,000 SMSFs on its database paying a pension and therefore requiring an actuarial certificate which gives Accurium a deep set of real-world data on SMSFs.

For the financial year ended June 30 2016, the median account balance for a two-person SMSF increased slightly to $1,137,000. The median imputed investment return was a modest 1 per cent compared to an average over the past seven years of 5.2 per cent.

The 2015-16 tax year was a challenging year for certain investment markets – particularly markets that SMSFs traditionally have had heavier exposures – like Australian shares and cash.

The good news for SMSF trustees is that despite the weaker investment returns the Accurium analysis shows that the median balance for a 65-year-old SMSF couple still have an 80 percent chance of sustaining $70,000 a year lifestyle in retirement.

When you compare SMSF balances to the broader super industry SMSFs clearly have significantly higher balances and general household wealth. Which is just as well because according to ASFA's definition of a “comfortable retirement” the amount needed for a 65-year-old has increased by 17 percent from $702,000 to $824,000.

As a result Accurium says that despite the higher balances in SMSFs, more than half of SMSF retirees cannot be “reasonably confident” of achieving their desired lifestyle in retirement.

One in four (25 per cent) according to Accurium are actually unlikely – less than 50 per cent chance – of achieving their retirement goals.

With the outlook for returns being lower for longer, the Accurium research provides a timely reality check for many SMSF trustees that while balances are healthy and rising slowly they may well need to contribute more into super in order to be confident of enjoying that retirement lifestyle they aspire to.


Written by Robin Bowerman
Head of Market Strategy and Communications at Vanguard.
19 September 2017

ATO to release further guidance on reserves

The ATO is set to release further guidance outlining the circumstances in which it is appropriate for an SMSF to establish and maintain a reserve.



In light of the 1 July changes, the ATO has updated its frequently asked questions page for SMSF trustees to include information about the use of reserves by SMSFs.

The ATO said it is currently monitoring the use of reserves by SMSFs following the introduction of new limits and restrictions including the transfer balance cap and total super balance.

“While the establishment of a reserve is not specifically prohibited, we consider that there are very limited circumstances when it is appropriate for a reserve to be established and maintained in an SMSF,” the ATO said.

“The use of reserves beyond these circumstances may suggest they are used as part of a broader strategy to circumvent the new limits and restrictions.”

The ATO warned that any unexplained increases in the creation of new reserves or in the balances of existing reserves maintained by SMSFs is “likely to attract close scrutiny”.

The tax office has also announced that it will issue further guidance on when it may be appropriate for an SMSF to establish and maintain a reserve.

“In the meantime, if you are considering using reserves in your SMSF, we strongly encourage you to seek independent professional advice or approach us for advice before doing so,” the ATO cautioned.

Townsends Business and Corporate Lawyers special counsel Michael Hallinan said this update from the ATO is likely aimed at SMSF trustees attempting to use reserves get around the $1.6 million cap so that they can contribute another $100,000 or so.

“Most SMSFs don't operate investment reserves and haven't undertaken in any investment smoothing at all,” said Mr Hallinan.

“You have a reserve in an SMSF either because you're running a complying pension or because for the last five or six years you've adopted a strategy of trying to finance anti-detriment payments, and that strategy is now redundant.”


21 Sep 2017

The great Australian (retiree) dream

The very high level of debt-free home ownership among current Australian retirees helps counterbalance their low average super savings, undoubtedly contributing to any sense of financial security.



A recent Vanguard research paper, Retirement transitions in four countries, found that that 59 per cent of Australia's recent retirees surveyed believe they are highly satisfied with their current financial situation. This compares with 24 per cent with a medium level of satisfaction and 32 per cent with a low satisfaction level.

In surveys of thousands of pre-retirees and recent retirees in Australia, US, UK and Canada, researchers recorded a marked improvement in financial satisfaction upon retirement. In short, recent retirees tended to be more confident and less anxious about their financial positions.

It would be worthwhile revisiting this research project in a few years' time given reducing home ownership among Australians, particularly younger ones, together with rising mortgage debt among older homebuyers.

Unfortunately, many more future retirees will begin their retirement with rent or outstanding mortgages to pay from their retirement savings and Aged pensions.

Thorough long-term planning for retirement should take into account whether you are buying a home or if you are intending to do so – and how you intend to achieve those ownership goals.

Ideally, any mortgage debt should be repaid along with other debts before retirement – hopefully well before. In theory, this will leave your retirement income to pay for your retirement living costs.

And those who are not aiming to become home owners should take this into account when determining how much they need to save for retirement.

Key research increasing highlights the relationship between financial wellbeing in retirement and home ownership.

For instance, economist Saul Eslake wrote in a paper, No place like home – The impact of declining home ownership on retirement*, that Australia's retirement income system had long taken for granted that the vast majority of retirees would have very low housing costs. This was based on a presumption that most would own their own homes and have fully repaid their mortgages.

However, Eslake believed this presumption had become increasingly doubtful. His paper pointed to the declining home ownership among people of working age, “especially those in their late 20s and early 30s”. This trend was accompanied by the rising proportion of home owners in their late 50s and early 60s with outstanding mortgages.

The latest Retirement expectations and spending profiles, from actuaries and consultants Milliman-Australia, calculates that retirees who rent privately will have to save much more superannuation to live the same lifestyle as retirees who own their homes outright.

While only a relatively small percentage of current Australian retirees rent privately, Milliman also expects this to markedly change as levels of home ownership fall across age groups.

The latest Household Income and Labour Dynamics in Australia (HILDA) survey from the Melbourne Institute shows that home ownership among people aged 18 to 39 years is down from 36 per cent in 2002 to 25 per cent in 2014. The decline in home ownership is largest among families with young children.

Yet the levels of mortgage debt for this age group has almost doubled in that time, according to the HILDA survey, as housing prices have sharply risen and low interest rates have enabled buyers to take bigger mortgages.

It would be difficult to understate the need to include retirement housing costs into your planning for retirement in order to avoid a future shock.

* No place like home – The impact of declining home ownership on retirement, published in March by the Australian Institute of Superannuation Trustees.


Written by Robin Bowerman
Head of Market Strategy and Communications at Vanguard.
29 August 2017


ATO granted super enforcement powers

The government has announced a number of reforms designed to give the ATO more powers to oversee and enforce superannuation guarantee payments.



Minister for Revenue and Financial Services Kelly O’Dwyer said the new powers will provide “near real-time visibility” on employers’ superannuation guarantee (SG) compliance and enable the regulator to better enforce compliance through a new taskforce.

“The package builds on legislation already announced to close a legal loophole used by unscrupulous employers to short-change employees who make salary-sacrifice contributions to their superannuation,” she said.

Other measures announced as part of the reforms include a requirement that super funds report the contributions they receive at least monthly, strengthen director penalty notices, allow the ATO to pursue court-ordered penalties “in the most egregious cases of non-payment”, and the roll-out of the Single Touch Payroll system.

“Employers who deliberately do not pay their workers’ superannuation entitlements are robbing their workers of their wages. This is illegal and won’t be tolerated,” Ms O’Dwyer said.

“The Turnbull government is taking action to safeguard and modernise the SG so employers can’t hide from their legal duty. We will give all Australians confidence that the superannuation system is working in their best interests.”

The reforms have been met with support from industry advocacy body Australian Institute of Superannuation Trustees (AIST), who said employer non-compliance costs employees “billions of dollars” in retirement savings.

“Even on the conservative figures released today, the ATO have confirmed that there is a massive problem of underpayment that has to be addressed,” said AIST chief executive Eva Scheerlinck.

“Superannuation is deferred wages and, in a compulsory super system, members must receive their full entitlements. Importantly, this package of reforms includes strengthening employer penalties for noncompliance and enhancing the ATO’s power to deal with repeat offenders.”

However, Ms Scheerlinck said more reforms needed to be implemented, noting that currently employers are only required to pay their employees' contributions on a quarterly basis, and that making these payments more frequent would also strengthen the system.

“Improved payslip reporting would help employees keep better track of their super payments by providing them with the ability to check that their super has actually been paid into their fund,” she said.

“We believe this measure would have a significant impact for members. We will work with the government to bolster the efficacy of the package in this way.”


30 August 2017


Are young investors wasting their youth?

It was George Bernard Shaw who coined the phrase 'youth is wasted on the young'. In Australia today, it seems the young may be wasting their investing youth.



The great advantage the young – and here we are referring to 18-25 year olds – have over those of us closer to retirement is time.

Time is a powerful investment tool because it gives you the ability to take a long-term view and ride through the inevitable market ups and downs.

Serious market downturns like the 2008 global financial crisis look completely different if viewed through the eyes of a 25-year old versus a 65-year old.

Investment experience suggests the GFC was a buying opportunity for the young and – depending on their asset allocation – a distressing lifestyle changing event for the recently retired.

Which makes the results of the 2017 ASX Australian Investor Study noteworthy. The survey of 4000 investors by Deloitte found that younger Australian investors were highly conservative in their attitude to investment risk.

The ASX survey found that around 31 percent of younger people wanted guaranteed returns and only 19 per cent would accept variability in returns. In contrast only 8 per cent of those surveyed aged over 75 look for guaranteed returns and 35 percent would accept variability in returns.

Interestingly, Australians are more conservative than investors in other countries according a global study of investor risk tolerance done by fund manager Legg Mason in 2015 that found only 29 percent of Australian investors would be prepared to increase their risk profile for the opportunity to gain extra income. Globally 66 percent of investors said they would be prepared to increase risk for the chance of higher yield.

Investing is essentially about getting the risk and return balance right and a key determinant is an investor's age.

For younger investors their relative youth is an asset that it seems many – paradoxically perhaps given risk-taking behavior more typical of 18-25 year olds – are undervaluing. Although a younger investor might feel more comfortable investing more conservatively, what they may not be considering is the opportunities for growth they are passing up in favour of short-term stability.

Another interesting stat from the survey was that only 37 per cent of young investors used financial advice to help them make investment decisions, compared to 45 per cent for all investors.

Although many investors perceived that going to an adviser was too expensive or perhaps weren't sure of their value proposition, a good financial adviser who can help an investor determine an appropriate level of risk based on their goals and time horizon, and then help them maintain the discipline and focus to stick to their plan through market ups and downs, could be one of the most valuable investments of all.


Written by Robin Bowerman
Head of Market Strategy and Communications at Vanguard.
05 September 2017

Government introduces first home scheme laws

Legislation for the government’s First Home Super Saver Scheme (FHSSS), as well as its proposed new superannuation rules for retirees downsizing their homes, have been introduced to parliament.



The Treasury Laws Amendment (Reducing Pressure on Housing Affordability Measures No. 1) Bill 2017 and the First Home Super Saver Tax Bill 2017 were introduced and read a first and second time by Assistant Minister to the Treasurer Michael Sukkar in the House of Representatives yesterday.

Commenting on the introduction of the laws, Treasurer Scott Morrison said the government was moving forward on the issue of housing affordability.

“The FHSSS legislation…will be a game changer for young Australians trying to get their first place,” Morrison said.

“For most people, the FHSSS will enable them to boost the savings they can put towards a deposit by 30 per cent compared with saving through a standard deposit account. This will give prospective home buyers a significant step up at a time when saving for a deposit is becoming increasingly difficult for many people.”

He added that he expected many older Australians to be attracted to take up the new downsizing rules in order to vacate larger properties which no longer suited their needs.

“[The rules] will encourage people who may have been put off by existing restrictions and caps [to superannuation] to move house and free up larger homes for growing families,” he said.

Proposed in this year’s budget, the FHSSS would allow first home buyers to contribute up to $30,000 to their super over and above compulsory contributions, which could then be withdrawn to purchase a home.

At the same time, retirees who wished to downsize could get relief from recently introduced restrictions to super contributions by accessing an additional $300,000 in non-concessional contributions if the funds came from the proceeds of their home sale.


By Sarah Kendell
08 Sep 2017

Australian Dietary Guidelines and healthy eating chart (PDF)

The Australian Dietary Guidelines give advice on eating for health and wellbeing. They’re called dietary guidelines because it’s your usual diet that influences your health. Based on the latest scientific evidence, they describe the best approach to eating for a long and healthy life.



Australian Guide to Healthy eating – chart: click here to download to your device.


What are the Australian Dietary Guidelines?

The Australian Dietary Guidelines have information about the types and amounts of foods, food groups and dietary patterns that aim to:

  • promote health and wellbeing;
  • reduce the risk of diet-related conditions, such as high cholesterol, high blood pressure and obesity; and
  • reduce the risk of chronic diseases such as type 2 diabetes, cardiovascular disease and some types of cancers.

The Australian Dietary Guidelines are for use by health professionals, policy makers, educators, food manufacturers, food retailers and researchers, so they can find ways to help Australians eat healthy diets.

The Australian Dietary Guidelines apply to all healthy Australians, as well as those with common health conditions such as being overweight. They do not apply to people who need special dietary advice for a medical condition, or to the frail elderly.

View the Australian Dietary Guidelines and Companion Resources.

What is the Australian Guide to Healthy Eating?

The Australian Guide to Healthy Eating is a food selection guide which visually represents the proportion of the five food groups recommended for consumption each day.

Why do we need Dietary Guidelines?

A healthy diet improves quality of life and wellbeing, and protects against chronic diseases. For infants and children, good nutrition is essential for normal growth.

Unfortunately, diet-related chronic diseases are currently a major cause of death and disability among Australians.

To ensure that Australians can make healthy food choices, we need dietary advice that is based on the best scientific evidence on food and health. The Australian Dietary Guidelines and the Australian Guide to Healthy Eating have been developed using the latest evidence and expert opinion. These guidelines will therefore help in the prevention of diet-related chronic diseases, and will improve the health and wellbeing of the Australian community.

How do I make healthy food choices?

There are many things that affect food choices, for example, personal preferences, cultural backgrounds or philosophical choices such as vegetarian dietary patterns. NHMRC has taken this into consideration in developing practical and realistic advice. Keeping the Australian Dietary Guidelines in mind will help your choice of healthy foods.

There are many ways for you to have a diet that promotes health and the Australian Dietary Guidelines provide many options in their recommendations. The advice focuses on dietary patterns that promote health and wellbeing rather than recommending that you eat – or completely avoid – specific foods.

Many of the health problems due to poor diet in Australia stem from excessive intake of foods that are high in energy, saturated fat, added sugars and/or added salt but relatively low in nutrients. These include fried and fatty take-away foods, baked products like pastries, cakes and biscuits, savoury snacks like chips, and sugar-sweetened drinks. If these foods are consumed regularly they can increase the risk of excessive weight gain and other diet-related conditions and diseases.

Many diet-related health problems in Australia are also associated with inadequate intake of nutrient-dense foods, including vegetables, legumes/beans, fruit and wholegrain cereals. A wide variety of these nutritious foods should be consumed every day to promote health and wellbeing and help protect against chronic disease.

Do the Australian Dietary Guidelines recommend that I only eat certain foods?

No. The Australian Dietary Guidelines, Australian Guide to Healthy Eating and consumer resources assist by helping you to choose foods for a healthy diet. They also provide advice on how many serves of these food groups you need to consume everyday depending upon your age, gender, body size and physical activity levels.

Evidence suggests Australians need to eat more:

  • vegetables and legumes/beans
  • fruits
  • wholegrain cereals
  • reduced fat milk, yoghurt, cheese
  • fish, seafood, poultry, eggs, legumes/beans (including soy), and nuts and seeds.
  • red meat (young females only)

Evidence suggests Australians need to eat less:

  • starchy vegetables (i.e. there is a need to include a wider variety of different types and colours of vegetables)
  • refined cereals
  • high and medium fat dairy foods
  • red meats (adult males only)
  • food and drinks high in saturated fat, added sugar, added salt, or alcohol (e.g. fried foods, most take-away foods from quick service restaurants, cakes and biscuits, chocolate and confectionery, sweetened drinks).

How have the Australian Dietary Guidelines changed since the last edition?

Key messages in the Guidelines are similar to the 2003 version, but the revised Australian Dietary Guidelines have been updated with recent scientific evidence about health outcomes. To make the information easier to understand and use, the revised Guidelines are based on foods and food groups, rather than nutrients as in the 2003 edition.

The evidence base has strengthened for:

  • The association between the consumption of sugar sweetened drinks and the risk of excessive weight gain in both children and adults
  • The health benefits of breastfeeding
  • The association between the consumption of milk and decreased risk of heart disease and some cancers
  • The association between the consumption of fruit and decreased risk of heart disease
  • The association between the consumption of non-starchy vegetables and decreased risk of some cancers
  • The association between the consumption of wholegrain cereals and decreased risk of heart disease and excessive weight gain.