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Survey reveals strong opposition to retirement system changes

The majority of Australians are opposed to further changes to the retirement system, despite the rising costs with supporting an ageing population a recent survey has shown.

 

A survey commissioned by Chartered Accountants Australia and New Zealand asked more than 1,200 Australian and New Zealand residents on their thoughts about how to create a more sustainable retirement system.

CA ANZ superannuation leader Tony Negline said the results show that the Australian public’s dominant preference is for the status quo to remain in place and that the government pension should be provided with current means testing rules in Australia.

The report indicated considerable disagreement about the preferred policy options for dealing with the increased costs of an ageing population.

The most heavily opposed policy option was across the board reductions to the amount in the amount paid.

The survey revealed that while only 41 per cent of couples and 35 per cent of singles in Australia feel they ‘get by’ on current age pension income levels, only 12 per cent of couples and 12 per cent of singles feel they could live comfortably at that level.

“There was mixed support for the other options, including increasing the age of entitlement, amending how adjustments occur or pre-funding through increased current taxes,” the report said.

The least unpopular option with New Zealanders and Australians across all age groups was the use of income and asset testing, the report said, however even this option was not met with much enthusiasm.

“Interestingly support for asset testing did not extend to including the family home, which was rejected by all grouping differentials — age, gender, income, location, employment status and so on,” the report said.

“Support came through for egalitarian notions of paying through taxation and restricting access to those.”

Mr Negline said politicians are between a “rock and a hard place”.

“The public don’t want change, despite knowing the system will cost significantly more in the future,” he said.

“People clearly want to see the status quo remain and the government pension provided universally without continued means testing in Australia.”

 

 

By Staff Reporter
11 May 2018
www.smsfadviser.com

Australia by numbers – Update

Armed with this information you'll be a conversation magnet at any party.

       

 

Please click on the following link to see all this interesting information. The areas covered are:

  • Overview
  • Markets
  • GDP
  • Labour
  • Prices
  • Money
  • Trade
  • Government
  • Business
  • Consumer
  • Housing
  • Taxes
  • Climate

 

Access all this data here.

tradingeconomics.com

Check trust deed to protect super in estate planning

For many people, their superannuation is their biggest asset when they retire – and often when they die as well.

           

 

Despite this, there are still a number of misunderstandings about what steps need to be taken to manage and direct super, as part of estate planning, to ensure it goes to the intended person. This is particularly true of SMSFs.

Perhaps the biggest misconception in estate planning is that super benefits automatically form part of an estate. However, this is not the case and super cannot be directed to beneficiaries via a will unless other supporting documentation is in place and it is allowed by the relevant trust deed.

Instead, if no valid directions have been provided, the trustee of a super fund – whether an SMSF or a public offer fund – is responsible for the distribution of death benefits.

SMSF members can leave instructions for trustees on how they want their super benefits to be distributed, so long as this is permitted by their trust deed. Each deed can be unique in characteristics and terms so it is vital to ensure the original documentation is reviewed whenever dealing with an SMSF.

There are two main ways for SMSF members to direct super funds as part of estate planning.

One is to have a binding death benefit nomination (BDBN) as part of the SMSF trust deed that names a valid beneficiary.

A BDBN is an election made by a member that is binding on the trustee and means the trustee must direct any benefits remaining in a member’s super account in the way the member has instructed.

However, there are strict rules around BDBNs. They must comply with the requirements of the fund’s trust deed to be effective, and not all trust deeds permit BDBNs, so it can’t be assumed any BDBN is valid.

If the trust deed does allow BDBNs, there are usually a number of requirements that must be met to ensure they are valid.

Legislation requires BDBNs to:

  • be in writing,
  • be signed and dated by the member in the presence of two adult witnesses, and
  • contain a declaration, signed and dated by the witnesses, that the member signed the notice in their presence.

Other requirements that may be included, depending on the trust deed, are that the BDBN:

  • may lapse after a time period (usually three years) or is non-lapsing,
  • can be revoked by the member at any time, via written notice to the trustee, and
  • must contain enough detail to identify the member and/or beneficiaries.

There may also be less common provisions, such as:

  • restrictions on the way in which a trust deed can be amended if that amendment impacts on the BDBN,
  • requiring the trustee to consider and accept a BDBN before it is valid,
  • specifying the form the BDBN should take, which sets out the percentage entitlement of each beneficiary and specifies who can be accepted as eligible beneficiaries, and
  • empowering the trustee to accept amended BDBNs from the financial attorney of a member – it is commonly accepted that a trustee should accept a BDBN that simply renews an existing BDBN, the difference here is that the trustee may allow a financial attorney to change the original intention of the member.

One key issue to be aware of is that BDBNs may automatically lapse after three years. If this happens, then the SMSF’s trustees will decide who receives the death benefits and it may not necessarily be the person the deceased had chosen.

It is possible to have a non-lapsing BDBN, which, as the name suggests, will not expire.

It’s worth checking the trust deed of the fund to check whether BDBNs are allowed and, if so, what form they may take.

The other way to direct super benefits as part of estate planning is to set up a testamentary trust. This is a trust that comes into effect on a person’s death, with the SMSF’s BDBN directing death benefits into the trust.

This then means the super funds become part of the estate and can be directed to beneficiaries through a will.

This approach has a number of advantages, including tax effectiveness and the ability to protect assets.

The tax treatment of the benefits depends on who the beneficiaries are. If they are dependants for tax purposes (such as a spouse or child under 18), then it will be tax-free.

For others, the benefit will be taxed according to inpidual circumstances. There are options for structuring the will and the trust so that some components of the benefit are tax-free, and also to segregate super entitlements for the benefit of the death benefit dependants only (commonly referred to as a super proceeds trust).

Whichever approach is taken, it is important to ensure there is appropriate documentation and records to accompany any directions, and that the directions are allowable under the SMSF’s trust deed.

A good first step is to check the trust deed and fully understand what is permitted and what directions are already in place. Don’t assume the trust deed reflects your wishes, unless you have taken steps to make sure this is the case.

 

 

28 May 2018
By Anna Hacker
Anna Hacker is estate planning national manager at Australian Unity Trustees.
www.smsfmagazine.com.au

 

Some general interest stats on SMSFs

Mixed phase SMSFs holding greatest assets

         

 

While mixed phase SMSFs are not the largest SMSF member segment, they hold significantly more in net assets per member than those in either accumulation or pension phase, according to a recent report.

The Class SMSF Benchmark Report for March 2018, based on data from Class software users, indicated that 50.6 per cent of SMSFs are in accumulation, 18 per cent are in pension phase SMSFs and 31.4 per cent are mixed phase SMSFs.

While mixed phase SMSFs account for just under a third of all SMSFs, on average they have the highest net assets per SMSF.

Mixed phase SMSFs hold $2,306,000 in net assets on average, compared to $1,215,000 for pension phase SMSFs and $781,000 for accumulation phase SMSFs.

The statistics on members reflect similar numbers with 51 per cent of members in accumulation, 16 per cent of members in pension phase and 33 per cent of members in mixed phase SMSFs.

The average age of members in these categories was 52 for accumulation, 65 for mixed phase and 72 for pension phase.

Members in mixed phase SMSFs hold the highest balances at $1,143,000, while accumulation members hold $411,000 in net assets on average and pension phase members hold $729,000 in net assets on average.

 

 

By Miranda Brownlee
18 May 2018
www.smsfadviser.com

 

Time to check your risk exposure?

For equity investors, 2017 was an epic year. And it came on the heels of an historic bull market in global stocks stretching back to the spring of 2009.

           

 

So far 2018 has been epic, but in a different way. Markets in North America, Europe, and the Asia-Pacific region fell sharply in early February, rebounded, fell again, rebounded, and remain somewhat unsettled.

Given this backdrop, now might be a good time to check your portfolio's asset allocation—that is, how your money is divided among shares, bonds, and short-term reserves (cash). Thanks to the equity market's long rally, there's a chance your allocation to shares may be greater than you originally intended.

What's your comfort level?

Owning a higher percentage of shares might be a good thing—especially if the market resumes its ascent. But if the market heads in the other direction, it puts your portfolio at risk. Because no one knows which way the market will go, Vanguard suggests choosing a mix of equity and bond investments that you'd feel comfortable with over the long run and rebalancing back to that mix when market movements veer you off course.

Here's an example of how the markets can change your risk level: Based on market performance alone, an investor who owned a 60 per cent /40 per cent mix of U.S. shares and bonds in early 2003 would have drifted to a 75 per cent /25 per cent mix four years later, just as the global market was heading for a hard fall. History may or may not repeat itself. But you can keep your risk level constant by rebalancing your portfolio.

Guidelines for rebalancing

We recommend that you consider rebalancing once a year or after your allocation shifts by 5 percentage points or more. If you haven't rebalanced before, here's how to get started:

  • Determine your target asset allocation, taking into consideration your financial objectives, time frame (that is, how long you plan to keep the money invested), and comfort with risk exposure.
  • Evaluate your current allocation. If your current mix differs from your target mix by 5 per cent or more, you may want to rebalance.
  • Avoid unnecessary taxes. If you rebalance by buying and selling investments in taxable accounts, you'll face tax consequences. So you may want to take a cautious approach by directing future investments to your under allocated asset types, rather than shifting existing money around.

Put it on autopilot

It takes discipline to keep your portfolio balanced. After all, it often means moving away from stocks after they've provided high returns. If you're having a hard time putting a rebalancing plan into practice, consider these options:

Invest in a balanced or multi-asset fund. You can choose from different types of balanced funds depending on your needs. Many funds provide a mix of equities and bonds that are professionally managed to maintain a steady asset allocation.

Contact an advisor. A professional financial advisor can rebalance your portfolio for you. He or she should compare your current asset mix with your target every few months to help you stay on track to meet your long-term goals.

Buying low and selling high

After equities have a great year, it can feel wrong to consider trading them for bonds. Instead, investors tend to get carried away, often investing more money in funds as prices climb.

But the oft-repeated advice is to “buy low and sell high.” That's why rebalancing works—it encourages you to cut back a bit on a rising investment and buy a bit more of the lagging category.

 

By Robin Bowerman
Head of Corporate Affairs at Vanguard Australia
22 May 2018
www.vanguardinvestments.com.au

Cryptocurrency audits tipped to increase this EOFY

Audit activities around cryptocurrency are set to spike this tax time as part of the ATO’s broader risk analysis in its black economy crackdown, says one mid-tier.

       

 

Speaking to Accountants Daily, HLB Mann Judd partner Peter Bembrick said the injection of $318.5 million to the ATO to tackle the black economy, as announced in the budget papers, would likely see a flow on effect to audits around cryptocurrency due to its surge in popularity over the past 12 months.

“It's a bit like the black economy or the cash economy – this could be another aspect of that and there may be certain taxpayers who are being targeted,” said Mr Bembrick.

“It has a reputation of being a black mark and a criminal element to it but it is now more mainstream and you're going to see people do legitimate transactions … and this could be part of a broader risk analysis by the ATO.”

New register requirements for digital currency exchange providers introduced last month are also a clear direction of the government’s broader plan to close out any tax loopholes related to cryptocurrency.

CPA Australia’s head of policy, Paul Drum, earlier predicted that accountants would have to watch out for an increase in audit activity as they start to deal with clients with cryptocurrency profits for the first time.

“There could be more money and more activity for audits of cryptocurrency traders and many accountants might be facing clients with cryptocurrency profits for the first time, so watch out for any activity because more money going into cryptocurrency audits translates into business advisory work,” said Mr Drum.

“[Many accountants] are not across cryptocurrency trading and the tax implications of that and many of them might have clients that are doing that but they are not even aware of it yet because it's only the last 12 months that cryptocurrency trading profits really came to the fore.”

However, Mr Bembrick believes the ATO needs to update its guidance to help give practitioners greater certainty as they head into tax time.

“I expect we'll hear a lot more from the ATO as we go on but it is interesting that at this stage all that's been talked about are guidelines that are a couple of years old,” he said.

“They've got people consulting and looking at it but they haven't come out with anything too detailed at this stage.

“These guidelines have been around for a while now but most people are only thinking and hearing about this now in the last six to 12 months.”

 

 

By: Jotham Lian
16 MAY 2018
www.accountantsdaily.com.au

Assess your retirement financial resources

#4 in a series of informative blogs on this topic, links to three others are below.

Assessing financial resources is surely at the top or near the top of most investors' lists of what really matters for their retirement planning. Have you given this issue enough attention?

         

 

Without a proper assessment, you may be pleasantly or unpleasantly surprised at how far or how little your financial resources stretch in retirement. Further, you may miss out on opportunities to improve and efficiently manage your finances.

A recently-published report, Vanguard's roadmap to financial security: A framework for decision-making in retirement, provides a useful summary of what retirement financial resources should be all about. “The role of financial resources in retirement is to help reach the goals that have been set and to protect against the risks that could ruin the chances of achieving them.”

The report suggests a four-part framework for retirement planning covering retirement goals, risks, financial resources and finally bringing it together with the creation of a retirement plan.

Smart Investing is looking at each of these parts of retirement planning in a series of weekly blogs, examining this week how to assess your retirement financial resources. (Blogs published earlier in the series are: How to plan for a better retirement, Determine your retirement goals and Understand your retirement risks.)

Your retirement financial resources can be broadly divided into: guaranteed income, liquid assets and additional resources (which may include part-time work in retirement and your home equity).

Guaranteed income

Full-or-part Government Age Pensions are, of course, the main source of guaranteed income for the majority of retirees. Income annuities and defined-benefit pensions are other forms of guaranteed income. Considerations here include knowing your Age Pension entitlements and understanding whether an annuity is appropriate for your circumstances.

“In many cases,” the Vanguard retirement report notes, “using one resource to mitigate one risk may actually increase another risk. “For example, purchasing an annuity increases income security but decreases liquid reserves in the near term.”

Liquid assets

In short, these are assets for which a retiree makes the investment decisions. These are typically account-based superannuation pensions and non-super assets. Key decisions concern how these assets are invested and spent throughout retirement.

Additional resources

These include possibly working past traditional retirement ages, working part-time in retirement and perhaps accessing the value of a retiree's home.

Apart from supplementing retirement income, a longer working life provides a chance to save more for what will be a shorter and, therefore, less-costly retirement.

Possible ways to use housing wealth – if financially feasible and appropriate for a retiree's circumstances – include paying off a home mortgage before retirement to remove monthly repayments or downsizing to a less-valuable home.

Taking a reverse mortgage is another way to access the wealth in a retiree's home. (ASIC's MoneySmart website emphasises that reverse mortgages are complex financial products with risks and other potential implications that should be understood before signing a loan agreement.)

Retirement spending

A crucial factor to take into account when assessing your retirement financial resources is your intended approach to spending in retirement, given from your super and non-super assets.

As the authors of Vanguard's report comment: “Developing and implementing an effective portfolio-spending strategy can increase peace of mind and the likelihood of reaching retirement goals.”

Factors that affect how much retirees spend from a portfolio include their expected time horizon (an anticipated long retirement may mean a lower withdrawal rate from savings), portfolio asset allocation (a more conservative portfolio may also mean a lower withdrawal rate) and degree of flexibility in your spending (this depends on the split between non-discretionary and discretionary spending).

Asset allocation

Repeated studies over the past three decades confirm that an investment portfolio's long-term performance largely depends on its long-term, strategic asset allocation. In turn, this means that having an appropriately-diversified portfolio is a vital consideration when assessing your retirement financial resources.

 

By Robin Bowerman
Head of Corporate Affairs at Vanguard Australia
08 May 2018 
www.vanguardinvestments.com.au

Federal Budget 2018 – Overview

       

 

The Australian economy in its 27th year of consecutive growth.

Business conditions are at the highest level since the global financial crisis.

1,000 jobs a day on average over the past year.

Global growth at fastest pace in six years.

The budget focuses on 5 main areas:

  1. Tax relief to encourage and reward working Australians
  2. Keep backing business to invest and create more jobs
  3. Guaranteeing the essential services that Australians rely on
  4. Keeping Australians Safe
  5. Ensuring that the Government lives within its means

Read more ……..

 

Australian Federal Government

 

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