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Super set to play bigger retirement role

Statistical evidence shows superannuation is likely to play a more significant role than it currently does in the retirement income space for Australians, a senior financial services executive has said.

         

 

Statistical evidence shows superannuation is likely to play a more significant role than it currently does in the retirement income space for Australians, a senior financial services executive has said.

“So right now only 42 per cent of everybody over 65 is on the full age pension,” Challenger retirement savings chairman Jeremy Cooper told attendees at the most recent Randstad Leaders Lecture Series event in Sydney.

“That includes people who are 95, so that includes people who really weren’t in super at all.”

According to Cooper, logic would then dictate 58 per cent are currently entirely looking after themselves financially in retirement or perhaps receiving a part age pension.

Figures he presented showed the number of Australians drawing a full age pension has decreased from 45 per cent in 2010 to its current level of 42 per cent.

“The trend of this idea of fewer and fewer people being on the full age pension is going to continue,” he noted.

“And ASFA (Association of Superannuation Funds of Australia) is projecting that, by 2025, 70 per cent of people will be looking after themselves in retirement.”

He pointed out this trend is already having a real impact on the country’s superannuation system.

“What it means is that super is going to be called on to provide, if I can put it this way, more age pension-like solutions for the people who either aren’t getting the age pension at all or who are only getting a bit of it,” he said.

“They are going to be looking in their portfolios for something that is like the age pension. Along with the other things that they do, they need the longevity risk protection of the stable income that the age pension provides.”

 

Darin Tyson-Chan
June 28, 2018
smsmagazine.com.au

 

Super savings gap for women stuck at 30%

While the gender gap in superannuation is improving, an economic index indicates women are still retiring with superannuation balances 30 per cent lower than men.

         

 

While the gender gap in superannuation is improving, an economic index indicates women are still retiring with superannuation balances 30 per cent lower than men.

The Financy Women’s Index for the June quarter indicates that women are still facing a gender pay gap of 15.3 per cent and a superannuation savings gap of 30 per cent at retirement age.

Financy Women’s Index is based on data from over 700 annual company reports (as well as monthly, quarterly, biannually, and biennially) and methodology from the Australian Bureau of Statistics, the Australian Securities Exchange, the ATO and the Australian Government Department of Education and Training.

Australian Super group executive Rose Kerlin said further work is still needed in the areas of equal pay, equality of opportunity and more equal sharing of family responsibilities to close the gap which results in too many women having insufficient savings to fund a comfortable retirement.

Dianne Charman, chair of AFA Inspire, said that the fact that many women work part-time is having a long term impact on their superannuation.

“The Financy Women’s Index importantly reminds us to work with women to raise awareness about how even a small contribution to superannuation will, over the long term, put women in a better position.”

Association of Financial Advisers chief executive Phillip Kewin said the latest Financy Women’s Index results indicate that progress towards creating positive and meaningful cultural change in the financial wellbeing of women in Australia is happening slowly.

“It is disappointing to see that, at 26.1 per cent, the financial and insurance services industry has the highest pay disparity of all industries,” said Mr Kewin.

 

www.smsfadviser.com
Miranda Brownlee
27 June 2018

ASIC issues alert over big gaps in SMSF trustee knowledge

       
 
ASIC's latest research concludes many SMSF trustees lack a basic understanding of their legal obligations and often fall prey to property spruikers, but the profession is already finding holes in the corporate regulator's surveying.
 
ASIC released two reports this week following a major review it conducted into the experiences Australians have when setting up and running SMSFs.
 
One of these reports, REP 576 Member experiences with self-managed superannuation funds, reveals the findings of an independent market research agency commissioned by ASIC, including 28 interviews with SMSF members, and an online survey with 457 SMSF members.
 
One of the key findings in the report was that many members lacked a basic understanding of their SMSF and their legal obligations as SMSF trustees.
 
For example, 33 per cent of members in the survey didn’t know that an SMSF must have an investment strategy and 30 per cent of members had no arrangements in place for their SMSF if something happened to them.
 
It also found that 29 per cent of members thought they were entitled to compensation in the event of theft and fraud involving the SMSF and that 19 per cent of members did not consider their insurance needs when setting up an SMSF.
 
Both the interviews and online survey revealed a tendency for some members to be unaware of either what their SMSF was invested in or how the investments were performing.
 
While 99 per cent of most new members remembered what they were invested in, nearly one in ten established members could not remember what they had invested in.
 
The report also suggests that many SMSF still don’t understand the importance of diversification with two thirds or 66 per cent of participants in the online survey indicating that their SMSF is invested in only one type of asset.
 
“In total, 22 per cent of members had invested only in property, 16 per cent had invested only in shares, 8 per cent had invested only in managed funds, 5 per cent had invested only term deposits, and 3 per cent had invested only in collectibles,” said the report.
 
“Around one in three members had no investments outside of their superannuation. Of those who did, which was 62 per cent of members, the most common type of investment was their own home at 65 per cent, followed by shares at 50 per cent and other investment properties 45 per cent.”
 
It was also clear from the online surveys that a number of members had been prompted to establish a SMSF from property one-stop shops.
 
The survey revealed that seven per cent of new members and five per cent of established members had been prompted to set up an SMSF by property one-stop-shops.
 
“Property one-stop-shops generally made contact by cold calling or by having already helped the member to buy a property before recommending that the member set up an SMSF to buy a second or third property,” the report stated.
“Trust was established through testimonials, referral programs or special events providing opportunities to network with ‘like-minded’ people.”
 
Members who used property one-stop-shops expressed they had only made property investments within their SMSF with the only exception to this being some new members who said they had put their money in a high-interest bank account while waiting for their off-the-plan properties to be built, ASIC said.
 
The survey also found that the cost and time of setting up and running an SMSF did not always align with member expectations.
 
While the survey indicated that the cost of setting up and running an SMSF was “about as much as expected” for almost three in five members or 59 per cent, for 32 per cent of members the costs were greater than initially expected.
 
The survey also found that 38 per cent of members found running their SMSF to be more time consuming than expected, compared with 15 per cent of members who found it less time consuming than expected.
 
While the results are concerning, the SMSF Association has been quick to point out its limitations. 
 
Notably, SMSFA said a high number of files that ASIC viewed as non-compliant did not indicate a risk of financial detriment. Rather, they attracted the regulator’s scrutiny for not meeting record keeping and process requirements.
 
“Similarly, ASIC’s definition of financial detriment to an SMSF member is subjective and is difficult to evaluate without the member’s view being known,” SMSFA said. 
 
 
 
Miranda Brownlee
28 June 2018
www.smsfadviser.com
 

SMSFs: Our ‘hardest’ jobs

What are the hardest aspects of running your self-managed super fund (SMSF)?

       

 

Do they include keeping track of the seemingly-constant regulatory changes, handling the impact of those changes, choosing investments or handling your fund's paperwork and administration?

If you name dealing with the changing regulations and choosing investments as your two hardest jobs, you are among hundreds of thousands of other SMSF trustees.

Alternatively, you may find yourself in the fortunate position of considering there are no hard aspects of running your SMSF.

The 2018 Vanguard/Investment Trends SMSF Report survey, released during the past week, asked SMSF trustees to list the hardest aspects of running an SMSF. (Multiple responses were permitted.) Their responses included:

  • Keeping track of changes in rules and regulations (27 per cent).
  • Choosing investments (26 per cent).
  • Dealing with the impact of regulatory changes (21 per cent). (A number of survey responses overlap, particularly concerning regulatory change and investment selection.)
  • Handling paperwork and administration (18 per cent).
  • Understanding regulatory changes (17 per cent).
  • Paying for accounting fees and charges (16 per cent).
  • Finding time to research investments (13 per cent).
  • Having concerns that other fund members cannot manage my SMSF if I'm unable to do so (10 per cent).
  • Completing / submitting my EOFY regulatory/tax returns (10 per cent)
  • Finding time to plan and review for my SMSF (9 per cent).

Interestingly, more than quarter of SMSF trustees do not find any aspect of running their fund hard.

The findings that many SMSF trustees have difficulty choosing investments and in dealing with regulatory change partly explain another finding from the survey that a large proportion of SMSFs recognise that they have unmet needs for professional advice.

Investment Trends estimates that 276,000 SMSFs – out of 593,000 funds in existence at the time of the survey – have unmet needs for advice.

By placing responses into clusters of similar types of advice, the researchers estimate that 136,000 SMSFs have broad unmet needs for advice on tax and super,128,000 for advice on investment selection and 110,000 for advice on post-retirement planning.

An estimated 77,000 funds have an unmet need for advice specifically on inheritance and estate planning, which falls under the broader category of post-retirement planning.

The survey responses may prompt SMSF trustees to think more about what aspects of running their funds are the toughest, given their circumstances. And then to logically plan what they are going to do about it.

Next week: Why SMSF trustees want estate-planning advice.

 

Written by Robin Bowerman, Head of Corporate Affairs at Vanguard.
18 June 2018
www.vanguardinvestments.com.au

 

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

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