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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.

Our ‘hardest’ SMSF tasks

What are the hardest aspects of running your self-managed super fund (SMSF)? There are certainly more and more tasks and professional help my be needed to manage them properly.


Are they the seemingly ever-changing rules, the paperwork and administration or the challenge of choosing where to invest?

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

Comprehensive surveys for the 2017 Vanguard/Investment Trends Self Managed Super Fund Reports, released during the past week, asked SMSF trustees to list the hardest aspects of running an SMSF. Their responses include:

  • Choosing investments (31 per cent).
  • Dealing with regulatory uncertainty (31 per cent).
  • Finding time to research investments (16 per cent).
  • Handling paperwork and administration (16 per cent).
  • Finding time to plan and review for their SMSFs (12 per cent).

The most positive finding was that a quarter do not find any aspect of running their fund hard.

It should be emphasised that trustees could give multiple responses to the survey conducted by specialist researcher Investment Trends. For instance, other responses dealt with such specific challenges as having too much exposure to certain asset types (9 per cent) and sticking to an investment strategy (4 per cent).

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

Investment Trends estimates that 277,000 SMSFs – out of 585,000 funds at the time of the survey – had unmet needs for advice. This is the highest number to date based on past annual surveys.

An estimated 152,000 SMSFs have broad unmet needs for advice on tax and super while 113,000 have unmet needs for advice on retirement strategies. And an estimated 103,000 funds have unmet needs for investment advice.

Many SMSFs recognise their unmet need for advice on inheritance and estate planning (an estimated 59,000 funds), strategies in response to recent super changes (51,000), tax planning (50,000), investment strategy/portfolio review (50,000) and identifying undervalued assets (50,000).

Other unmet advice needs include investing for a regular income (46,000 funds), Exchange Traded Funds (46,000), SMSF pension strategies (45,000), offshore investing (43,000) and longevity protection (38,000).

The finding that almost half of Australia’s SMSFs recognise that they have unmet needs for professional advice is a critical acknowledgement by trustees that they need professional guidance.

In turn, this will hopefully lead to more trustees actually going the next step of gaining that advice.

Robin Bowerman,
Head of Market Strategy and Communications at Vanguard.
22 August 2017

Lack of literacy promotes unrealistic goals

A large proportion of Australians have unrealistic retirement goals.  (NB: There are financial tools on this site that can help as too can a financial planner)


Australians’ lack of financial literacy is contributing to unrealistic expectations about their retirement, with more than half of consumers saying they want to travel regularly in their retirement despite the fact 63 per cent say they do not have a financial plan to guide their savings.

Sunsuper’s “2017 Australian Employee Insights Report”, based on a survey of over 1000 Australians, found that although 51 per cent of consumers had nominated travel as a key retirement goal, more than 40 per cent had not thought about how they were going to use their superannuation to fund their retirement.

At the same time, the report revealed 73 per cent of Australians thought they would have to rely on the age pension when they gave up work.

Speaking to financialobserver, Sunsuper head of advice and retail distribution Anne Fuchs said a lack of financial literacy was most likely to blame for the apparent gap between what many consumers wanted to achieve in retirement versus what their actual financial situation would be.

“Because financial literacy is quite low, Australians as a consequence have quite misguided expectations about what we think we can achieve,” Fuchs said.

“In Australia we are often brought up not to speak about money and because we are not speaking about it, we don’t understand our full financial position so we are prone to having unrealistic expectations.”

At the same time, she said many Australians were reluctant to seek financial advice as they were embarrassed or afraid of having third-party confirmation that their financial situation was not ideal.

“People have dreams about what they want to do in retirement and they are scared to speak to someone because they don’t want to be told it’s not possible – living in denial can be a happy place,” she pointed out.

To that end, Sunsuper had developed a “nudge” strategy to engage small groups of fund members around the importance of specific aspects of their finance to ensure even those who avoided seeking full financial advice were being encouraged to take action to improve their situation.

“We have good data around where [a member] is at a point in time and where they should be, and we take insights from that and get small groups of people around a boardroom table to have a conversation,” she said.

“If we take that approach, we find we have greater success as opposed to a generic presentation about the value of advice – we develop trust with the members so they don’t view us with a lens of suspicion and they are quite open to it.”

By Sarah Kendell
22 Aug 2017

Young investors: Time is on your side

Today's young investors weren't alive when The Rolling Stones, among others, released versions of Time is on my side yet the song's title just about sums up their lengthy investment horizon.


Young investors truly have time on their side.

By starting to invest as early as possible with enough exposure to growth assets, young investors typically have plenty of time to ride through numerous investment cycles, cope with share market volatility and enjoy long-term compounding returns.

And young investors have much more time to recover from investment setbacks. They have pre-retirement investment horizons of up to 40-plus years and then many years of investing once eventually retired.

Young investors should have target asset allocations for their portfolios – the proportions of assets in different asset classes of mainly shares, property, fixed interest and cash – that reflect their usually higher tolerance to risk.

Unfortunately, many young investors may invest too conservatively for their own good.

The ASX Australian Investor Study 2017, carried out by Deloitte Access Economics, comments on a “disconnect between investor risk profiles and their return expectations”. (The study focuses on investors who have at least some investments outside the big APRA-regulated super funds.)

Researchers found that young investors generally appear more risk averse than older investors, contrary to “conventional expectations” and challenging investor stereotypes. For instance, a very high percentage of investors under 35 were seeking guaranteed or stable investment returns.

The study comments that the risk aversion of young investors may be related to their growing up in the time of the global financial crisis (GFC). Their greater unwillingness to take risks might be linked to their inexperience as investors and level of their financial knowledge.

As the study comments, diversification is one of the most-effective ways to manage investment risk.

A well-diversified portfolio with a long-term asset allocation to reflect a young investor's tolerance to risk spreads the risks and opportunities as well as helping to smooth returns from growth assets over the long haul.

A fundamental understanding for young investors is to realise that time is on their side.


Robin Bowerman,
Head of Market Strategy and Communications at Vanguard.
09 August 2017

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