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Most Aussies shun super advice

Less than 30 per cent of Australians have sought advice on a financial matter, including superannuation, in the past two years, new research has revealed.




The MLC Wealth Sentiment Survey found that more than 70 per cent of respondents received no guidance on superannuation, savings, investments, retirement or tax planning over the last two years.

In contrast, Australians who sought the advice of a financial planner rated their services highly, with 82 per cent rating the advice as ‘good’ to ‘excellent’ because it was tailored to their specific needs, the planner identified and understood their investing purposes and goals, and because the planner looked at risk and ways to minimise it.

“The decisions we make about our money affect us every day of our lives, and they really impact our happiness, so we need those decisions to be good ones that are based on our unique circumstances and goals,”  Greg Miller, said.

“While some people are well-equipped to go it alone, money matters are complex for some but critical for everybody, and over time the decisions you make can have huge implications.”

The survey also found that Australians were unsatisfied with their levels of wealth, with respondents rating their income four out of ten, their net worth 4.1 and their lifestyle 4.7.

Men were slightly more satisfied than women and satisfaction levels were higher across all aspects of wealth as income increased.

Wednesday, 11 April 2017

Tax headache relief: Here’s more help with pension assets changes

Let’s take a look at a practical example of how the new capital gains tax relief will operate for pension assets.




In particular, let’s focus on unsegregated pension assets, for three reasons. Firstly, unsegregated pension assets receive a different CGT relief than segregated pension assets. Secondly, unsegregated pension assets are more common than segregated pension assets. And finally, the CGT relief for unsegregated pension assets is more complex than that for segregated pension assets.


From July 1, 2017, major changes will take effect with respect to the taxation of superannuation. One change is that fund assets supporting transition-to-retirement income streams will no longer be eligible for an income-tax exemption. Another change is the introduction of the transfer balance cap, which (at the risk of oversimplifying things) limits the amount capital that can be used to commence a pension to $1.6 million). As a relief, certain legislation has been introduced that, as stated in (s 294-100), is designed to provide temporary relief from certain capital gains that might arise as a result of individuals complying with the following legislative changes:

The introduction of a transfer balance cap (as a result of Schedule 1 to the Treasury Laws Amendment (Fair and Sustainable Superannuation) Act 2016)
The exclusion of transition-to-retirement income streams (and similar income streams) from being superannuation income streams in the retirement phase (as a result of Schedule 8 to that Act).

A practical example

Assume that on November 9, 2016, (i.e., the start of what the legislation defines as the ‘pre-commencement period’), a sole member fund called the Sample Superannuation Fund had a total of $2.1 million in assets, of which $1.8 million was supporting pensions and $300,000 was not. Further assume that the fund did not have any ‘segregated current pension assets’ or ‘segregated non-current pension assets’ (i.e., the fund was using the proportionate method – also known as the actuarial method – to calculate and obtain its income-tax exemption).

Assume that the fund has the following assets:

  • $400,000 in cash
  • 5000 shares in BigCompany Ltd, which were purchased as a parcel in 2012 for $40 each (assume that shares are now worth $150 each, that is, a total of $750,000)
  • 1000 more shares in BigCompany Ltd, which were purchased as a parcel in 2014 for $70 each (similar to the above, these shares are worth $150,000)
  • real estate, purchased in 2003 for $200,000, which is now worth $800,000.

Note that the CGT relief for unsegregated pension assets results in a cost base reset as at ‘immediately before 1 July 2017’. This is different than CGT relief for segregated pension assets, where there is the ability to choose (within certain parameters) when the cost base reset occurs. Accordingly, let’s assume that the current market values of the assets as set out above will continue to be the market values as at immediately before July 1, 2017.

Also, note that the operative provisions (i.e., ss 294-115 and 294-120) do not expressly require than an asset be commuted out of a pension in order to obtain the relief. Although the ATO disagreed with this in the draft version of Law Companion Guideline LCG 2016/8 (see paragraph 21), it changed its position in the final version (see example 4 for an illustrative example of this).

Next, let’s say the fund partially commutes $200,000 of the pension and internally rolls the resulting lump sum back into accumulation.  

Subject to certain other assumptions – for example, that the fund is at all relevant times a complying superannuation fund, etc. – the fund will have the ability to choose to apply the CGT relief to some or all of its assets. Consistent with ATO Taxation Determination TD 33, the fund chooses to apply the relief to 700 of the shares in BigCompany Ltd that were purchased in 2012, and to the real estate.

Accordingly, the following ‘notional’ net capital gain arises:

  • 700 x ($150-$40), that is, $77,000, less a one-third discount, that is, $51,333.
  • $800,000-$200,000, that is, $600,000, less a one-third discount, that is, $400,000 (I assume that the grandfathered rules regarding trading stock do not apply).

Accordingly, the total ‘notional’ net capital gain is $451,333. In order to then derive the ‘deferred notional gain’, it is necessary to multiple this figure by the proportion that the actuary advises is not in pension mode. More specifically, assume the fund’s actuary advises that in respect of the 2017 financial year, the proportion calculated by dividing the fund’s ‘Average value of current pension liabilities’ by the fund’s ‘Average value of superannuation liabilities’ is 60 per cent. Therefore, to then derive the ‘deferred notional gain’ it is necessary to multiply $451,333 by 40 per cent (100 per cent minus 60 per cent). In light of this, the deferred notional gain is $180,533.

Assuming the 700 shares in BigCompany Ltd and the real estate are both disposed of in the same financial year (for example, the 2019 financial year), the net capital gain of the fund is increased by $180,533. Similarly, the cost base of the 700 shares is treated as being 700 x $150 and the cost base of the real estate is treated as being $800,000.

Some traps

Choosing the relief will reset the 12-month period when it comes to eligible for being a discount capital gain. In short, that means relief probably should not be chosen for some assets that will be sold during the 2018 financial year. Consider the following example of when it is detrimental to a fund to choose the relief: An asset was purchased during the 2016 financial year for $120. On June 30, 2017, its market value is $130. It will be sold on January 1, 2018, for $160. If relief is chosen, this will give rise to $4.50 of tax (i.e., [$160–$130]*15%). However, if relief is not chosen, this will give rise to $4 of tax ([$160–$120] x 10%).

Naturally, remember the role of pt IVA (i.e., the general anti-avoidance provision). As the ATO states in Law Companion Guideline LCG 2016/D:

Broadly speaking, schemes which do no more than that which is necessary to comply with those reforms will not be the subject of determinations under Part IVA of the Income Tax Assessment Act 1936 (ITAA 1936) (Part IVA). Schemes which abuse the relief are another matter …

The kinds of arrangements that the commissioner will scrutinise carefully with a view to determining whether Part IVA applies will exhibit the following features:

  • They place the taxpayer in a position to make the choice
  • They go further than is necessary to provide temporary relief from CGT because members comply with the reforms, and They exhibit contrivance of manner, a lack of correspondence of form with substance, or other matters relevant under section 177D of the ITAA 1936, that point to the purpose of avoiding tax.

I suspect that the largest pt IVA concerns will occur for account-based pensions, not transition-to-retirement income streams, particularly those eligible for the segregated pension asset CGT relief, not the relief described in this article. 

For full details, see subdiv 294 B of the Income Tax (Transitional Provisions) Act 1997, which was inserted by the Treasury Laws Amendment (Fair and Sustainable Superannuation) Act 2016. Also instructive is the ATO’s Law Companion Guideline LCG 2016/8.

This article is for general information only and should not be relied upon without first seeking advice from an appropriately qualified professional.


BY:  Bryce Figot
April 12, 2017

More withdrawals from ‘the bank of mum and dad’

Think about what has happened in the six months since Treasury secretary John Fraser spoke of his concerns for retirement savings of parents who help their children into housing by making withdrawals from “the bank of mum and dad”.




House prices in Sydney and Melbourne have continued to accelerate and, anecdotally at least, so has parental financial assistance with their children's first home.

Fraser is worried that helping children into costly housing, as homebuyers or tenants, may inhibit their own abilities to save for retirement, including through their super.

Parents can find themselves trying to cope with something of a balancing act: trying to save to finance their own retirement and understandably wanting to help their children into the high-cost housing market.

It is difficult to gain other than an anecdotal impression of just how much parents nearing retirement or already in retirement are helping to finance their adult children's housing – particularly with that elusive deposit on first homes.

Clearly, a growing personal financial issue is whether parents can afford to provide this financial assistance given their circumstances.

Perhaps an appropriate starting point for parents is to realistically assess the adequacy of their retirement savings and overall financial position, perhaps with the assistance of an adviser who understands their family circumstances.

Much-publicised high levels of home ownership among older Australians can lead to inaccurate conclusions about the state of their financial wellbeing.

The Australian Bureau of Statistics reports that close to 80 per cent of households aged over 65 “own” their homes, based on the Commonwealth Census. However, these particular statistics do not make a distinction between “home owners” who own their homes outright and those with outstanding mortgages.

And the Reserve Bank observed almost two years ago in a submission to a Senate committee inquiry on home ownership that “older age groups are now less likely to own their home outright than in the past”.

The much-quoted retirement standard from the Association of Superannuation Funds of Australia (ASFA) – providing estimates of living costs for retirees to meet different standards of living – is calculated on the basis that retirees own a home with no outstanding mortgage.

Ideally, we would enter retirement as debt-free homeowners with sufficient retirement savings to finance a satisfactory lifestyle – with perhaps enough money left to assist our children into a first home.

There's much to think about before making withdrawals from “the bank of mum and dad”.

Robin Bowerman
​Head of Market Strategy and Communications at Vanguard.
25 April 2017

ATO set to release guidance targeted for SMSF clients

In the coming weeks, the ATO will be distributing letters and guidance notes designed to help practitioners explain issues relating to the superannuation reforms to clients, says a technical expert.




The ATO will be releasing communications from May onwards. These communications include member targeted letters and guidance notes that practitioners can use to help explain issues to clients, Australian Executor Trustees senior technical services manager Julie Steed told SMSF Adviser.

The detailed guidance will cover topics including dealing with the transfer balance cap, death benefits and the transitional CGT relief.

Ms Steed said the guidance will also cover topics such as payment splits with the new total super balance, changes to the personal super contributions and the spouse offset.

“The ATO has indicated that they’re designed to help practitioners in discussions with their clients and they’re in as plain English as you can make,” she said.

“I actually think the ATO have done a really good job in terms of the communications they’re preparing and if you consider about how long it used to take to get anything of a technical nature out of the ATO, it used to take years.”

In terms of the guidance produced for SMSF practitioners, all the law companion guides have been practical and helpful and have been produced in a fairly timely manner, Ms Steed said.

“The trade-up for that is that there have been a couple of small technical errors but as soon as they were identified and sent back to the ATO, they were fixed immediately.”


Wednesday, 26 April 2017

2011 Census – what was the make up of your area?

The following link is a handy ABS tool if you want to see the demographic make-up of the area you lived as recorded in the 2011 Census.  2016 Census information starts becoming available from June 2017.




Please click here to access this tool and then type the town or suburb you want to investigate further.  Very interesting data.

Life’s financial turning points: good and not-so-good

The marriage and divorce statistics for 2015 sadly suggest that 43 per cent of Australian marriages may end in divorce. Significantly, this number-crunching does not include separations of de facto couples.




Unfortunately, the breakdown of a relationship is a reality for many couples and it is a reality with typically damaging financial and emotional consequences.

We face a series of widely-shared financial turning points during our lives. Yet how we handle them obviously differs widely.

ASIC's personal finance website MoneySmart has long published a comprehensive feature, Life's events – last updated this month – with tips about how to deal with our financial turning points, the good and not-so-good. And unsurprising, the breakdown of a personal relationship numbers among the life events on ASIC's list.

Financial turning points include receiving our first pay, joining our first super fund, leaving home for the first time and entering a personal relationship. Among the others are buying our first (second or third) home, dealing with serious illness in our families, coping with a partner’s death, losing our job and eventually retiring.

A decision to begin saving seriously to meet our long-term goals and the creation of our first financial plan are high among our key financial milestones.

Thinking about the feasibility of ‘downsizing’ to a smaller home as we age is becoming more common and finding suitable age care is climbing higher in the list of life events with the ageing of the population.

There are straightforward ways to help prepare for financial turning points such as budgeting, saving, investing, obtaining adequate insurance, considering quality professional advice when necessary and estate planning.

How we cope as investors with sharply rising or sharply falling investment markets can be a life-changing event. Investors who set an appropriately-diversified strategic portfolio, and who remain disciplined and focused on their long-term goals are best-placed to cope with market upheavals.

It is critical to try to stop one life event having negative implications for another life event. For instance, a failure to remain disciplined during a fall in share prices of the magnitude that occurred during the GFC may reduce your standard of living in retirement – even though that retirement may be many years away.

Planning for life's financial events is at the core of sound financial planning.

Robin Bowerman
​Head of Market Strategy and Communications at Vanguard.
5 April 2017

Global economy synchronised and thriving

The global economy has maintained steady growth in the second quarter of 2017, providing a solid foundation for risk assets such as equities and corporate credit which further encourages investors to build a diversified portfolio, according to JP Morgan.




Speaking at a media roundtable event in Sydney this week, JP Morgan global market strategist for Australia Kerry Craig said while 2017 held many uncertainties, such as European political outcomes or the decisions of the US Federal Reserve, it was expected to be a constructive year for risk assets including global equities, corporate credit and emerging market (EM) debt.

“Suddenly we are at a point which is very different to where we’ve been for a very long time – everything became more co-ordinated and synchronised in terms of outlook,” he said.

“There are a lot of positive opportunities coming through internationally for investors outside of the US, with the longer term view being that they should actually look at the global economy.”

Focusing on the domestic market, Craig noted that Australia had fallen behind the rest of the world, which could be a direct response to the absence of a fiscal boost.

“While the rest of the world is looking great Australia is lagging a little bit because you haven’t had that fiscal boost come through,” he said.

The underperforming labour market saw the Australian unemployment rate rise to 5.9 per cent in February, creating a push for the government to introduce improved policies in the upcoming budget.

“The market will be looking for that infrastructure spend and looking for what’s going to happen with tax cuts and any changes around the interest in the housing market,” Craig added.

“The RBA [Reserve Bank of Australia] can only do so much about addressing demand. They can’t increase supply – it’s the government that needs to do that through infrastructure, whether it’s the release of land or changing rules about why interest-only loans are so attractive for business.”

The firm also suggested corrections in the market should be welcomed by investors as an opportunity to deploy cash and allocate towards risk assets in their portfolios.

“We believe corrections in markets in the months ahead could be attractive entry points to build a stronger portfolio which benefits from the solid global growth environment,” Craig said.


By Leanne Abbas  
13 Apr 2017

Almost the world’s best for retirees

What are the best countries for a comfortable retirement? What countries have the best retirement-income systems? It seems the answers to these questions are rather positive for Australian retirees.



The recently-published 2017 Best Countries survey from US News & World Report, BAV Consulting and the Wharton School at the University of Pennsylvania ranks Australia as the world's second-best country for a comfortable retirement – behind New Zealand and ahead of Switzerland, Canada and Portugal in the top five.

Survey respondents aged 45 years and up ranked the best countries for retirement on seven attributes: affordability, favourable tax environment, friendliness, “a place I would live”, pleasant climate, respect for property rights and a well-developed public health system.

The questions were asked in the context of where a person would consider moving to upon retirement if cost were no object. It is worth noting that the Best Countries survey did not seek views about the adequacy of a country's retirement-income systems.

Up to approximately 21,000 survey participants from around the world were asked to grade countries under such headings as best countries overall (Australia came eighth with Switzerland taking first place), best countries for women (Australia sixth), quality of life (Australia fourth), best countries to invest in (Australia 22nd) and best countries for a comfortable retirement.

The latest Melbourne Mercer Global Pension Index, as discussed by Smart Investing late last year, once again ranked Australia's retirement-income system third out of 27 countries assessed (accounting for 60 per cent of the world's population) in terms adequacy, sustainability and integrity. While Australia was given a B-plus, the front-runners – Denmark followed by the Netherlands – received A grades.

Australia's high rating in the pension survey was largely due to our “robust” superannuation system and Government-funded age pension, but “there was work to be done” to achieve an A grade.

Irrespective of each country's social, political, historical and economic influences, the pension report stresses that many of their challenges in dealing with an ageing population are similar. These include encouraging people to work longer, the level of retirement funding and reducing the” leakage” of retirement savings before retirement.

Although the suggestions of the Global Pension Index are directed mainly at government and the pension/retirement sectors, individuals may pick up useful personal pointers from most of its suggestions to, perhaps, discuss with a financial planner. In other words, consider taking a personal perspective on this global retirement-incomes challenge.

These personal pointers may include:

  • Think about whether to work until an older age than initially intended. The longer a person remains in the workforce, the greater the opportunity to save for what will be a shorter and therefore less-costly retirement. (An individual's ability to work longer will much depend, of course, on personal circumstances including health and employment opportunities.)
  • Try to save more in super within the annual contribution caps. And if self-employed, consider making voluntary super contributions. Unlike employees, the self-employed in Australia are not required to save in super.
  • Think carefully before accumulating pre-retirement debt with the purpose of repaying it with super savings – it could reduce your standard of living in retirement. This is part of the pre-retirement “leakage” referred to by the Global Pension Index.
  • Take your superannuation pension rather than a lump sum upon retirement if possible. This will keep your savings in the concessionally-tax or tax-free super system for longer and, most importantly, make your retirement lifestyle as comfortable as possible for as long as possible. The report for the Global Pension Index suggests that one possible way to improve Australia's retirement-income system might be to compel super members to take part of their super as a pension.

It's comforting that thousands of people around the world regard Australia as one of the very best places for a comfortable retirement if they could afford to shift to another country after leaving the workforce and cost was not a barrier. And it must provide a degree of comfort that Australia's retirement-income system is “relatively well placed” in the worlds of the Global Pension Index.

Unfortunately, other research has long shown that a large proportion of Australians have inadequate – often grossly inadequate – retirement savings.

As global retirement-income systems grapple with the demographic shift of an ageing population with declining birth rates and seemingly ever-greater longevity, individuals should be doing as much as they can to maximise their own retirement savings.


Robin Bowerman
​Head of Market Strategy and Communications at Vanguard.
19 March 2017

Calls for calm over pending CGT amendments

SMSFs awaiting legislative amendments in relation to the CGT won’t necessarily be ruled out of the relief should the amendments fail to pass Parliament before 30 June as the legislation will likely be backdated, according to the SMSF Association.



SMSF Association head of technical Peter Hogan says the recent LCG confirmed that the transitional arrangements are intended to provide CGT relief for funds to reset the cost base where they move from current pension phase to accumulation phase.

He said members using the segregated method may continue to receive a transition to retirement, not only for 2016-17 but also past 30 June 2016 into the 2017-18 financial year.

“The ATO’s view makes it clear that the relief is intended to be applied to the situation and that consequently the government is considering legislative options to clarify this,” Mr Hogan said.

Where the technical difficulty lies, he explained, is the fact that there’s no automatic conversion of the transition to retirement either to an account-based pension or to an accumulation account with the way a transition to retirement income stream is currently defined in the legislation.

“In other words, the only way that a transition to retirement income stream can cease, is if you commute it, the way the definition currently stands,” Mr Hogan said.

“So clearly any amendment that is made will need to [allow for] an automatic conversion of the TRIS back to something which is not in retirement phase, and which is in accumulation phase.”

Mr Hogan said there is concern, however, given that these necessary amendments that will need to apply from 30 June onwards, the amendments won’t be passed as legislation before this date.

“These things do take time. We do have three or four months so I’m possibly being overly pessimistic, and with a bit of luck we may well see some draft legislation which may get through Parliament in time to meet the 30 June deadline,” he said.

“We may not see the legislation before 30 June which often happens in these sorts of circumstances.

“So that’s a watch this space to see if we do get the change of rules through Parliament before 30 June or not.”

Mr Hogan said this should not be a barrier to accessing the CGT relief even if the amendments aren’t passed before 30 June, with the legislation usually backdated in these types of situations.

“I think there is a clear intention indicated in the LCG, and with the explanatory memorandum and the original legislation, that it’s intended that CGT relief should apply in these circumstances and so any legislation, even if doesn’t get through Parliament before 30 June, will be backdated back to an appropriate date. So that the CGT relief will be available,” he said.

Mr Hogan also reassured SMSF practitioners and trustees that the Commissioner of Taxation has indicated that as long as the physical CGT elections are made in the preparation of accounts, the ATO will be satisfied.

“So it’s not something that they necessarily need to bed down in a hard and fast way before 30 June this year,” he said.

“Clearly, it would still be a good idea for trustees to minute the fact that a decision has been made to act on the CGT relief, that the trustees may wish to take appropriate action in order to claim the capital gains tax relief.” 


Tuesday, 21 March 2017


Dollar-cost averaging for millennial investors

It's hardly surprisingly that a personal finance article in Forbes magazine places the classic and straightforward investment practice of dollar-cost averaging high among a list of tips to help millennials become better, more disciplined investors in 2017.



Dollar-cost averaging simply involves investing the same amount of money into shares or other securities at regular intervals – whether prices are up or down.

Investors practising dollar-cost averaging automatically buy more, say, shares when prices are lower and fewer when prices are higher. In short, purchasing costs are averaged over the total period that an investor keeps on investing, thus the name dollar-cost averaging.

Yet the core attribute of dollar-cost averaging is not so much the price paid for securities; it is the adherence to a disciplined, non-emotive approach to investing that is not swayed by prevailing market sentiment.

Dollar-cost averaging can assist investors to focus on their long-term goals with an appropriately diversified portfolio while avoiding emotionally-driven decisions to buy or sell – in other words, trying to time the market. As Smart Investing repeatedly emphasises, investors would rarely succeed consistently at market-timing.  The Forbes article, Five tips to make you a better investor in 2017, reasons that dollar cost averaging strategy may be well suited to millennial investors given their long investment horizons and their perhaps relative inexperience in investment markets. As a financial planner quoted in the piece comments: “The logic here is, if you're in your late twenties or early thirties, the fluctuations of the market on one given day are unlikely to have serious consequences to the retirement money you'll need to withdraw 30 years from now.” Novice investors were “too easily” influenced by market movements.

And given their long investment horizons, millennial investors are well placed to benefit from the rewards of compounding as investment returns are earned on past investment returns as well as on the original capital. (See Save early, save often, Smart Investing, January 29.)

The use of dollar-cost averaging does not necessarily mean, of course that investments will succeed; nor does it protect investors from falling share prices.

Australian super fund members who have compulsory and/or voluntary contributions regularly paid into their super balanced accounts are practising a form of dollar-cost averaging. The higher the regular contributions, the greater the potential effectiveness of dollar-cost averaging over the long term.

The vast majority of investors practising dollar-cost averaging would invest regular amounts from their monthly salaries. Yet a related issue concerning dollar-cost averaging can occur when an individual has a large amount of money to invest, perhaps from an inheritance, a bonus from work or some other windfall.

Several years ago, a Vanguard research paper found that, given certain assumptions, investing a big lump sum all at once had a better chance of producing higher long-term returns than drip-feeding the money into the market using dollar-cost averaging. This finding was based on historic long-term returns from share and bond in Australia, US and UK. As the paper emphasises, investment of a lump sum gains exposure to the markets as soon as possible.

Another consideration is that dollar-cost averaging may address concerns of a risk-averse investor about investing a big sum into the market immediately before a possible sharp fall in prices. It is a way for such an investor to ease their way into the markets.
For most investors without a huge windfall to invest, a critical role of dollar-cost averaging is to help keep us focused on the long-term in a disciplined, non-emotional way. It is one of investment's emotional circuit breakers.


Robin Bowerman
​Head of Market Strategy and Communications at Vanguard.
19 March 2017

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