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How SMSF trustees navigated COVID-19 volatility

 

Last week, Vanguard and Investment Trends launched the 2020 SMSF Investor Report. This year's report surveyed over 3000 SMSF trustees on their investment priorities and industry outlook, providing an insight into how trustees navigated through COVID-19 volatility.

         

Market Overview

While the SMSF market continues to grow, the impact of COVID-19 and subsequent macroeconomic uncertainty appears to have exacerbated the slowing rate of new SMSF establishment.

The size of the SMSF market now represents one-quarter of the Australian superannuation industry and currently sits at A$676 billion, a two-year low.

Greater control over investments remains the main reason investors set up new SMSFs however more trustees than ever are also maintaining their existing super fund.

Record switch to defensive assets

As a result of the extreme market uncertainty this year, nearly half of SMSF trustees surveyed made substantial changes to their asset allocation.

Some 55 per cent of SMSF trustees took a more defensive stance and increased their cash and property allocations, driven primarily by a negative outlook on both domestic and international equities.

Exposure to direct shares declined in line with the market sell-off in Q1 2020. On average, direct shares now comprise 31 per cent of SMSF portfolios, decreasing four per cent year on year and reaching levels last seen in 2009 post Global Financial Crisis.

One-third of SMSF trustees have fixed income exposure within their portfolios, with hybrid securities remaining the most popular product despite more investors turning to direct bonds and ETFs.

Although SMSFs have a desire to used fixed income products to diversify their portfolios and achieve a sustainable income, there is a lack of understanding of what constitutes a true fixed income product and the fundamental role they play within a portfolio.

It is worth remembering that hybrid securities do not provide the same level of safe-harbor stability as high-quality bonds do as they still have equity-like features, and in times of market stress may not provide true diversification across asset classes.

Yield concerns

Findings also show that SMSFs' dividend yield expectations have dropped from 4.8 per cent pre COVID-19 outbreak to 3.6 per cent.

For pension phase SMSF trustees, who make up nearly half of all SMSF investors in Australia, these are very unsettling times with real concern about low yields and returns and how that will impact portfolio income.

Rather than focusing on an income-oriented strategy, a total-return approach – where an investor makes withdrawals from the full return of their portfolio – coupled with a spending strategy, can assist investors to take back control of their income stream.

Optimistic on recovery, but still lacking in advice

Despite wavering confidence earlier in the year, SMSF trustees are relatively optimistic about market returns going forward.

More than ever, SMSFs are focused on maximising capital growth.

In the short-term, SMSFs show significant appetite to rotate back into equities with 37 per cent of trustees willing to increase their allocation to Australian shares, and 23 per cent to increase investment in international shares.

There is still a strong and growing preference for blue-chip shares and considerable appetite for ETFs and international shares.

The number of SMSFs with unmet advice needs continues to grow, with investment strategy review and pension strategy advice most sought after in these uncertain times.

 

Vanguard Investments
25 August 2020
vanguardinvestments.com.au

 

ATO confirms important issue on pension payments

 

The ATO has confirmed only payments made to a member after 24 March in excess of the reduced minimum pension can be treated as a lump sum, even where a valid election was previously in place, says the SMSF Association.

 

       

In an online opinion piece, SMSF Association technical manager Mary Simmons said where members opt to take withdrawals in excess of their minimum pension as a lump sum, it is a common industry practice to put documentation in place at the start of the financial year electing that these amounts above the minimum be treated as a lump sum withdrawal.

While this has traditionally been an acceptable practice to the ATO, Ms Simmons said there has been a lot of discussion about how this applies with the reduced minimum drawdown amount for the 2019–20 financial year.

Recognising that there was no unanimous industry view, Ms Simmons said the SMSF Association sought clarity from the ATO to ensure that the industry is consistent in its application of the law and that any associated tax liabilities and transfer balance account reporting (TBAR) obligations are met.

The ATO has previously made clear on its SMSF FAQ website that it is not possible to re-classify pension payments already received by a member.

“Essentially, pension payments made up to 24 March 2020, the date of the government’s announcement, in excess of the new reduced minimum annual payment will be treated as pension payments in 2019–20 and cannot be treated as lump sums,” she explained.

More importantly though, Ms Simmons said the ATO has confirmed that this treatment also applies where a valid election was in place as far back as 1 July 2019, requesting that the trustee treat any payment over the minimum pension amount required for the year as a lump sum.

“In this situation, only payments made to a member, after 24 March 2020, in excess of the reduced minimum annual pension drawdown, can be treated as a lump sum,” she said.

“Unfortunately, what this means is that some retirees will be disadvantaged. Essentially, it’s just bad luck for any member who took more than the reduced minimum amount as a pension before the change became law on 24 March 2020, despite having in place a valid election to treat any excess pension payments as lump sum commutations. These members can only treat payments made after 24 March 2020 as lump sum commutations.”

On the other hand, for those members who chose to receive their pension in the later months of 2019–2020, provided they had a valid election in place prior to receiving the payment, Ms Simmons said they will be able to take advantage of the retrospective nature of the reduction in the annual minimum pension drawdown requirements and can treat any excess pension payments as lump sum commutations.

For SMSFs impacted who have quarterly TBAR obligations, the reporting of any partial commutations in the last quarter of 2019–2020, she said, was due by 28 July 2020.

“For example, on 1 July 2019, Simon, aged 66, instructed his fund to treat any withdrawal from his account-based pension, in excess of the minimum pension drawdown amount, as a lump sum. Simon’s pension balance on 1 July was $1 million and his minimum pension withdrawal was originally calculated as $50,000 for 2019–20. His reduced minimum was re-calculated to $25,000,” she explained.

“Simon had arranged to withdraw $5,000 on the last day of every month for 2019–20. As at 24 March 2020, he had withdrawn $40,000 from his SMSF. Even though this amount was greater than his reduced minimum, he must treat the entire $40,000 as a pension in 2019–20. The remaining withdrawals, valued at $20,000, could be treated as lump sums.”

Had Simon opted to withdraw his benefits in two equal payments, one in December 2019 and the other in June 2020, then only the $25,000 received prior to 24 March 2020 would need to be treated as a pension payment, she said.

“The entire $25,000 received in June 2020 could be treated as a lump sum because, at the time of the payment, Simon’s reduced minimum had already been paid,” she stated.

“Although unintentional, this is an example of how retrospective law changes can sometimes lead to inconsistent treatment of retirees.”

This is also the case for members with a market-linked pension who restructured into the new market-linked pensions based on the original formula, she added. These members may now face themselves at risk of being in excess of their transfer balance cap.

“We continue to work with the ATO on this issue and have called for the use of the regulator’s regulation-making powers to essentially create a write-off transfer balance account debit for those members who, prior to the announcement of the new formula, restructured into a new market-linked pension in good faith based on the original law,” she said.

 

 

Miranda Brownlee
25 August 2020
smsfadviser.com

 

A beginner’s investment guide to long-term wealth

 

It's often said that starting out early on one's investing journey will deliver good long-term results.

 

         

But in light of recent volatility on investment markets, you may be thinking, is this the right time to start off?

Taking your first step is often daunting, but the reality is that investment markets have shown consistent growth over many decades.

And what's clear is those investors who stay the course over time, riding through the regular ups and downs of the markets, have a much better chance of achieving investment success than those who try to cherry pick when to buy and sell.

What's more, it's also clear that because the returns from different types of assets always vary from year to year, spreading your money across a broad range of investments will enhance returns and help reduce your overall risk.

The power of compounding returns

Renowned scientist Albert Einstein famously described compound interest as “the eighth wonder of the world”.

Which is where starting out early really comes into play. By following a strategy of reinvesting investment distributions such as dividends, and by making additional contributions over a long period of time, the combination of market growth and compounding returns will likely deliver strong results.

In other words, it's about time in the markets rather than timing the markets.

The 2020 Vanguard Index Chart below shows that a $10,000 investment made into Australian shares in 1990 would have achieved an 8.9 per cent total return per annum over 30 years, with the reinvestment of all distributions, and grown to $130,457 by 30 June 2020.

Over the same time frame and using the same strategy, a $10,000 investment into the broad US share market would have delivered a 10.3 per cent per annum return, and now be worth $186,799.

There is no minimum amount that one needs to make as an investment. However, even a low initial balance will grow substantially over time when combined with compounding investment returns.

Make ongoing investments
But imagine how your wealth could grow if you put in even more. An initial contribution combined with a regular investment savings strategy and the reinvestment of distributions will deliver even higher long-term results.

Investing the same amount of money at set intervals over a long period is known as dollar-cost averaging. That means you're averaging out the cost of your investments through incremental investing – regardless of whether market prices are up or down.

The easiest way to illustrate a dollar-cost averaging strategy is to calculate how investment balances can build up over time, using a combination of regular contributions, the reinvestment of distributions and compounding returns.

How extra investments add up over time

Source: Andex Charts Pty Ltd. Data based on annualised returns since 1990.

The chart above is based on actual market returns and follows someone who started out investing on 30 June 1990 and who continued making set monthly contributions over the last 30 years.

If they'd stuck to a strategy of investing $250 a month into Australian shares, irrespective of market movements, they would now have a balance of more than $443,000.

If they'd had the financial capacity and discipline to invest $1,000 a month over the same period of time, their balance would now be more than $1.77 million. That's despite the sharp fall in markets in early 2020.

Of course, a more realistic pattern for most people is to increase their investment contributions over time as they earn higher wages and other expenses fall.

The bottom line

If you're just starting out, or quite early on in your investment journey, these are all factors to consider – even if you're many years away from retiring.

Successful investing revolves around having a well-planned and diversified strategy that's aligned to your specific goals, and the discipline and resolve to stay the course, even during the most volatile investment times.

And, make no mistake, the earlier you start off investing the more money you're likely to have to enjoy the things you want to do when you do eventually stop work.

With many of us living longer, having the ability to live a financially comfortable lifestyle without fear of running out of money is definitely a long-term goal worth pursuing.

 

 

Tony Kaye
Personal Finance Writer
11 August 2020
vanguardinvestments.com.au

 

SMSFs urged to act on compliance issues ahead of tougher penalties

 

SMSFs with outstanding compliance issues should consider making a voluntary disclosure while the ATO still has a more flexible approach in place and before they implement tougher admin penalties, says a law firm.

         

Recently, the ATO’s acting assistant commissioner for superannuation, Steve Keating, outlined the ATO’s current approach to dealing with SMSFs facing compliance issues and making voluntary disclosures, said Shaun Backhaus from DBA Lawyers.

“The ATO has recognised that many Australians are experiencing financial hardship as a result of the COVID-19 pandemic, and therefore it is not pursuing its usual audit program,” Mr Backhaus said.

“For the time being, the ATO is primarily engaging with and resolving issues for those SMSF trustees who have initiated contact with them, mainly through the ATO’s early engagement and voluntary disclosure program.”

Mr Backhaus said, typically, a voluntary disclosure will involve providing all relevant facts, supporting documentation and a rectification proposal or proposed enforceable undertaking to the ATO.

At the moment, the ATO is seeking to resolve issues while minimising the financial sanctions and penalties that might otherwise be applied during these difficult times, he noted.

“This more flexible approach has been brought about as a result of the difficult environment we all face with the COVID-19 pandemic,” he said.

With the ATO planning to undertake a tougher approach on administrative penalties once it issues its law administration practice statement (PS LA), SMSFs who have compliance issues may want to use the ATO’s voluntary disclosure service sooner rather than later,” Mr Backhaus stressed.

“The ATO has recently reviewed the application of its administrative penalties under s 166 of the Superannuation Industry (Supervision) Act 1993 (Cth) which highlighted that its staff have been too lenient in remitting these penalties.

“The ATO wants to rebalance its handling of imposing these penalties with a firmer approach.

“There is no date on when this flexible ATO approach will end, but we suspect that this will depend on when the PS LA issues and how many contraventions arise as a result of COVID-19.”

Mr Backhaus said it’s likely that, in the current environment, there are a considerable number of SMSFs with contraventions as families and businesses focus on paying for immediate necessities, rather than complying with the super rules.

“These financial pressures do not, however, provide any excuse or defence for contravening the super rules, and advisers in particular should be proactive in alerting clients that illegal early access to super benefits will still be treated seriously,” he warned.

“Sanctions that may apply to illegal early access could, for instance, include hefty tax and administrative penalties, non-compliance, disqualified status and a range of other penalties.”

He also pointed out that the ATO’s more flexible approach is only applicable to SMSF trustees that make a voluntary disclosure before an ATO review or audit is commenced.

“A different treatment applies if any contraventions arise from any ATO review or audit activity,” he said.

“Most contraventions are reported to the ATO by SMSF auditors engaged and paid by each SMSF via the auditor contravention reporting system. Thus, if there is any contravention, it is likely to be notified to the ATO in due course, and early engagement and voluntary disclosure is generally the best way forward.”

 

 

Miranda Brownlee
01 September 2020
smsfadviser.com

 

Your super fund, your choice

 

Choice is inherently regarded as a good thing, particularly in these COVID-affected times when some of our basic choices have had to be suspended for the greater community good.

 

         

So last week’s passage through parliament of a Bill expanding the amount of choice in the superannuation system ought to be reason for a small celebration.

The Treasury Laws Amendment (Your Superannuation, Your Choice) Bill 2019 finally provides near universal choice of super fund by breaking the nexus between certain industrial relations agreements and the ability of an individual worker to select their own fund to receive their superannuation contributions.

The superannuation system has much to thank the industrial relations system for. The foresight of key union officials back in the 1980s lead to the creation of today’s industry super funds. But with superannuation now holding around $3 trillion of Australians’ retirement savings the focus has shifted to improving the system’s efficiency and competitiveness as called out by a range of reviews from the Financial System Inquiry and the Productivity Commission.

The legislative changes made last week introduce a fundamental choice for some 800,000 working Australians – the right to choose the fund their hard-earned contributions are paid to.

Small decisions in superannuation can have big long-term impacts.

Choosing which fund to hitch your retirement savings wagon to is one of those decisions. Choosing to consolidate your multiple superannuation accounts into one is another.

While most workers already have the ability to elect which fund your employer pays your superannuation contributions into this piece of legislation applies to those who are under an enterprise agreement or workplace determination where their employer designates their fund.

The intention of this change is to give employees more control and choice over their superannuation and to encourage more engagement, with the hope that the number of individuals with multiple funds having their accounts eroded by two lots of fees will reduce over time.

Superannuation may not be deemed the most pressing issue on the agenda for those who are still far from retirement, but it has good reason to make the list. To ensure you can later live the lifestyle you want, paying attention to your superannuation now is vital.

One of the simplest ways to get on top of your superannuation is to choose to consolidate it all into the one account. Many of us will change jobs several times in our lifetime and may have already accumulated a few default accounts selected by our past employers. By sticking to just one super fund or consolidating your accounts regularly, you avoid paying multiple account fees and insurance premiums. These fees may not seem costly at first, but over time, they will inevitably eat away at your superannuation balance. Consolidating your superannuation also allows you to know exactly how much you have in your fund at any given time.

When consolidating super funds take the time to understand the insurance benefits and options offered by each fund to make sure you are not walking away from valuable insurance cover.

For those people who have not had the ability to choose funds previously it is also worth reframing the way we view superannuation in our minds. Because we cannot usually access it until retirement and contributions are generally paid directly into our accounts by our employer, there is a tendency to view it as money we don’t yet own or control – particularly in our younger years when the account balance is building slowly.

There is a lot of discussion in the superannuation industry about member engagement. Being engaged with your super is smart but it doesn’t mean you have to suddenly have a view on investment markets or to directly control where your money is invested.

This is where an abundance of choice can work against you. Vanguard has produced a research report titled How Australia Saves and one of the key findings was that fund members who exercised investment choice over a 10 year period actually underperformed those members in the default MySuper portfolio offered by the funds in the survey.

So when exercising choice of fund understand that there are many well-diversified default superannuation options on the market so letting the professionals manage the portfolio is usually the best option for most fund members.

The bottom line is that superannuation is simply a concessional tax structure wrapped around your retirement savings where the federal government is offering tax concessions as the trade-off for locking those savings away until the time of retirement.

So mentally put it in the long-term savings bucket by all means but give it the same amount of attention you normally pay to your other investments. This means understanding your retirement goals, the costs you’re paying, and the investment strategy you’ve selected so that your money is being utilised in a way that best suits you.

 

Written by Robin Bowerman
Head of Corporate Affairs at Vanguard.
01 September 2020
vanguardinvestments.com.au

 

More than $31bn paid under early super release

 

The government’s early super release scheme shows no signs of slowing down, with almost 90,000 release applications received by super funds in the first week of August and more than $700 million in payments made.

 

       

The latest APRA statistics for the week to 9 August revealed that 88,000 applications were received by funds, with 44,000 being first-time applications and 44,000 repeat applications.

There have been 4 million applications since the start of the scheme, with 1.1 million of those being repeat applicants, APRA said.

The scheme has now paid out $31.1 billion, with an average payment size of $7,689.

A total of 139 of the 175 funds in APRA’s reporting scheme have made repeat payments to members, with the average size of repeat payments being $8,487.

The top 10 highest paying funds in the scheme — including AustralianSuper, Sunsuper and REST — have paid out $20.4 billion of total funds released in the scheme.

 

 

Sarah Kendell
18 August 2020
smsfadviser.com

 

Update of Superannuation contribution rules from July 1, 2020.

 

The rules around Superannuation contribution change almost every year, so it is important that taxpayers know what these changes mean to them.

 

         

The following outlines what has changed.

An increase in the age required for the work test.

From July 1, 2020, the age required rose from 65 to 67. The main benefit of this change is that it provides, where possible, an additional opportunity to implement voluntary super contribution strategies.

What taxable contributions can be made for the year ending June 30, 2021?

There is a cap of $25,000 per person for those able to make extra contributions to their super during the 2020/21 financial year. Any excess over this concessional contribution (CC) cap is taxed at the inpidual’s marginal tax rate.

CCs are contributions where a tax deduction is claimed and include:

  • Superannuation guarantee contributions (SGCs)
  • Employer voluntary / extra contributions like salary sacrificing
  • Member taxable contributions claimed as a deduction in personal ITR.

The CC cap will, in most cases, exceed employer contributions in 2020/21. If this is the case, then consideration could be given to adding personal taxable contributions to get you up to the $25,000 limit.

The higher your income, the greater the tax savings and keep in mind that there is no upper age limit for being eligible to receive SGCs.

Carry forward provisions

An indivdual can carry forward CCs if their total superannuation balance (TSB) is less than $500,000.

Unused contributions can be carried forward for five years. This option came into effect in 2019/20.

An important consideration prior to June 30, 2021 is to see if you can utilise this carry forward option to bolster your CCs before the date noted.

Work test

If an inpidual is under 67, there is no work test required to be able to make a contribution.

The work test is where, once you turn 67, you must be able to show that you have been gainfully employed for 40 hours or more in any 30-day period in a financial year.

If an inpidual is between the ages of 67 to 74, they must meet the work test in order to make a contribution.

Splitting of contributions

An inpidual can split their CCs that are made on their behalf to a spouse but they need to meet certain requirements.

The main reasons to split contributions are to:

  • Assist with the limit of only being allowed to have $1.6 million to start an account-based pension with
  • Assist with ability to make non-concessional contributions (NCC) given the cap limit also of $1.6 million
  • Assist with the ability to use the carry forward provisions given the member balance cap of $500,000
  • Address age differences between spouses and the ability to access benefits at an earlier date
  • Access Centrelink advantages by minimising a member’s account
  • Allow a member to have sufficient superannuation to be able to pay life insurance.

Spouse rebate for super contributions

A spouse rebate, up to a maximum of $540, can be claimed for superannuation contributions for the year ending June 30, 2021.

If your spouse earns less than $37,000 per year and you contribute $3,000 into superannuation for them, you can claim a tax rebate of $540.

Spouse contributions can be made if you are aged under 75 from July 1, 2020.

What tax-free contributions can be made for 2020/21?

Non-concessional contributions (NCC) are those contributions made into a super fund from after tax income. In this case, an inpidual is not claiming a tax deduction. There is a cap for NCCs of $100,000 for the 2020/21 year.

Members under 65 have an option to contribute up to $300,000 over a three-year period, depending on their total superannuation balance (TSB). The rule works as follows:

TSB                        NCC and bring forward amount

< $1.4M                 $300,000 over 3 years

> $1.4 & < $1.5M   $200,000 over 2 years

> $1.5 & < $1.6M   $100,000 over 1 years

> $1.6M                $0 (nil)

To be able to make an NCC, a member must meet the work test, as described above.

The increase from age 65 to 67 also impacts on the ceasing work contribution rule as of July 1, 2020 by given more time to make a NCC.

NCCs can be made on a once-off basis in the financial year after you have ceased employment if your TSB is less than $300,000 as of June 30 in the previous financial year. You also need to be under 75.

Downsizing contributions and how this applies to those over 65 years of age.

From July 1, 2018, anyone 65 years or older can make a downsizer contribution of up to $300,000 from the proceeds of selling their residential home.

The contribution is not an NCC and does not count towards the contribution caps, so it goes into superannuation as a tax-free contribution.

If a member has more than $1.6 million in superannuation, they are still allowed to make a downsizer contribution.

If the downsizer contribution is made and is placed into retirement phase, it will count towards a member’s transfer balance cap, which is $1.6 million.

If you are thinking of downsizing then speaking to a financial planner will help clarify eligibility requirements.

Get more from your super

If you have any questions on the above then simply ask us.

 

 

September update of latest COVID-19 initiatives.

 

With the ending of a number of the original COVID-19 relief and stimulus initiatives, August and the beginning of September has seen the release of new plans to move into the post-September period. Links to these updates and changes are listed below.

 

     

 

Please click on the following links to access a wide range of Covid-19 related updates, initiatives, guidelines and resources from both Federal and State Governments.

 

Latest Updates:

 

Previous Updates:

 

  • Articles and Updates in other Latest News articles including:
    • Stage 3 – Covid-19 $1.1billion Domestic Violence, Medicare and Mental Health.
    • Stage 2 – Covid-19 – $66 billion stimulus package.
    • Stage 1 – Covid-19 Update – Small Business
    • Stage 1 – PM launches $17.6 billion virus stimulus plan

Estate planning and investments

 

It's a question most of us ask eventually: what happens to our investments when we die?

 

         

The answer often depends on the type of asset you own and the structure through which you own it.

Generally, when you die an executor that you nominate in your will takes control of your assets and has responsibility for distributing them in accordance with your wishes. The executor will normally apply for a court order declaring your will is valid. This court order is called probate.

If you die without a will, or if your executor is unable or unwilling to act, the court will normally appoint an administrator to the estate. The administrator has similar powers to an executor.

Then, they will deal with your assets in accordance with your will, or in accordance with the rules of your state if you didn't leave a will.

Let's look at what happens to your investments one by one:

Real estate

An interest in real estate held in your name alone forms part of your estate and is passed on or sold in accordance with your wishes as set out in your will.

This not necessarily true when you own real estate with someone else.

Jointly owned real estate can be held in one of two ways—as 'joint tenants' or 'tenants in common'. If a tenant in common dies, their interest in the real estate is an asset of their deceased estate and can be passed on to beneficiaries as dictated by their will.1 If they are joint tenants, however, their interest passes directly to the other joint tenant and does not form part of the estate.

Shares and managed funds

Directly-owned shares and units in managed funds that are in your name only form part of your estate and will be passed on in accordance with your will by your executor. The executor can sell shares and distribute the proceeds or distribute the shares directly.

But jointly owned shares come under similar rules to real estate. Where shares are held as 'joint tenants'—which is common in many brokerage accounts—the other owner automatically takes full ownership.

Bank account

If you have a joint bank account, the money will also transfer directly to the other joint holder.2 Otherwise, bank accounts are closed and the money paid to the executor or administrator, who then distributes the money to your beneficiaries.

Personal assets

Your personal property like cars, furniture, clothing, artwork and other goods form part of your estate.3 Most personal property will be distributed according to your will. Property that requires registration, like cars and boats, will need to be formally transferred by the executor.

Family trusts

Assets held in a family trust do not form part of your estate. Assets held in a trust are owned by the trust, which continues to operate after your death.4 The trust determines who gets the assets regardless of what your will says.

Private companies

Similar to family trusts, any assets owned by your private company do not form part of your estate when you die because those assets are owned by the company, not by you personally. This is true even if you are the only shareholder in the company.

The shares that you own in the company do form part of your estate and can be passed on.

Private companies can be complicated if you are the only director and don't leave a will appointing an executor who can appoint a director to the company after you are gone. In that case, a relative would have to apply to the Supreme Court for letters of administration to manage the estate which can take months(5), during which time the company may be unable to trade.

Superannuation

Your superannuation is also not part of your estate as it is held in trust to fund your retirement. Your super is passed to your beneficiaries in very specific ways, usually through a Binding Death Benefit Nomination or a reversionary pension.

The benefit of considering what type of assets will need to be dealt with when you are no longer around may not seem like a big deal but it can make it much easier for those set to receive things you want them to have and for those charged with distributing your assets. So it is well worth while giving the matters covered in our three part series on estate planning serious consideration. 

 

1. https://www.ato.gov.au/General/Capital-gains-tax/Deceased-estates-and-inheritances/Inherited-dwellings/Joint-tenants/
2. https://moneysmart.gov.au/losing-your-partner
3. https://www.lawaccess.nsw.gov.au/Pages/representing/after_someone_dies/distributing_the_estate/transferring_personal_property.aspx
4. https://moneysmart.gov.au/wills-and-powers-of-attorney
5. https://asic.gov.au/for-business/running-a-company/company-officeholder-duties/importance-of-sole-company-directors-or-shareholders-having-a-will/

 

Written by Robin Bowerman
Head of Corporate Affairs at Vanguard.
28 July 2020
vanguardinvestments.com.au
 

 

Pandemic spurs a rise in investment scams

In the current low interest rate environment, an investment product offering low-risk, high returns may sound very tempting.

 

       

That's especially when the offeror implies it has the personal backing of the chairman of Australia's corporate regulator, the Australian Securities and Investments Commission (ASIC), by using his name and photos.

Unfortunately, though, it's just one example of a recent investment scam uncovered by ASIC, and it highlights an alarming rise in fraudulent activities targeting investors since the onset of the COVID-19 pandemic.

Investment scams are a huge and growing problem, and they're becoming more and more sophisticated through the use of fake websites, media releases and stolen company logos.

In the past fortnight, regulators including ASIC, the US Securities and Exchange Commission, and the UK's Financial Conduct Authority have all issued warnings around a surge in investment scams.

They include outright fraudulent schemes, where there are no actual underlying investments involved, and the promotion of crypto currency assets and foreign exchange products, with fake endorsements from celebrities or government agencies.

In the US, there has also been a sharp rise in fraudulent stock promotions and market manipulation, with more than 30 companies suspended since the start of this year. A number of those relate to companies having made false claims of being awarded large medical supplies contracts related to COVID-19.

Fraudsters also have been busy taking advantage of the volatile markets to tout “safe” or “bottomed out” investments in companies that purportedly have interests in commodities such as gold, silver, or oil and gas.

Others activities involve fraudulent investment offers by unregistered companies, with reports by ASIC of companies asking consumers to pay money for financial products or services into different bank accounts each time funds are transferred.

Since the onset of COVID-19, ASIC has detected a 20 per cent rise in the number of investment scam reports from Australian consumers and investors.

ASIC is particularly concerned about the risk to consumers and investors of losing money when buying into crypto-currency assets, with most investment opportunities appearing to be outright scams.

Who is being targeted?

According to the Australian Competition & Consumer Commission (ACCC)'s just-released Targeting scams 2019 report, investment scams cost Australian investors $126 million last year. A further $132 million was lost to business email compromise scams.

In 2019, people aged 65 and over made the most reports to the ACCC's Scamwatch website, followed by those aged 25 to 34.

However, the highest losses were actually reported by people aged 55 to 64, who lost nearly $30 million last year. The ACCC says this is likely due to this group's accumulated wealth, coupled with their interest in investment opportunities.

Out of the total of 167,797 Scamwatch reports, 19,783 involved lost money.

Young people were more likely to report a scam that included a financial loss. For people under 18, 26 per cent of all reports involved a financial loss. This age group lost $471,595, an increase of over 170 per cent from 2018.

The ACCC says one piece of good news is that increasing numbers of people are now able to recognise and avoid scams.

The competition regulator points out the importance of telling others about scam experiences, with many people avoiding scams through word of mouth from friends or family.

How to detect an investment scam

To paraphrase a very old saying, if an opportunity sounds like it's too good to be true, it probably is.

Scams can take many forms and, as noted, are becoming increasingly sophisticated through the use of technology. Some scammers are using fake websites that mimic the sites of legitimate financial institutions.

However, there are multiple ways to greatly reduce your chances of ever being lured into an investment scam.

  • Beware of any direct or indirect approaches to invest, especially from unknown companies but even from people purporting to be from a well-known company or a government authority.
  • Types of approaches can be investment cold calls from bogus stock brokers or portfolio managers pretending to promote shares, other investment schemes, or to offer financial advice. Other approaches can include advertisements or invitations to investment seminars designed to promote “exclusive” investment opportunities offering high returns. These can be straight scams, or involve very high-risk investment products or schemes.
  • Also be on alert for superannuation scams offering to give you early access to your super funds, often through a self-managed super fund. Accessing superannuation is subject to very strict conditions governed by federal legislation.
  • Never respond to unsolicited messages, calls or emails that ask for any personal information or financial details. ASIC advises to just hang up or delete suspicious emails.
  • Don't click on any links or open attachments in emails unless you are completely certain of the authenticity of the sender. You can easily verify website addresses by searching a company separately (without clicking on an email link), or by checking their contact details through other online information sources.
  • If in doubt, check that the company's website is displaying its Australian Business Number and Australian Financial Services Licence (AFSL) number. These can be checked using ASIC's online search registers.

 

Tony Kaye
Personal Finance Writer
07 July 2020
Vanguardinvstmnts.com.au

 

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