Financial advice

Insurance towards retirement

Why it’s important to think about insurance ahead of retirement

By | Financial advice, Retirement, Wealth Protection | No Comments

If retirement’s coming up on your horizon, you’ll be keen to make sure your plans stay on track. It makes sense to concentrate on things you can control, such as insurance.

Too-high premiums can chew away at the foundations of your savings, at a time when they’re more important than ever. Under-insure and one day your floor may collapse, undone by events you can’t foresee.

Cover for a changing life

As you get close to retirement, you may want to make sure you’re holding the right insurance for the lifestyle you want. Here’s a simple checklist that may help:

  • Ask yourself how much money your family would have if you were to pass away or become disabled;
  • Compare that with how much money your family might need in the same situation, including how they’d manage paying for day-to-day costs like child-care and mortgages;
  • The difference between the two can help you work out how much insurance you may need.

Many of us take out insurance and are done with it – it’s enough to know we have the proverbial rainy day covered off. However, with economic clouds gathering, now’s a good time to review what you’ve already got and assess if it’s still right for you and your needs.

So, dig out your existing insurance agreements, taking special note of when they’re due to expire and your continued eligibility for the policies they hold.

An important area for many Australians is insurance held inside superannuation.

Insurance inside super

Insurance inside super can help us out when we really need it. Like any type of insurance, it works best when you’ve got the right level of protection for your situation. As you head towards retirement and your life changes, so might your priorities.

As well as life insurance, you might have total and permanent disablement (TPD) inside super. TPD cover may provide you with a lump-sum payment if you suffer a disability that prevents you from ever working again.

TPD could help you pay for ongoing medical expenses, alterations to your home to make day-to-day life easier and help provide future financial stability.

Total salary continuance, also known as income protection, is designed to pay a monthly benefit of up to 75% of your pre-disability regular income if you’re unable to work due to injury or illness.

Typically, within super, income protection provides you with cover either for a two-year or five-year period or until you turn 65, depending on the terms in your employer plan.

What to look out for

There are pros and cons of insurance within super. Things to think about if you’re approaching retirement include:

  • Cover through super may end when you reach a certain age (usually 65 or 70). That’s generally different to cover that’s outside a super account;
  • Taxes may be applied to TPD benefits depending on your age;
  • Claim payments may take longer, as the money is normally paid by the insurer to the trustee of the super fund before it’s paid to you or your dependants.

Don’t double up and stay flexible

As part of your review, it’s also a good idea to check insurance you hold inside super against other policies you might have outside super.

Then compare your cover, check whether you have any insurance double ups – if you have more than one super account with the same type of insurance, you may be paying for more insurance than you need.

As well as comparing the level of cover you get, consider any exclusions, such as the treatment of any pre-existing medical conditions, and waiting periods. Remember that if you do cancel your insurance, you might lose access to features and benefits and may not be able to sign back up at the same rate.

It’s also important to disclose your situation to your insurer honestly. Otherwise, the insurer may be entitled to refuse your claim.

Any change calls for flexible thinking, whatever age you are. The lead up to retirement is a great time to review your insurance and adapt to changing circumstances.

Source: AMP

What's your most important asset

What’s your most important asset?

By | Financial advice, Wealth Protection | No Comments

When it comes to insurance, many people adopt a ‘she’ll be right’ attitude, but looking at the statistics, there’s more chance of something going wrong than you might think.

Research has found that one in five families will be impacted by death, a serious accident or illness that leaves a parent unable to work, but 95% of families don’t have adequate levels of insurance to cover this situation.

What types of cover are available?

Insuring yourself and your income can allow you to maintain your lifestyle and living arrangements, and give you comfort in knowing you can still meet your financial commitments—things like your home loan, rent, card repayments, bills, kids’ education fees, and treatment and rehabilitation costs should you need it.

You can buy different forms of personal insurance through your adviser. Here’s a rundown of the four main types of cover available:

  • Life insurance pays a lump sum on your death or the diagnosis of a terminal illness;
  • Trauma insurance pays a lump sum on the diagnosis or occurrence of a specific illness;
  • Income protection typically provides a replacement income of up to 75% of your regular income if you’re unable to work due to illness or injury;
  • Total and permanent disability (TPD) pays a lump sum if you become disabled and are unable to ever work again.

How much is enough?

It’s important to choose the right type of insurance for your situation, which will be impacted by your personal circumstances, such as whether you have a partner or children, and the level of your debts.

It’s also important to understand how much insurance you need so you are not underinsured – nor paying for unnecessary cover.

What else do I need to consider?

Some people believe that if they are young or healthy they don’t need life insurance. However, circumstances can change quickly, and it generally costs more to buy insurance when you’re older, so securing cover when you’re young could be a good idea.

Another common belief is that if you get sick or injured the government will pick up the bill. And while it’s true that workers’ compensation and benefit payments may apply in some cases, it’s unlikely any payments will fully replace the income lost, or cover all of your ongoing financial obligations.

If you need more information, speak to us today.


The growth of contactless payments

By | Financial advice | No Comments

It’s a very 2020 story. Your new homemade breadmaking skills are as uneven as the lump you lifted from your oven, so you pop down to the bakers for their tasty sourdough rolls. But as you make it to the front of the socially distanced queue and pull out your $10 note, the assistant points to the handwritten sign, ‘card only’.

In the age of social distancing, the use of tap-and-go and other digital transactions is growing fast. More outlets are preferring contactless payment, and some no longer accept cash.

It’s relatively simple to make the switch to payment by card or phone, and the bread could be yours faster than you can say ‘sourdough’.

What are the benefits of contactless payments?

Keep it simple, shopping 

When you’re out and about, you no longer need to carry so much cash. Or a purse or a wallet. Or even visit an ATM. The history of money and exchange shows that humans tend towards quicker and easier payments.

It’s the future 

Although it seems like COVID-19 has sped up the demise of cash, it’s in fact just quickening an existing trend. The Reserve Bank of Australia found that only one in four payments in 2019 was in cash. Whereas 13 years ago, only one in four payments was made with a card.

More than just money

Reduced cash usage has become an issue of health, with concerns that close contact with customers and their physical money carries a risk of exposure to COVID-19. With a duty of care to their staff, as well as shoppers, many sellers are switching to card only, to reduce the risk of viral transmission.

The downsides

As with most changes, there are concerns as well as benefits. There are ways, though, to manage these concerns when moving to a more digital way of living.

Hacker alert

Your personal data can become vulnerable to hackers. To help prevent this, digital wallets (mobile applications that mimic an actual physical wallet) may offer features such as tokenisation, meaning your card number is never open for hackers to find.

The benefit of tokenisation is that your sensitive data is replaced with unique identification symbols that retain all the essential information about the data without compromising its security.

Digital budgeting

Some cash users limit spending by taking out a certain amount of cash each week to help them budget. You can recreate this in a digital world by ringfencing some of your income from temptation, perhaps by setting up an automatic transfer to a separate savings account.

Bye cash!

Thanks to the upward trend of digital payments, the younger generation of Australians may never handle physical cash, requiring a shift in the way we educate kids about personal finance. If you have children, you may like to read our tips on how to teach your kids to spend wisely with activities for tracking a digital budget.

Source: AMP


Where do we stand with our finances since COVID hit?

By | Financial advice | No Comments

Everyone in Australia has been affected by the COVID pandemic to some degree. With disruption to our work and social lives, it’s one of the biggest changes many of us have ever faced. But what has it meant for our money and financial wellbeing?

Nearly half of Australians are struggling

A recent survey found that four in ten Australians have lost income because of COVID-19 and are either struggling to make ends meet (11 per cent) or dipping into savings to get by (31 per cent).

What we’re worried about: jobs, savings and super

In spite of the JobKeeper payments supporting businesses to keep employees on the payroll, job insecurity is the number one concern for Australians right now. Women are far more likely to be worried about losing their job (40 per cent compared to 29 per cent for men), and the vast majority of 18 to 24-year old’s (81 per cent) are worried about becoming unemployed.

What we regret: budget basics

For most Australians, the COVID events of 2020 have been a wake-up call for their financial habits and behaviours. With 70 per cent of Australians surveyed saying they could have done better or different to improve their financial position, it seems we’ve learnt an important lesson about being financially prepared for the unexpected.

The good news is that these ‘regrets’ are helping us reconsider our financial priorities. When asked about changes they’re willing to make post-COVID, survey respondents ranked “be more frugal about my lifestyle choices” first, followed by “pay down debts” and “create a budget to understand what I’m spending and saving.”

Three ways to look after your financial future

Acting on these good intentions is certainly going to be important for many Australians, especially those having to manage on less income. If you’re feeling more uncertain about your job, income and financial future because of COVID, here are some simple steps you can take to start a long-term commitment to better financial outcomes:

1 – Start a ‘COVID-proof’ plan.

Take this as an opportunity to harness positive financial habits you’ve picked up during COVID. Prepare a list of expenses you don’t need any more and another list of how you could use this money to meet your current needs or look after your future – by saving, investing or paying down debts for example. By keeping a COVID mindset even after COVID is over you can make a lot more progress towards your financial and life goals.

2 – Think ahead

Work out where you want to be financially in the future – think five years, 10 years or retirement. Then work backwards for how to get there, along with a timeline of the important milestones you’re looking forward to along the way.

3 – Make an appointment with a qualified financial adviser

Understanding your current financial situation and short and long-term financial goals – having a financial plan – means you can better manage your finances. Knowing you’re taking care of your immediate expenses, without compromising on saving for the future allows you to live your today, while making sure your tomorrow is planned.

Financial advice makes a difference

The people surveyed who have worked with a financial adviser have experienced positive outcomes as a result of their advice. One in five have engaged a financial adviser and have experienced less impact to their finances compared with others who had not received advice. Almost all of them (87 per cent) did not need to access their super early.

Australians who’ve planned for tomorrow experience greater peace of mind and wellbeing today. They are clearer on what they can spend and save and will sleep peacefully at night knowing that they have someone there to help them understand it all.

Source: Money and Life


How to keep your super safe during COVID-19

By | Financial advice, Superannuation | No Comments

If you’re feeling concerned about how the pandemic will affect your super balance, here are our tips to help protect and grow your super.

What can affect my super balance?

In Australia, your employer is required by law to pay a minimum percentage of your eligible income to a complying superannuation fund or retirement savings account. This is known as the Superannuation Guarantee and it’s currently set to 9.5%.

Your super contributions are then invested by your superannuation fund on your behalf, according to your chosen investment options. This means your super is subject to normal market fluctuations.

Your super is also exposed to a range of administrative fees, charges and premiums, which can eat away at your balance if you’re not vigilant.

Isn’t my super protected by law?

You might be surprised to learn that your superannuation savings are not protected by the government.

Last year, the federal government introduced a package of reforms to help stop low account balances from being eroded by unnecessary insurance premiums and fees. This was called the Protecting your Superannuation Package.

However, this protection only applies to accounts that meet certain criteria, such as having a balance below $6000, and not receiving any contributions for 16-months. These inactive or low-balance accounts are transferred to the ATO for administration. You can find out more about the reforms on the ATO website.

For everyone else, it’s up to you to keep an active eye on the health of your super.

So, here are five things you can do to help conserve and grow your superannuation, even during a global economic downturn.

1 – Check your superannuation investment options

Because superannuation is a long-term investment, it’s important to check that your selected investment options are right for your age and stage of life.

Taking on the wrong level of risk at the wrong time in your life can erode your super balance. For example, when you’re starting out, there’s more time until retirement to ride out some of the ups and downs that come with higher levels of risk. But as you near retirement, you might want to focus on preserving your superannuation balance.

If you’re not sure how your super is invested, take the time to check your account either online or by contacting your super fund for advice. Be sure to find out whether they charge fees for advice, as these can be deducted from your super balance.

2 – Switch to a low-cost superannuation provider

Fees and charges are deducted directly from your account, so they can quickly erode your super balance. Check your statements regularly and make sure you’ve compared your super fund with other providers.

3 – Avoid withdrawing your super early

Most people can access their super once they reach the ‘preservation age’, which is between 55 and 65 years old, depending on when you were born.

There are also some special circumstances where you may be able to access your super early, such as severe financial hardship, including COVID-19.

While a cash injection of $10,000 or $20,000 might sound like a welcome relief when you’re struggling to pay your basic living costs, it’s important that you exhaust all other avenues first, because accessing your super early can have a significant impact on your retirement income.

How significant? Well, the FPA estimates, conservatively, every $1000 you have in super at age 30 is worth $4500 by the time you reach 60. Multiply that by $10,000 or $20,000 and you can see what you might be missing from your retirement nest egg.

For this reason, it’s really important to explore other options first and get expert advice from a financial planner before making a withdrawal.

4 – Make regular contributions

One of the ways to protect and grow your super balance is to consider making regular contributions. You can do this by salary sacrificing a set amount every week. If that’s not possible, you could consider making extra contributions whenever possible, such as depositing your tax return, gifts or bonus.

5 – Get professional advice

You can’t beat professional financial advice to help you reach your retirement goals. A financial planning professional can review your unique situation and goals and advise you on the right investment and contribution strategies for you. They can also advise you on the best forms of retirement income to conserve your super balance.

With the right superannuation investment strategies in place, you’ll be well prepared to weather the economic disruption brought about by COVID-19. It’s worth taking the time now to review and optimise each aspect of your super above to get the most from your investments.

Source: Money & Life

What is estate planning

What is estate planning?

By | Estate Planning, Financial advice | No Comments

If you’ve got people in your life who you love and want to take care of, it’s wise to build an estate plan. This plan, which you can put together with the help of an estate planning specialist, will make sure loved ones are taken care of in the event of your death.

An estate plan is more than just drawing up a will. It also involves formalising how you want to be looked after (medically and financially) if something happens to you, or if you’re unable to make your own decisions later in life. Your estate plan will also clarify how you want your assets to be protected during your lifetime and distributed after your death.

How does an estate plan help?

You can make your wishes known

One of the benefits of a sound estate plan is the ability to formalise your wishes in writing. This can help if someone contests what you’ve said you want after you’ve passed away, or if you’re unable to speak for yourself.

You could minimise disagreements

Unfortunately, disputes often arise when unsettled assets need to be distributed among others—especially if there are no clear guidelines set. Being prepared with an estate plan could go a long way in preventing disputes should family members need to divide assets among themselves or make other hard decisions on your behalf.

You may improve tax consequences for your heirs

As the distribution of assets (including your income) can come with different tax obligations, a good estate plan might also minimise any tax that your heirs would need to pay. For instance, if they decide to sell something they’ve inherited, depending on the type of asset, they may need to pay capital gains tax. Estate planning, particularly with the guidance of estate planning specialists, could reduce these extra tax costs.

Key points when creating your estate plan

Consider drawing up a will and whether you want something legally binding

A solicitor or estate planning lawyer can help you draw up a will that is legally binding and covers what you’d like to happen with your assets, children (if you have any) and funeral when you die.

It’s important this document is kept up to date, and be sure any changes to your situation (marriage, divorce, separation or otherwise) are accounted for, so those who matter most are taken care of.

While it’s also possible to draw up your own will (there are various kits available online), these may not be adequate in complex situations, which is why engaging a professional is still worthwhile.

A word of warning: if your will is deemed invalid, your estate will be distributed according to the law in your state (which may not align with your wishes), and claims could be made by unintended recipients. This is why it’s a good idea to enlist the services of an estate planning specialist, even if you think your situation is relatively simple.

Review your nominated beneficiaries for any super or insurance you might have

When it comes to your super, you’ll need to do some planning in advance to make sure it’s distributed properly in the event of your passing.

During this process, take the time to nominate your beneficiaries with your super fund, and make sure you’re across how long different nominations are valid for. If you don’t make a nomination, the super fund trustee could use their discretion to determine who your super money goes to.

In addition, if you have insurance outside of super, make sure you’ve listed your beneficiaries on your insurance policy and that those beneficiaries are also kept up to date.

Consider appointing an enduring power of attorney to make decisions if you can’t

There may come a time when you’re unable to make legal or financial decisions on your own because of advanced age or medical issues. Granting power of attorney means you are designating an individual to make these decisions on your behalf if such a scenario arises.

For this reason, it’s important to choose someone you trust, as they’ll be responsible for looking after your bank accounts, ongoing bills, and even selling your house if you need to move into a care facility.

It’s also worth noting that you may be able to appoint a different type of power of attorney depending on what tasks you’d like this person to carry out on your behalf. For example, you may want your son or daughter to make general lifestyle decisions for you, while you appoint a financial adviser to make financial decisions.

Choose an executor to help carry out your wishes when you’re gone

Generally, an executor is the legal individual who manages and distributes the estate with the assistance of a solicitor, according to the terms you’ve set out in your will (which your solicitor should have a copy of).

When you nominate an executor in your will it’s important to let your family know, to avoid disputes after you die. Make sure the executor also has a good understanding of their duties and where your will and other important documents are kept. You may also want to let your family know where this information is stored.

The executor will typically be responsible for things like making funeral arrangements, ensuring your debts are paid and bank accounts closed, and collecting any life insurance.

They will also usually need to apply to the court for a grant of probate, which is a required legal step before your estate can be distributed. A grant of probate certifies that your will is valid.

Source: AMP

Can money buy happiness

Can money buy happiness?

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Is money the key to happiness? Numerous research reports and studies agree having more money can lead to improved wellbeing, but only up to a point. It seems that once your personal income cruises past roughly the six-figure mark, you can’t expect to get any happier from having more. How you spend your money, on the other hand, can have a significant bearing on how you feel and your satisfaction with life.

Shopping for a new car, for example, might be something you get excited about for months in advance as you do your research, take test drives and weigh up options for colours. Once you actually own the car, the happiness hit from your pristine new vehicle might last for a few months. But according to psychologists, it won’t be long before a very human condition called hedonic adaptation will make your new car seem less special and satisfying. Once we actually own something, we quickly adjust to the reality of having it, reducing the happiness we experience from our purchase in the medium to long-term.

If you’re looking for ways to replace retail therapy with other types of spending to boost your happiness levels, here are four ways to spend money and add to your quality of life for longer.

Spend on experiences

According to a Harvard University psychology professor, switching spending goals from material possessions to experiences is one way to get more happiness from your dollars.  In his book Stumbling on Happiness, Professor Dan Gilbert reports that 57% of people surveyed felt greater happiness from buying an experience. His view is also backed up by a research study led by Dr Thomas Gilovich, psychology professor at Cornell University. Having investigated the relationship between money and happiness for two decades, Dr Gilovich concludes that spending on experiences makes you happier because they have greater potential to define who you are and connect you with the people who matter to you most.

Spend on your relationship

When It comes to maintaining a strong connection with your spouse or partner, how you spend money can definitely make a difference. For a start, it’s important to be honest about your money history so you can trust one another and plan for a financial future based on shared goals. But there may also be smaller and short-term ways for money to ease tensions between you. If you find yourself in conflict over whose turn it is to clean the bathroom or grab groceries on the way home from work, maybe it’s worth putting some of your joint budget towards a solution. Footing the bill for a cleaner or having the weekly shop home-delivered could be just what you need to bring a little extra harmony to your life as a couple.

Spend on others

Academic research has also found that spending money on other people – known as ‘prosocial’ spending – is also a path to greater happiness.  According to a 2014 research study led by Elizabeth Dunn, professor of psychology at University of British Colombia, “people who spend money on others report more happiness… and the warm glow of giving can be detected even in toddlers.”

Spend on peace of mind

One of the most important ways you can spend money and feel happier is by having a plan for financial security. The latest UBank Know your numbers index reported that more than half of Australians feel stressed and overwhelmed about their financial situation. One important way to get greater peace of mind about your money situation is to seek professional advice from a Financial Planner who is qualified to help you make the best decisions, for your current spending and future financial wellbeing.

Source: FPA Money & Life, 2019

Super withdrawal

Should I take my super as a lump sum or not?

By | Financial advice, Superannuation | No Comments

You’ve spent your working life accumulating super. So when the time comes, are you better off taking a lump sum, regular income or both? Let’s weigh up the alternatives so you can start to consider what may be best for you.

Taking a lump sum 

If your super has been managed on your behalf during your working years it can be tempting to take the lot when you can. But make sure you weigh up the upsides and downsides before deciding.

Think long term

A lump sum in your hands means you can spend it as you wish. For example, paying off the mortgage may be a good financial decision. But if it will mean you have no super left, what will you live on? It’s easy to spend a lump sum quickly so think ahead because in retirement a bad decision can be financially impossible to recover from. Work out how you can support yourself when you’re no longer working.

Will the tax office take a chunk?

When it comes to taking a lump sum, look into tax rules—if you’re under age 60 you may create a tax liability, which would eat into the money you’ll need for retirement.

Are you confident making your own investment decisions?

Sound investment plans may help you avoid relying on the government pension down the track. Evaluate your investment knowledge and the effort you’re prepared to put in―do you feel confident in your ability to invest your money to achieve the returns you need or will you need help?

Keeping your money in super

Sure, keeping your money in super can be one of the most tax-effective options. But there are other considerations as well, as you’ll see below.

Make the most of tax benefits

By starting a pension in superannuation your money is not exposed to the tax rules that apply to money held outside super:

  • No tax is applied to your investment earnings in your super pension;
  • No tax is applied to your income drawn from age 60;
  • Tax offsets of 15% are applied to the tax payable* on your pension you draw if you’re aged 55-59, which means in the lead-up to turning 60, 15% of your taxable income is effectively tax-free.

Investment control and earnings

You can generally choose from a range of pre-set investment options in super. But an investment manager makes the day-to-day investment decisions, so overall you have less control. Your balance will increase if earnings are added to your account. Although investment earnings and your balance can fluctuate depending on investment markets―there’s no guarantee your super will last as long as you do.

Access your money 

You can take a portion or your entire super balance as a lump sum, or draw out a regular income―it’s up to you. Each year you have to withdraw minimum amounts depending on your age―eg you’d need to take out at least 4% each year up to age 65 and then 5% until you turn 75. And just remember, if you choose to withdraw all your money out of your super account, you may not be able to put it back in, as there are rules and limits on how much you can put back in (particularly if you are over age 65).

Best of both worlds

There’s a lot to weigh up when deciding how you’ll use your super. On one hand a lump sum can give you flexibility and control. But so can drawing out an income. Deciding between the two can be challenging, but you don’t have to choose one over the other.

There is a lot to consider, so it’s probably a good idea to meet with your financial adviser to determine what’ll work best for you. Find out how changing your approach as you get older could help you benefit from tax rules.

*The taxable portion of your account-based pension will be taxed at your marginal tax rate.

Source: AMP


Are you eligible for school subsidies?

By | Financial advice | No Comments

With 2020 now well and truly in motion, many parents and carers are probably looking at how they’ll cover school fees for the year ahead, not to mention other costs, which might include things like uniforms, shoes, stationery, excursions and transport.

The good news is, you may be eligible for some financial assistance through subsidies in your state or territory, which may be means tested or require you to hold a concession card.

State and territory allowances

According to figures from Australian Scholarship Group (ASG), for a child born today, the total cost of schooling in a capital city (from ages 0 to 17) is estimated to be around:

$78,234 if they attend government schools

$148,019 if they attend systemic/catholic schools

$351,682 if they attend private schools.

With that in mind, it’s worth exploring some of the rebates and tax breaks you as a parent or guardian may be eligible for.

New South Wales

Children in Kindergarten through to Year 12, who are aged between four and a half and 18 (including those that are home-schooled), are eligible for an Active Kids Voucher, providing parents and guardians with $100 to put toward registration and participation costs for sport and fitness activities.

The Creative Kids program provides one $100 voucher each year to all school-aged children to help with the cost of creative classes and activities, such as music, dance and drama lessons, language classes, coding and design.

In addition, if you drive the kids to school because there’s no public transport where you live, you may be eligible for the School Drive Subsidy.

There are also two financial support programs for eligible families who have children boarding away from home to complete their secondary education.


If you have secondary-school-age students who are attending state and approved non-state schools, you may be able to receive financial assistance to help with the cost of textbooks and other learning resources.

A Living Away from Home Allowance Scheme is also available, while talented students from regional and remote areas, who aren’t eligible, may apply for Queensland Academies Isolated Students Bursary.

On top of that, a voucher of up to $150 under the Fairplay voucher may also be available for children who can least afford or may otherwise benefit from joining a sport or recreation club, while there are additional funding sources that aim to support young athletes.


Depending on your situation, your family may be eligible to receive free or discounted uniforms, shoes, textbooks, stationery and more through the State Schools’ Relief.

The Camps, Sports and Excursions Fund may also provide payments so eligible students can take part in school trips and various sporting activities.

South Australia

The School Card scheme assists with expenses, such as school fees, uniforms, camps and excursions. This is available for eligible students attending government schools.

The State Education Allowance is also available to geographically isolated parents with children at secondary level, who board away from home to attend school. The allowance assists with travel, boarding and other education-related expenses.

Western Australia

The Secondary Assistance Scheme is available to parents who hold eligible concession cards. It provides an education program allowance, which is paid to the school, and a clothing allowance that can be paid to the school or parent.

A Boarding Away from Home Allowance also assists geographically isolated families with boarding and education costs for primary and secondary-school-age children.


The Student Assistance Scheme assists with the cost of school levies. It provides support to low-income families to help with the cost of students in kindergarten through to year 12.

Northern Territory

The Back to School Payment Scheme provides financial assistance to parents and guardians of children enrolled in a Northern Territory school, or who are registered for home-schooling. The entitlement can be used towards things like uniforms, books and school camps.

There’s also a Sport Voucher Scheme that assists with sport, recreation and cultural-activity costs. And, you may be eligible for financial help if your child must live away from home or travel long distances to go to school.

Australian Capital Territory

The Secondary Bursary Scheme and Student Support Fund programs aid eligible low-income earners in the state with dependent full-time students in years seven to 10.

Commonwealth Government assistance

Commonwealth Government assistance may also be available for eligible young people through Youth Allowance and various Assistance for Isolated Children programs.

There’s also a Child Care Subsidy (which replaced the Child Care Benefit and Child Care Rebate in July 2018) which may help with the cost of childcare if you meet certain criteria.

Another initiative the Australian Department of Social Services is involved in is Saver Plus – a program that’s delivered in 60 communities across the country. It delivers up to $500 in matched savings for education costs and provides free financial education workshops and support.

Other considerations

The cost of kids doesn’t come cheap, so it’s worthwhile making the most of the subsidies available to you.

In the meantime, if you need further help, speak to your school about what financial support is available. It might also worth talking to other parents who have children at the same school or schools nearby.

Source: AMP


Investing on behalf of your children

By | Financial advice, Investments | No Comments

Investing on behalf of your children can help give them a financial leg up and introduce them to good financial practice at an early age. Here are some considerations to help you find an appropriate kind of investment vehicle to set them on their way.

Whether it’s birthday cash from proud grandparents, a slice of an inheritance, or you just want to set them up with something in their own name, many parents want to invest on behalf of their children.

Picking an appropriate investment for your child

Just as you wouldn’t set off across the Nullarbor on a hovercraft, it’s important to pick an appropriate vehicle. Tax, social security and the appropriate structure will all affect your decision.

The first thing to consider is why you want to invest. There’s a plethora of products you could select, so think about which goals you’re aiming to achieve. Setting something up to fund year-on year educational expenses might be quite different from a fund to establish a deposit on a first home, where the aim is a lump sum.

Alternatively, you may simply to want to open a bank account to give them the feeling of ownership, the equivalent of the old over-the-counter passbook. This might be a first step towards financial literacy in adulthood.

Once you’re clear about your aims, it pays to bear in mind the effects of taxation.

Minors and tax

In Australia, children under 18 on the last day of the financial year (30 June) are considered minors as far as tax is concerned. Minors are generally taxed at penalty rates on unearned income such as interest, rent and dividends.

There are exceptions for certain children working full-time, with disabilities or who are entitled to a double orphan pension.

Further, the above minor penalty tax rates don’t apply to amounts of excepted income received by children – these amounts will be taxed at adult rates. Excepted income includes income from employment, their own business, or from a deceased person’s estate.

Mario is 15 years old and is not an excepted person. His income consists of a $500 family trust distribution and $8,000 wages from casual work. Mario also has $180 in deductions relating to earning his wages.

In whose name?

The most common approaches are to hold the investment in the child’s name, or in the parent or grandparent’s name, with them as a trustee. Whichever you choose, it helps to think upfront who will be liable for any tax and what the social security impacts might be.

For tax purposes, the ATO determines who has control of the assets, and therefore who pays tax on the income earned.

If the money to set up the investment is given without any conditions, such as pocket money, or earned and used by the child and no-one else, then income, and any capital gain or loss, is assessable to the child. It’s the same if the investment is held under an informal trust agreement and the ATO is satisfied that the money belongs to the child. This applies in most cases where the money is a genuine gift.

However, if the money for the investment is provided by the parent and the parent uses the money as if it were their own, then they should declare the income on their return.

Note that children are not exempt from quoting a tax file number (TFN) and can apply for one at any age. Whichever investment vehicle you choose, make sure you supply the right TFN, if one is required.

Investment vehicles

These are some of the popular options parents turn to:

Bank accounts

Opening a bank account is usually the most straightforward. This doesn’t require the child to sign a legal document and so can be registered with your child’s name. However, if they are under 16, the bank will often require parental permission.

Managed funds

Managed funds and share investments generally require legal capacity, which doesn’t apply to under-18s. Therefore, these are usually registered in an adult’s name. The fund manager or share registry may allow for a name that reflects the intention, ie John Smith in trust for the late Jane Smith.

Insurance bonds

An insurance bond is a type of life insurance policy, with a range of investment options. It may be withdrawn in part or full at any time, although there may be tax implications. It can be established in the child’s name for those aged 10 to 16 with parental consent. Anyone over 16 can invest without consent.

For children under 16, insurance bonds generally also offer a ‘child advancement option’, where a parent or grandparent invests on behalf of the child, with ownership passing at a nominated ‘vesting’ age. This might tie in with making funds available for education, home deposit or travel and so on.


Although it may seem odd for an under-18 more into skateboards, it’s never too early to think about super.

Children can become members of a super fund, if the rules of the fund allow this. Generally, a parent or guardian needs to sign the application form and there are additional considerations if the child will be a member of a self-managed super fund (SMSF).

Because of its concessional tax treatment, super is a popular savings vehicle. However, depending on your purpose for setting up the investment, it may not be right for your child as they may not be able to access their funds until their own grandchildren have skateboards.

Social security

Where a parent or other adult holds investments on behalf of a child, Centrelink typically treats these as protective trusts. As a result, assets will most likely be attributed to the adults, up until they transfer to the child.

It’s important to evaluate the pros and cons to get a suitable approach for your family. These can be complex, so you may wish to speak to your adviser.

Source: AMP



Is $1 million enough to retire on?

By | Financial advice, Preparing For Retirement, Retirement | No Comments

Everyone who’s approaching retirement wants to know how much money they need to save – how much is enough to leave work confidently and then live comfortably? Lately, we’ve been seeing $1 million dollars bandied around as the magic number but is $1 million enough?

Well, it depends. If you’re a high-income earner and want to maintain a similar lifestyle when you retire, then $1 million might not stretch as far as you think. If you’re happy to spend less, then it may be enough.

The Association of Super Funds of Australia (ASFA) calls this the difference between a ‘modest’ and a ‘comfortable’ retirement. It estimates that a couple needs an annual income of around $40,000 for a ‘modest’ life and $60,000 for a ‘comfortable’ life.

Gold Coast or Amalfi Coast?

While ASFA recommends $60,000 for a ‘comfortable’ life, if you’re used to a much higher income, then this probably won’t keep you as comfortable as you’d like. The amount of money you’ll need will vary a lot depending on your personal situation. Here are some of the most common variables:

Your home

If you own your home, you’ll need less income. Retirees who own their homes outright spend on average 5% of their income on housing, compared to 30% for retirees who rent.

Your health.

You are likely to spend more on healthcare as you age. While Medicare should cover much of the increase, private healthcare costs are rising much faster than inflation, going up 66% since 2009.


If you’re supporting children, or parents – or both, you’ll need to think about how their financial needs will affect your financial needs over the years.

Less over time

Most people spend less as they age (spending falls by 15% on average between the ages of 70-90). This is because as they get older many people have bought most things they really want (and can afford) and have less desire to be so busy.


People are living longer and longer, which is fantastic, but it does make it harder to work out exactly how much money you’ll need. Do you need to fund a retirement that lasts till you’re 88 or 108?

Keeping the money flowing

When you’ve worked out roughly how much income you’ll need, the next step is to work out how to get it. Here are some of the main ways:

Account-based pensions

You generate regular income payments by transferring some, or all, of your super to an account-based pension account. It’s generally tax free (as it stays within super), but your income will fluctuate depending on how your investments perform.


An annuity gives you a set income for a defined period, or for the rest of your life. It’s great for reliability (you’ll always receive the same income), but not so great if you need extra cash for an emergency or a one-off purchase. You may also get locked into whatever rate is available when you buy it – which may not be great when interest rates are at all-time lows.

Dividend investing

Share dividends can be a great (and growing) source of income. While shares have potential for excellent returns, they also come with greater risk.

Government assistance

Even if you’re reasonably well off, you may still be eligible for a part pension – 2/3 of retirees are – and then there’s the seniors healthcare cards, travel discounts and other concessions.

Term deposits

You receive a set rate of interest for the term of your investment. Great for security and guaranteed income, but often a lower rate of return than other investments.

Rental property

Renting out an investment property is a common way to diversify your investments and gain a consistent income. Difficulties can occur if you have problems with tenants, you need to make expensive repairs, or rents or the value of your property falls.


Many people choose not to stop working entirely. They enjoy their work and it keeps them mentally active while giving them purpose, a sense of identity and time with friends.

It’s never too late to get advice – or too early

As you can see, working out exactly how much money you’ll need to retire is complex. A financial adviser can unravel the complexity for you and get you closer to your ideal retirement life.

Source: Perpetual


Will I pay Capital gains Tax on my Inheritance?

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In Australia, special capital gains tax rules apply when dealing with assets of a deceased estate.

The most common types of assets inherited by a beneficiary that could be subject to a capital gain are property, shares and managed funds.

You may have just received (or are about to receive) an inheritance. While this article isn’t a substitute for specialist tax advice it considers some of the capital gains tax implications should you ultimately choose to sell an inherited asset of this nature.

Implications for Australian tax residents

Where you’re an Australian resident for tax purposes and you inherit assets from the deceased estate of an individual who was also an Australian tax resident, the transfer of these assets from the deceased estate is not a capital gains tax (CGT) event, in and of itself. This means that only if you decide to sell the asset at a later point in time, then the normal CGT rules apply.

In this scenario, CGT outcomes are an important aspect to consider when selling inherited investments like shares, managed funds and investment properties.

The sale of the family home may receive the ‘main residence exemption’ which means that CGT will not apply. However, this an area where advice is best sought.

Note: where a family home was used for investment (income producing) purposes at some stage, only a partial main residence exemption will occur. We discuss this in a little more detail below.

Implications for non-Australian tax residents

Where the deceased individual was an Australian resident for tax purposes, if you’re a non-Australian tax resident CGT may be applicable.

Depending on the type of asset inherited and the circumstances involved, this can be an especially complex area, so specialist advice is key.

Other Capital Gains Tax considerations

Generally speaking, if the asset is:

  • a collectable asset, such as rare stamps, then CGT may apply depending on a host of circumstances
  • a personal-use asset such as jewellery, a car or boat CGT will typically not apply.

Capital gain (or losses) on an inherited asset

There are several considerations involved in calculating a capital gain or loss. Some of these can include:

  • the type of asset, and how it was used prior to the deceased’s passing;
  • the deceased’s date of death;
  • the date the asset was inherited;
  • your ownership period, prior to selling the asset;
  • whether you are selling the asset as an individual Australian tax resident, or not.

Did you know:

Inheriting a family home may involve CGT when it is sold. This depends on a few factors, such as when it was bought, when it was sold and if it was used for investment purposes at any time during the ownership period.

You should keep detailed financial records related to an inherited asset. This information is needed to determine if there’s any CGT payable later when the asset is sold.

Your financial adviser will be able to assist you in understanding any tax implications of inheriting an asset, based on your personal circumstances, objectives and goals.

Source: Perpetual


Withdrawing Super – what to consider

By | Financial advice, Superannuation | No Comments

The federal government has been releasing details of financial support available to Australians who have lost income due the economic impact of the COVID-19 pandemic.

A huge number of us have been affected in some way and many have been left feeling stressed and confused about what to do to keep afloat.

Although concern about money isn’t the only problem we’re grappling with, financial stress is likely to be on the rise, even among those of us who are generally pretty good at staying on top of our finances.

A sudden and unexpected loss of income can send anyone into a panic and many will be looking for ways to replace that income to stop them from racking up debts or running out of savings in a matter of weeks.

Who can withdraw super and how much can I get?

One option Australians in need may be looking at is applying for early access to their super savings.

Here’s a quick summary of some of the more important details of this temporary measure to ease financial hardship:

  • Eligible Australians will be able to access up to $20,000 from their super fund or funds.
  • If you meet the financial hardship criteria, you can apply for $10,000 before 30 June 2020 and a further $10,000 after 1 July 2020.
  • Early withdrawal is available to people who are unemployed, have had their working hours/business income reduced by 20% since 1 January 2020, or are receiving Centrelink payments.

Playing catch-up

A payment of $10,000 or even $20,000 is a very welcome injection of cash at a time when you may be struggling to cover basic costs like your rent, groceries and utility bills. However, it’s really important to remember that these super savings have the potential to make a significant difference to your level of income in retirement.

If you dip into your super now, you could find yourself lagging behind in having the savings you need to live comfortably when you’ve stopped work for good.

“The ramifications of accessing super early could be really significant,” says Ben Marshan, Head of Policy and Standards at the Financial Planning Association of Australia (FPA).

“Conservatively, every $1000 that you have in super at age 30 will be worth about $4500 at age 60. If you take $1000 out now, you have to put in $4500 over the next 30 years to get back to the same position. Financially, for a lot of people that can be a massive struggle and they’ll never actually catch up.”

Multiply that $1,000 by 10 or 20 and you can start to see what you could be sacrificing from your retirement nest egg by making a substantial withdrawal now. And this is why it’s so important to get expert advice before making a decision, as well as exploring other options.

“Consider getting professional financial help to understand the implications for yourself, Marshan advises. “Accessing your super early should only ever be a last resort.”

What are my other options?

If you already have a financial planner, it’s definitely worth reaching out to them at this time to talk about whether you should be using your super as a temporary income boost.

Seeking advice is particularly important if you are told by any service provider that you have no other option but to access your super.

The financial services regulator ASIC has recently taken steps to caution landlords and property agents against suggesting that tenants should be accessing super to keep paying their rent.

Making such a suggestion could be seen as giving financial advice, and real estate agents are neither qualified or licensed to provide such advice.

Source: Money & Life

Sound financial advice

The value of sound financial advice in these challenging times

By | Financial advice | No Comments

In addition to the terrible health consequences, the coronavirus is having a massive impact on global economies and the way we live, work, and interact with each other.

Loss of income and uncertainty about the future can place a great strain on households, relationships and finances. For those affected, it can be overwhelming.

For those approaching or already in retirement, sharp falls in share markets can lead to sleepless nights about their retirement plans and whether they will have enough income to live comfortably.

In times like these, seeking professional financial advice is essential. We can help you to:

  • Assess your current financial situation, review your income and expenses, and develop strategies to manage your cash flow more effectively.
  • Make the most of any severance pay or redundancy payment.
  • Identify any government support payments you may be entitled to receive and assist you with the application process.
  • Assist you with practical strategies to consolidate and eliminate debt.
  • Review your circumstances and assess whether early access to your superannuation savings or early retirement may be a suitable option for you.
  • Review your retirement strategy to determine whether it continues to meet your near and longer term needs and objectives.
  • Develop and implement a detailed financial strategy for your future personal and financial wellbeing.

Avoid making emotional or impulse decisions

It’s natural to feel anxious in turbulent times, however it’s important to make carefully considered decisions when it comes to your finances and investments. An emotional or impulse decision in the short term will rarely benefit your financial wellbeing over the longer term.

Sound financial advice can be life changing

Sound financial advice really can make all the difference. As qualified professionals, we understand the complexities of financial planning, the world of investments and the various support packages available from the government.

We are available to help you, or someone you care for to make the most of a difficult situation and to navigate a path forward.

Now isn’t the time to go it alone.


Making sense of Medicare and your tax obligations

By | Financial advice | No Comments

To help pay for the public health system which we call Medicare, you’re required to pay a 2 percent Medicare levy as part of your income tax. While the low-income tax offset can reduce your individual tax liability, sadly it does not reduce the Medicare levy per se, which can make it that little bit harder to get ahead with your savings.

However, if you’re on a taxable income of over $90,000 as a single or $180,000 for families, and don’t have private health insurance, you may also be subject to a surcharge of up to an extra 1.5 percent of your income, on top of the basic Medicare levy.

The surcharge was designed to encourage those who can afford it to take out private health cover and use the private hospital system, hence reducing demand on the public Medicare system. But you are exempt from paying the Medicare Levy Surcharge by having private health insurance with a sufficient level of hospital cover.

While taking out private health insurance can be cheaper than the additional surcharge, you need to do your homework beforehand.  Private health cover has come under a lot of criticism for not offering value for money due to a myriad of shortcomings, none the least being exclusions and major out-of-pocket costs.

Rebates for private health insurance

However, if you do decide to take out private health insurance, you may also be eligible for a rebate depending on your income level.

While the private health insurance rebate is income tested, singles and families earning under $90,000 and $180,000 respectively, can expect the highest (base tier) rebate of 25.059 percent (under age 65).

Most people with private health insurance can claim the rebate as an upfront reduction on their private health insurance premium. However, if you don’t claim the rebate as a reduction to your premium, you can still claim it as a tax offset in your annual income tax return.

What exactly is the lifetime health initiative?

If you’re under age 31 and still in two minds whether to take out private health cover or not, the Federal Government has provided an incentive to help you decide. Should you wish to buy health insurance after 1 July following your 31st birthday, you’ll be required to pay an extra 2 percent for each subsequent year of cover due what’s called a lifetime health cover loading (LHC).

For example, if you join at age 35, you’ll pay 10 percent more for your hospital cover than if you’d joined five years earlier. Given that the cost of top hospital cover averages around $4,500 for families and $1,250 for singles, a 20 per cent loading means you’d be paying an additional $900 and $250, respectively.

If you take out private patient hospital cover when you are 40 years old, you could pay an extra 20 percent on the cost of this cover annually for 10 years. If you wait until you are 50 years old, you could pay 40 percent more annually.

However, it’s important to note:

  1. The maximum LHC loading that can be applied is 70 percent
  2. The LHC loading applies to the cost of hospital cover only, not extras cover, and you will cease paying this loading after 10 years of continuous hospital cover.

For more information, please contact us.

Source: FPA Money and Life


How to overcome a financial setback

By | Financial advice, Retirement | No Comments

When considering the financial position they’ve achieved in retirement, many Australian retirees share the same opinion: “I wish I’d saved more.”

For some people, keeping up with day-to-day living expenses and staying on top of debts is challenging enough, and investing for the future can seem out of reach. Meanwhile, others are better at sticking to a budget and putting aside money on a regular basis so they can build wealth over time.

But even with a retirement plan in place, what happens when someone’s life takes an unexpected turn that changes their financial position? For instance, if they or their partner became seriously ill or injured. While some people would still be able to keep up with their living expenses while investing for the future at the same time, others would struggle to make ends meet – putting them on the back foot financially for years to come.

Life is nothing if not unpredictable, so the best thing to do is put measures in place that will minimise the impact of unexpected financial shocks before they happen.

How can you improve your financial wellbeing?

Review your Insurance

Consider taking out personal insurance such as life, disability, trauma and/or income protection cover, in addition to private health insurance. With personal insurance, you can receive either a lump sum or regular payments to cover your living and medical expenses if you have to stop working due to illness or injury. We can help you choose the right level of insurance for your needs and advise whether to take out your cover through your super fund.

Understand your entitlements

If you or your partner has to stop working due to illness or injury, you may be eligible for government assistance in the form of a sickness allowance or carer payment. We can help ensure you receive all the financial support you’re entitled to.

Put some money aside

If you’re suddenly faced with a financial setback, it helps to have a safety net. If you’re not already saving regularly, review your household budget to see if you can afford to put some money from each paycheque into a separate savings account. Then, if you get seriously ill or injured, this money can help tide you over while you’re making an insurance claim.

Create an estate plan

A strong estate plan is the best way to protect your family’s finances if the worst happens to you. It’s important to get legal advice when building your estate plan and to update your will whenever your personal or financial circumstances change. Your financial adviser can also help you create a binding death nomination with your super fund so your super balance and insurance benefits are distributed according to your wishes when you pass away.

Maximise your super

While you’re healthy and working, it might be worth putting extra money into your super. That way, your retirement savings don’t suffer if you’re off work for an extended period or you need to retire sooner than planned. Salary sacrificing is a tax-effective way to boost your super, allowing your nest egg to grow faster.

Source: Colonial First State

Federal stimulus

Federal Government stimulus package

By | Financial advice | No Comments

The Federal Government stimulus package – What does it mean for individuals, retirees and the Australian economy?

Here we explain some of the benefits you may be eligible for.

With the COVID-19 coronavirus crippling the Australian economy and affecting livelihoods, the Australian Federal Government has announced a range of measures to support both businesses and individuals.

The total stimulus announced to date is worth $189 billion, or 10% of the size of the Australian economy, and the government has said more financial support will be announced over the coming months.

Coronavirus supplement

For the next six months, the government will establish a new coronavirus supplement worth $550 per fortnight. This will be paid to both existing and new recipients of JobSeeker Payment, Youth Allowance Jobseeker, Parenting Payment, Farm Household Allowance and Special Benefit, doubling the payment for those currently on these benefits to $1,100 per fortnight. Students receiving Youth Allowance, Austudy and Abstudy will also be eligible.

Asset tests and waiting periods that typically apply to these types of payments will be waived, and eligibility will be extended to permanent employees who are temporarily stood down.

Sole traders, the self-employed, casual workers and contract workers whose volume of work has been affected may also be eligible, provided they’re earning less than $1,075 a fortnight. These payments will begin from 27 April 2020.

Household stimulus payments

The government is providing two separate, tax-free $750 payments to social security, veteran and other income-support recipients, including those on the Age Pension, and eligible concession card holders.

The first payment will be made from 31 March 2020 and the second payment from 13 July 2020. However, people eligible for the coronavirus supplement (detailed above) won’t be entitled to the second payment.

It’s expected that up to 6.6 million people will be eligible for the first payment and around five million for the second payment, with around half of these pensioners.

Temporary access to super

The government will allow some people affected by the coronavirus to access up to $10,000 of their super between now and 1 July 2020, and a further $10,000 in the first three months of the 2020-21 financial year, tax free.

Those who are eligible include the unemployed, people receiving JobSeeker Payment, Youth Allowance Jobseeker, Parenting Payment, Farm Household Allowance and Special Benefit. And also people who’ve been made redundant, had their work hours reduced by 20% or more or sole traders whose turnover has reduced by 20% or more since 1 January this year.

Applications can be made online from mid-April by using myGov. Members will self-certify that they satisfy the eligibility criteria.

Support for retirees

To assist those in retirement the government is temporarily reducing minimum super drawdown requirements for account based or allocated pensions, annuities and similar products by 50% for the current financial year and the 2020-21 financial year. This should reduce the need for retirees to sell investment assets in the current soft sharemarket conditions to fund their minimum drawdown requirements.

In addition, the upper and lower social security deeming rates will also be reduced by 0.25% from 1 May in recognition of the impact of persistent low interest rates on retirees’ savings. This comes on top of a 0.5% reduction announced earlier in March.

The government says the change will benefit around 900,000 income support recipients, including around 565,000 people on the Age Pension who will, on average, receive around $105 more from the Age Pension in the first full year that the reduced rates apply.


State and territory stimulus

The state and territory governments have also announced economic stimulus packages. The majority of these have so far focused on businesses, however there have been a few measures for individuals, including:

– Western Australia: The WA Government has frozen scheduled increases for household fees and charges, including electricity, water, motor vehicle charges, the emergency services levy and public transport fares, which were previously due to increase by $127 from 1 July. And the Energy Assistance Package, which is available to eligible concession card holders, will be doubled from $300 to $600 from 1 July.

– Tasmania: The Tasmanian Government has announced one-off payments of $250 for individuals (or up to $1,000 for families) who are required to self-isolate. Recipients must hold a Health Care Card, Pensioners Concession Card or be low income earners who can demonstrate a need for financial support, including casual workers.

– Australian Capital Territory: The ACT Government will give rebates of $150 on household rates, as well as freeze a number of fees and charges, including the fire and emergency services levy, public transport, vehicle registration and parking fees. Public housing tenants will receive $250 in rental support, as well as a one-off rebate for residential utility concession holders of $200 to help with power bills.

Due to the uncertainty around the country’s economic position, the Federal Government has also announced that it will postpone the next Federal Budget. The budget is usually handed down in May, but has been postponed until 6 October 2020

Source: AMP

Salary sacrifice to boost super

Super guarantee and salary sacrificing: The changes that may benefit you

By | Financial advice, Superannuation | No Comments

Salary sacrificing – making before-tax (concessional) contributions from your salary into your super – may be an effective way to help grow your super and set yourself up for a comfortable retirement.

For most people, their salary sacrifice arrangements are on top of the 9.5% pa super guarantee (SG) contributions that employers are legally obliged to make into their employees’ super funds.

Previously, while many employers paid the same SG contributions whether an employee was salary sacrificing to super, some employers reduced their SG contributions where an employee elected to salary sacrifice, because the SG rules allowed employers to base their 9.5% SG contributions on an employee’s ‘ordinary time earnings’ (which doesn’t include salary sacrifice contributions).

The previous rules also allowed salary sacrifice contributions to count towards meeting an employer’s 9.5% SG obligation.

From 1 January 2020, the law generally requires an employer to contribute 9.5% of an employee’s ordinary time earnings (OTE) base. Your OTE base is broadly your earnings during your ordinary hours of work, as well as salary sacrifice contributions made from those earnings.

Employers are also prevented from counting salary sacrifice contributions towards meeting their 9.5% SG obligations.

The difference one law could make

This new law ensures that everyone will get the amount of SG they’re entitled to – regardless of whether they’re adding more to their super through salary sacrifice. And for some people, this could make a big difference to their super balance.

Case study

Maria earns $60,000 a year as a teacher. Because she’s keen to build up her super so she can retire comfortably, every three months she salary sacrifices $1,000 into her super.

Before 1 January 2020, Maria’s employer was calculating her super guarantee contribution based on her annual income less her salary sacrificed amount of $4,000. This meant that her super guarantee contribution was based on her annual income of $56,000 instead of $60,000.

From 1 January 2020, Maria’s employer will contribute 9.5% ($1,425) each quarter, plus her salary sacrifice amount of $1,000. That means Maria will put away $2,425 (made up of salary sacrifice & super guarantee contributions) a quarter in super – a total of $9,700 a year, compared to $9,320 in previous years.

Under the new law, Maria will have an extra $380 contributed to her super.

  Before 1 January 2020 From 1 January 2020
Salary sacrifice $4,000 per year $4,000 per year
Employer super guarantee contribution $5,320 per year $5,700 per year
Total contributions $9,320 per year $9,700 per year

Why making extra super contributions makes sense

Salary sacrificing even small amounts to your super – as little as $10 or $20 a week – could make a real difference over time. That’s partly because any returns on your super will be compounded over the years, which may boost your super balance.

What’s more, when you salary sacrifice, you’re contributing money from your wage before you get taxed on it. Your contributions will generally be taxed at 15%, which may be less than your marginal rate of up to 47%.

Other ways to build your super

Not all employers offer salary sacrifice arrangements. And as a result of this new law, employers that were previously allowing their employees to salary sacrifice may decide to no longer offer this option.

But don’t worry, because if salary sacrificing isn’t an option for you there are still other ways you can boost your super savings.

For example, you can contribute some of your after-tax salary yourself into your super. As you’ve already paid tax on this money, you won’t be taxed on this contribution in your super fund.

You could also choose to make a personal tax-deductible contribution. The contribution will generally be taxed at 15% but you will receive a tax deduction at your marginal tax rate.

There are many conditions to claiming a personal contribution as a tax deduction – you must submit a valid notice to your super fund that you’re going to claim a tax deduction for your contribution (within required timeframes) and the fund must acknowledge your notice, prior to you claiming the tax deduction in your tax return.

There are other additional conditions – so seek advice if you are planning claim a tax deduction on your super contributions.

Remember, both before and after-tax super contributions are capped, so it’s important not to go over that limit or you could pay additional tax.

Before-tax (concessional) contributions, which include your SG, salary sacrifice and personal contributions that are eligible for a tax deduction, are capped at $25,000 while after-tax (non-concessional) contributions are capped at $100,000.

Source: Colonial First State


3 factors affecting retirement income

By | Financial advice, Retirement | No Comments

In Australia, people are living longer and interest rates are lower than ever. While the first is good news, the second carries risks if you’re looking for an adequate income to see you through retirement.

Here we look at three elements that affect a post-work reasonable income – interest rates, inflation, and longevity.

  1. Interest rates – high valuations, low returns

Historically low interest rates have driven valuations of defensive assets such as cash and fixed interest to unprecedented highs. Generally, a defensive asset is seen as a lower-risk, lower reward investment.

High valuations mean low yields (or percentage income returns in the form of dividends and interest) for defensive assets.

Low interest rates affect variables such as inflation and investment returns, which in turn affect how we save for retirement.

In the high interest rate era of the late 1970s and 80s even relatively low-risk assets like term deposits and bonds offered double-digit returns. These days rates of return are all closer to one per cent.

Similarly, property yields in Australia are around two to four per cent depending on the type of property and geography. Better yields may be available via Australian equities, but many retirees are not in a position to take on a higher level of risk.

  1. The inflation perspective

Inflation has a big impact on retirees who are less able to earn and save more after their working lives have finished. Falling returns mean providing for retirement is challenging, but although returns are low now compared to in the past, the impact is eased when you take inflation into account.

Inflation was running at around 15 per cent in the late 70s and 80s, which ate up much of the bond and term deposit returns.

Nevertheless, the combination of low interest rates and low inflation make it hard for retirees to find returns.

There are risks too, should the current global inflation rate of about three per cent shift higher than the defensive asset classes. As these assets are priced for the very low inflation of today, they would face major negative revisions.

  1. The longevity conundrum

In Japan, adult diapers are forecast to outsell those for babies within a few years. Many developed countries are having to adapt to the demands of an ageing population.

Australians are also living longer, increasing the risk that a retiree will outlive their savings. Back in 1980, a man starting a pension at age 65 had a life expectancy of 78 – 13 more years. Now, a male starting a pension at 65 has a life expectancy of 86 – an additional 21 years. While this is great news in many ways, financially it means higher income needs and the need to grow the assets over time to make up for rising costs of living.

This is a concern in an environment which sees retirees drawing down on their pool of retirement assets because they can no longer generate sufficient income returns. This means retirement account balances are being depleted relatively quicker than in the past, especially if retirees lack exposure to growth assets to generate some capital growth over their longer lives.

Supporting an ageing population to achieve their retirement goals in a market of lower investment returns is a major challenge. A stable policy framework for superannuation and a long-term approach will be important in giving retirees the best chance of achieving a comfortable retirement.

Source: AMP