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| A recent
survey conducted on behalf of the Financial Planning Association
shows that 71 per cent of Australians want to be able to choose
which fund their compulsory super contributions go in to. It also
revealed 85 per cent of respondents wanted to choose where their
money was invested. 88 per cent wanted portability, so they could
stay with the same super fund when changing jobs. ....more |
| Superannuation
and Divorce |
| Around 47% of marriages
in Australia end in divorce. With superannuation becoming one of
our largest assets, it is little surprise that Family Law legislation
now provides a mechanism for the division of benefits upon divorce....more |
| Market
Review |
| The December quarter saw
some rebound in markets across the globe, although economic activity
was slow for the period. The expected typical year-end rally that
frequently occurs in December was rather disappointing....more |
| Become
a disciplined Regular Investor |
| So many new clients we see
are looking for ways to save or accumulate investments and just don’t
know where to start. Often they have the available funds to invest
but lack the discipline and/or understanding to get started. ..more |
Employees seek more "Super
Choice"
A recent survey conducted on behalf of the Financial Planning
Association shows that 71 per cent of Australians want to be able to
choose which fund their compulsory super contributions go in to. It also
revealed 85 per cent of respondents wanted to choose where their money
was invested. 88 per cent wanted portability, so they could stay with
the same super fund when changing jobs.
So where is the long awaited legislation up to
and what’s causing the delay?
The main cause of delay is the disagreement between the major parties on the
form that choice may take. The Government has placed before the senate its
preferred model which can be summarized as follows: -
| • |
1 July 2004 commencement
date
|
• |
Where no
choice is made the default fund is the fund nominated in an
Award |
| • |
Applies to all Superannuation
Guarantee contributions made after that date |
| • |
Employees can nominate any complying
fund – unless funds are specified in Australian Workplace
or Certified Agreements |
• |
If there are none then
it is the fund used by the majority of employees |
| • |
Minimum insurance requirements
must be met by the selected fund |
|
The opposition has proposed a number of changes which
include the following: -
| • |
Banning
Entry & Exit Fees except for modest administration costs
|
• |
Online
access to personal accounts for all members within five years |
| • |
Cap on fees applied
to Superannuation Guarantee Accounts at 1.2% |
• |
Cut the effective tax
applied to superannuation contributions to 13% (from 15%) or,
alternatively, cut the tax to 11.5% for those over age 40 |
| • |
Full portability and
automatic account consolidation |
• |
Salary sacrifice to
be offered to all employees |
| • |
Investment
choice to be offered by all funds including at least one Ethical
Option |
• |
Increased disclosure – particularly
on fees |
| • |
Greater protection
measures |
|
So, at this stage, the legislation is blocked and a final
form and timetable can only be guessed.
There are many issues for employees to consider when choice
arrives.
One of the most important is the issue of education and awareness. Choice is
of little use unless employees can make informed decisions.
It was revealed in a recent industry survey that 61 per
cent of Australians do not know what rate of return they received from
their superannuation fund last year. A majority of employees have declared
that they do not have enough knowledge to choose the most appropriate
super fund for their needs if they had a choice.
There are literally thousands of super funds and investment
options to choose from. Even within a given fund there are sometimes
over a hundred choices, each with different asset allocations and risk
levels.
When Choice comes it’s very important that employees
are informed and receive sound financial advice. To identify the best
fund and portfolio mix for an investor, it is important to first identify
their goals and objectives and their tolerance for risk. Other factors
such as age, years to retirement, lifestyle expectations, number of dependants,
other assets and levels of debt are all important to consider in selecting
a suitable portfolio.
For many, superannuation is and will be the largest investment
asset they have after the family home. Getting it right is important
as small differences in performance can make big differences in the final
outcomes.
Financial Keys advise many employees and individuals on
their superannuation choices and assist with the establishment of individual
solutions. We also assist with the establishment of Self Managed Super
Funds and the construction of investment portfolios with access to direct
equities, wholesale managed funds and property investments for those
who prefer this model.
When Choice comes it is important for employees to seek
advice from advisors unaligned with the super fund managers to ensure
the advice they receive is suitable for their needs and no-one else’s.
the minimum rate you can reduce the amount you draw provided this is affordable.
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Superannuation
and Divorce
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|
Around 47% of marriages in Australia end in divorce.
With superannuation becoming one of our largest assets, it is little
surprise that Family Law legislation now provides a
mechanism for the division of benefits upon divorce.
At the end of 2002 the Family Law Legislation (Superannuation) Amendment
Act 2001 came into effect, enabling the benefit (like property) to be
split in marriage breakdowns as well as binding super fund trustees to
the split agreement.
Potentially, the provisions of the Act will help reduce the expenses
arising from the sale of large assets and will provide greater flexibility
to the property settlement process. The Act may also be perceived to
provide equity in property settlements where one party receives immediate
benefits, for example, the family car, and the other is forced to wait
till retirement to access their super.
Who is affected by the new changes?
| • |
Any property settlements finalised
from 28 December 2002 |
| • |
The legislation applies to all marriages regardless
of when they were dissolved, except where a property settlement
has been finalised. |
| • |
The Act does not apply to de facto or same sex
couples. |
What are the options?
Divorcing couples can enter into a superannuation agreement or may seek
a court order from the Family Law Courts to split the superannuation.
They will need to seek formal legal advice before entering into formal
agreement to split their superannuation benefit.
The superannuation agreement must specify the amount
or method of splitting the superannuation. If the divorcing couple
cannot agree on the amount or method of calculation, court order
can flag the superannuation to be dealt with at a later stage.
What happens to each portion
of the super benefit?
The legislation has further refined the already complex area of Superannuation,
so it is important to seek financial advice in circumstances such as
these. Here are some areas where guidance will be needed:-
| • |
An up-to-date valuation of all the
superannuation benefits. |
| • |
When can the benefits be accessed? |
| • |
How should any new superannuation entitlement
be invested? |
| • |
Should the entitlement be rolled over to
a new fund or kept in the same fund? |
| • |
For retirees, should the benefit be taken as
an income stream or a lump sum? |
| • |
How would a superannuation agreement affect
the divorcee’s financial
circumstances? |
| • |
What adjustments need to be made to each party’s
overall financial plan? |
| • |
How has the marriage breakdown changed the financial
objectives of each party? |
| • |
Funding child maintenance may be an issue for
future budget plans. |
These are some of the many financial and lifestyle
issues that need thoughtful consideration and planning, emphasising
the need for sound financial advice. Of course, legal advice is
also of critical importance to the extent that any agreement for
the division of super assets must be witnessed by a lawyer.
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Market Review
The December quarter saw some rebound in markets
across the globe, although economic activity was slow for the period.
The expected typical year-end rally that frequently occurs in December
was rather disappointing. In particular, the major international
share indices in the US and Europe dwindled during the final month
of the year compared to the strong gains experienced in October
and November. The US ISM index (a manufacturing activity indicator)
only rose to a mild 49.2, indicating that the US manufacturing
sector continues to struggle.
Persistent concern about the state of the US economy,
apprehension about US corporate earnings and the constant threat
of a US attack on Iraq has continually weighed down on investor
confidence. In addition, the new geopolitical risk with North Korea
announcing a restart of one of its nuclear reactors has caused
investors to once again be forced to contend with international
tensions. With the North Korean dilemma under way, the Asian markets
suffered a sharp fall in December. South Korea sustained a fall
of 13.4% and Hong Kong’s Hang Seng index also slipped, falling
by 7.4%.
Despite the rather gloomy 2002 year, there was some
good news. The Australian market once again outperformed the global
markets in times of steady decline. Smaller companies, in particular,
outperformed the market for the first time since August increasing
by 1.8%. Although there are signs of an upward trend, the Australian
sharemarket did suffer with retail sales falling by 0.3% in October,
and finance for new housing also falling by 8% in the same month.
The outlook for 2003 appears to be brighter. Further
signs of encouragement come from the US service sector, which appears
to be expanding and the housing sector remaining particularly robust.
US consumer spending also continues to be optimistic despite December
sales not meeting expectations.
While other economic regions are expected to follow the US, this effect
should not be expected to occur immediately.
While the Australian economy should receive some
support from the improving global market, any improvement is unlikely
to offset the downward influences of a slowing housing cycle, a
moderation in consumer spending, and the lingering impacts of the
drought.
Looking 12 months into the future, it seems reasonable
to assume that we have heard most of the bad news of corporate
fraud in the US. The flow of bad news in respect to the military
unrest has also already been factored into the pricing models.
But don’t expect a smooth ride into the next 12 or so months.
There is still overall anxiety in investor sentiment with prospects
of war adding further uncertainty.
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Become a disciplined Regular Investor
So many new clients we see are looking for ways to
save or accumulate investments and just don’t know where
to start. Often they have the available funds to invest but lack
the discipline and/or understanding to get started.
How to get started?
Prepare a budget. Its easy. You should have an idea of what you earn
and what you spend. Write down your expected earnings and expenditure
over the next year. Allow for irregular items such as a holiday or purchase
of a new appliance. Don’t forget to allow for social spending.
You can also do it on a monthly or fortnightly basis; whatever you’re
most comfortable with. When you have finished, add a little bit to expenditure
for contingencies.
Deduct your expenditure from your income after tax.
If you have a surplus, then you have a saving capacity that you
can use to invest with quite powerful results. If you do not have
a surplus and you still want to invest you will need to do one
of two things. Increase your income or reduce your spending.
How do I invest on a regular basis?
With your identified surplus you can now start to invest. You need to
identify investments that match your investor risk profile and can provide
the growth you may be seeking. In preparing your financial plan we will
conduct an analysis of your risk profile and make suitable investment
recommendations.
The best way to stick to a disciplined regular savings
plan is to have your bank account debited each month for an agreed
figure which is then added to your investment plan. In this way
you have a disciplined approach which pays off in the long run.
You will also benefit from the principle of "Dollar Cost Averaging."
What is Dollar Cost Averaging?
The concept of "dollar cost averaging" is based on the fundamental
investment principle that in the long run, a disciplined approach to
investing can cost less than an unstructured one. However, to make use
of dollar cost averaging, you must be in the market for the long term.
Dollar cost averaging works when you invest a specific
amount regularly, regardless of what the investment price is. When
the investment price goes up, your money will buy fewer units or
shares; when the price comes down, you get more units or shares
at a lower price. In the longer term, the average price at which
you buy will usually be lower because it will be averaged over
the market's ups and downs.
For example, many investors tend to stay out of certain
investment markets, such as the stock market, because of the market's
volatility (the up and down movements of the market). However,
dollar cost averaging actually allows you to take advantage of
the volatility of investment markets ie when the market falls,
you're able to buy more units. In fact, the more volatile the market,
the more money you can potentially make.
What about Gearing?
You can benefit from borrowing. This allows you to increase the purchasing
power of your regular amount by borrowing a similar amount and investing
the total proceeds. The interest on such a borrowing will usually be
tax deductible. In this way, you can progressively build a geared investment
portfolio which is highly flexible, providing scope for good growth over
time.
Flexibility
Such a plan should allow you to start or stop the regular savings and
borrowings when you please without penalty. Interest rates should be
low and competitive. And the investment portfolio should be able to be
liquidated whenever you need access to all or part of the funds. Sounds
easy?
It Is. So why don’t you get started now?
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