IS GREECE PULLING BACK FROM THE BRINK?

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It’s now coming up to six years since Greece first revealed that it had understated its true level of public debt. And this is the fourth year in which it has seemingly held global financial markets to ransom as a result of its excessive public debt level. To be honest it’s becoming a bit of a drag. Greece should never have made it into the Euro, but of course getting it out again is easier said than done. Greece is now rapidly approaching another moment of truth, and this has been causing increasing angst in investment markets with the risk of more to come. This note looks at the key issues.

TAX CONCESSIONS AND TAX REFORM IN AUSTRALIA

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Tax reform is a hot topic in Australia with lots of strongly-held views. There are three main reasons. First, despite the tax reforms of the 1980s, 1990s and 2000s the Australian tax system is still far from ideal. This is highlighted by the Government’s Tax Discussion Paper. Second, some see tax reform as a way to plug the budget deficit; in other words tax reform is actually a euphemism for boosting the tax take. Third, some see various aspects of the tax system as being significant causes of problems in the economy.

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THE AUSTRALIAN ECONOMY – SEVEN REASONS NOT TO BE TOO GLOOMY

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Ever since the mining boom ended around 2011/2012 there have been constant predictions of doom for Australia. Foreign commentators and investors seem to have been particularly bearish on this front. I seem to constantly come across an ad on the internet titled “Australian Recession 2015 – Why it’s coming, what to do and how you can profit. FIND OUT MORE”. Never mind that last year the same ad referred to 2014! The mining collapse is still unfolding and growth has not been great, but the bust for the Australian economy many have been foreshadowing has not occurred. This note looks at the latest growth figures and seven reasons not to be too gloomy.

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DUST OFF THE HISTORY BOOKS – IT’S BACK TO THE PAST TO CONTROL THE PROPERTY CYCLE

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The past few weeks have seen banks tighten up lending conditions for property investors – either charging higher interest rates or imposing lower loan to valuation ratios or both. There is even talk of lenders managing their exposure by focussing on postcodes. This is all in response to increasing pressure from the banking regulator APRA (the Australian Prudential Regulation Authority) demanding that the 10% cap on property investor lending growth that it announced last December be adhered to.

AM I BETTER OFF BUYING INSURANCE THROUGH MY SUPER?

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When it comes to arranging insurance it’s important to decide what types of insurance are available to you and what you’ll need for your particular life circumstances. From here you’ll need to consider whether you should keep it inside your super fund or set it up separately.

What are the benefits of insurance through super?

1. Get more for less

It can be cost effective to buy insurance through super. That doesn’t mean you won’t find cheaper cover outside your super fund. But it’s likely you’ll be better off because tax benefits mean you could end up paying less overall and group buying power—which normally comes with insurance through super—often gives you more for less.

2. Boost cashflow

In super you can pay for your insurance using before-tax money rather than dipping into your take-home pay, which can also be a tax-effective way to pay your premiums. Or, you can simply have the premiums deducted from your existing account balance. Be sure to keep an eye on your super balance though—less super may affect your lifestyle in retirement.

3. Access government help

You could make after-tax contributions to your super and use these to pay for your insurance. If you do, you may be eligible for a government co-contribution.

4. Be covered more easily

You’ll usually be granted insurance cover automatically when you buy through super. Outside of super you may have to submit an application, undergo medical examinations and wait for approval.

What are some of the downsides?

1. Tax on claims

Depending on your circumstances, you may pay tax on disability claim payments when your insurance is held through super. And certain beneficiaries may be subject to tax on death benefit claims they receive.

2. Limited beneficiaries

Payments (following death) can only be paid to superannuation dependents. If you have insurance outside of super there are generally no restrictions (unless your insurer specifies otherwise).

3. Longer timing on payments

When it comes to payments for some policies, including life insurance, total and permanent disablement and temporary salary continuance, the money will normally be paid by the insurer to the super fund first. The trustees can then pass it to you or your beneficiaries in accordance with the fund’s rules and the Superannuation Industry Supervision Act—this means payments can take longer.

4. Restricted types of cover

Cover provided through super can be more limited than a policy held outside super. For example, trauma cover is generally not available through super, but funds like those offered by AMP make it easy to link the cover you have inside and outside super.

What now?

After you’ve considered the pros and cons of holding insurance inside super, you need to determine the level of cover you need. At Tailored Lifetime Solutions we specialise in helping people work out the right amount of cover and type of insurance that best meets their individual needs. Call us on (03) 9851 0300 to arrange a meeting with one of your financial planners.

Article originally published by AMP LTD.

WHERE WILL RETURNS COME FROM? THE CONSTRAINED MEDIUM TERM RETURN OUTLOOK

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Way back in the early 1980s it was pretty obvious that the medium term (five year) return potential from investing was pretty solid. The RBA’s “cash rate” was averaging around 14%, 3 year bank term deposit rates were around 12%, 10 year bond yields were around 13.5%, property yields were running around 8-9% (both commercial and residential) and dividend yields on shares were around 6.5% in Australia and 5% globally. Such yields meant that investments were already providing very high cash income and for growth assets like property or shares only modest capital growth was necessary to generate pretty good returns. Well at least the return potential was obviously attractive in nominal terms as back then inflation was running around 9% and the big fear was it would break higher. As it turns out most assets had spectacular returns in the 1980s and 1990s. This can be seen in returns for superannuation funds which averaged 14.1% in nominal terms and 9.4% in real terms between 1982 and 1999 (after taxes and fees).

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THE VIRTUE OF (SALARY) SACRIFICE

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When you make a sacrifice, you’re usually giving something up with the expectation of future gain.

Salary sacrificing into your super is no different—you’re giving up ready access to your money in your take-home pay. But in return you’re boosting your retirement savings and saving on tax.

You can pay extra cash into your super from your pre-tax salary at the concessional 15% rate of tax1 —up to a limit (or cap) of $30,000 for 2014/15 (or $35,000 if you’re 49 or over). That’s a considerable tax saving for most people on their usual marginal tax rate.

Get your regular payment in place

With a new financial year fast approaching it’s a great time to get your salary sacrifice arrangement in place – on top of the regular super guarantee payments made by your employer. This way you’ll be able to maximise your concessional contributions and minimise your tax burden over the course of the next financial year.

Boost super, save on tax

Let’s look at how salary sacrifice could work in practice.

Judith, aged 50, is a teacher earning $80,000 a year. She currently puts $385 per fortnight into her online savings account (approximately $10,010 a year) and wants to start building up her retirement savings. She is considering whether to make:

  • an after-tax contribution into superannuation of $10,010 a year, or
  • an equivalent pre-tax (salary sacrifice) contribution.

After-tax contributions v salary sacrifice for Judith (2015/16)

In both scenarios, Judith’s take-home pay is the same. But by salary sacrificing into super, Judith can increase her super contributions for the year by $2,980, even after taking the 15% contributions tax into account.

Salary sacrifice checklist

Salary sacrifice isn’t without pitfalls. You’ll need to make sure you don’t unintentionally go over your contributions cap or reduce your other entitlements.

Here’s a handy checklist to make sure that you’ve ticked all the boxes.

1. Make sure that you can salary sacrifice

  • Does your employer allow salary sacrifice?
  • Are you under age 75?

2. Complete your employer’s standard salary sacrifice paperwork

  • You can’t salary sacrifice income already earned.
  • Plan ahead to sacrifice bonus and leave payments.

3. Make sure your other entitlements aren’t affected

Check with your employer:

  • how your super guarantee is calculated
  • the definition of ‘salary’ used to work out your payments.

4. Monitor your concessional contributions cap

Check all concessional contributions for the financial year. These include:

  • compulsory contributions paid by your employer – such as the super guarantee
  • contributions from a previous role within that financial year
  • pre-tax contributions on top of your super guarantee
  • administration fees and insurance premiums paid by your employer
  • contributions allowed as an income tax deduction – such as contributions you make if you are self-employed
  • notional taxed contributions if you are a member of a defined benefit fund

5. Get the agreement in writing

  • Every employer is different. Make sure you know when your contributions are paid within the financial year so you don’t go over your concessional contributions cap.

6. Set up a notification

  • Download the AMP app and set up an alert to notify you when your payments reach your account.

So don’t delay. Make sure you get your salary sacrifice arrangement in place by 1 July to take full advantage of the government’s tax concessions for the next financial year. You’ll soon see the difference when you next look at your super balance.

At Tailored Lifetime Solutions, we can help you plan your salary sacrifice strategy and keep track of your contributions cap. Call us on (03) 9851 0300 to arrange a meeting with one of our Financial Planners.

1 Or 30% if you earn more than $300,000 a year.

Article originally published by AMP Ltd.

2015-16 FEDERAL BUDGET – WHAT DOES IT MEAN FOR YOU?

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The Federal Budget is in and while it may not be as contentious as last year’s there are still some proposed changes that could affect you. Whether you’re a retiree, a family with young children, expecting a new baby or running a small business the budget may have an impact on you.

The technical specialists at AMP have put together a brief discussion on the proposed changes and how they affect families on a practical day-to-day level.

At Tailored Lifetime Solutions we specialise in helping people achieve their financial goals in an ever changing environment. If you have any questions about how the proposed Federal Budget changes may impact your financial goals call us on 03 9851 0300 to arrange a meeting with one of our Financial Planners.

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CORRECTION TIME?

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The last few weeks have seen the investment scene hit another rough patch: US shares have had a fall of less than 2%, but for Japanese shares it was 4%, Australian shares 6%, Eurozone shares 7% and Chinese shares 9%. This note takes a look at the key drivers, whether it’s a correction or something more serious and some of the key threats and risks investors should keep an eye on.

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THE RBA CUTS THE CASH RATE TO A NEW RECORD LOW

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As widely expected, the Reserve Bank of Australia has cut the official cash rate to 2% from 2.25%. This has taken the official cash rate to its lowest level ever and will push mortgage rates down to levels not seen since the mid-1950s. The latest rate cut if fully passed on to mortgage holders should save a borrower with a $300,000 mortgage about $12 a week or $625 a year.

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