Australian with Super Age pension eligibility concern

If you are an Australian approaching retirement with Superannuation and you are concerned about what your age pension eligibility may be there are a number of things that you can do.

Obviously you can see your local financial planner and they will be able to assist with strategies that will assist you in maximising your age pension benefits.

You can contact Centrelink and ask to see a Financial Information Service (FIS) officer and they will explain to you what the rules are and what strategies you should consider to maximise your age pension entitlements. The FIS officers cannot give advice however they can explain the types of products or strategies that you can use. They will generally then tell you to go and see a financial planner to get more advice if they feel that you will benefit from getting detailed advice directly related to your circumstances.

There are also calculators on the ASIC website and hopefully we will be able to build links into our site here so that you will be able to get the information that you require here without going elsewhere however the smart money website has good calculators and you can copy  the address and put it in your browser and that will give you some good information.  https://www.moneysmart.gov.au/tools-and-resources/calculators-and-apps/super-and-pension-age-calculator

We certainly think there is great benefits in taking specialist advice relating to your retirement planning however there is nothing wrong with doing some base research before you engage a planner as having some base knowledge will always be of great assistance to you.

 

Annuities as part of Retirement Income

This was a great ABC interview with Challenger CEO Brian Benari. We use annuities in our retirement plans for clients to produce secure income in retirement.

The tone of this interview in the early stages suggests the government may change the rules regarding the use of annuities in the future. Are you planning to receive 100% lump sum to repay your home loan at retirement ? That may not be a good plan. The Government after concentrating for the past 20 years on getting money into superannuation are now starting to ponder what should be done with that capital at retirement.

What the Government does not want (Liberal or ALP) is people taking large home loans for big houses just before retirement and then using the super balance to repay the home loan and then having no assessable assets and then get the full age pension. This was never the plan for superannuation and there is not a lot of evidence that this has happened in the past however the government certainly does not want this to happen in the future.

This is not a good strategy anyway as you would have an expensive house and no money to enjoy living in the home or travelling or doing anything else and certainly the Murray review has triggered the Government to give some consideration to what superannuation should look like in the future.

What do you think

 

 

http://www.abc.net.au/news/2015-11-02/challenger’s-ceo-on-superannuation-system/6906626

 

 

Annuities as Retirement income strategy

This was a great ABC interview with Challenger CEO Brian Benari. We use annuities in our retirement plans for clients to produce secure income in retirement.

The tone of this interview in the early stages suggests the government may change the rules regarding the use of annuities in the future. Are you planning to receive 100% lump sum to repay your home loan at retirement ? That may not be a good plan. The Government after concentrating for the past 20 years on getting money into superannuation are now starting to ponder what should be done with that capital at retirement.

What the Government does not want (Liberal or ALP) is people taking large home loans for big houses just before retirement and then using the super balance to repay the home loan and then having no assessable assets and then get the full age pension. This was never the plan for superannuation and there is not a lot of evidence that this has happened in the past however the government certainly does not want this to happen in the future.

This is not a good strategy anyway as you would have an expensive house and no money to enjoy living in the home or travelling or doing anything else and certainly the Murray review has triggered the Government to give some consideration to what superannuation should look like in the future.

What do you think

http://www.abc.net.au/news/2015-11-02/challenger’s-ceo-on-superannuation-system/6906626

Salary Sacrifice to Super or Repay home loan what is best

It was good to see the Channel 7 news in Perth show a good Financial Planning story in the Sunday night news on 26 July 2015 relating to salary sacrificing to super or repaying your home loan and what is best.

 

 

Have a look at the story and you might also see some familiar faces and very happy 25 year clients who are very happy with the financial advice they have received during that time despite a lot of economic calamities.

Common Retirement Issues – Retirement spending

A recurring discussion i have with people in retirement revolves around spending money on themselves be that for holidays, new cars and other comfortable items around the home.

This is not with every person or couple however with a good number of people there is an issue they have even though they may have looked after their own families, possibly financially looked after their parents as they too got older and some have been in business and employed people to assist them in raising their families. Now at retirement they have a good level of assets which have the capacity to produce reasonable retirement income.

This is the golden years of life and these people have the assets and the time free of past obligations however there is a strong restriction on their lifestyle. The restriction is their own thought process and value system.

Remarkably there is approximately 10-20% of people that find it very difficult in retirement to spend money on holidays, new cars air conditioners and lots of other life comforts etc and this is because they feel that spending money on themselves is “selfish”. This comes from couples or even worse singles. How can a single be selfish with their own money ? What else can you do with your money if you cannot spend it on yourself.

These people are happy to give their money to their children or take the children on holidays to where ever the children want to go however will not go to places that they have always dreamed of because they feel selfish.

The other condition that rears its head at retirement after 40 or 50 years of work is the people that “Feel Guilty” spending money as they are not earning any money. This is  difficult  at retirement allowing that you could be retired for over 30 years so that is a long time to feel guilty.

How will you prepare for retirement and how will you feel when you finally stop work. You will be surprised at how difficult it is to stop work and rely on these things called assets to look after you in retirement. You will also get very sensitive to how much things cost and whether you are spending the income that your assets are producing or you are now eating into the capital that you have accumulated.

We work with people pre retirement to try and get them accustomed to the casflow from investments and to see that the income coming through well ahead of retirement irrespective of the headlines or what you see in the media.

Plan for your retirement before you get there. Plan how much money that you need to sustain your lifestyle and then work out what assets you have and how long will they last during your retirement. If you dont have enough money it is better to know that 5 years before retirement than 2 weeks after. When you have time you can take action to improve things and that includes spending money on yourself for things that you enjoy doing.

You have one life and if you are lucky enough to get close to retirement you need to relax and enjoy yourself and enjoy the assets that you have accumulated as that is the reason you saved your money in the first place.  Dont feel guilty you are not selfish you are human and you will not go from a careful or frugal person to a spendthrift so your children will inherit good money and you can have a good time as well.

Remember: it is never too early to start planning.

 

Superannuation funds and poor service

Imagine you have been in your employer superannuation fund for over 40 years. You are now looking to turn on your superannuation pension to assist in paying down your home loan. Your adviser who is experienced in these matters advise that there are funds around that are more cost effective than your employer fund and they normally offer much better client experience.

Given the importance of getting the pension payment is more important than the choice of fund the paperwork is taken to the employer fund in the last week in May to roll the superannuation to pension and requesting a pension payment before the end of June.

You would think in this age of technology that would be enough time for a super fund provider to roll a persons superannuation fund to a pension fund in the same stable and have a pension payment prior to the 30 June.  4 weeks you would think that is plenty of time.

Unfortunately this fund say they cannot get their systems organised to get a pension payment out within the month. If the person wanted to take a lump sum payment that would be okay however a pension payment is not possible. Is it only me or is that nonsensical.

What sort of service is this for the members of the fund.

Beware of your fund they are not all the same. Some offer good customer service and others think the money is theirs and not yours and you should not take the money out for any purpose. You deserve a fund that is happy to have you as a client and will respond to your requirements as quickly as possible. There is plenty of them around happy to have you as a member.

 

Actuaries say fix super now !!

What the hell are the actuaries on about when they say fix super now ? What is wrong with super that needs to be fixed. When you read the article you find the article is not about superannuation at all it is about tax.

What the actuaries are talking about is increase the tax on superannuation for the high income earners. They want to reduce the definition of a high income earner from $300,000 pa to $180,000 pa.

My question is if you increase the tax on superannuation contributions wont that reduce the amount of money in superannuation ? Is that at odds with the objective of superannuation which is to grow a larger pool of assets to fund retirement. That is the purpose of superannuation.

The actuaries are confused when they say fix super now. What they are saying for reasons known only to them is that the Government should use higher superannuation contribution taxes to fix the budget black hole. Now that superannuation has grown from basically $0 to approx $2 trillion dollars over 25 odd years now is not the time to encourage Governments to start taking more money out of the superannuation system. Where will it stop and who trusts the government to look after them in retirement.

To say now is the time to fix super is misleading. There is nothing wrong with superannuation and this article has everything to do with budget repair and nothing to do with superannuation and it is no wonder the public get concerned where you have reputable organisations making cheap politically motivated statements about superannuation that have nothing to do with superannuation at all or how well it is going.

Here is a question for the actuaries to consider, If the superannuation system was to grow from $2,0 Trillion dollars to $6.0 Trillion in the next 30 years what would be required for that to happen and how would that impact the government, its tax collections and Centrelink payments? That is something that would be useful to know and is right in the zone of the professional actuary.  Superannuation is only ever discussed in Australia in light of taxes and that is totally misrepresenting the value that superannuation brings to the Australian economy.

The actuaries should not be lowering themselves into cheap political statements that do very little in the short term to fix a massive problem being government spending and the Governments complete lack of control over their spending. That would appear to be government on both sides of the spectrum.

Keep superannuation as a retirement incomes strategy and not a government deficit solution.

Life incidents and TPD and Income Protection Insurance

It is late in the last quarter of an amateur footy match and the scores are close. The pressure is on and a finger gets hurt during a tackle. It hurts a bit however the adrenaline is flowing so play on. Later that night there is not a lot of movement in the finger however no pain. No pain is good however no movement not so good. Off to hospital next morning and outcome is it is not broken so wait to see if the movement returns over the next 6 -8 weeks otherwise surgery will probably be required as in that case it is likely to be a ruptured tendon and that can only be repaired surgically should that be the case.

In this case the player has medical training and knows that if the tendon has been ruptured it should be repaired ASAP as the longer you wait the less chance of full movement being returned to the finger. This person is a Physiotherapist so it is very important that full movement is restored to the finger otherwise they will not be able to do their job with the same effectiveness as previously. Imagine if they were  a surgeon.

This highlights the difference in an insurance context between own occupation Total Permanent Disablement insurance cover (TPD) and Any Occupation TPD. As a physio or surgeon restricted movement in your fingers make it difficult or impossible to do the normal duties of the occupation that you have been trained to do. You could do other occupations even within the hospital environment such as being an Orderly or general cleaning however that is not what your years at Uni was about.

Imagine if the footballer had TPD cover Own Occupation in their super fund. In this case they have the correct insurance however in the wrong place. Being a footballer you can imagine they are under 30 years of age. Being a Physio or a Surgeon it is not hard to see if the one injured finger was two or three fingers there is no hope of working again in their profession so they get the TPD payout from the insurer however they cannot get the money out of the superannuation fund as it does not meet a condition of release from the super fund based on the SIS legislation as they are not Totally Permanently Disabled under the any occupation definition.

It is very important to have the right cover for you in the correct place and a call center or online application will not give you that advice. It also depends on  your job. I am a financial planner and had a business partner some years ago that lost two fingers and restricted movement in a third finger after an incident with an angle grinder on the weekend. (underlying message of this blog is dont have a life on the weekend) and that made no difference to his working life when he eventually returned to work after his recuperation and IP claim however would be devastating to someone in a different occupation where you need to use your hands and fingers such as some medico’s dentists and a lot of tradies.

That brings us to the income protections policy (IP). The standard in a lot of big employer funds is that you get your salary continuance after a 90 day wait. A lot of times there is also a set amount of cover that you are protected for however it has no relevance to your monthly income and in a lot of cases will not meet your home loan repayment let alone your normal cost of living.

In this case the person will be off work for 6 weeks after the surgery or 42 days. They could have a personal Income protection policy that commences a payout after 30 days and also provides benefits if you go back to work on limited duties. In that case it could payout the difference between your income on limited duties and the monthly amount that you are covered for. Income protection or salary continuance cover (two names for the same thing) is very important to have as it works together with the TPD insurance and assists in covering the gaps. In this real case the person is 22. What happens if the finger injury does not heal as it should and it has a material impact on their capacity to do their job. In that case they would not have paid the HECS on the Physio degree and can no longer work as a Physio. The HECS is still due and you dont have the earning capacity anymore.

If you imagine the surgeon or physio that can no longer work in their profession because of an injury they could work at a Uni as a lecturer however that income could be less than what they would earn in private practice in their profession. In that case the professional may have received an Own occupation TPD payout and they could also receive a top up from their Income Protection policy if the income that they earn in their new job or occupation is less than what they were earning when they were a physio or a surgeon.

The question you need to ask yourself is ” Do i have an occupation that i studied for or had specialised training to get my qualification ?” (Eg how does a bricklayer go with limited use of the fingers although insurers have different issues with bricklayers and IP)  If that answer is yes then you should look at having own occupation TPD not any occupation and that policy should be in your own name.

When considering your insurance options you should always assume that something happened yesterday to give rise to you making a claim. With that in mind what do you want to happen next.

 

Trowbridge Report Delivers far-reaching change on Insurance advisers

You have to wonder where some of these consultants are coming from when they make recommendations for our law makers (read politicians). The Trowbridge Recommendations which deliver far-reaching change on Insurance advisers freely states that the cost of writing an insurance policy for an adviser is between $1500 and $3000.
What Trowbridge recommends is that the Initial Advice Payment (IAP) is a maximum of $1200 or no more than 60% of the premium is below $2000. From there the adviser gets an ongoing commission of 20% per annum for the life of the policy.

This is a guaranteed way of losing money if this is your business. Governments can go for decades running up deficits just look at Australia however businesses cannot. This will be a far-reaching change on Insurance Advisers.

Lets look at the numbers. According to Trowbridge it costs the adviser between $1500 and $3000 to get a clients insurance underwritten. Remember this is Cost recovery, no profit. Read my point above, Governments can work on the no profit model however banks do not allow businesses to do that.

Lets assume your insurance policy has an annual premium of $3000. The maximum an adviser can get is $1200 in the first year and then $600 pa after that. The $600 will increase as the premium increases so that is good for the adviser business however dont tell any legislators or they will ban it.

For an adviser to write this policy it will take them 24 months to recover the cost of writing the policy and therefore will not make a profit for 36 months. I have five staff in my office and they like to be paid each 14 days so taking two to three years to get a positive cashflow from a client is not going to be too helpful in paying the staff if new life insurance is all that we do.

Trowbridge clearly acknowledges that the adviser will be losing money in writing insurance policies in this way. What is his message here ? He says he is trying to have a balance between what the true cost is for an adviser in writing a policy and eliminating any behavioural doubt as to whether the adviser is working in the clients best interest. Whose interest is Trowbridge working in here ? The staff of an advisers practice will not be too happy and how does the consumer benefit if the advisers are not here to speak with them anymore. When I said that it will take 36 months to make a profit from writing an insurance policy that assumes the adviser does not speak with the client in that three year period otherwise it will take longer to make a profit per client.

If advisers in small business cannot write life insurance policies as they are losing money with every policy they write who will write them ? Look at the Iron Ore industry now as a parallel.

The small miners are losing money with every tonne they produce and are going to be closing down really quickly if this continues for another 3 months. That will leave the giants BHP and Rio.

Who are the giants in the life insurance industry ? They are likely to be the ones to survive as they have the stored up capital which will allow them to run loss making advice ventures so long as they are funneling products through to the main business. That sounds remarkably like the funds management advice business for a number of years that FoFA was designed to overcome and now Trowbridge is heading that way for the Life industry as well.  Are the main players in the funds management industry also the main players in the life insurance industry? Interesting question. You will have to research the answer yourself.

My underlying question after this long preamble is how can a government consultant come up with a policy that freely acknowledges that anyone in a particular business is going to lose money for 2 or 3 years on each new client if their recommendations are implemented. What business school did this consultant go to and how does he expect a business to survive under this regime?

No doubt the answer will be that he doesn’t expect them to survive and that is the desired outcome of the proposals however how does a family benefit if no one will talk to them about what family protection should be in place. The BHP’s and Rio’s of financial services will still be there and no doubt if you go to one of the big guys they will have to have the other guys products on their recommended list as per the new proposals and those products from the other institution will get an equal representation in their advice documents. (I am really excited as the tooth fairy is expected at our house in the next day or so.)

ONeil Financial Planning will thrive in this environment. We charge an advice fee for the financial planning work that we are doing and have no strong interest in the products that form the outcomes of the advice. We love the idea of higher ongoing revenues and have been using hybrid or flat commissions for many years where we provide insurance solutions. I have no doubt the changes foreshadowed will come into being as the Financial Services council will be strong supporters as will the Industry Funds and the Banks. They will want to clean up the industry for the benefit of the consumers !  Are they already the giants in the life insurance industry and the funds management industry ? The answer to this question is becoming more important. According to the stats the major banks and one big life office already own and/or control 70%+ of the advisers in the industry and they want to clean up the industry. Surely they already have that option by looking internally at their current business practices.

Who are the BHP’s and Rio’s in the Financial services sector and who will benefit ? If you are not familiar with the current Iron Ore saga let us look at the retail options in Australia beyond Coles and Woolworths. Australia’s cost of living is going through the roof because concentration of ownership in key sectors of the economy are taking away price competition and the Trowbridge report is going to eliminate the only people that have been ringing the bell about price sensitivity in Insurance premiums in the past.

I know everyone is disgusted scoundrel advisers are twisting policies every two to three years for the huge up front commissions however ask yourself if you would change your existing policy to a new one if the premium was increased in the new policy compared to the old one. Under the new regime no one is going to be able to be paid for 5 years if they want to discuss with you a change in the policy to get a reduced premium so who is going to do it. Allowing that no one is doing it what will happen to the premiums in the future ?

No doubt we will review this blog in 5 years and see how stupid it looks. My next blog is going to be about life insurance as well and something that happened this week so read on. It will be designed to highlight some of the issues in life insurance and definitions in your daily life and why you need to deal with someone that knows what they are doing. Reading between the lines Mr Trowbridge believes you should be prepared to pay for the advice yourself rather than through paying insurance commissions.  Look out for my next blog on life insurance.