Financial System Inquiry Legacy Products

Recommendation 43 in Appendix 1 of the Financial System Inquiry discusses the 25% of invested funds in Legacy products are old products that are closed for new investment or obsolete as they presumably have uncompetitive charges or terms.
These products incur great costs for fund managers and are generally not that great for the investors that are still invested however there has always been the issue of capital gains taxes and other exit fees that may apply in these cases.
The financial services inquiry has suggested a no disadvantage test for the consumer however then discusses the consumer paying a fee to cover the administration cost of moving to another fund.
Two issues here.
Considering there should be cost savings to the fund managers you would think the fund manager would be happy to wind up the old fund by rolling benefits into a new fund. They perhaps dont want to wind up the funds because the new fund is going to have much lower management fees.
No doubt the Financial System Inquiry thinks the consumer should be happy to pay a small fee to get out of an old uncompetitive fund. The reality is they are still in the fund because they are not prepared to pay to move or are completely disinterested and will not want to send good money after bad.
The consumer has already paid a big price being in the old funds and that price has been paid to the fund manager so the fund manager should pay for the rationalisation which will be to their long term benefit.
A by product will be that they will potentially be able to re engage with consumers who should be happier in the current market priced products.

Superannuation and Retirement Incomes Murray FSI

Appendix One Recommendation 37 is to have superannuation funds provide retirement income projections for their members with their annual statements.
It is felt that this level of information will give more tangible interest to the member and they will have more “Buy in” to their own superannuation benefits and what it will mean to them in retirement.
This is a laudable goal from the Financial System Inquiry and will provide more and better information for consumers about their superannuation and retirement incomes however the inquiry acknowledges that it is an issue where people have more than one fund and it also highlights that calculators are required so that people can build on this information which would include useful information such as Centrelink age pension and other things.
It suggests that the ATO could be a place for these calculators to reside and it will be interesting to see if the ATO is prepared to divert some of its budget to these objectives.
This increase in information will be helpful to consumers however it still cannot touch the basic information that the average person needs to know which is how much will “My Retirement cost ”
Everybody is different in what their retirement will cost and true comfort and security in retirement will not be achieved until you know what your retirement lifestyle will cost you and how much income or cashflow you will get from your assets and any Centrelink age pension benefits.
These initiatives if activated will provoke more interest amongst members about what the ultimate objective of superannuation is and that should be applauded however more research will be required by consumers to ensure they achieve the lifestyle that they desire in retirement

Super Conversations Anne-Marie Corboy HESTA CEO

A great article in Financial Standard 17 November 2014 with retiring CEO from HESTA Anne-Marie Corboy who had been at the helm for 16 years of stunning growth in the fund.

She feels that the media has a “Lopsided Fixation ” with 10% of the members who earn a lot of money or have large balances and not on the 90% where superannuation is making a huge difference and who the SG system was designed for. I couldnt agree more and would include the politicians in that as well.

We see the benefits every day of the great work that superannuation is doing for the rank and file person that it was designed to assist. I have just had a teacher and gardener leave the office and super is a huge and growing part of their retirement plans and the teacher being in the SG system most of her working life is seeing a really strong balance as a result. They have a strong platform to build on and now that the home loan has been paid off life will really become much more secure for them. The combined super balance is 50% of the value of their home and set to explode over the next 10 years to retirement with greater contributions.

Anne-Marie also makes a number of other good points about superannuation benefits for the low income earner and how it really is benefiting their lives for the future.

Superannuation is producing great benefits for individual members and a by product is the economy as a whole benefits from the great pool of savings that can be used within the economy which was never better demonstrated in the early part of the GFC where the banks needed further capital quickly to ensure their financial security and viability and they were able to source it quickly and relatively easily in Australia from the superannuation savings pool.

This is a great article about a quality superannuation executive and lets hope we see more of AnneMarie Corboy in business and/or public life in the future.
www.financialstandard.com.au Volume 12 Number 22 17 November 2014

Orango Tango

Do you have superannuation? Life insurance policies or other investments and don’t see your adviser or know who they are? Contact us and we will help you take control of these important financial assets whilst supporting the Organutan Project.

Contact us regarding your super and we will review it. If we can improve it we will provide detailed recommendations for you. If it is already good then you can leave it as it is and have that comfort whilst having a productive relationship with us.

Super Video

We can do the same for your insurance policies and provided detailed information for you. If you have an adviser that you never see why not give us an opportunity as you cannot be worse off and the Orangutans will benefit.

You might not have a plan as to how you’re your hopes and dreams for a wonderful life works together with your finances. We can prepare a detailed plan for you that will prioritise exactly what it is that you would like to achieve with a time line as to when those things will happen. Wouldn’t you feel better as you cross things of your Bucket list?

Intro Video

If you feel that things are overwhelmed with home loans, school fees, cost of living issues then contact us and put a plan in place for you. It will be the best thing that you did as you take control of your situation. We will help you do that and monitor your progress along the way. . .

Please look at some of the video’s on the website and see what our clients say about our services. We value our long term relationships and would like to work with you for the next 10-15 years to set you up for your ideal lifestyle.

These are all different ways that we can assist you and your family and whilst we are doing that you are also contributing for Orango Tango.

A Woman’s Worth

Our new article relates to a woman’s worth and the practical actions required to improve a woman’s financial security to ensure financial independence.

It is easy to ensure that your superannuation is working hard. Discuss with you planner once a year how it is going. If you don’t have a planner then get one, and OFP are very happy to assist you in that regard. Commit the time and you will be very well served. It is easy to say that the adviser should call you and they should however a good advice relationship has an interactive dynamic. Given a lot of your input the results will reflect what you want not what someone else dictates for you. The current Government is bringing in My Super so that Your Super can be Their super.

Use your time to retirement to grow your assets as time is the most valuable asset you have. Don’t wait until close to retirement to start thinking about it as your greatest asset will be gone. The longer your money is invested the less you need to contribute or the greater the balance you will have.

Allowing for the point above why contribute less ? Contribute more in the early years to build your balance and allow time and compounding interest work their magic for you.

Everything in the future is dependent on your good health and income earning capacity so consider protecting that as part of your plan and you will have all your bases covered.

It is your super, your lifestyle and your retirement. Take some time to set yourself up for life and you will never look back. The sooner you start the better your outcome. It is never too early to start planning. I hope you enjoy the article. Regards Andrew

An article prepared by Infocus Money Management for our the Spring Edition of our magazine Newsfocus.

A Woman’s Worth
Australian women are still markedly financially worse off than men, despite increasing earning capacity, spending power and financial responsibility. It’s a long road to true equality but there are steps you can take now to generate more wealth and protect your future.

On average, women earn less than men. In 2010, it was reported that there was an estimated 17% pay gap between men and women, a difference that equals $224 a week1. Women are also more vulnerable to poverty when it comes to retirement. The average superannuation balance held by women at $92,000 is 40% below the average held by men ($154,000)2. Life insurance is another area where women are more exposed to risk, with research suggesting that significantly fewer women than men take out cover3.

Why is this occurring? How is it that women, who now represent 45% of the Australian workforce4, are under-paid, under-resourced for retirement and under-insured?

The reasons are numerous and complex, and are a cumulative product of decisions, events and experiences over a woman’s life.

Grouping of women and men in occupations and industries is further entrenching the wage gap. Many jobs are considered “women’s jobs” and are not as highly paid. Ingrained attitudes to women in the workforce still exist, creating barriers to senior roles and equal pay. This, coupled with the perception and often reality of women as carers, places restrictions on women’s ability to earn and save over their lifetime.

Although remarkable change has occurred and continues to occur, society still has a long way to go before we fully address the inequality experienced by women. This means that women need to be proactive about growing, managing and protecting their wealth.

The three pillars of a wealth accumulation and protection strategy:

Make your money work hard

If you haven’t already, consider pursuing a long-term investment strategy that makes your money work hard for you. You may choose to invest in capital growth options such as shares, property or anything that may increase in value, or you may want to generate income through rental or investment properties or other income producing investments.

Think about your retirement

Although women have an almost equal presence in the workforce, they typically move in and out of the workplace or take part-time positions due to carer responsibilities. Less time in the workforce means less opportunity to accrue savings and superannuation. With women living longer and earning less than men on average, they are often more financially vulnerable when they retire. Think about the real cost of your lifestyle and consider how much money you will need to retire and how to achieve this figure. Salary sacrifice, personal contributions and a range of other strategies can help you maximise your retirement contributions. These strategies may not suit all women which is why you should discuss your personal situation with a financial adviser.

Protect your wealth

It’s fair to say that women are equally as likely to suffer from injury, illness or death as men – yet nowhere near as many women are choosing to protect what’s important to them with life insurance cover. Life Insurer TAL’s 2011 claims statistics highlight this inadequacy, showing that women only account for 21% of all claims across their insurance products. A 2008 study of the life insurance industry by the Financial Services Council indicates that this figure is consistent across the industry3.

Many women underestimate their contribution to their household and what would happen if they were injured, ill or passed away. If you are a dual income family, your family is partly dependent on your income. If you are the breadwinner, your loss of income could be devastating. If you are a stay-at-home mum, how much would your family need to pay in medical costs, childcare and to maintain your household? If you are working and single, how much would you need to maintain your investments and lifestyle, as well as meet the daily costs of living?

Using a combination of four basic types of cover, you can effectively protect your financial future against these risks:

  1. Income protection insurance to provide a replacement monthly income if you are temporarily sick or injured.
  2. Critical illness insurance to provide a lump sum of cash if you are diagnosed with one of many specified medical conditions, such as cancer, multiple sclerosis and heart attack.
  3. Total and permanent disability insurance to provide a lump sum of cash if you become totally disabled and are unable to work ever again.
  4. Life insurance to provide a lump sum of cash upon death or terminal illness.

Speak to your financial planner

To discuss a tailored wealth accumulation and protection strategy that positions you for the future, speak with Andrew O’Neil from O’Neil Financial Planning. Call our office today on 08 9240 5370

Source: TAL Limited 1. The Impact of a Sustained Gender Pay Gap on the Economy – NATSEM 2. Roy Morgan ‘Superannuation and Wealth Management in Australia’ Report 3. Investment and Financial Services Association (IFSA) survey of Australian life insurance companies, 2008 4. ABS, Cat. 6202.0, Labour Force, Australia, January 2011 Source: Table 02, Labour Force Status by Sex – Seasonally Adjusted http://www.abs.gov.au/AUSSTATS/abs@.nsf/DetailsPage/6202.0Jan%202011?OpenDocument This information is of a general nature only and neither represents nor is intended to be specific advice on any particular matter. Infocus Securities Australia Pty Ltd strongly suggests that no person should act specifically on the basis of the information contained herein but should seek appropriate professional advice based upon their own personal circumstances. Although we consider the sources for this material reliable, no warranty is given and no liability is accepted for any statement or opinion or for any error or omission. Andrew O’Neil is an Authorised Representative and Adon Nominees Pty Ltd ABN 15 063 402 513 ATF O’Neil Financial Services Trust t/as O’Neil Financial Planning is a Corporate Authorised Representative of Infocus Securities Australia Pty Ltd ABN 47 097 797 049 AFSL and Australian Credit Licence No. 236523

The Financial Price of Longer Life Expectancy

An interesting newspaper article, written by Shane Wright in the West Australian

I intend to live forever, or die trying – so said Groucho Marx. Think about how long you’ll live. Then consider how much cash you will need – in savings, superannuation or aged pension – for a comfortable life in retirement.

Now add 13 years to that expected lifespan and try to work out how you are going to afford retirement.

These aren’t isses that most of us spend a lot of time considering. And when we do, it’s usually when we’ve retired or about to. Fortunately some pretty smart people are looking at the numbers – and they reckon we are coming up short. The Actuaries Institute last week released a white paper on Australia’s “logivity tsunami”. Stuff Fifty Shades of Grey. This report is a real page-turner.

The issue, according to our actuaries, is that almost every official report on Australia’s demographic challenges is wrong. The main document in this space is the intergenerational report. First commissioned by former Federal treasurer Peter Costello, the report attempts to outline how society’s ageing will affect the Budget. For instance, the most current report forecast that the Budget would be put into permanent deficit simply through demographic change by 2029-30.

The proportion of the Budget taken up by costs associated with ageing and health would climb to 22.4 per cent of GDP by 2015-16 and 27.1 per cent of GDP by the middle of the century.

At the heart of these forecasts was an assumption about how long the average Australian will live. In 2010, the report used Australian Bureau of Statistic figures which forecast a man born that year could expect to live 79.5 years. A woman born in 2010 could expect 84 candles on her last birthday cake.

A man born in 2050 would have an expected lifespan of 87.7 years and a woman 90.5 years.

But what if those assumptions were wrong? According to the Actuaries Institute, they were wrong, and by a sizeable factor.

Based on what has occurred to Australians’ life expectancy over the past 25 years they came up with some vastly different numbers. It forecast a man born in 2010 could expect to live 92.4 years and a woman 93.9 years. A man born in 2050 could get 96.7 years on planet Earth and a woman 97.3 years.

So quickly have advances in medicine come along, the institute’s white paper find there are “plausible scenarios” under which a person currently aged 65 could expect to live past 100. The life expectancy for younger generations could exceed 120 years.

Such a huge increase in our expected lifespans has come big ramifications for the Budget. There is the aged pension (the single biggest welfare payment made by the Commonwealth at $37 billion this financial year). Then there are the concessions that encourage us to put money away for superannuation (the difference between the marginal tax rate and the 15 per cent superannuation rate for most people). Then add in health (16 percent of the Commonwealth Budget).

There are some offsetting financial impacts. The increase in the aged pension to 67 will ensure that employers have a bigger pool of workers from which to choose. The biggest growth in terms of workers over the past decade has been among those aged over 55.

But the Actuaries Institute reckons the financial costs of not properly taking into account how quickly we are adding years to our lives greatly outweighs the benefits.

So how to deal with this? One idea the Institute offered was to link increases in life expectancy with increases in the age at which you could access the age pension.

When the age pension started in 1910, life expectancy for a woman born that year was 60. For a man it was 56. But since 1910, the work we do has dramatically changed as has our life expectancy. And over its first 100 years of operation, the age pension at which men could access the pension did not change.

Based on what the institute suggests, the move to life the age pension access age to 67 would only be a first step. Given the relativities at play, you could expect an age pension access age of somewhere between 72 and 75 by 2050 (if not even higher).

Among a host of other measures, the institute argues there needs to be more incentives to encourage people to take their superannuation as a continuing income stream rather than a lump sum. The preservation age, currently 60, should be increased to between three to five years beneath the eligibility age. That would take it, based on an age pension of 67, to between 62 and 64.

The institute also backs policies aimed at encouraging older Australians to continue working. These include removing the age limit on super contributions (one policy that is being adopted), removing earned income from the means test on accessing the age pension and an interesting idea of increasing the pension for those people who do not retire at 65.

Under this idea, a person who worked for an extra five years over and above the age at which they could retire would get a boost to their government payment. Governments have been unable to stop tinkering with superannuation over the past decade or so.

If the Actuaries Institute is correct – and the figures are on its side – then we are going to spend a lot longer on this planet than we and our policymakers had expected. That’s something to celebrate. But it’s also something to plan for now.