Intergenerational Wealth Financial Market and News

Emilio Bangit November 8, 2023 No Comments

Aged care challenges in the home

However, a crackdown on what the funds can be used for and a shortage of support workers, can make it challenging to understand the funding available.

If you are approved for a Home Care Package you will be assessed at one of four levels. These levels acknowledge the different types of care needed. Approval for a package is determined by a health professional from the Aged Care Assessment Team (ACAT) following an assessment.

Current annual funding for packages is $10,271.10 for level one (someone with basic care needs); $18,063.85 for level two (low care); $39,310.50 for level three (intermediate care); and $59,593.55 for level four (high care).ⁱ

It can take up to six months for a Home Care Package to be assigned following the initial assessment. Once assigned, a provider must be chosen to design a package of aged care services that is best and most appropriate for you – within the home care package guidelines.

Providers charge care and package management fees, which were recently capped at a combined 35 per cent of the package funds.

Income tests apply

The packages are income tested, with part pensioners paying no more than $6,543.66 a year and self-funded retirees paying no more than $13,087.39 a year in fees. Full pensioners do not pay an income tested fee.

An individual’s contribution may not seem like much if you are receiving a high level package and are using all the allocated funds to buy equipment and services to keep you at home. But if your income is high and you are therefore required to pay the highest fees, you may be better off paying privately for one or two services.

Older Australians can apply for a package directly, or through their GP, via the government’s My Age Care aged care gateway.

Due to high demand for Home Care Packages, you may be offered a lower level package while you wait for the one you are approved for. You may also be given access to the entry level government support known as the Commonwealth Home Support Program – where individual referral codes are allocated to you to access interim support such as cleaning, transport or personal care at highly subsidised rates.

Describe your worst day

A good way to ensure approval for the Home Care Package is to describe to the assessor all the challenges faced in carrying out daily activities due to your (or your loved one’s) advancing age.

Key to the process of getting the maximum benefit of a package when it is assigned is the initial care plan, worked out with your provider, which outlines your assessed care and service needs, goals and preferences and details how the care and services are to be delivered.

A revised manual released earlier this year by the Department of Health clarifying what a Home Care Package can be used for is presenting additional challenges for some package recipients looking to maximise what they can get.ⁱⁱ

Generally, a requested support or service must meet an individual’s “ageing related functional decline care needs”. The main categories of care and services you can get from a Home Care Package are services to keep you:

well and independent (nursing, personal care, food),
safe in your home (home maintenance, goods and equipment) and
connected to your community (transport and social support).

Exclusions and inclusions

One area that is becoming more difficult for those with Home Care Packages is gardening – which is one of the most popular subsidised service requests.

Once a regular prune and possibly some new planting was an approved service, but now only minor or light gardening services can be provided and only where the person was previously able to carry out the activity themselves but can no longer do so safely. For example: maintaining paths through a property or lawn mowing.

Other exclusions causing angst amongst recipients are recliner chairs (unless they support a care recipient’s mobility, dexterity and functional care needs and goals); heating and cooling costs including installation and repairs; whitegoods and electrical appliances (except items designed specifically to assist with frailty, such as a tipping kettle).

With an aging population it is no secret that there is a shortage of support workers. While there are government programs to try and fix this, a back-up plan is needed for when support workers call in sick or are unavailable and no replacement can be found.

Most people’s preference is to remain living independently at home for as long as possible. If you would like to discuss your options to make this happen, give us a call.

Government subsidy level for Home Care Packagesⁱⁱⁱ

Package Level	Aged Care Services for People with	*Yearly amount paid by the Australian Government up to approximate value of**
1	Basic care needs	$10,200
2	Low level care needs	$18,000
3	Intermediate care needs	$39,300
4	High level care needs	$59,500

Figures are rounded and current as at 20 September 2023. The maximum government contribution increases each year.

*The individual amount paid will depend on whether you are asked to pay an income-tested care fee.

i, iii https://www.myagedcare.gov.au/help-at-home/home-care-packages
ii https://www.health.gov.au/sites/default/files/2023-04/home-care-packages-program-inclusions-and-exclusions-faqs-for-providers-version-1.pdf

Emilio Bangit October 18, 2023 No Comments

We welcome Evan Gilhome

“Welcome to the TEAM!”

Evan has more than 18 years of experience in financial services. Focused on investment product distribution and leading national sales teams, over the years Evan has built a strong reputation as a retirement income specialist.

Evan holds a Bachelor of Economics & Finance, a Masters in Applied Finance from Macquarie University and is currently completing his Graduate Diploma of Financial Planning.

With a passion and desire to help Australians with their financial goals, Evan made the life changing decision in 2023 to transition into advice. He is thrilled to join Intergenerational Wealth, learn from the team whilst also bringing a unique perspective from his diverse range of experience.

On a personal level, Evan and his wife Nikki have two beautiful children that mean the world to them. Evan is an avid fan of all sports, especially AFL and he loves spending his weekends hanging out with family and friends.

Emilio Bangit October 4, 2023 No Comments

A positive property outlook for some

Now, with prices levelling out or slowly increasing, there is good news around the corner, according to some analysts.ⁱ

A combination of positive indicators for housing could help to fuel further price rises.

With a widespread view that the Reserve Bank’s interest rate increases are beginning to work to ease spending, some believe we may see the first rate cuts as early as next March. Add to that the increase in migration and the fall in new house construction, and residential property gains may follow. CBA Chief Economist Stephen Halmarick is forecasting a 7 per cent rise in house prices this year and another 5 per cent in 2024 claiming that, by this time next year, prices will return to “all-time record highs”.

The sustained levels of high demand clashing with historically low levels of for-sale listings are also pushing prices up, according to the Property Investment Professionals of Australia (PIPA).ⁱⁱ

In the meantime, some investors are doing it tough with rising interest rates and the end of fixed interest rate mortgages sometimes a contributing factor. The number of short-term property resales made at a loss has jumped, according to property analysts CoreLogic, from 2.7 per cent a year ago to 9.7 per cent in the June quarter this year.ⁱⁱⁱ The median loss was $30,000, for houses sold within two years, compared to a median profit of $75,000.

PIPA’s annual survey to gauge property investor sentiment found just over 12 per cent of investors sold at least one investment property in the past year.^iv Less than a quarter of those houses sold went to other investors, continuing a trend that has been happening for several years.

Almost half of those who sold said they were concerned about governments increasing or threatening to increase taxes, duties and levies.

Where are rents headed?

Will rents continue to rise or stabilise? Experts’ views are mixed about the short-term outlook for the rental market.

The Reserve Bank says the continuing shortage of rental housing is likely to support ongoing increases in rents.^v

The rents paid by new tenants provide a good indication of price movements in rental housing. Actual rents paid by new tenants increased by 14 per cent over the year to February 2023. Since the onset of the pandemic in 2020, rents paid by new tenants have increased by 24 per cent.^vi

The Reserve Bank says rents for apartments with new tenants have been more volatile than for houses and townhouses over the past couple of years.

Rents for apartments with new tenants fell sharply during the pandemic and remained below pre-pandemic levels until early 2022 but rose 24 per cent over the year to February 2023, whereas the overall index increased by 14 per cent. By contrast, rent for houses and townhouses with new tenants increased by around 10 per cent over the year to February 2023.

But CoreLogic predicts a slowing in rental price growth next year, saying rents rose for the 35th month in a row in July but monthly growth has eased over the past four months. It says the expected drop in interest rates next year combined with softer income growth and stretched rental affordability will contribute to a slowing in rents.

First homebuyers falling

The recent boom in property prices, the positive outlook and the many assistance programs available from federal and state governments have not been helping those looking to get into the market.

The number of first homebuyers has fallen significantly over the past 30 years, a new study has found.^vii Published by the Australian Housing and Urban Research Institute, the study says the drop in first homebuyers is down to delayed partnering, higher rates of educational attainment and associated debt, the precarious nature of employment and worsening housing affordability.

The study says various government policy decisions have had little effect on the numbers of first homebuyers.

Build-to-rent growth

Australia’s growing build-to-rent (BTR) market is getting a boost from governments eager to increase housing stock. Various state governments have introduced a raft of incentives for build-to-rent projects, mostly in the form of tax concessions.

BTR projects, common in Europe and North American, see landlords build a large-scale residential development intending to hold it for the long-term while renting the apartments for longer-than-usual terms, often as long as three years with rent increases locked in. Rents are often slightly higher than market averages in return for better communal amenities such as roof gardens and gyms.

Institutional investors, such as super funds, are also getting onboard with the projects, favouring the steady income stream.

While Australia’s BTR market is mostly being driven by large developers and global players, smaller private investors are also getting in on the act. On the plus side, BTR offers regular income, often better returns and the chance to minimise expenses, not to mention the government tax concessions.

On the downside, there is the possibility the BTR concept might not take off in Australia and that vacancy rates may be higher as a result. There is also a downside to the promise of regular income – locked in rental increases may not keep pace with rapid market changes.

Rental Vacancy Rates*
Seasonally adjusted

* Data is monthly for Sydney and Melbourne and quarterly for all other serires
Sources: REIA; REINSW; REIV
i https://www.abs.gov.au/statistics/economy/price-indexes-and-inflation/total-value-dwellings/latest-release
ii, iv https://www.pipa.asn.au/wp-content/uploads/PIPA_Investor-Survey-Report_2023_Final.pdf
iii https://www.corelogic.com.au/news-research/news/2023/short-term-loss-making-resales-on-the-rise
v, vi https://www.rba.gov.au/publications/bulletin/2023/jun/new-insights-into-the-rental-market.html
vii https://www.ahuri.edu.au/sites/default/files/documents/2023-09/Executive-Summary-FR408-Financing-first-home-ownership-opportunities-and-challenges.pdf

Emilio Bangit September 5, 2023 No Comments

Should I buy insurance through my super?

While we all hope for good health, the reality is that some of us may struggle at times with sickness or injury. And that may affect your family’s financial wellbeing.

Different types of life insurance or personal insurance can provide an income when you’re unable earn or a lump sum to protect your loved ones if the worst happens.

These insurances include income protection, life insurance, and total and permanent disability (TPD) cover. These products are available through your superannuation fund or outside the fund, directly through an insurance company. There are also other products not usually offered by super funds such as accidental death and injury insurance, critical illness or trauma cover and business expenses insurance (when a business owner suffers serious illness or injury).

In fact, most super funds provide a level of automatic cover unless you choose to opt out. Almost 10 million Australians have at least one type of insurance (life, TPD or income protection) provided through superannuation.ⁱ

Check what your fund offers

Super funds usually provide three types of personal insurance. These include:

Life insurance or death cover provides a lump sum payment to your beneficiaries in the event of your death.
Total and Permanent Disability (TPD) pays a lump sum if you become totally and permanently disabled because of illness or injury and it prevents you from working.
Income Protection pays a regular income for an agreed period if you are unable to work because of illness or injury.

While these insurance products can provide valuable protection, it’s essential to be aware of circumstances where coverage might not apply. For example, super funds will cancel insurance on inactive super accounts that haven’t received contributions for at least 16 months.ⁱⁱ Some funds may also cancel insurance if your balance is too low, usually under $6000. Automatic insurance coverage will not be provided if you’re a new super fund member aged under 25.

Should you insure through super?

Using your super fund to buy personal insurance has advantages and disadvantages so it’s a good idea to review how they might affect you.

On the plus side

Cost-effectiveInsurance through super can be more cost-effective because the premiums are deducted from your super balance, reducing the impact on your day-to-day cash flow. It’s also said that the super funds’ massive buying power gives them an opportunity to be more competitive on price.
Automatic inclusionMany super funds automatically provide insurance cover without requiring medical checks or extensive paperwork.
Tax benefitsSome contributions made to your super for insurance purposes may be tax-deductible, providing potential tax benefits.

Think about possible downsides

Limited flexibilitySuper funds can only offer a standard set of insurance options, which may not fully align with your needs. For example, income protection insurance inside super can only offer the indemnity cover (you are required to verify your income at the time of claim) while outside super you can opt for the agreed value cover (you are required to verify your income when applying for cover and is agreed to at the start of your policy).
Reduced retirement savingsPaying insurance premiums from your super balance means less money invested for your retirement, potentially impacting your final payout.
Coverage gapsDepending solely on your super fund’s insurance might leave you with coverage gaps, as the default options may not cover all your unique circumstances.
Possible tax issuesBe aware that some lump sum payments may be taxed at the highest marginal rate if the beneficiary isn’t your dependent.

Don’t forget the life admin

Whether you decide to buy insurance through your super fund or not, it is important to regularly review your insurance coverage to make sure they reflect your current life stage. As your circumstances change with marriage, divorce, children or a new job, your insurance needs will also change.

It is also important to keep on top of your super accounts. If you have more than one fund, you may be paying additional insurance premiums. Consolidating your super accounts can help you avoid this pitfall (and save money in extra administration fees). But before you make a move, it can be beneficial to seek advice, so check with us to see that you are making the best decision.

Insurance within super can be a valuable safety net, providing crucial financial support to you and your loved ones. Understanding the types of coverage offered, the pros and cons of insuring inside super and the need for regular reviews are essential steps in making the most of this benefit. If you would like to discuss your insurance options, give us a call.

A lesson in regular insurance review

Sarah, a 35-year-old marketing manager, was shocked to discover that her income protection policy, purchased through her super fund, would only cover her for a limited time.

The policy, part of her fund’s automatic insurance coverage, gave Sarah some peace of mind that she was covered if she became ill. But when her insurance was reviewed closely, it emerged the policy would only pay $3000 for up to two years.

As a result, Sarah opted to pay a higher premium to increase the benefit to continue paying until age 65. Sarah’s decision to review her insurance protection has provided an outcome she’s happy with for now. Her next review might see another change, depending on her circumstances at the time, and she may choose to pay lower premiums.

i The future of insurance through superannuation, Deloitte and ASFA, 2022 1051554 Insurance through superannuation.indd
ii Treasury Laws Amendment (Protecting Your Superannuation Package) Act 2019, No. 16, 2019 Treasury Laws Amendment (Protecting Your Superannuation Package) Act 2019 (legislation.gov.au)

Emilio Bangit August 15, 2023 No Comments

Teaching children healthy money habits

Set a good example for your children with just a few simple changes.

As a parent, you try to ensure your children have the skills to make smart financial decisions. For example, you tell them about the importance of saving or the power of compounding interest. But did you know that you could be sending them negative money messages without meaning to?

Here are some useful ways you could teach your children healthy money habits.

Revealing the magic behind digital money

Your children have likely seen you pay for hundreds of transactions without glimpsing cash changing hands. For small children, it can seem like money problems are solved with magic – just wave or tap a plastic card. This makes it important to discuss the value of money with them. A good way to start is to explain how your earnings get deposited into your bank account and how you use this account to pay bills. For older children, consider showing them how taxes are deducted from your salary.

Spending wisely

Frequently buying things on an impulse could send the message that it’s fine to spend without planning. Sticking to a budget is key to avoiding impulse-buying. To set an effective budget, consider working with a professional financial adviser. Your adviser may help develop a budget that factors in your income, expenses and financial obligations.

Teaching them independence

It’s convenient to do everything for your children. But by giving them a chance to have their own money and decide how and where to spend it, they could learn powerful lessons about budgeting. For adult children, always offering them financial help can create a cycle of dependency. Letting them make their own money decisions could help them develop financial responsibility.

Including them in budgeting

Many parents keep household financial planning and budgeting to themselves. While you don’t have to fully involve your children in managing your family’s finances, giving them a role to play, such as getting them to do grocery shopping using a set budget, can teach them lessons about money. If your children are old enough to earn some income, why not get them to pitch in to help achieve a family goal?

Using your influence positively

You can strongly influence your children in relation to money, so it’s important to pass on smart money management skills. If you don’t know where to start, consider reaching out to your financial adviser to help you stay on top of your finances through proper planning and budgeting.

Emilio Bangit July 31, 2023 No Comments

How iron ore plays a big part in our economy

Iron ore has been the backbone of the Australian economy and many investment portfolios for much of the 21^st century. Export of the commodity saw Australia evade recession both in the wake of the Global Financial Crisis back in 2008 and the Covid epidemic.

In 1921, iron ore accounted for 68 per cent of Australia’s export revenue. This was the year that iron ore prices peaked at almost $US230 a tonne.ⁱ

Large quantities of iron ore were discovered in Australia as far back as 1822 in Tasmania. However, its growth as an export icon really took off with the first shipment of iron ore from the Pilbara in Western Australia in 1966.

Today there are three major companies that mine iron ore in Australia – BHP, Rio Tinto and Fortescue Minerals. Considered blue chip stocks, they are often favourites with investors and their share price performance is linked to iron ore prices. Together, these miners are responsible for 76 per cent of production in Western Australia and contribute to 38 per cent of global production.ⁱⁱ

Share of iron ore production by company, 2021

Source: GlobalData’s Australia Iron Ore Mining to 2026 report

Iron ore’s importance worldwide stems from its use in steel, a key material used in infrastructure, housing and manufacturing equipment globally. Manufacturing includes such things as cars, ships, trains, trucks and pipelines. Iron ore is also used in cast iron and stainless steel which in turn have many applications.

China’s role

The main recipient of Australia’s iron ore is China. In 2022 China bought 1.1 million tonnes of iron ore, 65 per cent of which came from Australia.ⁱⁱⁱ

The driving force powering this demand was the urbanisation and industrialisation of China. China actually produces more iron ore than Australia but it is at a much lower grade.

No wonder, Australia has been riding on iron ore’s back.

While demand is still high in China, Covid put a dampener on its economic growth when the country basically shut down for an extended period. Its strict measures did not start to roll back until December 2022 and investors began to worry.

While economic activity is slowly resuming, it has reduced significantly from its heady days. As a result, demand for iron ore has also fallen.

This has seen the price of iron ore drop to around the $US100 a tonne mark from its $US230 million peak in 2021.

Although China’s economy is not performing as energetically as it did a decade ago, Premier Li recently told the World Economic Forum that it was rolling out more measures to boost domestic demand.^iv

This has triggered some optimism among market watchers, although there are still bears around who are more circumspect.

Global demand

It is not only in China where demand for iron ore is falling. The rest of the world is wrestling with recession and that too has put a dampener on the market.

Added to this slowdown in demand is the move to increase supply. The major Australian producers and Brazil’s Vale Mining have all got new projects and expansions on the horizon.^v

Luckily, iron ore is relatively cheap to mine in Australia, costing Rio Tinto and BHP $US30 a tonne to produce, which means they are somewhat sheltered from price fluctuations. While Rio Tinto and BHP can remain profitable with prices dropping as low as $US60, lower prices will have a flow on effect, impacting superannuation balances, investor returns and the broader economy.^vi

Iron ore price outlook, quarterly

Source: Bloomberg (2023), Department of Industry, Science and Resources (2023)

Impact on the economy

Unfortunately, lower profits mean the Australian Tax Office will also receive significantly lower revenue and that in turn will impact on the Australian economy.

While profits are still boosting the government’s coffers, the outlook is less bright.

Tax revenue from iron ore has made a significant contribution to the robustness of the Australian economy and has been a key reason for the recent return to surplus in the federal budget after 15 years of deficits.

In fact, the federal government is expecting the surplus in 2022-23 to be a whopping $19 billion, significantly higher than the $4.2 million original forecast in the May Budget. Not all that growth is attributed to strong commodity prices, but they have certainly played a part.^vii

Nevertheless, the domestic economy is still expected to slow as high inflation and global challenges make their mark.

Budget papers estimate that a $US10 per tonne increase in the Commonwealth’s assumed price for iron ore exports is expected to result in an increase in tax receipts of around $500 million in both 2023-24 and 2024-25.^viii

But the federal government is still cautious about the economic outlook for Australia and are forecasting a return to a budget deficit and the possibility of a recession as the move to higher interest rates puts brakes on the economy.

Aside from economic performance, any reduction in revenue for the mining companies will also translate into lower dividends and lower price growth for investors.

But despite some bearish sentiment in the market including the growing number of institutional and individual investors steering clear of mining stocks over ethical and environmental concerns, there is no denying that iron ore is still a big money spinner.

If you would like to discuss options for investment in the current economic climate, then give us a call.

i https://minerals.org.au/resources/record-high-for-resources-export-revenue/
ii https://www.mining-technology.com/data-insights/iron-ore-in-australia-2
iii https://edition.cnn.com/2023/05/05/economy/australia-china-exports-record-intl-hnk
iv https://www.reuters.com/world/asia-pacific/chinas-growth-be-higher-q2-projected-hit-annual-5-target-premier-li-2023-06-27/
v https://www.mining.com/iron-ore-price-expected-to-ease-over-next-5-years-on-slower-demand-growth-and-more-supply/
vi https://www.abc.net.au/news/2023-05-30/australian-iron-ore-boom-ending-after-china-rift/102408002
vii https://www.theguardian.com/business/2023/jun/30/australia-budget-surplus-swells-to-19bn-due-to-surging-tax-revenue
viii https://www.watoday.com.au/politics/western-australia/how-wa-s-resource-riches-helped-deliver-the-first-budget-surplus-in-15-years-20230509-p5d725.html

Emilio Bangit July 27, 2023 No Comments

A financial safety net through super

Most super funds offer life, total and permanent disability (TPD) and income protection insurance for their members.

When reviewing your insurance, check if you’re covered through your super fund. Compare it with what’s available outside super to find the right policy for you.

Types of life insurance in super

Super funds typically offer three types of life insurance for their members:

life cover — also called death cover. This pays a lump sum or income stream to your beneficiaries when you die or if you have a terminal illness.
TPD insurance — pays you a benefit if you become seriously disabled and are unlikely to work again.
income protection insurance — also called salary continuance cover. This pays you a regular income for a specified period (this could be for 2 years, 5 years or up to a certain age) if you can’t work due to temporary disability or illness.

Most super funds will automatically provide you with life cover and TPD insurance. Some will also automatically provide income protection insurance. This insurance is for a specified amount and is generally available without medical checks.

TPD insurance cover in super usually ends at age 65. Life cover usually ends at age 70. Outside of super, cover generally continues as long as you pay the premiums.

Insurance on inactive super accounts

Under the law, super funds will cancel insurance on inactive super accounts that haven’t received contributions for at least 16 months. In addition, super funds may have their own rules that require the cancellation of insurance on super accounts where balances are too low.

Your super fund will contact you if your insurance is about to end.

If you want to keep your insurance, you’ll need to tell your super fund or contribute to that super account.

You may want to keep your insurance if you:

don’t have insurance through another super fund or insurer
have a particular need for it, for example, you have children or dependents, or work in a high-risk job

Insurance for people under 25 or with low super balances

Insurance will not be provided if you’re a new super fund member aged under 25, or your account balance is under $6000 unless you:

contact your fund to request insurance through your super
work in a dangerous job and your fund chooses to give you automatic cover – you can cancel this cover if you don’t want it.

If you already have insurance and your balance falls below $6000, you usually won’t lose your insurance as a result.

Use this Life insurance calculator

Work out if you need life insurance through your super and how much cover you might need.

Superannuation and insurance can be complex. If you need help call your super fund or speak to a financial adviser.

Pros and cons of life insurance through super

Pros

Cheaper premiums — Premiums are often cheaper as the super fund buys insurance policies in bulk.
Easy to pay — insurance premiums are automatically deducted from your super balance.
Fewer health checks — Most super funds will accept you for a default level of cover without health checks. This can be useful if you work in a high-risk job or have health conditions that can make it difficult to get insurance outside super. Check the product discloure statement (PDS) to see the exclusions and treatment of pre-existing conditions.
Increased cover — You can usually increase the amount of cover you have above the default level. But you’ll generally have to answer questions about your medical history and do a medical check.
Tax-effective payments — Your employer’s super contributions and salary sacrifice contributions are taxed at 15%. This is lower than the marginal tax rate for most people. This can make paying for insurance through super tax-effective.

Cons

Limited cover — The amount of cover you can get in super is often lower than the cover you can get outside super. Default insurance through super isn’t specific to your circumstance and some eligibility requirements may apply.
Cover can end — If you change super funds, your contributions stop or your super account becomes inactive, your cover may end. You could end up with no insurance.
Reduces your super balance — Insurance premiums are deducted from your super balance. This reduces your savings for retirement.

Check your insurance before changing super funds. If you have a pre-existing medical condition or are over age 60, you may not be able to get the cover you want.

How to check your insurance through super

To find out what insurance you have in your super you can:

call your super fund
access your super account online
check your super fund’s annual statement and the PDS

You’ll be able to see:

what type of insurance you have
how much cover you have
how much you’re paying in premiums for the cover

Your super fund’s website will have a PDS that explains who the insurer is, details of the cover available and conditions to make a claim.

If you have more than one super account, you may be paying premiums on multiple insurance policies. This will reduce your retirement savings and you may not be able to claim on multiple policies. Consider whether you need more than one policy or whether you can get enough insurance through one super fund.

When reviewing your insurance in super, see if there are any exclusions or if you’re paying a loading on your premiums. A loading is a percentage increase on the standard premium, charged to higher risk people. For example, if you have a high-risk job, a pre-existing medical condition or you’re classified as a smoker.

If your super fund has incorrectly classified you, contact them to let them know. You could be paying more for your insurance than you need to.

Making a claim on insurance in super

To make a claim for insurance through your super fund, see making a life insurance claim for more information.

Source:
Reproduced with the permission of ASIC’s MoneySmart Team. This article was originally published at https://moneysmart.gov.au/how-life-insurance-works/insurance-through-super

Important note: This provides general information and hasn’t taken your circumstances into account. It’s important to consider your particular circumstances before deciding what’s right for you. Although the information is from sources considered reliable, we do not guarantee that it is accurate or complete. You should not rely upon it and should seek qualified advice before making any investment decision. Except where liability under any statute cannot be excluded, we do not accept any liability (whether under contract, tort or otherwise) for any resulting loss or damage of the reader or any other person. Past performance is not a reliable guide to future returns.

Important
Any information provided by the author detailed above is separate and external to our business and our Licensee. Neither our business nor our Licensee takes any responsibility for any action or any service provided by the author. Any links have been provided with permission for information purposes only and will take you to external websites, which are not connected to our company in any way. Note: Our company does not endorse and is not responsible for the accuracy of the contents/information contained within the linked site(s) accessible from this page.

Emilio Bangit July 20, 2023 No Comments

How to turbocharge your investment returns

If you’d invested $10,000 into the whole Australian share market back in 2002, your initial investment amount would have grown to almost $50,000 by 30 June 2022.

It’s a huge gain. Around 385 per cent to be precise. And, to achieve it, all that you would have needed to do is reinvest all the Australian company dividends you’d received over the last 20 years back into the Australian share market.

You could have achieved similar returns by investing through a managed fund or an exchange traded fund (ETF) that tracks the broad Australian share market.

Yet, as good as that all sounds, you could have done much better if you had added to your initial $10,000 investment by making regular monthly investment contributions.

How much better? Just by adding $250 per month your Australian share market investment would have surged to more than $180,000. That represents a 1,729 per cent total return.

In other words, for $60,000 in total additional contributions over 20 years, your end investment would have been worth over $130,000 more than if you had made no extra contributions.

The numbers obviously get larger if you had made higher regular monthly contributions.

By adding $500 per month to the initial $10,000 amount your investment would have compounded by 3,074 per cent to more than $317,000.

That’s a $130,000 total investment ($10,000 plus $120,000 in other contributions) over 20 years to achieve an investment worth $270,000 more than if you had just left your initial investment to grow on its own.

Here’s how those numbers would have looked based on the actual performance of the All Ordinaries Accumulation Index (which measures the Australian share market) from 1 July 2002 to 30 June 2022.

The benefits of regular contributions

Date	No extra contributions*	$250 per month	$500 per month
1 July 2002	$10,000	$10,000	$10,000
30 June 2007	$24,432	$52,047	$79,661
30 June 2012	$19,832	$57,104	$94,378
30 June 2017	$34,329	$117,332	$200,335
30 June 2022	$48,503	$182,931	$317,359

Source: Vanguard. *Assumes the reinvestment of income distributions only.

It’s only when you compare the results side by side that the full picture becomes much clearer.

An initial contribution amount combined with a regular investment savings strategy and the reinvestment of distributions over time will deliver much higher long-term results.

In the example used above, there would have already been a significant gap after just five years (in 2007) between investors who had not made additional contributions versus those that had.

And you can see that gap would have kept on widening over time. After 20 years, any investors who had followed a $250 per month regular contributions plan would have ended up with more than three times the amount of money than investors who had made no additional contributions.

A $500 per month contributions plan would have increased the differential to more than six times.

Understanding dollar-cost averaging

There’s another major advantage in making regular investment contributions, which brings into play a well-known portfolio strategy called dollar-cost averaging.

You may not realise it, but you’re probably already undertaking this strategy (indirectly) if you’re a member of a super fund.

Here’s how dollar-cost averaging works. Every time your employer makes a contribution into your super fund account it’s automatically invested by your fund according to the default investment strategy that you’ve chosen.

Maybe you’ve selected a “high-growth” super option, a “balanced” option, or a “conservative” option.

Behind the scenes your super money is most likely being directed into different managed funds, which invest into shares, bonds, cash, and other types of assets.

While the amount of super your employer pays doesn’t change, your investment purchasing power does change every time you receive a new super contribution.

That’s because the prices of the managed fund units your super fund is investing into does change every day.

If those managed fund unit prices have risen since your last contribution, then your super fund will be purchasing fewer units than last time.

Likewise, if the managed fund unit prices have fallen in value, your super fund will be purchasing more units than last time.

This strategy works in exactly the same way if you make regular contributions at set intervals outside of your super to buy units directly in other managed funds and ETFs.

You’ll automatically buy more units when market prices are lower and fewer units when prices are higher.

Over the total period that you keep investing, your average entry cost into specific assets will potentially be lower than if you’d try to guess the best time to buy in.

As your unit balance grows over time, your corresponding distributions via company dividends and other payments will also keep on growing. That’s the magic of compounding investment returns.

Just like your super contributions, it’s all really about sticking to a disciplined, non-emotional approach to investing that’s not affected by what’s happening on financial markets at any point in time.

Making regular contributions, and taking advantage of dollar-cost averaging, really adds up.

They’re a powerful combination in helping you to focus on achieving your investment goals, ideally through an appropriately diversified portfolio, to give you the best chance of investment success over the long term.

Source: Vanguard

Reproduced with permission of Vanguard Investments Australia Ltd

Vanguard Investments Australia Ltd (ABN 72 072 881 086 / AFS Licence 227263) is the product issuer. We have not taken yours and your clients’ circumstances into account when preparing this material so it may not be applicable to the particular situation you are considering. You should consider your circumstances and our Product Disclosure Statement (PDS) or Prospectus before making any investment decision. You can access our PDS or Prospectus online or by calling us. This material was prepared in good faith and we accept no liability for any errors or omissions. Past performance is not an indication of future performance.

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Emilio Bangit July 13, 2023 No Comments

Will these super changes affect you?

As our superannuation balances grow larger, it makes more sense than ever to keep track of the many rules changes that have recently happened or are coming up soon.

Australians are investing more in super – almost $151 billion dollars in the year ending March 2023, an increase of 11.3 per cent.ⁱ

Those extra contributions, plus the rebound in the financial markets, have resulted in super assets of around $3.5 trillion.ⁱⁱ

And it is being put to good use. We took out lump sum payments totalling $53.5 billion dollars during the 12 months and pension payments of $42.3 billion.ⁱⁱⁱ

Quarterly rate of return

Source: APRA Quarterly superannuation performance statistics highlights, March 2023

To keep your super on track for a comfortable retirement, check out these latest changes in case they affect you.

Super bonus for workers

For employees, the new financial year kicks off with an increase in the Superannuation Guarantee paid by employers. It is now 11 per cent of eligible wages.

This rate will increase by 0.5 per cent each year until it reaches 12 per cent in 2025.^iv

The Australian Tax Office will also be cracking down on employers who don’t pay on time or at all. From 1 July 2026, super must be paid at the same time as wages rather than at the end of each quarter.

The recent Federal Budget also provided funds to help the ATO enforce super payments and recover unpaid amounts.

Minimum pension drawdown increased

A COVID-19 measure to reduce the minimum drawdown required on super pensions will end on 1 July 2023.

Investors receiving super pensions and annuities must withdraw a minimum amount each year. The federal government reduced this amount by 50 per cent over the last four financial years to help those wanting to protect their capital as the markets recovered from the chaos of the pandemic.

You can find out more by visiting the ATO’s minimum pension standards.^v

Transfer balance cap to be lifted

The maximum amount of capital that can be transferred to your super pension will increase to $1.9 million from 1 July 2023.^vi

The transfer balance cap limits the total amount of super that can be transferred into a tax-free pension account. This is a lifetime limit.

The cap is indexed and began at $1.6 million when it was introduced in 2017. Increases in the cap are tied to CPI movements.

You can see your transfer balance account and cap information in your online ATO account.

Extra tax for large balances

Investors with super balances of $3 million or more will lose the benefit of super tax breaks on earnings. From 1 July 2025, taxes on future earnings will be 30 per cent instead of 15 per cent although they will continue to benefit from more generous tax breaks on earnings from the funds below the $3 million threshold.

This change is expected to apply to around 80,000 people.

Other recent changes

A number of changes announced in both Federal Budgets last year have also been slowly introduced over the past 12 months.

In one major change, the minimum age was lowered for those able to invest some of the proceeds of the sale of their homes into super, known as a ‘downsizer contribution’.

From 1 January 2023, if you are aged 55 or older, you can now contribute to your super up to $300,000 (or $600,000 for a couple) from the sale of their home.

The home must be in Australia and owned by you for at least 10 years.

In another residential property initiative, a scheme that allows investors to use their super fund to save for their first home has been expanded.

The First Home Super Saver Scheme was last year increased from $30,000 to $50,000.

The Scheme allows you to make contributions into your super then apply to release them when you want to purchase your first home, provided you meet the eligibility requirements.

Another significant reform for many has been the removal of the work test for those under 75, who can now make or receive personal super contributions and salary sacrificed contributions. (Although the ATO notes that you may still need to meet the work test to claim a personal super contribution deduction.)

Previously if you were under 75, you could only make or receive voluntary contributions to super if you worked at least 40 hours over a 30-day period.

A further change introduced last year was the removal of the $450 per month threshold for super contributions.

Employers must now pay the super guarantee to all employees regardless of their earnings however, employees who are under 18 still need to work more than 30 hours in a week to be eligible.

While caps have been lifted and programs expanded, at least one scheme has not changed. The Low Income Super Tax Offset (LISTO) threshold remains at $37,000. LISTO is a government payment to super funds of up to $500 to help low-income earners save for retirement.

If you earn $37,000 or less a year you may be eligible a LISTO payment. You don’t need to do anything other than to ensure your super fund has your tax file number.

Finally, a project that may pay off down the track, the Federal Budget included continued funding for a superannuation consumer advocate to help improve investors’ outcomes.

Expert advice is important to help navigate these changes over the coming year. Call us for more information.

i, ii, iii https://www.apra.gov.au/news-and-publications/apra-releases-superannuation-statistics-for-march-2023
iv https://www.ato.gov.au/Business/Small-business-newsroom/Lodging-and-paying/The-super-guarantee-rate-is-increasing/
v https://www.ato.gov.au/Rates/Key-superannuation-rates-and-thresholds
vi https://www.ato.gov.au/Individuals/Super/Withdrawing-and-using-your-super/Transfer-balance-cap/

Emilio Bangit July 10, 2023 No Comments

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