For those with a Self-Managed Super Fund (SMSF) you are required to prepare an Investment Strategy, when you initially set up your SMSF and you need to review it on a regular basis, with the industry standard being at least annually.  You may also consider reviewing your investment strategy when there are changes in circumstances, for example a member entering pension phase, or a member making a large contribution into their fund.  The main reason that an SMSF is required to have an investment strategy is to allow for the members personal circumstances to be regularly reviewed as well as, to account for any changes in the markets and economies.

The investment strategy is a way to prompt you as trustees to review your investment portfolio and ensure that it is still current given any changes that may have occurred in your personal circumstances or the markets and economies.  It also helps you review your objectives, strategies and asset allocation to ensure that they’re still current and may even prompt you to make changes where needed.

When drafting an investment strategy there are a few key considerations that you should consider.

Liquidity Needs:

Each member’s personal circumstances and life-stages are an important factor with regards to the SMSF investment strategy.  If each member is 15 years out of retirement, then you may consider investing for growth and riding out any volatility.  However, if one or more members is approaching retirement or is in retirement, then you may need to use a more cautious approach to ensure that you can afford ongoing pension payments, but you may need to adopt some level of risk to help your super benefits last in retirement.

Risk Tolerance:

Each member may or may not have different tolerances to risk.  Some may like or feel comfortable taking on additional risk in the hope of achieving greater returns, however others may feel more comfortable only taking on a small amount of risk and may feel better preserving their capital by investing in mainly cash and fixed interest.  Either way, when reviewing your investment strategy and portfolio for your SMSF, you need to take into account each members risk tolerance.

Asset allocation:

The asset allocation of your SMSF portfolio needs to also be reviewed, especially alongside your risk tolerance, as you don’t want to be too overweight or too underweight in an asset class.  However in some circumstances you may be comfortable with being over or underweight in an asset class.  You may also review your asset allocation based on what’s happening in the markets or economies.  For example, with the cash rate at all time lows, you may wish to seek returns and income from other asset classes, e.g. investing more in shares or international equity.

Insurance Needs of the Members:

As trustees of your SMSF it is now a requirement that you must consider insurance as part of your Investment Strategy.  It is not a requirement for each member to actually hold insurance but it needs to be clearly outlined that insurance has been considered for each member.

Here at JBS we can help you prepare your Investment Strategy and can even help review your current Investment Strategy.

On 20^th March 2015, the age pension for a single person increased by $5.90 per fortnight increasing the total payment to $860.20 per fortnight. The rate for each member of a couple increased by $4.40 per fortnight to a combined rate of $1,296.80 per fortnight for a couple.

The Seniors Supplement which is paid as part of the Commonwealth Seniors Health Card, increased by $7.80 per annum to $1,262 per annum, for a single person and by $5.20 per annum each for members of a couple, increasing their combined annual payment to $1,898.

In the 2014 Budget, the Government proposed stopping the payment of the Seniors Supplement for Commonwealth Seniors Health Card holders. The amending legislation is still before the Senate.

Deeming rates, which apply for the purposes of calculating income derived from financial investments were reduced from 20^th March. The new deeming rates are 1.75% up to the threshold, and 3.25% for financial investments over the threshold. The threshold for a single person is $48,000, and $79,600 for a couple, combined.

The Department of Human Services made another important comment in relation to grandfathering of account based pensions for income testing purposes.

Where a person was in receipt of Government income support, such as an age pension before 1 January 2015 and they also had an account based pension in place before that date, the account based pension would continue to be assessed under the former (and often more favourable) income test rules. If the account based pension ceases for any reason, or the income support benefit ceases (even temporarily) the account based pension will then be subject to deeming.

The Department has reiterated that grandfathering will be lost where the benefit recipient receives no benefit payment of a “whole pay period”. This means people who have grandfathered account based pensions will need to exercise caution if planning on taking on casual work, even if only for a short period. If a fortnight’s income from casual work results in the loss of the age pension for just one fortnightly pay period, then the grandfathering of the account based pension is lost.

If you have any questions about these changes and how they could affect a Government benefit you are receiving, please contact the team at JBS.

As we go about our day to day lives we never think about what could happen to us, whether it’s becoming permanently or temporarily disabled, becoming quite ill or even getting into an accident.  For members of a self-managed super fund (SMSF) this could become an issue.  What as members and trustees of your fund can you do to prepare and handle these situations?

The first thing to do regardless of whether you have individual or corporate trustees is for each member to appoint a legal personal representative (LPR) under an enduring power of attorney.  By doing this, if you or another member become disabled and unable to conduct your normal duties as a member / trustee of your SMSF, then your legal representative steps in and takes over for you.  What you should make sure is that you choose the right person to appoint as your legal representative.  As you need to be certain that they understand what it takes to run an SMSF and the duties required of a member / trustee.

What you then need to ensure is that your Trust Deed allows for the legal representative to become a member / trustee of your SMSF.  Not all trust deeds allow for this and you need to make sure yours is flexible enough to allow the appointment of a replacement director or trustee depending on your structure.  If your trust deed doesn’t allow for this then in the event a member becomes disabled then the their super benefits may no longer be able to remain in the SMSF and must be paid out to another fund.

The final thing to do is to assess your trustee structure to ensure it allows for the seamless transition for the legal personal representative (LPR) to replace the disabled member.

The table below outlines the differences between an individual and corporate trustee structure.

Every situation differs and a member becoming disabled doesn’t always occur, thankfully! But by following the tips above you’ll be prepared for the worst case scenario. Our office will be able to assess whether or not you’re ready for this event, so feel free to pick up the phone and give us a call!

Table Source: SMSF Adviser

Movember is an annual event  involving the growing of moustaches during the month of November to raise awareness of men’s health issues, specifically prostate cancer and other male cancers.  The fact this event attaches so much attention and is encouraged by the medical profession show the seriousness these health issues have on families.

The facts:

• Prostate cancer is the most commonly diagnosed cancer in Australian Men (20,000+ new cases per year)
• 1 in 8 Australian men (1.3 Million) experience depression at any given time.
• Every hour, more than 4 men die from potentially preventable conditions in Australia.

There are many complex reasons for the poor state of men’s health which include: 

• Men not openly discussing their health and how they’re feeling
• Reluctance to take action when men don’t feel physically or mentally well
• Men engaging in risky activities that threaten their health
• Stigmas surrounding mental health
• Men are less likely than women to seek help for health concerns, and also less likely to use health care services

It is important that families are adequately protected to combat the financial impact that Prostate cancer and other illnesses impose.  This financial stress can be removed through implementing appropriate levels of insurance, an area JBS Financial Strategists can assist with.

For more information regarding men’s health issues click here.

Approximately $800 million+ was wagered on Melbourne Cup Day.  It is part human nature to trust in luck or a big windfall such as winning the ‘big one’ at the Melbourne Cup or the lottery, and for most people it’s just good fun.  But statistically we know this is highly unlikely to happen.  We also know that a high proportion of people will suffer a significant health event throughout their working life resulting in their income stopping.

There is a greater chance of suffering a heart attack than winning the Melbourne Cup trifecta.  In fact, the confronting news is if you buy a tattslotto ticket the day before the draw, studies show you have a greater chance of dying before the lottery is drawn than winning it.

The challenge is to make sure we take the ‘gamble’ out of things that really matter, like protecting our family in the event we become sick / injured and are unable to work to ensure we can continue to pay the mortgage and living expenses.

What are the Odds?

A lack of financial preparedness can have significant impacts down the track.  No one wants to find themselves in a situation where they can no longer support themselves financially.  It is about making your own luck rather than simply hoping for the best.

If you wish to discuss your risk protection options further, please contact one of the advisers at JBS.

From 1st January 2015, the way account based pensions are treated under the Centrelink Income Test will change, potentially reducing your entitlements to the Age Pension.

Account based pensions have generally been given favorable treatment when Centrelink assesses your eligibility for the Age Pension.  Currently, the income counted towards Centrelink’s income test from your account based pension is the pension payments you receive less a deductible amount. This usually results in a very low amount being considered income for Centrelink purposes and as a result many people with account based pensions are able to receive valuable social security support, topping up their own pension account payments to help their retirement savings last longer.

This is set to change on 1st January 2015 when new ‘deeming’ rules come into effect for account based pensions meaning they will be subject to the same ‘deeming’ rules that apply to financial investments.  All new account based pensions will be deemed as earning a certain rate of income regardless of the actual return of the investment.  The current deeming rates are as follows:

2% p.a. on investments up to $48,000 for a single ($79,600 for a couple).
3.5% p.a. on investments over $48,000 for a single (over $79,600 for a couple)

Deeming rates are currently low by historical standards.  Any increase to the deeming rates will increase the amount of income deemed to be earned from an account based pension which will potentially reduce age pension requirements further.

If you have an account based pension opened before 1st January 2015, your account will not be subject to deeming if you are receiving Centrelink income support payments immediately prior to 1st January 2015.

If you haven’t opened an account based pension and you are eligible to do so, there may be benefits in starting an account based pension and applying for Centrelink income support prior to 1st January 2015.

Not all pensioners will be affected by these changes, as some of you will be still be assessed under the Assets Test even if the deeming provisions did apply.  If you feel you may be affected by the changes please to contact our office to discuss further.

Ever wondered what a franking credit is? Well…it’s not what you get when you do a favour for your mate named Frank. (ha ha get it?) Franking credits are a useful little tool to help pay less tax or even boost up your investment returns.

What are franking credits and how do they work?
Franking credits, also known as imputation credits, are essentially credits representing tax that a company has already paid  (currently 30%) on its profits prior to a dividend being paid.

Basically franking credits stop double tax being paid on company profits as the tax paid by the company can then be passed to the shareholder.  So for example, your XYZ share that you own pays a dividend of $1.00 per share after tax. This means that they have already paid the 30%, so this $1.00 is actually $1.43 with $0.43 per share paid in tax. When you come to do your taxes, you get a credit for the $0.43 per share already paid so if your tax rate is 32.5%, you only need to pay the remaining 2.5% on the $1.00 per share dividend received.

Franking credits in superannuation
In superannuation (accumulation phase), the tax rate is 15%, compared to a company tax rate of 30%. The 15% difference in tax payable, can be refunded to your superannuation account and further enhance the return achieved from your share investments.

Example
Michael holds his super through a SMSF. He has an investment of 500 shares in ABC company which paid a dividend of $3.30 per share. This equates to a lump sum dividend payment of $1,650. With this comes $707 in franking credits (30%). As he is in accumulation phase and only paying 15% on income earnt within the fund, his SMSF is eligible to receive a refund of $353.50.

Franking credits in pension phase
The other good news is that when you are in pension phase and paying 0% tax, franking credits received by your super fund are fully refundable even without taxable income in your superannuation. This means that your super can claim back all the tax already paid by the distributing company from the ATO.

With either a superannuation or pension phase account, you need to understand the structure of your superannuation investments as bundled share purchases like through a pool super trust may not necessarily give you the same tax credits.

Example
Sally has reached age 65 and retired. She now has a pension account with a retail pension provider. Within her balance she holds 1,000 shares in XYZ company that paid a dividend of $8.70 per share. This equates to a lump sum dividend payment of $8,700. With that comes $$3,728 in franking credits (30%). As she is in pension phase and paying no tax, her pension fund is entitled to a refund of the full tax paid ($3,728) which would be repaid into the cash account of her fund and will help to cover ongoing pension payments.

Franking credits can be a great added extra in returns alongside growth and income to boost the overall return. They should most certainly be a consideration when developing an investment portfolio for your retirement funds. If you want to learn more about franking credits or direct shares, don’t hesitate to contact one of the team members at JBS.

Your children’s lives are full of great experiences and big adventures.  And as a parent, you’re there to support them every step of the way.  Most importantly, you’re there if your children ever get sick – regardless of the demands that may place on your time and your finances. No one likes to think about their children getting sick or injured but it is better to have a plan in place now to ensure you have options available to you should the unfortunate event occur.

Child Insurance can help you cover the extra financial burden of a serious illness, so you can do what ever it takes to get them healthy again.

What is Child Insurance?  Child Insurance pays a lump sum if your child suffers from a serious medical condition.  The point of Child Insurance is to provide funds to help you fund any out-of-pocket medical expenses, and allow you to take time off work to care for your child.  It is designed to get you by while caring for you child. To apply for cover your child must be aged between 2 and 18 years of age.

Conditions:  The types of conditions that Child insurance will provide funds for include cancer, blindness, brain damage, cardiomyopathy, chronic kidney failure, deafness, intensive care, loss of limbs / sight / speech, major organ transplant, meningitis, stroke, severe burns and a number of other conditions. Like all insurances, they vary between insurer and policy so you’ll need to refer to the Product Disclosure Statement of the product to know what your particular policy covers.

Cost:  Premiums for Child Insurance are inexpensive and easy to apply for.  There are no medicals or tests required and the cost can be as low as $10 per month for $50,000 of cover.

Continuation of Cover:   When your child grows into a young adult, generally Child Insurance can be converted to Trauma cover without the need for any medical tests.  This allows your child to continue being comprehensively covered in their adult years.

Sadly, many children suffer from medical conditions and accidents which are serious.  Child Insurance provides financial support should the unforeseen happen to your children and most importantly reduces the financial stress to provide choices to aid in your child’s recovery.  JBS can assist in this area if you wish to discuss in more detail.