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

If you are a Gen X or Y retirement is an average of 33.6 years away, for some it will be up to 50 if the retirement age is increased.  Not only is the age at which we retire creeping up but the time in retirement and money required to fund it growing too.  Forced super contributions have not been increased in line with this growth and as a result there is now a broadening gap between what one has saved for retirement and their actual needs.

Recent studies have shown that for a male to have a truly comfortable retirement he needs to contribute 17.5% of his annual salary to super until retirement and for females the figure is 19.5%.

9.5% of that is currently taken care of by your employer and the rest is up to you!  Is it really feasible to contribute 8-10% more of your income into super?  Let’s put it into dollar figures to make it simpler.  For an individual earning $60,000 this equates to an average $103 per week of extra savings.

If you committed to that saving plan at age 30 by the time you reached 40, it would have made an average $79,262 increase to your super balance.  If we extend that out to retirement (age 70) we are looking at a $1,041,108 difference.

What would you give up for an extra million dollars in retirement?  Your morning coffee? Buying lunch at work? Using non-preferred bank ATM machines?  Combining these simple techniques could easily get you on your way to saving $100 per week.

Unfortunately what we find for the Gen X & Y demographic is that if they cannot see an immediate benefit for themselves, they will not give it much attention.  They are extremely quick to take on debt to satisfy a want for a new car, piece of clothing or electronics, yet extremely slow to put any money away as they cannot see any present day tangible benefit.

It all comes down to education, JBS can assist the Gen X & Y’s with their financial needs. It’s about taking control today and you will thank yourself when it comes to retirement.  Start with what you can afford, get yourself into a saving rhythm and mindset that is sustainable and doesn’t impinge too much on your lifestyle.  Keeping your savings plan manageable is key to its success.

For every 1 dollar saved before age 35 you will have 7 more in retirement.  Would you turn down a 600% return anywhere else?

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.

Australians love being able to enjoy life with their friends and family, travel the world and drink till the sun comes up.  In order to do so we earn, save, invest, borrow and do whatever is necessary to accumulate enough funds to enjoy the finer things in life.  For a lot of Australians, taking financial risks is simply a part of everyday life; trading stocks, gambling or buying investment properties.

Today, over 80% of Australians are taking the biggest financial risk and not protecting their biggest asset, which is their own ability to earn money.  It’s relatively easy to earn it, it’s easier to burn it and apparently 80% of us think it’s too hard to protect.

In 2012, the Australian Life Insurance Industry paid out $4.4 billion in total claims.  This stat isn’t meant to highlight the fact that insurers do payout, but highlights the fact that tens of thousands of Australians in 2012 died, suffered from a terminal illness, were diagnosed with a critical illness or suffered a serious injury or illness stopping them from earning their most valued asset, income.

There are several Personal Insurance types that can assist in protecting you financially such as Life, Total & Permanent Disablement (TPD), Trauma and Income Protection.  Each serves its own purpose; to provide financial aid in the event the proverbial dung hits the fan.  Yet 80% of us think…
•    “It’ll never happen to me”, $4.4 Billion says otherwise.
•     “I’m sure it’s in my Super”, maybe, but is it enough?
•    “It’s too expensive”, where else can you get $4.4 billion?

Although Super is a convenient funding mechanism for Personal insurance it doesn’t come without its difficulties, especially at claim time.

When you hold Insurance within a super fund, the super trustee effectively owns your insurance and it is their responsibility to ensure any insurance payment made into the fund meets a ‘condition of release’ before they can be withdrawn from your super fund.  These conditions are set by the Superannuation Industry (Supervision) Act 1993 (SIS Act) and includes insurance claim benefits.

In the event an insurer pays out a claim, the benefits (money) are paid to the super trustee, not you or your beneficiaries.  It is then up to the trustee to determine if you meet a ‘condition of release’ before paying you the funds.  So a few legislative changes have been introduced, effective 1 Just 2014 to align and hopefully resolve the double handling of claims.

The old way:
Pre 1 July 2014, if you implemented Insurance inside a super fund, in order to get the proceeds of a successful insurance claim in your hands, you were required to satisfy two separate conditions, as mentioned above:
1.    The definitions under the insurance policy set by the insurance company to pay out the claim; and
2.    The superannuation ‘condition of release’ rules set by the SIS Act.

Unfortunately for some people who successfully claimed on their insurance, this made the process difficult.  Just because the insurance company said, “yes you can make a claim”, didn’t necessarily mean your super fund would hand over the cash.

The simple fact of the matter was a misalignment if conditions existed.  Insurers were approving claims, paying the benefits to the super trustee, but the super trustee was holding the funds inside the members super account because a ‘conditions of release’ was not met.

The new way
From 1st July 2014, the aforementioned conditions must now mirror one another, meaning that definitions of insurance policies available under super are much stricter.  They must reflect the ‘condition of release’ rules governed by the SIS Act.  This however, does not come without its pitfalls:

You can no longer implement the following types of insurances inside super:

*  Trauma cover
*  Agreed value Income Protection
*  Own Occupation TPD

Because of these restrictions, you may have to fund portions or entire personal insurance policies from your own pocket.

On the upside this new ruling will reduce a lot of stress at claim time as it sets expectations and makes the process more black and white, rather than rainbow coloured.  The new legislation changes also respect insurances implemented prior to 1 July 2014, you just have to be aware that your super trustee may stop or reduce the claim payable to you, holding any ineligible funds that don’t meet a condition of release inside your super.

We think the legislative changes are a positive move as the point of personal insurance is to protect you and your family financially, in the event of a medical tragedy such as death, or major injury / illness.  Any simplifications made to the claims process is always welcomed as it reduces stress and minimises time wasted during an already stressful time for both the claimant and their loved ones.

If you want to know more or if you want a review of your insurances whether you’re a JBS client or not, give us a call and we can chat further.

Ever lived and worked in the UK but decided to settle in Australia? Well, you probably have some superannuation in the UK – what they call a pension fund. For a number of years, rules have allowed the transfer of these funds to Australia to make the management of your retirement funds an easier task however laws in the UK are changing which will mean that this option is no longer available. There is currently a proposal by the UK Government to ban the transfer of final salary pension benefits from public sector schemes. Legislation is currently being drafted for the change to take effect in April 2015. The change has come about as funded defined benefit schemes play an important role in funding long-term investment in the UK economy, which the Government does not want to put at risk by allowing the money to leave English shores.

What are some of the benefits of transferring to Australia? Investment Choice – you make the decision on where your funds are invested to make the most out of your money;

Death Benefits – (assuming the funds remain in superannuation or pension accounts) the full balance at the time of your death is payable to your beneficiaries or your estate (tax may apply) whereas funds are usually reduced or not able to be transferred to another on your passing if the money remains in the UK;

Tax benefits – the funds that are transferred, come in line with Australian superannuation tax rules, with returns taxed at 15% while in accumulation phase and then tax-free in pension phase. Benefits are paid out concessionally taxed prior to age 60 and tax-free from the age of 60.

Lump sum payments – you can take up to 100% of your superannuation out if a condition of release is met (UK tax may apply if within 5 years of being a tax resident). This is restricted to 15% in the UK otherwise additional penalty tax applies.

What are some of the drawbacks of transferring to Australia? Lifetime pension – some UK pension providers will pay a pension for your lifetime. In Australia, this type of pension is no longer available.

Exchange rate – the transfer of funds will also mean a conversion in money from pounds to Australian dollars which may mean a reduction in the value of your funds.

Growth not taxed – the growth in your UK pension is not taxed but if you transfer to Australia the growth from the date you became an Australian tax resident until the transfer is taxed at either 15% or your Marginal Tax Rate depending on your election.

QROPS – the provider receiving the transferred funds has to be a QROPS registered provider and report back to the UK any withdrawals or changes to your account for a period of 10 years after the transfer. In addition, if you consolidate with your other Australian super, any withdrawals from the fund will first be considered to be taken from the UK transferred funds.

What are the main things to consider when transferring a UK pension to Australia? Moving your pension funds from the UK has major implications that should be fully investigated and understood before a transfer is commenced to ensure that it is right for you because once it’s done, you can’t go back. Some of the main things to consider when looking at a pension transfer to Australia include:

*  you must have permanently left the UK with no intention of returning there.
contribution rules still apply and you cannot transfer in excess of the fund cap – currently $540,000. *please note that JBS may be able to help if your UK funds would breach this limit.
*  your UK pension must not have commenced paying a pension
be an Australian resident for tax purposes and have a TFN
if you transfer your funds within six (6) months of becoming an Australian tax resident, no tax is levied on the transfer to Australia.
*  if you transfer your funds outside six (6) months of becoming an Australian tax resident, tax is levied at a rate of 15% on the growth component since becoming a tax resident if you elect to pay it within your super.
*  if you transfer your funds outside six (6) months of becoming an Australian tax resident, tax is levied at your marginal tax rate on the growth component since becoming a tax resident if you wish to pay it personally or if you still have other UK pension funds remaining in the UK.
*  how you elect to have the growth component taxed will determine how much of the transfer will be counted towards your contribution caps. It is critical that this is done correctly to minimise the likelihood of an excess contribution.

What does this mean for those with UK Pensions?

You still have time to transfer your UK pension to the Australian Superannuation System if you want to or if it is right for you however time is running out. With a rush to action UK pension transfer, the usual six month wait to get the relevant information from the UK is extending further by the day. If you want to consider your options in relation to a possible transfer, you should either contact your UK pension provider directly and ask for a valuation as well as retirement projections that provide you with the final benefit options available to you at retirement such as a lifetime pension, or alternatively contact our office and we can get the information and do the sums for you to ensure that it’s the right move for your financial goals and current circumstances.

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.