From 1 July 2017, superannuation fund members are subject to a $1.6 million transfer balance cap (TBC) which limits the tax exemption for assets funding superannuation pensions.

The TBC encompasses a significant amount of monitoring for an individual. This monitoring is to be facilitated by the Australian Taxation Office’s (ATO) event-based reporting framework.

Event-based reporting is a significant shift in SMSF administration processes. Therefore, it is essential SMSF trustees understand the event-based reporting framework and get it right.

Why events-based reporting?

Event-based reporting is required for the ATO to track an individual’s transfer balance account across all their funds including public offer and defined benefit funds and administer the appropriate consequences if an individual exceeds their cap

An SMSF is only required to report if one of its members has an event that impacts their transfer balance account, such as the ones listed below.

From 1 July 2018, time frames for reporting are determined by the total superannuation balances of the SMSF’s members:

– where all members of the SMSF have a total superannuation balance of less than $1 million, the SMSF can report this information at the same time as when its annual return is due.

– SMSFs that have any members with a total superannuation balance of $1 million or more must report events affecting members’ transfer balances within 28 days after the end of the quarter in which the event occurs.

What needs to be reported?

An SMSF must report events that affect a member’s transfer balance account, including:

– Income streams a member was receiving on 30 June 2017 that continued to be paid to them on or after 1 July 2017 and are in retirement phase.

– New retirement phase income streams.

– Some limited recourse borrowing arrangement payments.

– Compliance with a commutation authority issued by the Commissioner.

– Commutations of retirement phase income streams.

All SMSFs that were paying a retirement phase income stream at 30 June 2017 needed to complete and lodge a TBAR on or before 1 July 2018 to report the balance of each pension individually, for each member as at 30 June 2017.

An SMSF is required to report earlier if a member has exceeded their transfer balance cap, regardless if it usually reports annually.

Closing an SMSF and Roll-over to an APRA fund

If you are going to roll over a super benefit into an APRA-regulated fund and start an income stream you are encouraged to report the communication as soon as it occurs.

As APRA-regulated funds have a monthly reporting regime, waiting to report the roll-over can result in a double-counting of the member’s income streams.

How JBS can help?

For ongoing Full Service clients of JBS we remove this administration burden for you and work with our accountants to ensure that the TBAR reporting is met. For those who use an external accountant or an annual lodgement service it is critical to ensure that you understand your reporting requirements.

As always JBS are here to help so if you have any queries, please feel free to contact us.

The holidays are great time for families and friends to get together to enjoy the warmer weather and sunshine together. However, this time of year is also when spending can go a little overboard and people end up with an overwhelming credit card debt.

Below are a few ways to get yourself back on track this New Year:

Sell, Sell, Sell
Selling items you no longer use is an easy start. You can make a dent in the amount you overspent during the holidays and you can also make a jump on decluttering your house. Try to sell in local areas to reduce the cost of shipping items. By grouping items together such as 10 x books or bag of kids clothing size XX for a set price reduces the time you spend advertising items and increases the chance of a quick sale.

Eliminate non-essential items
Small inexpensive items add up over the month. If you don’t purchase that morning coffee or afternoon soft drink you could potentially save yourself between $150-200 a month. Consider cheaper alternatives like taking your coffee with you in the morning and making your lunch the night before.

Stop Shopping
This time of year can be tempting to purchase in the post-holiday sales, but if you are already in debt you cannot afford the items no matter how good the deals are. Unsubscribing from e-newsletters offering sale items is a great place to start, if you don’t see the deals you can’t buy them. Ensure you don’t do your grocery shop when you are hungry and take a shopping list so you don’t impulse buy.

Make this year’s financial hangover the last, contact JBS today and we can help you give your finances that bright New Year feeling.

I often get asked why I love being a financial adviser – well the answer is simple, I get to help our clients every day of the year. Along with my awesome team we are able to make such a difference in the lives of our clients whether it be when we get to help them retire, hold their hands when something goes wrong in their lives or be at the end of the phone when the markets get the wobbles.

Being an adviser comes with a huge amount of responsibility, that we often take for  granted and it’s not until we are able to sit back and reflect on all the good that we do that we often realise just how much of a difference we can and do make in our client’s lives. Take today, let me tell you about three clients, their stories and how it all unfolded, firstly let me introduce you John* and Sue*, they are both 70 and fairly typical retiree clients. They have combined investible assets of $850,000 and are receiving overseas pension income of $17,000. Their living expenses are around $60,000 including some low-cost holidays and they don’t qualify for any Centrelink at this point.

Their worry is how long will their money last, can they keep taking annual holidays, travel more than once a year, or do they need to cut back, especially with the current volatility that we are experiencing in the market. Now this is not an uncommon question and whenever we catch up with our clients to discuss their strategies, this question if it’s not asked, it’s certainly on their minds.

By anticipating their needs through experience, we had already projected out what continuing to receive a total retirement income of $60,000 would do for their retirement plans. In addition, we had prepared 2 other projections at $70,000 and $80,000 to highlight just how long on conservative projections their funds would last. Now the portfolio that John and Sue have within their fund is nothing sexy, more a very stable mix of quality blue chip Australian Shares, some international and local ETF’s, term deposits and some bank hybrids. Diversified enough that volatility is reduced and a portfolio that reflects their risk profile along with two to three years of cash plus dividends and income to fund pensions and ensure that in a downturn they wouldn’t have to sell any of their growth assets.

Our reward was to then experience the delight that they wouldn’t run out of money until they were hitting 100 years of age and that was on the projection for higher drawings. Turning a conversation around from how long will my money last, to what places we’d love to travel to and what would we love to tick off our bucket list just makes our day.

To keep reading this article click here

– Jenny Brown –

*The names of clients have been changed to protect their privacy.

In August of last year, ASIC completed a review of the direct life insurance industry and revealed some startling statistics in their report (Report 587).

Direct Life Insurance is defined as being sold to consumers by insurers or their sales partners, by outbound telemarketing, inbound phone calls from consumers, online or face to face (through bank branches). These products are sold with general advice or no advice given meaning that the consumer’s circumstances are not taken into account.

The report revealed that:

– 1 in 5 of all policies taken out were cancelled in the cooling off period

– 1 in 4 of all policies that remained in force beyond the cooling off period were cancelled within 12 months

– 3 in 5 of all policies sold were cancelled within three years

– 15% of claims from direct life insurance are declined and 27% of claims are withdrawn

The average declination of claims across the entire industry is 7%, less than half of that compared to direct cover.

ASIC believe that these high rates of cancellations and claim declines is due to consumers being sold products they don’t want, can’t afford, or don’t perform as expected.

ASIC also found that consumers struggled with the sales experience and complexity of the products, and consumer understanding of key features is often poor. ASIC identified a failure by the salespeople to provide adequate information about important aspects of the cover, including key exclusions and future premium increases. It is hypothesised that this lack of understanding about the product resulted in the high cancellation and claim declines.

A 2015 report, Underinsurance in Australia, with data compiled by Rice Warner revealed that that median level of:

– Life insurance meets 61 per cent of basic needs

– Total and permanent disability insurance meets just 12 per cent of basic needs; and

– Income protection cover meets just 16 per cent basic needs

So not only are people cancelling their covers early, even if they do hold the policies for a long time, the insured amount is often quite low compared to what they require.

At JBS we know that insurance can be complex with often slight differences between policies, but you do not have to try and organise it on your own. As well as selecting the best product for you, we can also help determine the appropriate amount of cover required ensuring that all of our clients are properly insured to protect themselves and their families. Finally, in the event of a claim, we will also be there guiding you through the process making everything as painless as possible.

If you are worried about your insurance levels but are too scared or time poor to go at it alone and would rather seek the help of a professional, please contact our offices at 03 8677 0688.

– Liam Rutty –

As 2018 draws to a close, we look back and reflect on the year which has seen the JBS Team grow and change both individually and as a group. Warren joined Jen as a partner within JBS, Peter got married and the JBS team were there to help celebrate. Both Peter and Liam became Associate Advisers, Aakash is now a permanent resident and we have welcomed Varsha as a new full-time team member. Richard’s and his mates from school Nick and Locky have joined the team to help with administration and all things client services while they complete their university degrees and all celebrated their 21st birthdays. Liam purchased a new car and continues his reign of “Nugget Challenge Champion” in the office. Pj left the Victorian winter behind to conquer the summer in Europe and had an absolute blast. Jen and Bren are loving their lifestyle change and move down to Mt Martha.

From a business perspective, JBS has had an awesome year, we’ve continued with our educational series Join with Jen, Retire Right, and launched Partner Protect so if you haven’t yet seen any of our videos, jump on our website and take a look.

As we reflect on the positive year our team has shared together, there will be people going into this holiday season who are less fortunate than ourselves. Throughout the year, JBS has supported Make A Wish Australia, and in the spirit of giving we have again decided to donate to this charity instead of sending Christmas cards to our valued colleagues, clients and team. You too can make a donation to Make A Wish who grant the wishes of children suffering from life threatening medical conditions.

Holiday Opening Hours

JBS Financial Strategists will be closing on Thursday, 20th December and re-opening on Monday, 7th January 2019. During the holiday closure the business will be supported via email or Jen’s mobile phone for urgent issues.

We would like to thank you for your ongoing support and commitment throughout 2018.

From all the team at JBS, we would like to wish you, your family and your friends a wonderful holiday break, a safe & prosperous New Year, and we look forward to seeing you in 2019.

Below is a little snippet from our recent Team Christmas Event – it was a fantastic day, what a great team we have!

Life insurers will generally offer you the choice to have either Level or Stepped premiums, or a combination on their policies. The type of insurance premium structure you choose will affect the initial cost as well as the total cover over the life of the policy. Generally speaking the duration of the cover may help to determine the appropriate premium structure you should use.

Stepped Premiums – Stepped premiums increase as you age, reflecting the higher likelihood of a potential claim. Stepped premiums have a lower upfront cost over the short-term (when compared to Level premiums), however as you age, the Stepped premiums start to increase, and the longer it is held, the more significant the increase becomes. Therefore, if you plan to hold the level of cover for a long period, generally greater than 10 years, it may be more beneficial to take-up a Level premium.

Level Premiums – Level premiums can provide you with peace of mind as they are designed to remain stable. The premiums will remain stable from the policy commencement until you reach a predetermined age (e.g. age 55 or 65), at this point the premiums will switch to a Stepped premium. Level premiums can still increase due to indexation or other increases to the sum insured. Level premiums can also change if the underlying assumptions and/or expenses of the insurer have changed since the policy started – however this will generally affect the stepped premiums as well.

At the beginning of the policy, Level premiums generally have the higher upfront costs when compared to Stepped premiums. This is due to the increased risk of claim as the insured person ages have already been factored in.

Hybrids Premiums – Some insurers may provide you with the option of a hybrid premium structure that allows you to use Stepped premiums for a portion of the cover, together with Level premiums for the remainder of the cover. This allows the premium structure to be aligned to short-term or long-term needs within a single policy.

From the beginning it’s important that you implement the correct cover and policy structure, as replacement policies can result in Level premiums being calculated based on your age at the time of amendment. If you take out new cover later on, you may also have to undergo medical tests and the like, which could result in the possibility of loadings or exclusions being applied to your policy, if you end up changing. This could result in your new cover becoming more costly or even unattainable and therefore effectively locking you into your current cover with the incorrect policy structure and/or cover.

JBS can assist you with all your personal insurance needs and can help determine the right level of cover for you and assess which premium structure is more suitable for your needs.

In previous articles, we have written about the importance of ensuring that your biggest asset – your earnings capacity is protected.

A question we often get however is how do I know if what I have is ok?

There are many Income Protection policies on offer with many options but one of the biggest differences you need to understand what happens in the event of a claim with an Agreed Value Policy compared with an Indemnity Policy. The wrong option can have catastrophic consequences to your financial position when you need the cover the most.

In order to make the right choice, you must first understand the differences between these two options.

An Agreed Value Policy is signed off at the start, i.e. what level of income they’re willing to cover. It provides you with certainty at the time of insurance application, the amount that you have been insured for will be paid, if you need it.

Whereas with an Indemnity Policy, the benefit amount is estimated at the start but not financially assessed until the time of claim.

In both instances, you generally are able to insure up to 75% of your income, but the difference in the event of claim can be significant.

So which one is advantageous for you?

Indemnity Value Policies are usually cheaper when compared to Agreed Value. However, there is no certainty on the monthly benefits received upon the claim. Although Agreed Value income protection might be a little more expensive, it holds more value as it provides you with certainty on the benefit amount you will receive.

Indemnity value covers are suitable for people with a steady income over the years. However, it is quite common for things to change which may lead to the decline (sometimes only short term) of your income.

Possible reasons for a decline in income (which would impact on an indemnity claim but not an agreed value claim):

– You may be in a stable employment now but have you ever dreamt about starting your own business? Clearly, the goal would be to return to a similar or high income but this move can often lead to a short-term income drop and provide an exposure.

– You may wish to change your career entirely. This could involve further study and again a reduced income for a period of time.

– Your current industry or expertise may be subject to disruption which could affect your earning capacity or require further study.

– You may wish to reduce your working hours or start a family.

– You may have your hand forced and need to give up your career or dramatically alter your hours if a family member becomes very ill.

Unfortunately, one of the most tragic situations we have seen was with a middle-aged man who overtime had his work hours, job performance and income gradually get affected as a result of a debilitating mental health illness. The illness caused him to have to reduce his hours and responsibility and even take periods of unpaid leave. Rather than going on a claim in the initial stages, he struggled through perhaps in denial. The gradual decline in health eventually resulted in a claim; however, the claim was reduced as his pre-disablement income was actually lower than what it was when he took the policy out. Had he taken out an Agreed Value Policy, he would have been entitled to a higher level of income which would have provided much more financial support to him and his family and would have allowed him to focus on his recovery.

For anyone who has default Income Protection cover through work or a Superannuation provider, it is critical to understand these differences as often default insurance is on an Indemnity Policy basis.

It is also important to understand that the older we get the more “uninsurable we become” so locking in a good policy now while you are young and healthy can make a significant difference when you need the policy the most.

At JBS we help people assess their need for cover every day. We provide clients with piece of mind which allows them to get on with their lives in comfort knowing that they are covered. Please contact us so that we can provide you with the same level of comfort.

From the 1st of July 2018, if you are at least 65 years old and meet the eligibility requirements, you may be able to choose to make a downsizer contribution into your Superannuation fund of up to $300,000 from the proceeds of selling your home. Normally after age 65 you would need to meet a work test in order to contribute into Super, the great thing about this is that you don’t need to meet the work test to be eligible.

The contribution will not be counted as a Non-Concessional Contribution and will not count towards any contributions caps. The downsizer contribution can still be made even if you have a total super balance greater than $1.6 million, however if your balance is above $1.6 million you are still restricted to having $1.6 million in the pension phase.

The contribution is only able to be made once on the sale of one home, therefore if you sell a second home you can’t make the contribution again. There is also no requirement that you have to purchase another home or actually downsize your home as the name may suggest. In order to be eligible you must tick all of the following criteria:

– You are 65 years old or older at the time you make a downsizer contribution (there is no maximum age limit)

– The amount you are contributing is from the proceeds of selling your home where the contract of sale exchanged on or after 1st of July 2018

– Your home was owned by you or your spouse for 10 years or more prior to the sale. The ownership period is generally calculated from the date of settlement of purchase to the date of settlement of sale

– Your home is in Australia and is not a caravan, houseboat or other mobile home

– The proceeds (capital gain or loss) from the sale of the home are either exempt or partially exempt from capital gains tax (CGT) under the main residence exemption, or would be entitled to such an exemption if the home was a CGT rather than a pre-CGT asset (acquired before 20th of September 1985)

– You have provided your super fund with the Downsizer contribution into super form either before or at the time of making your downsizer contribution

– You make your downsizer contribution within 90 days of receiving the proceeds of sale, which is usually at the date of settlement

– You have not previously made a downsizer contribution to your super from the sale of another home.

It is important to note that if your home was owned by just the one spouse, the spouse that did not have an ownership interest may also make a downsizer contribution, provided they meet all of the other requirements.

The maximum contribution you can make under the downsizer rules is $300,000, or $300,000 each if a member of a couple. However, the contribution can’t be greater than the total proceeds of the sale of your home. For example if you and your partner sell your home for $400,000 you’re only eligible to make contributions of $200,000 each, or it can be split in another way such as $300,000 and $100,000.

You must also make your downsizer contribution within 90 days of receiving the proceeds of sale, which is usually at the date of settlement. In some circumstances the ATO may at their discretion extend this 90 day period, but you will need to apply for it. It is also possible to make the contributions in multiple batches, but the total amount can’t exceed $300,000, and all contributions must be made within the 90 day period.

If you’re thinking of downsizing your home and wish to explore your options in relation to making downsizer contributions, please don’t hesitate to contact JBS and we can assess your options and eligibility. It is a really great opportunity to help build your wealth in a tax effective manner.

Many of you would have automatic Insurance through your default Super Fund that you would have been signed up through your employer. But what you may not realise is some of the caveats in these policies.

1. Renewability of Cover:
Some super funds have the ability to cancel your cover when certain events occur. If you were to claim on this policy the insurer can simply decide to not cover you any longer. This puts you at potential risk of not being covered for a significant portion of your life. A retail insurance policy may guarantee your cover as long as your premium is being paid, giving you peace of mind if something was to happen to you.

2. Claims while off work
If you have default income protection cover within your Super Fund it is prudent you check the terms and conditions. Some insurance policies held in Super Fund may have a clause in their Income Protection policies that if you are unemployed for any reason, you will not be covered. For example this could be due to taking a long holiday or going on maternity leave.

3. Stepped vs. Level premiums
A stepped premium will increase each year as you get older, eventually becoming expensive. On a Level premium, you essentially lock in the premium at the age in which you take out the policy, and only indexes slightly each year. Although stepped premiums can be more beneficial in some circumstances, when holding cover for a long period of time level premiums are generally more affordable. Most super funds do not offer cover on level premiums, or if they do the cover usually decreases as you age.

4. Cover whilst overseas
Default cover within your Super Fund may not allow you to remain overseas for any length of time to receive treatment whilst on a claim. In order to meet their definition, you must either be in Australia to claim or return to Australia for treatment. Retail insurance policies may allow you to remain overseas to allow you to receive treatment and stay on claim.

5. Differing definitions of disability
Cover within Super Funds generally will only classify you as fully disabled once you can no longer conduct your occupation at all and needs to remain the case to continue the claim. This is fairly restrictive for members who may want to get back to work in some capacity. For example, there may be a member can work 1 day per week. A retail insurance policy may have a three tier definition of total disability

– Initially, you cannot perform one important duty of your regular occupation

– 10 hour definition – allows members to work up to 10 hours per week whilst on full claim.

– Loss of income definition – allows member to earn up to 20% of pre-disability income without losing any claim benefits.

We note however that these definitions can vary slightly between insurers but are generally very similar.

As always – check the details or give us a call
When comparing insurance within various superannuation plans, we often find that not only are the definitions widely different, but that often if you haven’t reviewed your cover for a while you might find that the premiums have increased significantly and as the insurance is coming from a default superannuation fund, you may be unaware of these changes.

If you would like a review of your current insurance policies and to get a better understanding of what you are and aren’t covered for, feel free to contact JBS.

– Peter Folk –

Most of us can only dream about leaving our work forever to do as we please. For those who are close to retirement however, this can be a time of excitement and relaxation. Spending countless days at the golf course or with our community groups, families and friends sounds like heaven on earth. The transition from full time work to full time play however may have some unforeseen pitfalls. Here are 5 facts about retirement that you should consider before retiring.

Time
One of the first things retirees quickly discover is that they have too much time on their hands with nothing to do. Playing a round of golf with mates or enjoying a drink at the bar will only fill up a certain amount of time in the day and you can’t go doing the same thing every day. Retired couples and singles alike will quickly become very unhappy once they run out of things to do.

Having ideas in your head about what to do in retirement is one thing; however actually doing them is another. Some experts are suggesting retirees have a day to day plan on what they want to do and even seek an adviser leading up to retirement. You will never be as busy as you were pre-retirement so it’s important to map out ongoing hobbies, part time work and social events before embarking on retirement.

Retired husband syndrome
Many couples get very excited about retiring together, travelling the world together and spending a lot of time together. If this is you then consider the fact that you and your other half may have been together for the past 30 years working full time. Aside from weekends and holidays, you never have to see each other for more than a couple of hours in the morning and night. Now all of a sudden you see each other 24 / 7 and may even start to discover that you can’t stand being together for a prolonged period of time. Determining your own hobbies, goals and friends will assist to avoid “retired husband syndrome’. Again, seeking help from an adviser may also assist in preparing you and your loving partner for retirement.

Not having enough money to fund retirement
Once retired you might have the goal to travel, see the world and complete your bucket list, unfortunately you might not have the funds to do so. Travelling can become very costly. A single international trip can set you back several thousand dollars if not more. By the time your second trip comes around you may find that your retirement funds are not adequate and you’ll need to start tightening the belt. Having a good financial planner early on can prepare you and set realistic goals for your retirement. This way you will have a clear expectation of what you can afford in retirement and prevent any nasty surprises once you’ve retired.

Entitlement to social security
At the moment the Australian pension age is age 65.5 and increasing with each year. During retirement some retirees aren’t aware of what social security benefits they’re entitled to. Even if you are receiving funds from your Superannuation benefits, you may still be entitled to a government age pension (subject to the income and asset tests). Having a good financial adviser by your side will ensure you’re kept up to date regarding any social security payments you’re entitled to.

Losing your identity from not being at work
For those of us who are passionate about our profession, this becomes our identity. Anytime your friends or family think of Engineer, Accountant or Doctor, they think of you. So it’s no surprise that once you retire you may feel like you’ve lost your identity, which may lead to discontent and even depression. Without the daily interaction of your work colleagues your mental and even physical health may start to deteriorate. Retirees who are not very active tend to decline rather quickly mentally and physically. Joining up to the local gym, taking up classes and just continuing to meet new people will have a longer lasting effect for you.

Financial independence gives you the freedom to make your own choices, speak to the team at JBS to start your retirement journey today.

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