Are you turning 55 soon? Well congratulations! They say life starts at 55….or was that 40?? Either way, you get to have a party, and get lots of presents. But one present that you won’t be able to get is your superannuation.

For Australians to be able to access their superannuation, they must have met a condition of release. Generally speaking, a condition of release is usually around retirement or long term illness or injury. Part of the retirement condition of release is a requirement to have reached ‘Preservation Age’ which is set by the Government and is based on your birthday.

From 1 July 2015, Australians turning 55 will no longer be able to access their superannuation if retired, but rather will have to wait another 12 months to be able to do so. The preservation age will progressively increase in the coming years and you should be aware of them to know when your preservation age is.

What does this mean for you? Well, if you were planning on retiring early, you need to ensure that you have access to alternative funds or assets to provide an income to cover your expenses before you are legally allowed to access your superannuation funds. While retiring early may not be everyone’s plan, you should also take this into consideration as the preservation age is only increasing and you may find that when you get closer to retirement, you might want to look at your options and if you don’t have sufficient alternative options, you may have to continue to work until you can access your superannuation.

This shouldn’t be confused with the Age Pension age which is the age that you are entitled to receive Government benefits if you meet other qualifying conditions. The Financial Services Council has called for further increase to the preservation age to bring it in line with Age Pension age, as they are worried that some Australians will choose to retire early and utilise their superannuation for the years before Age Pension kicks in, and then rely on the Government to fund the remainder of your life.

If you’re worried about what the increasing preservation age will mean to your retirement, you should contact JBS for a chat.

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.

In the late 80s interest rates peaked at 17% which made home ownership out of reach for most people and hard to cover for those that had them. We move forward to today and the Reserve Bank Cash Rate is at a very low 2.25% with the last rate rise occurring in November 2010.

While this isn’t great news if you’re thinking of investing into bank deposits or fixed interest investments as returns are low, it does open up opportunity for people to review their mortgage, other debts and financial planning affairs in general.

Some of the main considerations could be:

–   Obtaining a low rate mortgage that still provides the benefits that you need or utilise. If you refinance to the lowest rate loan you could end up paying a higher interest rate on your credit card and may not be an appropriate strategy or beneficial for you

 
–   There are lenders outside the major 4 banks. While many of us complain about the big 4 making massive profits, we also like their security. You can consider options outside the banks and look at credit unions, lending societies, and other lending institutions.

 
–   Reducing your mortgage interest rate and continuing to make the same level of repayments could see you reducing the length of your loan which means interest savings. But, are there restrictions on how much you can make in additional payments? Do you have a redraw facility in case you need to access the funds?

 
–   Credit card interest rates are high and can be up to 20% so consolidating debt may be a way to go, especially if you can reduce that down to say a mortgage rate of around 5%. But beware because if you don’t make additional payments to cover the consolidated funds, you are extending the term of this debt and could end up paying higher interest over the life of the debt.

 
–   Margin lending becomes more appealing with lower interest rates however any strategy that includes debt, should also have contingency plans. Can you still afford it if interest rates increased by as much as 3%? Do you have relevant insurances in place to ensure that can cover your obligations if you can’t work?

 
–   Returns on cash and fixed interest investments become lower and shares become more appealing however you need to consider the risks involved. Chasing returns rather than investing into a diversified portfolio could see a decline in your balance outside what you are comfortable with.

 
–   Be careful with your spending, with additional funds in our pocket due to lower interest rates, it is tempting to spend more. Maybe consider making additional repayments of debt, additional savings or additional super contributions to ensure that the additional money available in your cashflow isn’t blown.

While you may think that you’re personal situation hasn’t changed, the world around you is. Interest rate rise and fall, economic markets changes and legislation is amended, which is why you should be regularly reviewing your financial position. If you haven’t had a review of your financial plan lately, make sure you give the team at JBS a call to make an appointment.

The Commonwealth Seniors Health Card (CSHC) provides concessional benefits to self-funded retirees who aren’t entitled to the Government Age Pension.

Some of the benefits provided include:
•    Concession rates for medication (Pharmaceutical Benefits Scheme)
•    An additional Seniors Energy Supplement payment
•    Other concessions provided by State, territory and local governments as well as private businesses, in the areas of health, transport, education and recreation

To be eligible for CSHC a person must meet the following criteria:
•    Have reached the age of Pension entitlement
•    Not qualify for pension payments from the Department of Human Services or Department of Veterans Affairs
•    Meet residency requirements
•    Meet the income test which is based on your Adjustable Taxable Income

The income test is as follows:

Changes from January 1st 2015

Any person, who commenced a superannuation income stream from the 1st January 2015, will have their Account Based Pension deemed as income. This means your account based pension income is now subject to a rate of income (deeming rate) for calculation purposes rather than the previous calculation of reducing the gross annual pension payments by the relevant deductible amount which is actually a return of the original capital. This could make it more difficult to meet the income test.

The deeming rates are as follows:

Anyone who has commenced a super income stream prior to the 1st January 2015 will be exempt from the new rules as long as they became holders of the CSHC before 1st January 2015 and continue to be eligible in the future.

Example 1
John is 66 years old, married, and a holder of the CSHC before the 1st January 2015.  John and his wife have a combined annual income of $70,000 per year.  John also has $600,000 in a tax free account based pension, which he commenced before the 1st January 2015 and draws $45,000 per annum.  Because of the grandfathering rules, John’s Account Based Pension will not be subject to deeming rules as it was commenced before the 1st January 2015.  The pension is subject to the old rules, giving him a deductible amount of $33,784 on the $45,000 he’s withdrawing from his Account Based Pension.  This means that only $11,216 will be assessed as income.  This amount together with John and his partner’s income of $70,000 brings their total annual income to $81,216, meaning he will be eligible for the CSHC.

Example 2
Cath is 66 years old, married and a holder of the CSHC before the 1st January 2015.  Cath and her partner have a combined income of $70,000 per annum.  On the 2nd February 2015, Cath decides to move her account based pension, which is worth $600,000 to a new product.  As a result, Cath loses the grandfathering provisions and her new account based pension will be deemed to earn $19,806 worth of income.  Together with Cath and her partner’s taxable income of $70,000, brings their combined total income to $89,806.  In this scenario, Cath would fail the income test, as their combined income is over $82,400 meaning Cath will not be eligible for the CSHC.

This is why it is very important to seek advice before considering re-booting an existing pension. The benefits that you currently receive from holding the Commonwealth Seniors Health Card must be considered as part of the assessment in the strategy to re-commence any income stream to ensure that the strategy is right for you.

If you wish to discuss how these changes may affect you, please contact the JBS team.

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?

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.