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How life insurance in your super could impact your retirement savings

If you have super with a default fund (i.e. the one your employer offered) you will have some form of life insurance, unless you have opted out. If you have researched and selected a superannuation fund specifically for yourself, you have probably been offered insurance. Either way life insurance and superannuation go hand in glove.

The fact is, insurance in your super can be a bit of a safety net, providing some protection in certain circumstances. But what is the insurance offered and how much can the premiums impact your retirement savings?

In conjunction with the release of Canstar’s 2018 Superannuation Star Ratings, our research team crunched the numbers to project a few possible scenarios to demonstrate what difference opting out of default life insurance could make to your retirement balance.

Many superannuation funds offer life insurances, such as death cover, total and permanent disability (TPD) cover and income protection, with a combination of these often set as default inclusion.

Are you ready for retirement? Where to start.

One of the key challenges for people approaching retirement is adequately preparing for it. The other big challenge is gaining greater confidence in how their finances might look once retired.

Getting the right advice helps enormously with this, and likewise beginning the planning process earlier rather than later will reap rewards.

What are the stats?

A recent survey conducted by Vanguard of more than 5,500 people aged 55-75, across Australia, US, UK and Canada, showed that many reported that they experienced an increased level of satisfaction with their financial position upon retirement.

One contributor to this result was the higher incidence of people within the first 10 years of retirement seeking financial advice, compared with those still up to 10 years away.

Even amongst those who had access to some form of financial advice during the lead up to retiring, some still experienced regret about how well they prepared.

 

People’s biggest regrets

The biggest regrets of recent retirees included:

  • Not saving enough
  • Not starting the planning process early enough
  • Not spending enough time planning for it
  • Not learning enough about superannuation – in Australia,
DIVERTING PERSONAL SERVICES INCOME TO SMSFS

Diverting personal services income to SMSFs

The ATO is currently reviewing arrangements where individuals (at, or approaching, retirement age) purport to divert their personal services income to an SMSF, so that the income is taxed concessionally (or exempt from tax) in the fund, rather than being subject to tax at the individual’s marginal tax rate. These arrangements normally involve the individual’s income being paid to another entity (e.g., a company) which then makes distributions to the SMSF as a ‘return on investment’ (e.g., dividends, where the SMSF holds shares in the relevant company).

WHAT TO DO

The ATO advises any people that have entered into such an arrangement to contact the ATO by 30 April 2017, so they can work with them to resolve any issues in a timely manner, and minimise the impact on the individual and the fund.

Please Note: Individuals and trustees who are not currently subject to ATO compliance action, and who come forward will have administrative penalties remitted in full (although interest may still be payable on any tax collected later than it should have been).

Average costs of an SMSF Administrator-SMSF Admin-Self Managed Super Fund Admin-SMSF Specialist-how to setup an SMSF

What are the average costs of running an SMSF?

The perceived high costs involved with running your own fund can sometimes be the determinant factor for many people, especially when considering if having an SMSF is right for them. In addition to this, the first question I get asked from prospective clients is “what are your fees?”. It’s a legitimate question and is usually the catalyst for trustees to change administration providers, that and the lack of perceived value they are receiving for that cost.

Being in this industry for quite a while now I have come across many different fee structures. Traditionally the fees to run an SMSF are higher than your industry or retail fund, however the opportunities afforded to you with control and flexibility need to be weighed up in terms of the value they provide you in reaching your retirement goals. In 2014 Rice Warner Actuaries conducted research on the SMSF operating costs across the country and have come up with a scaled view demonstrating the variance in costs.

What are the average costs of running an SMSF? SMSF Administrator-SMSF Admin-Self Managed Super Fund Admin-SMSF Specialist-how to setup an SMSF

*In 2014 Rice Warner Actuaries

This table is based on a fund in accumulation mode and doesn’t take in the extra costs firms are charging for pension set ups,

financial literacy financial jargon superstash

Solution to Improving Adult Financial Literacy

I was interested but not necessarily surprised to read two articles this week relating to financial fortunes of the general Australian population. The first article talked about financial literacy, where a study by Zurich and Oxford University found that Australia ranked near the bottom of the tables. In the second article, a study by the Actuaries Institute found that almost a third of Australians are in danger of running out of money because they are drawing too much out of superannuation.

With the percentage of Australians that do not currently seek any ongoing financial advice sitting at close to 80%, these reports should not be surprising to anyone. The risk of not achieving any long term goal without some form of coaching, mentoring or external direction is extremely high and it makes sense that those with a trainer, coach or in this case an adviser, have a far better chance of maintaining discipline and achieving their goals.

 

Why is it that so few Australians reach out for financial advice to help improve their financial literacy? 

SMSF Administrator-SMSF Admin-Self Managed Super Fund Admin-SMSF Specialist-how to setup an SMSF-EOFY SMSF Checklist

Top 10 end of financial year tips for your SMSF

The end of the financial year is the perfect time to give your SMSF some love.  The following are our top 10 pre-30 June items we believe every SMSF trustee should look at.

  1. Take your minimum pension!
  2.  Maximise contributions
  3. Superstream
  4. Review your SMSF investments
  5. Pay any outstanding taxes or fees
  6. Property
  7. Collectibles
  8. Valuations for EVERYTHING
  9. Update your SMSF trust deed
  10. Is it time for an SMSF trustee company?

 

 

  1. Take your minimum pension!

 

If you are taking a pension from your SMSF, you need to make sure you’ve taken the minimum required amount before 30 June to enjoy all that juicy tax free income and refunds of franking credits!

Adviser or Broker?

ASX listed equities are statistically the most common asset in an SMSF and this is reflected in the hundreds of SMSF accounts I review each year. A common question I ask my clients is “do you have an adviser or a broker?”

I get mixed answers to this question. Some brokers call themselves advisers but only provide investment advice, occasionally investment research or IPO access and execute trades.  Some brokers act purely on an ‘execution only’ basis – they solely action share trades on behalf of trustees.

My point is that these traditional style brokers have their place, but they are very different to a financial adviser that provides broad advice across your overall financial life. This means that sometimes you can miss out on key strategic advice or truly getting the right advice that suits your needs because your ‘adviser’ is purely focussed on your investments – not you as a person!

In the day to day administration of our client’s super funds we sometimes have to ask trustees questions in relation to structure,

SMSF-collectibles

Collectibles – time to act

Collectibles and changes from 1 July 2016

Does your SMSF own artwork, jewellery, coins, vintage cars, wine collections or antiques to name a few of the major items deemed collectibles?  If these items were purchased before 1 July 2011 you might not be aware that significant changes are taking effect from 1 July 2016.

From 1 July 2016, any collectible owned by an SMSF must adhere to the new rules:

  • The collectibles are not to be stored at the SMSF trustees residence;
  • SMSF trustee or a related party is not permitted to lease or use any of the collectibles;
  • The collectible MUST be insured by its’ own separate policy;
  • Document and minute the storage decision by the trustees;
  • If the collectible is to be sold to an SMSF trustee or related party then a valuation by a qualified independent valuer must be sought to determine the market value.

 

SMSF performance reporting and bench-marking available

Our online SMSF accounts have recently been updated with the ability to view a number of portfolio charts including the ability to track the investment performance of your SMSF portfolio against a number of industry benchmarks including the the All Ordinaries, ASX 200 as well as a number of sector specific indexes.

Read-more

Investment Performance

For the technically minded, the investment performance calculation utilises the Simple Dietz Method.  You can learn more about how this is calculated in this PDF fact sheet here.

The reports enable you to select the following variables:

  • Date range
  • Breakdown – i.e. by market type, asset pool or even data feed
  • Comparison – i.e. benchmarks such as the ASX 200 etc

You can also download the investment performance report as a PDF or excel (.csv) file.

Other Reports

There are a number of other reports in addition to investment performance available via our online SMSF reporting dashboard including:

  • Bank account transactions
  • Pension limits (minimum and maximums)
  • Contribution caps (concessional and non-concessional)
  • Investment valuations
  • Asset allocation and strategy
  • Realised and unrealised capital gains
  • Investment income
  • Balance sheet
  • Profit and loss
  • Member statements (benefit estimates)

Getting Access

We generally only provide online access to our clients who have in place a monthly direct-debit for their fees.

ATO targets boomers with self-managed superannuation funds

ATO assistant commissioner for SMSFs Matthew Bambrick (above) said a boost in compliance work on the nation’s 531,059 – and growing – funds was not a bad idea.  Photo: Dominic Lorrimer

The following is a verbatim copy of an article originally published by Katie Walsh (@katiewalshAFR) in the Weekend Australian Financial Review 17 January 2015.  You can view the original article here: ATO targets boomers with self-managed superannuation funds

The Australian Taxation Office will intensify its focus on self-managed superannuation funds as baby boomers retire and the risk increases that tax-free income could be stashed and passed on to beneficiaries. Read-more

The tax man is concentrating efforts on education and scrutiny of SMSF auditors and advisers.  ATO assistant commissioner for SMSFs, Matthew Bambrick, said a boost in compliance work on the nation’s 531,059 – and growing – funds was “not a bad idea”.

“It is something that we will have to keep an eye on in coming years,”