Insurance News

While discussing “worst-case” scenarios may not be the most thrilling topic of conversation, it is an important aspect of a well-thought-out strategy.

Stay informed by reading our insights on the latest news, trends and changes related to insurance advice.

Trauma Insurance: The what and why

Insurance is potentially the least sexy but is one of the most essential parts of what we help people with as financial advisors. Many people are aware of life insurance and income protection. Still, one aspect that often doesn’t receive the attention it deserves is trauma insurance. This powerful tool can provide a much-needed safety net during life’s unexpected twists and turns. Given the chance of suffering a trauma event is relatively high, trauma insurance deserves consideration as part of your financial plan.

 

What is Trauma Insurance?

Trauma insurance, also known as critical illness insurance, is a type of coverage that provides a lump-sum payment if the policyholder is diagnosed with a specified critical illness or experiences a traumatic event covered by the policy. The covered conditions can vary between insurance providers but commonly include severe illnesses such as cancer, heart attack, stroke, and major surgeries. Given the likelihood of suffering from one of these illnesses, trauma may usually be more expensive per dollar of cover compared to life and total and permanent disability insurance.

 

The Nuts and Bolts of Trauma Insurance

Lump-Sum Payout: Unlike other forms of insurance that may cover ongoing expenses or provide regular payments, trauma insurance delivers a lump sum to the policyholder upon a covered event. This lump sum provides flexibility in how the funds are used, allowing individuals to address immediate medical needs, ongoing care, or lifestyle adjustments.

Covered Conditions: Trauma insurance typically covers a range of critical illnesses, providing a comprehensive safety net. The specific conditions covered can vary, so reviewing policy terms and conditions carefully is crucial. In addition to the more common illnesses, some policies may cover less common conditions, offering a broader scope of protection.

Exclusions and Waiting Periods: Trauma insurance comes with exclusions and waiting periods like any insurance product. Exclusions may include pre-existing conditions or certain high-risk activities. Understanding these aspects is crucial when selecting a policy to avoid surprises when you need the coverage the most.

 

The Importance of Trauma Insurance

1. Financial Security in the Face of Critical Illness

Nobody likes to think about the possibility of facing a life-altering illness, but the reality is that it can happen to anyone and at any age. Trauma insurance ensures that you receive a lump sum payout if you are diagnosed with a covered condition. This financial injection can be a game-changer, covering medical expenses, rehabilitation costs, and even allowing you to take time off work to focus on recovery without the added stress of financial strain.

2. Maintaining Your Lifestyle

A critical illness can disrupt your life in more ways than one. Besides the immediate medical expenses, there may be ongoing costs associated with lifestyle adjustments, such as home modifications or the need for ongoing care. Trauma insurance provides the funds necessary to maintain your quality of life and ensure that you can continue living comfortably. It can also help financially fill in the gaps left by private health coverage.

3. Protecting Your Loved Ones

The impact of a critical illness extends beyond the individual affected; it affects the entire family. Trauma insurance can ease the financial burden on your loved ones by covering medical expenses and providing financial support during a difficult time. It can allow for a partner to take time off work or be used to help top up income protection payments.

4. Peace of Mind and Mental Well-being

Knowing you have financial protection can bring peace of mind during challenging times. It allows you to focus on recovery and well-being rather than worrying about the financial implications of a critical illness. This peace of mind is invaluable and can contribute significantly to mental and emotional well-being.

 

Choosing the Right Trauma Insurance

Selecting the right trauma insurance policy is a personalized process that should align with your needs, lifestyle, and financial goals. Working with a financial planner can help you navigate the options and tailor a suitable plan.

Trauma insurance is integral to a sound financial plan and can often be overlooked. As always, if you have any questions or want to discuss your trauma insurance options, please email me at [email protected].

 

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Financial moves to make in your 30’s

I recently turned 30. It’s a strange age. Some of your friends have settled down and have children, whilst others are backpacking around southeast Asia. Some are looking to purchase an investment property, whilst others are hosting big parties in their shared house of ten. Regardless of which stage you are at, the thirties are an excellent chance to take some of that ‘grown-up medicine’ and to look to start to get our finances in order; here are some places to start.

 

1. Set some goals:

Money is just the vehicle towards helping you live your best life. Everyone will have different goals, so your financial plan should be different. If you’re the type of person who wants to live overseas, then buying a house because you feel like you should and others are telling you to may not be the best option. Once we have goals, it’s easier to know what we must do to achieve them. Otherwise, we can continue on a road to nowhere.

 

2. Review what you currently have: 

Personal finances are usually left or pushed into the too-hard basket. You may not be as passionate about it as I am and, therefore, lack the motivation to think about it (completely normal). Simple things like reviewing what you currently have can pay big dividends.

Review your superannuation and make sure that your fund is appropriate. Check about how your fund has been performing compared to others. Please have a look at your investment options within your super and make sure that it’s appropriate for you. Think about whether or not you would like to be invested in an ethical and environmentally friendly manner and see if your current investments align with that.

You should also review what insurance you have. If you have young children or some debt with a partner, such as a home loan, then life cover could be critical. If you’re working and rely on your income to live, then you need income protection. Insurances aren’t sexy, and not many people like paying for them, but if something goes wrong and you don’t have them, it can create financial pain that can be hard to recover from.

 

3. Build an emergency fund:

Life is unpredictable, and unexpected expenses can arise at any time. Aim to build an emergency fund with three to six months’ living expenses. This financial cushion will provide peace of mind and help you avoid dipping into your savings or investments during tough times.

 

4. Look towards the future:

Investing is a powerful tool for building wealth over time. It can be slow to start with, but compound interest is the eighth wonder of the world; the earlier you start, the more rewards you reap. Putting some surplus cash towards investments that have growth potential can help you fund some future goals you may have as well. There are options for all different starting balances, so you don’t need to wait and put it off any longer.

 

5. Stop paying the lazy tax:

Only some people love to have a strict budget in place, and if that’s you, there are things we can do to get our cash flow under control. Reviewing your expenses is essential; a lot of little savings can add up, especially when everything is getting more expensive.

Have a particular look at your subscriptions, whether they be streaming services or gym memberships and make sure you’re using them and getting value out of them. If not, look at ending them or looking at alternatives.

The lazy tax can also apply to your banking. We often choose a bank early on in life and stick to it. Review your interest rate and ensure that what you are getting stacks up. This can also apply to your home loan if you have one. It can pay to do some research, as there are often no rewards for loyalty in this area.  

 

7. Estate Planning:

It’s never too early to think about estate planning, especially if you have dependents. Setting up a will now can last until your situation changes and doesn’t need to be too difficult or costly. It will mean that your wishes will be carried out if something happens to you.

 

8. Reach out if you’re unsure:

For some people, discussing personal finances is like speaking another language, but seeking guidance from a good adviser can help simplify the situation. A good adviser should also be able to educate you along the way. Using your money in the best way possible is important, so don’t let it fall by the wayside just because you’re unsure where to start.

 

As always, we are here to help. If you have any questions, feel free to email me at [email protected]

 

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How to talk about finances with your partner

Talking about finances with your partner can be daunting, but it is an important conversation. As a financial advisor, I often encounter couples who struggle with managing their finances together and can often be used as a mediator in these scenarios. In this blog, I will provide some tips on how to talk to your partner about finances and hopefully help you if this is something that you need help with.

 

Set a time and place

The first step in talking to your partner about finances is to set a time and place that works for both of you. We often talk about having a financial date night, and it’s great to discuss the following. Choose a time when you are both relaxed and not likely to be interrupted. According to a study by the Financial Planning Association of Australia, only 26% of Australians feel confident managing their finances. This underscores the importance of taking the time to have an informed discussion about your finances. Ensure you are both comfortable and in a private space where you can converse honestly without distractions.

 

Start with your financial goals

Start the conversation by discussing your goals as a couple. For example, do you want to buy a house, go on a holiday, or plan for retirement? Understanding each other’s goals will help you make decisions together and stay on the same page. Make a list of your short-term and long-term goals, and discuss which are most important to each of you. 

The goals are exciting as well. Having something exciting to work towards can create extra incentives to work together on your finances. For example, at Pekada, we do a Values & Goals session where each couple member has a chance to talk without interruption about their values and what is most important to them, and then we start to work on some joint goals together. This can be a great starting point for working on common goals together. 

 

Be honest about your financial situation

Being honest about your financial situation with your partner is essential. This includes your income, debts, and expenses. Be open and transparent about your finances, and encourage your partner to do the same. It may be uncomfortable to discuss your debts, but it’s essential to get everything out in the open to work together to address any financial issues. For example, one particular partner’s debts may stop you from doing things such as purchasing a home together, so it is crucial to have everything out in the open. 

 

Create a budget together

Creating a budget together is an excellent way to manage your finances as a couple. Start by tracking your expenses for a month or two to understand where your money is going clearly. Then, create a budget that includes your income, expenses, and savings goals. Finally, please ensure you are both on board with the budget and committed to sticking to it.

 

Discuss your spending habits

Everyone has different spending habits, and it’s essential to understand how your partner spends money. According to the Australian Securities and Investments Commission, many Australians struggle with credit card debt, with an average balance of $2,577. Discuss your spending habits and concerns about each other’s spending. It’s essential to be respectful and non-judgmental during this conversation and work together to find a compromise that works for both of you.

This is often where a ‘yours, mine and ours’ approach can work well. Each partner has a separate bank account for their discretionary spending. Free to spend those funds on whatever appeases them whilst maintaining a joint account for joint expenses and future goals you may have. This can stop a lot of arguments around what the other may be spending. Having an account where you can spend guilt-free and maintain some form of financial independence is also essential. 

 

Plan for emergencies

Emergencies can happen at any time, so it’s crucial to have a plan in place. Discuss what you would do in an emergency, such as a job loss or a medical emergency. Make sure you have an emergency fund set aside to cover unexpected expenses.

It is also a good idea, especially if you have a mortgage together to review your insurances. Discuss what would happen in the worst-case scenario if one of you were to pass away. Would you want the mortgage covered? Decisions like this are essential to ensure that no one is left with financial stress in the event of a loss.

While discussing depressing things, having a good estate plan and will in place also be essential to ensure that your wishes are carried out in the event of your passing. 

 

In conclusion, talking to your partner about finances can be challenging, but it’s essential for a healthy relationship. Setting a time and place, discussing your goals, being honest about your financial situation and planning can alleviate many of these potential issues. If you ever have any questions or are interested in doing a Values & Goals session as a couple, please reach out!

 

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The value of financial advice at the end of life

Usually, as advisors, we discuss how we can help you to live your best life. Ways in which we can help you hit your significant goals such as purchasing your first home, funding dream holidays and experiences, helping you to hit your retirement goals and so on. All of these things are important and benefits of financial advice, but one part we don’t discuss too often is the help we can give at the end of life. It’s not a topic we humans like to think about or discuss, but as Benjamin Franklin once said, “in this world, nothing can be certain except death and taxes”. 

Last year I was in the unfortunate position of losing a few people close to me, all at various ages and life stages. One of these was my Aunty, who was 62 and whose life was cut short due to cancer. I was appointed the executor of her estate, a role I understood but never had hands-on experience with. However, throughout this experience, some lessons were learnt about how financial advisors can ease the burden of this challenging time. 

My thoughts on this were further spurred on by an article a client of mine sent me, stating the difficulty that this lady went through when dealing with the administrative effects of losing her husband and just how she had to deal with the administrative side and the challenges of that whilst still mourning the loss of her husband. Read the news post here .

Throughout the last year and dealing with loved ones who were at the end of their life, along with those who had lost their life partners and were trying to deal with the estate and the next steps, I learned some lessons.

 

Finances shouldn’t be a taboo subject at this stage of life

However, when someone may be reaching the end of their life due to illness or other purposes, those around them tend to feel like finances are a taboo subject. Something that they want to avoid talking about. Fair enough. These might be some of the last conversations you have with one another, and you don’t want them to be consumed with talking about money. 

From my experience, my Aunty wanted to discuss money. She wanted to ensure that her funds passed to those she wanted to in the most effective and efficient way possible. She had worked hard throughout her life to accumulate her wealth, and when she knew that, unfortunately, she was diagnosed as terminal, she wanted to ensure that her loved ones would receive these in the best way possible.

If you are in this situation but are uncomfortable or want to avoid bringing up money, an adviser can be a great starting point. A good adviser can have these difficult conversations at a hard time in a person’s life. In my Aunty’s case, she sat with another adviser, someone slightly removed but whom she still trusted and was able to have discussions around her wishes for where her funds were to go, whether or not her estate plan was up to date and appropriate and some different strategies to make sure that various taxes were minimised where they legally could be. These conversations provide a financial benefit and a considerable peace of mind benefit. 

 

Have a good estate plan in place

A good estate plan is vital. Not just for the peace of mind that it leaves the person nearing the end of their life but for those loved ones who are left behind to administer their estate. Who you choose as executor is also essential, as that person will help administer the estate. It can be a good idea to discuss your wishes and what is within your will with your executor as a heads up as well as they will be the ones ultimately fulfilling your desires in the future.  

The clearer you are about your wishes, the better they can be carried out. It’s always a good idea to have a proper estate plan with a lawyer specialising in wills and estates. They can also help the executor put the estate in place in the event of your passing. As discussed in many of our blogs, having a good team around you is always essential. 

 

It helps to be organised

Everyone has had a bad experience at one stage or another; trying to deal with admin teams of big businesses and banks, and superannuation companies can often yield similar results. So it pays to be organised. Throughout this process, it will save you and the person left to deal with your estate time and unnecessary stress. A relationship with an adviser should ensure they have many financial details, such as superannuation and insurance policy numbers and a good understanding of most of your assets. 

A lot of time can be spent searching for these if they aren’t readily available. Advisers may also have the authority to discuss your account with the superannuation fund if you have granted them this, allowing them to check on questions you may have and meaning you don’t have to spend time waiting on hold during what will be a difficult time. 

Other things that can be important to organise are pre-organising funeral expenses. Again, it sounds sombre, and much of what we are discussing here is, but it will make things easier for those left behind. We could do this with my Aunty, and as sad as it can be, it was nice to plan out what she wanted (and laugh about how terrible her song choices were, way too much Barbara Streisand). Once a person has passed away, the assets will likely become frozen and unable to be used until you have reached probate. You can see how this can be beneficial, especially if you leave behind someone financially dependent. 

It’s also beneficial to know where important documents are located. Documents include passports, driver’s licences and certificates of title for properties. Having these will save a lot of time and other details, such as Tax File Numbers, which can often be forgotten. 

 

Through the most challenging times, a good adviser can help remove a small amount of the stress that may be felt. As a result, they can make a harrowing experience easier for those in this challenging position and those left behind. As always, if you have any questions or are going through something like this and would like some help, please email me at [email protected]

 

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Links we Like – February 2022

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What are the 8 dimensions of wellbeing?

 

When you think about wellbeing, you often think about your physical health. Are you exercising enough, eating well and keeping healthy habits? But, in reality, it is so much more than that.  

Your wellbeing is a conscious and deliberate process of making choices that help us to live our best life. A life full of purpose, satisfying work and play, joyful relationships, a healthy body and mind, financial confidence and ultimately happiness. 

According to research, a person’s wellbeing can be measured against eight dimensions of wellness: physical, spiritual, social, emotional, intellectual, occupations, environmental and financial.  

Each dimension means something different to everyone. Understanding what it means to you can help you uncover what you value in life, where your strengths are and what you might need to work on. 

Physical

The Physical Wellness Dimension involves things that keep us active and healthy. Our physical wellbeing is so important to our mental health, longevity and ensuring we live our best lives. This doesn’t mean we must all be athletes. But it does mean building good physical health habits, having a healthy diet, exercising regularly, and having the appropriate health care for our needs. The more we are in tune with our bodies and what they need, the less likely we will be to become reliant on the healthcare system or even our families and loved ones. 

Intellectual

The Intellectual Wellness Dimension involves things that keep our brains active and our intellect expanding. It’s about mastering new skills, learning new things or helping to educate others. Having the time and resources to keep your mind active and supporting your loved ones can help you live a long life. 

Spiritual

The Spiritual Wellness Dimension is a broad concept that represents one’s personal beliefs and values and involves having meaning, purpose, and a sense of balance and peace. It includes being able to volunteer your time to support causes that mean something to you and help others to live a more purposeful life. 

Emotional

The Emotional Wellness Dimension involves the ability to express feelings, adjust to emotional challenges, cope with life’s stressors, and enjoy life. It includes building and nurturing relationships to strengthen our support networks and ensure we have the resources to spend time and money on those we love and the things we enjoy in life. 

Financial

The Financial Wellness Dimensions addresses your financial wellbeing. It covers your income, debt, savings and investments as well as your financial literacy. It also means having the resources to support and protect those you love. To live your best life, you need to be confident in your current financial situation or your future financial prospects.  

Occupational

The Occupational Wellness Dimension involves aligning your work to what you value in life. Ensuring that you pursue work that has meaning and purpose and reflects your values, interests and beliefs. Living your best life means work shouldn’t feel like work. 

Social

The Social Wellness Dimension involves having healthy relationships with friends, family and the community. Living your best life means living a life where you participate with others you care about and have the time to do so. 

Environmental

The Environmental Wellness Dimension involves living in an environment that promotes positive wellbeing. Such as preserving areas where we can live, learn and work, providing pleasant, stimulating environments that support our wellbeing and offer the natural places and spaces to promote learning, contemplation and relaxation. We need to create the right environments to help us live our best lives now and into the future, for both ourselves and our loved ones.  

Our financial advice process will help you to uncover which areas of wellbeing are most important to you and how close you are to living a life aligned with those areas of wellbeing.  

Our advisers will then work with you to set goals and shape strategies to make sure you are on the right path to living your best life. A life full of purpose, satisfying work and play, joyful relationships, a healthy body and mind, financial confidence and ultimately happiness. 

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Is this a scam?

New data released

Naturally, people aspire to get the most out of their investments, especially if a great opportunity is presented by a ‘trusted’ organisation. Unfortunately, however, investment scams occur more often than you may think, highlighting the risk both self-directed investors and SMSF trustees may potentially face when seeking new investment opportunities. 

New data released from Scamwatch Australia has reinforced the sophistication and the rapidly growing number of scams each year in Australia – which has caused a loss of over $851 million* in total in 2020 – $328 million of which related to investment scams. Therefore, it is extremely important for you to remain vigilant and reach out to me, your trusted SMSF professional, before investing your retirement savings in a new product or service.  

 

What does the data reported to Scamwatch Australia tell us? 

  • During 2020, the average monetary value lost to scams has increased by 23%. Scammers have become more sophisticated in their approach, claiming to be from well-known investment organisations or government bodies, with the aim of extracting personal information from an individual.
  • Investment scams have caused the most financial harm to the Australian population throughout 2020, resulting in $328 million lost. Advancements in both technology and software design allow scammers to recreate websites to look identical to an actual organisation’s site, meaning it is becoming increasingly difficult to identify what is a scam and what isn’t.
  • Older Australians (65+) are often more at risk of being approached by scammers as they perceive this particular age group to have more accumulated wealth. 
  • The top contact methods used by scammers include phone (47.7%), email (22%), text message (15%), internet (6.3%) and social networking (4.5%)*. Scammers will often inject a sense of urgency into their messaging, propose threats (particularly with tax scams), and request personal and banking information. 

 

What should you do if you suspect a scam?

If someone attempts to scam you, there are several things you can do: 

  • Report the scam to Scamwatch Australia – www.scamwatch.gov.au/report-a-scam or ReportCyber – Report | Cyber.gov.au immediately.
  • Do not provide any personal information that will allow a scammer to impersonate and retrieve your funds. 
  • Do not click on links you have received via text or email that have a substantial number of letters and numbers. 
  • If you have lost money to a scam, contact your financial institution immediately. 
  • If you have provided personal information and you are concerned your identity may be compromised, you can contact IDCARE for free support on 1800 595 160.
  • Consider contacting the organisation the suspected scammer claims to work for – the organisation may be able to confirm your suspicions.

If you have been scammed or believe you have been scammed, you shouldn’t feel embarrassed or ashamed. Financial scams are now crimes that are regularly occurring – many scams are very sophisticated and professional, and very experienced investors have lost money to scams. It is becoming increasingly important to discuss the risk of scams with family, friends, and peers.

 

How can we help?

If you need assistance with identifying whether you are being approached by a scammer, please feel free to give us a call to discuss in more detail. We are here to support you, and it’s essential that we start the conversation as scamming is a continuous risk in our technologically advanced world.

 

 

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Deadline of 1 October 2021 for Income Protection Insurance Policy changes

If you have been sitting on the fence or getting your income protection policy sorted is still on your “to-do” list, then take note. The 1 October 2021 deadline for significant reduction to the terms and benefits is fast approaching.

 

What are the changes?

If you currently have a comprehensive policy or can get one in place by 1 October 2021, it will incorporate several supplementary and important benefits.

From 1 October 2021, these extra benefits will not be available on new polices due to the changes mandated by the Australian Prudential Regulation Authority (APRA).

Important to check the specific details of your chosen insurer, but a summary of the key changes include: 

  • Income replacement ratios to be reduced to 70%, from 75% currently.
  • Other benefits in the first six months of a claim to be restricted to an additional 20%, i.e. a limit of 90% overall. A material reduction compared to current policies.
  • Income to be calculated on last 12 months income only. This compares negatively to some current policies that utilise more extended 2 or 3 years to satisfy your income benefit calculation.
  • Long benefit periods, such as the traditional ‘to age 65’ will be managed to promote motivation for the claiming individual to return to work. This may include changing from “Own Occupation” to “Any Occupation” definition after 2 years on claim.

There is also the likelihood that by October 2022, policies to be guaranteed renewable for no longer than 5 years, compared to age 65 for current policies.

 

What actions should you take now?

Get in touch with your financial adviser and assess your income protection options ASAP.

If you delay your application beyond the current deadline, you risk missing out on key benefits of current income protection policies. These changes could make a big difference to your experience in lodging a claim. 

 

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Insurances when you have children

Insurances are always an important part of any good wealth creation plan or strategy but they become even more important when you have children. For the purposes of this short blog we are referring to personal insurances, these include; life insurance, total and permanent disablement, trauma and income protection. These insurances are there to protect you and your family financially if something was to happen such as you passing away prematurely or if you were unable to work due to injury or illness.

 

Why does having children make insurances more important?

The simple answer is you now have someone else dependant upon you. Not only are children dependant upon you because of the things that you do for them but they are completely financially dependant upon you to provide for them as well. No longer are you in the position of only having to think about yourself. In the past if you would have passed away prematurely there may not have been any impact financially to anyone else but now you would be leaving someone behind who has no means to financially provide for themselves.

Life insurance should be there to provide for your child and family if you are gone. You not only need to make sure that you have a good life insurance policy in place but also that you have an appropriate amount in place. In order to determine how much cover you will need, you should go through an exercise called a needs analysis to determine an appropriate amount of cover. Money Smart has a good one to calculate life insurance needs here – https://moneysmart.gov.au/how-life-insurance-works/life-insurance-calculator.

Other than life insurance there is trauma and total and permanent disablement are there to help with some mortgage relief and also have funds available for out of pocket medical expenses and are important because events like that have the potential to financially derail a family. The other very important type of insurance when you have a family is income protection. That is there to provide usually 75% of your income if you’re unable to work due to illness or injury.

Pretty much everything in your life works and functions due to your ability to earn and generate an income, therefore it becomes important that we insure your family’s most important asset, which is you! A lot of people will often insure their car which may be worth $30,000 or so but won’t insure themselves. If you need your income to survive and afford your lifestyle, then you need income protection, it really is as simple as that.

 

What if cashflow is tight at the moment?

This is a common concern for people who have just had children as no doubts your general living costs have increased, the main point I often make when this is the case is imagine how tight things would be if you were to lose your income. If things really are that tight, a lot of insurances can be held inside super and whilst they might not be as good as an individually owned policy in the case of income protection, it is still much better than not having any protection in place.

Whilst it’s important to understand that superannuation is still your money and using those funds to pay for your insurances can impact upon your retirement goals, having appropriate protection currently in place is so important that it is often worthwhile doing as the alternative can often be disastrous for your financial situation. We can also always catch up with extra contributions to your super later in life.

If you are really against using your super funds to pay for your insurances and cashflow is tight then it might be time to look at your household budget and check the priority of where your money is going because this is important.

 

How can I put insurances in place?

There are many ways you can put insurances in place, you can go and sit down with a financial planner or insurance broker who will be able to help guide you through the process. I may be a little biased but this is the best way to go about getting insurances in place, a good broker or advisor will be able to guide you through the process, make sure you have appropriate amounts and also choose the right insurer for you based on your needs and wants from there list of insurers available to them.

Like most things, you can also go online and do your own research but beware when going online as there are a lot of sub standard insurers out there and whilst their prices may be attractive, the main reason for putting these insurances in place is to get you paid if an event was to happen, so make sure you are checking their reputation. If you are wanting cover inside your superannuation, you can give your provider a call and they should be able to help you out as well.

I understand that not many people like paying for insurances but it is the grown up medicine we have to take when we are bringing another person into the world. If you need your income to live or your family relies on your ability to generate an income, then it is highly likely that you need to put some insurances in place.

 

 

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Budget 2020 – what you need to know

This is without doubt one of the most exciting times of the year, well at least for some of us. Last night the Treasurer, Josh Frydenberg, released the Government’s highly-anticipated 2020-21 Budget, featuring the bringing forward of tax cuts, superannuation reforms, measures for Centrelink clients and additional aged care funding.  After going into a record deficit of $213.7 billion to support individuals and businesses during the Coronavirus crisis, the focus of this year’s Budget is to regrow the economy by creating job opportunities and encouraging spending.

Pekada’s team have reviewed the Budget and prepared a summary of the key measures for you, and will be updating our the Federal Budget 2020 page here throughout the day.

NOTE: It’s important to remember that the Budget announcements are still only proposals at this stage. Each of the proposals must be passed by Parliament before they’re legislated – and could change.

 

TAX CHANGES

Personal tax cuts
The Government has announced that it will bring forward stage two of the previously legislated tax cuts that were due to take effect from 1 July 2022 by two years. As a result, from 1 July 2020:

  • the Low Income Tax Offset (LITO) will increase from $445 to $700. The increased LITO will be reduced at a rate of 5 cents per dollar between taxable incomes of $37,500 and
    $45,000. The LITO will then be reduced at a rate of 1.5 cents per dollar between taxable incomes of $45,000 and $66,667.
  • the top threshold of the 19% tax rate will increase from $37,000 to $45,000, and
  • the top threshold of the 32.5% tax rate will increase from $90,000 to $120,000.

What this could mean for you

  • The following chart shows the tax cuts you might receive this financial year based on your income levels and the amount of tax you’re currently paying.

Low and Middle Income Tax Offset
The Low and Middle Income Tax Offset (LMITO) was introduced in the 2018 Budget, to complement the existing Low Income Tax Offset (LITO). In 2019, the base rate for the LMITO increased from $200 to $255 and the maximum payment increased from $530 to $1,080. The Government had planned to discontinue the LMITO when the stage two cuts were to be introduced in mid-2022. However, even though the stage two cuts have been moved forward to the current financial year, the LMITO will also remain in place for the
2020–21 financial year.

What this could mean for you

  • If you qualify for LMITO you will receive payment after you submit your next tax return. Depending on your income, the maximum LMITO you can receive is $1,080. However, the LMITO is scheduled to cease next year. This means you could end up paying more tax in the 2021–22 financial year than in 2020–21. Dual income couples can both be eligible for the LMITO, up to a combined total of $2,160.

 

SUPERANNUATION CHANGES

Default super accounts
Currently, if you start a new job and you don’t let your employer know where you want them to pay your super contributions, they will open a super account for you. The account will be in your employer’s default super fund. This may result in you having multiple super accounts.

By 1 July 2021, your employer will be able to obtain information about your existing super account from the ATO. They will then pay your super contributions into this account, unless you instruct them to pay it to a different account.

For people who don’t yet have a super account, their employer will be able to open an account for them in their default
super fund.

What this could mean for you

  • Over 4 million Australians currently have multiple super accounts, and this means they’re paying more than one set of super fees and possibly multiple insurance premiums as well. The Government estimates that this is costing Australians $450 million each year. The intention of this change is to keep people’s super accounts attached to them, so they can take them from job to job.
  • By having only one super account, you can stop paying unnecessary fees and insurance premiums that may be eroding your super balance. Having all your super together can also help your super savings accumulate faster.

Performance testing for MySuper products
MySuper products follow a strict set of government guidelines. They tend to offer their members lower fees, simple features and limited investment options.

The Government feels there are too many underperforming super funds in the market, and this is impacting members’ retirement savings. From 1 July 2021, MySuper products will be subject to an annual benchmarking test. If the fund is found to be underperforming, it will need to inform its members by
1 October 2021.

Further, if a fund is found to underperform for two consecutive years, they won’t be permitted to accept new members until their performance improves.
By 1 July 2022, all super funds will need to do the annual benchmarking test – not just MySuper products.
What this could mean for you

  • How your super fund performs can make a big difference to the amount of money you have when you retire. This change means that your super fund will need to tell you if your fund has underperformed compared to other super funds. You can then make a decision about whether you want to stay with your fund or change to another fund.

YourSuper online comparison tool
To help members easily compare super funds, the Government will release an interactive online comparison tool called YourSuper by 1 July 2021 which will:

  • rank MySuper products by fees and investment returns
  • provide links to super fund websites
  • show if you have more than one super account so you can consider consolidating them.

What this could mean for you

  • Choosing a super fund can be daunting. This comparison tool will make it easier to see what each super fund charges in fees and how they have been performing. However, it’s important to remember that past performance is not always an indication of future performance.

 

HEALTH, WELFARE AND JOBS

Additional support payments for welfare recipients
Government support recipients will receive two separate economic support payments of $250, to be paid progressively from December 2020 and March 2021.

This follows two previous payments of $750 to eligible recipients, with the new payments estimated to cost a total of $2.6 billion.
What this could mean for you

You may be eligible for the two payments of $250 if you’re currently receiving:

  • Age Pension (including Age Pension (Blind))
  • Carer Allowance*
  • Carer Payment
  • Commonwealth Seniors Health Card
  • Disability Support Pension (including Disability Support Pension (Blind))
  • Double Orphan Pension*
  • DVA Gold card
  • DVA Payments
  • DVA Seniors Card
  • Family Tax Benefit (fortnightly recipients)*
  • Family Tax Benefit (lump sum recipients)*
  • Pensioner Concession Card (PCC) holders (covers non- income and asset test PCC holders and people who have an extended entitlement to a PCC even though their payment has stopped).

 

Health services
Coronavirus has taken its toll on the mental health of many Australians. Therefore, the number of psychological services funded by Medicare will be doubled from 10 to 20, effective immediately.

The NDIS will also receive additional funding of almost $4 billion, to provide essential support to Australians living with a disability.

Women facing ovarian cancer will now be able to access the drug Lynparza through the PBS. Rather than costing $140,000 per course, general patients will now pay around $41 for a script while concession card holders will be charged $6.60.

What this could mean for you

  • If you currently access any of these services, or think you may need to in the future, it’s important to understand what you’re eligible for. As the first step, we recommend you speak with your doctor.

New jobs in key industries
The Government is committing $1.5 billion over five years from 2020–21 to support the building of competitiveness, scale and resilience in the Australian manufacturing sector. It will focus on six key industries of strategic interest:

  • defence
  • space
  • medicine and medical products
  • food and beverages
  • resources technology
  • recycling and clean energy.

Rural communities will benefit from $2 billion in funding over 10 years to improve water infrastructure, while regional businesses will benefit from an expansion of the instant asset write-off scheme. Regions that rely on international tourism will benefit from their share of $51 million in funding over two years to diversify their markets.

While the Budget doesn’t offer much financial relief to female workers currently impacted by Coronavirus, the government is committing $240 million over four years towards a range of employment initiatives for women. These include increasing female workforce participation in male-dominated industries such as construction.

What this could mean for you

  • With the pandemic causing massive job losses around the country, these measures are designed to get as many Australians back to work as possible. While some industries may currently offer more opportunities than others, it’s likely that many industries will be in a state of flux for years to come.

 

For our ongoing service package clients, your adviser will be in touch with any specific actions or impacts to your situation.

If you have any queries in the interim or would like further clarification in regards to any of the above measures outlined in the 2020-21 Federal Budget, please feel free to give me a call to arrange a time to meet so that we can discuss your particular requirements in more detail.

 

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