Retirement Planning News

Australians are now living longer lives than they have ever been. This is fantastic, but it also poses a number of difficulties. To be able to respond to the changes in your lifestyle along the road, you need to have the correct approach in place.

Read our insights to keep up to date with the latest news, trends and changes related to retirement planning.

Reversionary death benefit nomination vs Binding death benefit nomination

Lets take a look at the key differences and considerations when deciding whether to have an automatically reversionary nomination, or a binding / non-lapsing death benefit nomination for account based income streams.

Options for Super Death Benefit Nominations

Under superannuation legislation, members commencing an account based pension have several options (subject to the fund’s governing rules) for death benefit nominations. The most common are:

  • Automatic reversion nomination
  • Binding death benefit nomination

 

Important note: SIS death benefit payment standards

Regardless of the type of nomination selected, the SIS death benefit payment standards always apply. Broadly, the SIS death benefit payment standards require:

  • death benefits to be paid only to dependants or the member’s legal personal representative (LPR) in almost all cases
  • death benefits paid to a member’s LPR, or adult children (unless under 25 and financially dependent, or disabled) to be paid as a lump sum.

Any nomination that would otherwise require these rules to be breached is invalid.

 

 

Reversionary Nominations

The SIS Regulations specifically allow account based pensions that are payable for the life of both a primary and reversionary beneficiary. Members can therefore, commence an account based pension that automatically reverts to a reversionary beneficiary upon the pensioner’s death.

In simple terms, the reversionary pensioner will automatically continue receiving the pension payments in the event of the primary pensioner’s death.

 

Advantages of Reversionary nominations

Reversionary pensions have a number of practical advantages over non-reversionary pensions. These include:

  • The trustee is bound by the requirement to revert the pension to the reversionary beneficiary, which can save time and effort as there is no trustee discretion regarding either to whom the benefit may be paid or whether it is to be paid as a lump sum or pension.
  • There is less paperwork likely to be required upon death in the case of automatic reversion. A death certificate and relationship declaration along with trustee minutes confirming the member’s death and reversion of the pension is all that is likely to be required.
  • There is no requirement for the reversionary pensioner to receive a pro-rata minimum pension payment for the first part of the financial year of the pension following the pensioner’s death (the pensioner’s minimum, calculated at 1 July of the financial year, continues to apply for the entire year).
  • Reversionary beneficiaries of account based pensions generally have an advantage under the transfer balance cap rules, as they have additional time with which to arrange their affairs (eg, roll part of their existing retirement phase benefits back to accumulation phase), and generally allows them to keep more in retirement phase for longer.

 

Considerations for Reversionary nominations

  • In most cases, you can only make a reversionary nomination when you start a super pension. So, you need to decide from the start, whereas binding death nominations can be updated, changed, added at any point.
  • Reversionary pensions to a spouse may make them ineligible for Age Pension upon the death of a pensioner. This is because the surviving spouse can often find themselves assessed against a single person’s income and assets test thresholds, while retaining the same level of assets and income as when they were a couple.

 

 

Binding Death Benefit Nominations

A binding death benefit nomination enables the client to specify which SIS dependant(s) they want to receive their super death benefit and (usually) in what proportions. A binding nomination can also be used to direct the death benefit to the Legal Personal Representative (LPR).

A binding death nomination can provide more choice in how to receive the death benefit as a lump sum or, if eligible, a pension, depending on the rules of that fund.

 

Advantages of Binding Death Nomination

  • A binding nomination will be more appropriate if a client wants to nominate more than one SIS dependant. With a reversionary beneficiary nomination, a single eligible beneficiary can only continue the income stream.
  • A binding nomination can be more suitable if members want to give their SIS dependants the flexibility to decide whether to receive the death benefit as a lump sum or (where eligible) an income stream.

 

Considerations for Binding Death Nomination

  • Where a couple dies at the same time, a reversionary pension can ensure their estate planning wishes are carried out as intended, while a binding death benefit nomination may lead to unintended consequences.
  • Binding death nominations may be readily accepted by the trustee when made, but may not be tested for validity until a member’s death benefit becomes payable. This is more likely to occur in an SMSF where the SMSF’s governing rules may have specific criteria for making a valid binding death nomination.

 

Which option is better for you?

It really depends.

There are several differences and considerations when deciding whether to put in place a reversionary nomination when commencing a new superannuation income stream or simply putting in place a binding or non-lapsing nomination.

When assessing which type of nomination is appropriate, you should consider your specific circumstances, including need for flexibility and other factors such as grandfathering of an account based pension for social security purposes and the ability to amend the type of nomination without having to restart the income stream.

In making a decision the most important thing is to make sure you have thought through the implications and how this fits in with your broader estate planning strategy.

 

Got some questions?

If you’ve got any questions about reversionary pensions and binding death benefit nominations, please book a chat with one of our financial planners.

 

 

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Federal Budget 2024/2025: Financial Planning Summary

Treasurer Jim Chalmers delivered the Labor Government’s 2024-2025 Federal Budget and we have summarised what we feel are the key points which impact financial planning strategies.

For our ongoing service package clients, your adviser will be in contact to provide guidance on changes which may impact your strategy.

 

IMPORTANT: Please remember that these measures are subject to becoming law, so be sure to confirm this before taking any action.

 

 

 

Taxation

Stage 3 Tax Cuts

Starting 1 July 2024 Stage 3 tax cuts will deliver savings of $4,529 per annum for those in the highest tax bracket. The average taxpayer will save $1,888 a year.

The Stage 3 tax cuts will make the following changes from 2024/25:

  • reduce the 19% tax rate to 16%
  • reduce the 32.5% tax rate to 30%
  • increase the 37% tax rate threshold from $120,000 to $135,000
  • increase the 45% tax rate threshold from $180,000 to $190,000

The table below shows the changes to tax brackets. Note, these amounts do not include Medicare levy.

 

 

The table below compares the amount of tax payable in 2023/24 to the amount payable under the new tax rates from 2024/25. The last column shows the amount of tax saved.

 

 

Increasing the Medicare Levy Low-Income Thresholds

The Government has increased the Medicare levy low-income thresholds for singles, families, and seniors and pensioners from 1 July 2023 to provide cost-of-living relief. The increase to the thresholds ensures that low-income individuals continue to be exempt from paying the Medicare levy or pay a reduced levy rate.

The family income thresholds will now increase by $4,027 for each dependent child, up from $3,760.

This measure has already been provisioned for by the Government and will apply retrospectively from 1 July 2023.

 

Superannuation

Parental leave superannuation

The Government has announced that it will pay super on the Government funded Paid Parental Leave for babies born or adopted on or after 1 July 2025. 

Eligible parents will receive an additional 12% of their Government-funded Paid Parental Leave as a contribution to their superannuation fund. 

 

Payday Super

Starting from July 1, 2026, employers must pay superannuation at the same time they pay salary and wages to employees. Currently, employers are required to pay their employees’ superannuation guarantee contributions on a quarterly basis.

 

 

 

Cost of Living Relief

Power Bill Relief

Energy bill relief will be extended to every Australian household, with $300 automatically credited to their electricity bills next financial year. This is not means tested.

 

Debt Relief for Higher Education Loan Program (HELP)

HELP/HECS debt will now be indexed either to the Consumer Price Index (CPI) or the Wage Price Index (WPI), whichever is lower, and that change will be backdated to 1 June 2023.

This means that about 3 million Australians with student loans are set to receive an average $1,200 reduction in their HELP, HECS, VET Student Loan, Australian Apprenticeship Support Loan and other student support loan accounts that existed on 1 June last year.

The reduction aims to offset steep increases in student debt last year when student loans were indexed to inflation at the rate of 7.1%, but wage growth remained low. The 2023 indexation rate based on WPI would only have been 3.2 per cent.

 

Extending cheaper medication

The Government has announced a one-year freeze on the maximum Pharmaceutical Benefits Scheme (PBS) patient co-payment for everyone with a Medicare card and a five-year freeze for pensioners and other concession cardholders.

This change means that no pensioner or concession card holder will pay more than $7.70 (plus any applicable manufacturer premiums) for up to five years.

 

 

 

Social Security

Social security deeming rate freeze extended

The current freeze on deeming rates, which are used to determine the amount of income a person is deemed to earn from their financial investments, will be extended for another year. This means that the deeming rate will stay at 0.25% for the lower rate and 2.25% for the higher rate.

This will ensure income support recipients, such as age pension recipients, will not see a reduction to their payments due to an increase in the deeming rates over the next year. It also means there will be no negative impact for Commonwealth Seniors Health Card holders and means-tested aged care recipients.

 

Rental assistance maximum lifted by 10% 

Commonwealth Rent Assistance maximum rates will be increased by 10% from September 2024, with the aim of helping address rental affordability in the housing market. 

 

Higher Rate of JobSeeker Payment – Partial Capacity to Work

The Government has announced that from 20 September 2024, it will extend eligibility for the existing higher rate of JobSeeker Payment to single recipients with a partial capacity to work of between zero and 14 hours per week.

The higher JobSeeker Payment rate is currently provided to single recipients with dependent children and those aged 55 and over who have been on payment for nine continuous months or more. This measure extends the higher payment rate to those with a partial capacity to work.

The higher JobSeeker Payment rate is currently $833.20 per fortnight (compared to the standard rate for single recipients without dependant children of $771.50 per fortnight).

 

Increased flexibility for Carer Payment recipients

From 20 March 2025, the existing 25 hour per week participation limit for Carer Payment recipients will be amended to 100 hours over four weeks. The participation limit will no longer capture study, volunteering activities and travel time and will only apply to employment.

The Government has also announced that Carer Payment recipients who exceed the participation limit or their allowable temporary cessation of care days, will have their payments suspended for up to six months instead of cancelled. Recipients will also be able to use single temporary cessation of care days where they exceed the participation limit, rather than the current seven day minimum.

 

 

Aged Care

Improving Aged Care Support

The Government has now announced a new start date of 1 July 2025 for the new Aged Care Act, however no details have yet been provided as to how fees and charges for aged care residents and home care recipients will work under the new Aged Care Act.

Also, the Government has announced it will provide funding over five years from 2023–24 to deliver a range of key aged care reforms and to continue to implement the recommendations from the Royal Commission into Aged Care Quality and Safety. These measures are proposed to include:

  • the release of 24,100 additional home care packages in 2024–25
  • changes to increase the regulatory capability of the Aged Care Quality and Safety Commission and to implement a new aged care regulatory framework from 1 July 2025
  • additional funding to attract and retain aged care workers and improve the outcomes for people receiving aged care services through existing aged care workforce programs
  • investment to reduce wait times for the My Aged Care Contact Centre due to increased demand and service complexity
  • money to extend the Home Care Workforce Support Program for an additional three years to facilitate the growth of the care and support workforce in thin markets.

 

 

Small Business

Extension of $20,000 instant asset write-off

The Government has announced it will extend the $20,000 small business instant asset write-off by a further 12 months until 30 June 2025.

Under these rules, small businesses with aggregated annual turnover of less than $10 million will continue to be able to immediately deduct the full cost of eligible assets costing less than $20,000 that are first used or installed ready for use between 1 July 2023 and 30 June 2025. The Government also confirmed the $20,000 asset threshold will continue to apply on a per asset basis, allowing small businesses to instantly write off multiple assets.

 

Energy bill relief for small businesses

Similar to households, the Government announced it will provide direct energy bill relief for small businesses.

The government will provide additional energy bill relief of $325 to eligible small business in 2024-25. Rebates will automatically be applied to electricity bills and will be rolled out in quarterly instalments.

 

 

How can we help?

If you have any questions or would like further clarification in regards to any of the above measures outlined in the 2024-25 Federal Budget, please feel free to book a chat with your adviser.

 

 

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Stage 3 tax cuts for 2025FY and what they mean for you

The Labor tax package  passed through the upper house on Tuesday night with bipartisan support. The quick passage of the bill means the cuts will start applying to people’s incomes from July 1.

 

What does this mean for you?

The stage 3 tax cuts will make the following changes to tax rates and thresholds in 2024/25 compared to the current financial year (2023/24): 

  • reduce the current 19% tax rate to 16% 
  • reduce the current 32.5% tax rate to 30% 
  • increase the current threshold above which the 37% tax rate applies from $120,000 to $135,000 
  • increase the current threshold above which the 45% tax rate applies from $180,000 to $190,000 

 

The table below compares the resident tax rates in 2023/24 to the proposed tax rates from 2024/25 onwards:

 

 

How much are the tax savings under the proposed changes? 

As a guide, the below table shows the tax savings a resident taxpayer will receive from 2024/25 under the stage 3 tax cuts, based on different levels of taxable income in comparison to the current tax rates.

 

Effective tax-free thresholds changes

The reduction in the lowest marginal tax rate will also impact the effective tax-free threshold, which is the level of taxable income you can receive before income tax becomes payable. The good news is that these thresholds will increase.

The below table compares the effective tax-free income thresholds between the current year and from 1 July 2024.

Link to the Government fact sheet here.

 

 

What strategy considerations are worth thinking about?

  • Is a strategy to bring-forward next year’s (2024/25) tax deduction into the current year (2023/24) tax effective? 
  • Should you delay an event to increase taxable income in 2024/25 or later, if your marginal tax rate (MTR) is lower in a future year? 
  • What’s the impact of a reduction in the lowest marginal tax rate (from 19% to 16%) on salary sacrifice or personal deductible contribution strategies? 

 

Want to discuss your personal circumstances and strategy?

If you want to discuss what this means for your personal strategy or any of the details above, please book a chat with one of our financial planners.

 

 

 

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December 2023 Economic & Market Review – Markets Surge on Dovish Optimism

Talking points

  1. Broadly Positive Market Performance and Sentiment: In December, markets experienced a robust performance globally, fueled by dovish comments from the US Federal Reserve and eased financial conditions. Bond yields retreated to levels last seen in July 2023, with the US 10-year Treasury dropping to 3.8%. Investor sentiment leaned towards a risk-on approach, anticipating interest rate cuts and contributing to positive returns across various asset classes.
  2. Equities Surge in December Amid Overbought Signals: Equities, particularly in the US, showed strength, with the S&P 500, Dow Jones, and Nasdaq all posting significant gains. Global equity returns were generally quite strong in December, but unhedged domestic investors were unable to capture all of the gains as the Australian dollar appreciated by 3.1% against the greenback. Domestically, the ASX 200 index delivered a total return of 7.3%.
  3. Dynamic Sector Performances in Australia: Sectors such as listed property and healthcare staged notable recoveries, while materials, including resources, benefited from rising iron ore prices. Energy was the weakest performing sector, but it still finished positively. Small caps had a strong month, with some investors capitalizing on attractive relative valuations.
  4. Bonds Rally Amidst Rate Cut Hopes and Crypto Gains: Fixed interest returns were robust as treasury curves shifted lower. Bond markets rallied on expectations of global central banks cutting rates in early 2024. Cryptocurrencies, especially Bitcoin, experienced a resurgence, gaining more than 13% in December, driven by hopes of regulatory approval for retail-focused ETFs.
  5. Economic Dynamics and Global Challenges in December: The economic landscape saw a further push towards disinflation, with the US headline CPI for November slowing to 3.1%. The December Fed meeting indicated a dovish outlook, with expectations of three rate cuts in 2024. In Australia, GDP numbers confirmed a per capita recession, with household savings impacted by a high cost of living. Globally, economic challenges were evident, with the UK growth rate below consensus, the German economy contracting, and China facing questions about structural headwinds, despite retail sales expansion.

 

Market Commentary

Risk-on investor sentiment continued into December as markets rallied across the major asset classes. Investors gained more confidence that the Fed was done with its rate hiking cycle and that the first of many rate reductions in 2024 could be just months away. The ‘higher for longer’ narrative that had prevailed as recently as October had given way to a more dovish outlook. Inflation data has continued to improve, and central banks are showing increasing signs that price pressures would likely continue to abate in 2024. This resulted in equities moving sharply higher into year-end, with most sectors participating in the gains.

Domestic shares were especially strong, having lagged global markets for much of 2023. Listed property and healthcare stocks staged a thumping recovery during the month, closely followed by materials (including resources) as iron ore climbed above USD 140/t. Small caps also had a strong month, with some investors adding to positions based on attractive relative valuations. Energy was the weakest performing sector, but still finished well in the black. Developed market shares rallied strongly, but the rise of the Australian dollar took the polish off returns for domestic investors. Emerging market equities underperformed their developed market peers as China continued to pose vexing questions around the structural headwinds facing its economy.

Bond markets rallied as risk-free rates moved back to levels last seen in July 2023 on hopes that global central banks would begin to cut rates in the first half of 2024. Credit markets were also strong, but different regions experienced widely varying spread outcomes due to idiosyncratic factors. The US 10-year Treasury reached 3.8% late in the month, while the yield for the domestic 10-year bond moved to as low as 3.9%. As recently as October, these instruments were yielding as much as 5%. By month’s end, money markets were positioning for six interest rate cuts in the US over the next twelve months.

Of note was the resurgence of crypto returns, with Bitcoin adding more than 13% in December in anticipation of the approval of an exchange-traded fund investing directly in the biggest token.

 

Economic Commentary

On the economic front, the disinflation narrative gained further momentum during the month. The US headline CPI for November slowed to 3.1% from a year ago. Falling energy prices were the main driver. Excluding volatile food and energy prices, the core CPI was up 4% from a year ago. Both numbers were in line with estimates and had little change from October. Shelter prices, which comprise about one-third of the CPI weighting, were up 6.5% on a 12-month basis, having peaked in early 2023. The December Fed meeting again kept rates on hold, but committee members now expected three rate cuts in 2024. That’s less than what the market had been pricing, but more aggressive than what officials had previously indicated. The committee’s “dot plot” of individual members’ expectations indicates another four cuts in 2025.

In Australia, the September quarter GDP numbers confirmed that a per capita recession was persisting and that the high cost of living was eating into household savings. The Australian economy expanded by 0.2% during the quarter, below market forecasts, as household consumption stalled and net trade detracted from growth. The household savings ratio dropped to 1.1%, the lowest since 2007. Meanwhile, government spending rose more quickly, preventing an overall weaker result. The unemployment rate increased to 3.9% in November 2023, while monthly inflation data pointed to slower price increases late in the year.

Elsewhere, the UK growth rate came in below consensus for October, while the German economy contracted by 0.4% year-on-year in the third quarter of 2023. Finally, in China, retail sales expanded by 10.1% year-on-year in November 2023, but below the market consensus estimate of 12.5%. Meanwhile, property prices in China posted a fifth consecutive month of decline in November, despite Beijing having issued a series of measures to boost demand.

 

Want to discuss the above information or your investments?

We hope you find the information useful, and if you want to discuss any details further or discuss your personal investment strategy, please book a chat here

 

 

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November 2023 Economic & Market Review – Global Markets Rally while Mixed Signals for Australia

Talking points

  1. Global Markets Rally Amidst Signs of Economic Moderation: November witnessed a strong rally in global markets as better-than-expected US inflation data fueled optimism that interest rates had peaked, leading to a surge in shares and bonds worldwide. The VIX volatility indicator reached its lowest levels since before the pandemic.
  2. Sector Performance Varied: Sectors previously hit hard this year, such as healthcare, property, small caps, and emerging markets, rebounded significantly. Tech stocks continued to soar, while energy and utilities lagged behind the broader market.
  3. Mixed Performance in Global Equity Indices: While the ASX 200 index delivered a solid 5% total return in November, global benchmark indices, particularly the US S&P 500 (+8.9%), Dow Jones (+8.8%), and Nasdaq (+10.8%) outperformed strongly. However, the rise in the Australian dollar negatively impacted unhedged domestic investors.
  4. Bond Markets Experience Historic Recovery: Fixed interest returns saw one of the strongest recoveries on record, with treasury curves shifting lower and long-term risk-free rates retreating. The bond market rally, especially in the US, resulted in the biggest monthly gain for the US aggregate bond index in over 35 years. Fed fund futures are now pricing in a 60% chance of a 25 basis points cut in March 2024
  5. Australian Economic Landscape Faces Mixed Signals: The Australian economy’s unemployment rate edged up to 3.7%, driven by stronger workforce participation. Despite this, the Reserve Bank of Australia (RBA) raised interest rates by 25 basis points to 4.35% at its November board meeting, in line with expectations. The RBA’s optimistic forecasts for GDP and inflation and a pushing out of projected jobless rate increases until the next year indicated a delicate balance in navigating economic challenges. 

 

Market Commentary

Investors had reasons to rejoice in November as economic data showed that inflation was moderating and interest rates had likely peaked. As inflation rates slowed, the global financial landscape witnessed more moderate economic conditions, particularly in the US, where the labour market is softening. The outlook renewed confidence in the ‘soft landing’ narrative and buoyed equity markets.

Bond markets staged an incredible recovery in November as US long bond yields experienced the largest monthly decline since December 2008. The 10-yr US Treasury yield plummeted to 4.35% from a peak of 5% in October, boosting the US aggregate bond index by almost 5%, for its biggest monthly gain in over 35 years. In Australia, 10-year yields fell by over 50 basis points to help the Ausbond Composite All Maturities index return close to 3%.

The bond market rally pushed yields significantly lower in most regions, which gave a valuation boost to growth stocks and the technology sector. In terms of style, growth outperformed value during the month, and small caps outperformed their large cap peers.

 

The VIX volatility indicator fell to its lowest levels since before the pandemic, and equities posted their best month in over a year. November traditionally sees the beginning of the strongest six months of the year for US equities as share buybacks increase, while mutual fund tax-loss selling typically ends in October.

The S&P 500 Index is now up more than 20% year-to-date, including dividends. In contrast, the ASX 200 has returned 4.8%, including dividends, and just 0.7% in nominal price terms. On the continent, European indices moved higher despite the subdued economic environment. Japan continued its outperformance in 2023, posting a 5% increase in November. 

In emerging markets, the MSCI Emerging Markets Index grew strongly over the month in local currency terms despite China continuing to underperform the broader index.

 

Economic Commentary

On the economic front, the disinflation narrative reigned supreme during the month. The US CPI for October was cooler than expected. Annual headline and core inflation dropped to 3.2% and 4%, respectively. The biggest driver of the decline in the headline data was a fall in energy and gasoline prices, along with lower travel and accommodation costs. In the labour market, the US economy added only half as many jobs in October, compared to September’s strong print. The below consensus data provided a much-needed sign that the labour market is slowly cooling.

In Australia, the October unemployment rate increased to 3.7%, driven by stronger workforce participation. Meanwhile, following a four-month pause, the RBA hiked official interest rates by 25 basis points to 4.35% at its November board meeting. This was in line with expectations and saw many economists predict that further hikes were to come. The quarterly Statement on Monetary Policy confirmed that the RBA had raised forecasts for GDP and inflation while deferring forecasts of a jobless rise until next year.

Elsewhere, the UK saw a larger-than-expected fall in inflation as the services sector cooled despite strong wage growth. The November services Purchasing Managers’ Index (PMI) posted a small expansion, surprising some analysts. In Europe, the CPI release for November also showed inflation is slowing, driven by lower energy prices. European manufacturing activity remains poor, mainly due to weak data from Germany and France. However, employment growth was robust over the previous quarter. Finally, macro data out of China exceeded consensus estimates, as retail sales jumped in October. However, new home sales continued to fall, seeing the People’s Bank of China (PBC) once again injecting liquidity into the banking system and further reducing the required reserve ratio.

 

Want to discuss the above information or your investments?

We hope you find the information useful, and if you want to discuss any details further or discuss your personal investment strategy, please book a chat here

 

 

 

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October 2023 Economic & Market Review – Geopolitical Tensions and Economic Resilience

Talking points

  1. Geopolitical Tensions Impact Markets: A surprise attack by Hamas in Israel on October 7 led to the outbreak of war in the Middle East. Elevated geopolitical tensions contributed to further uncertainty in an environment where fast-rising bond yields already besieged financial markets. 
  2. Investment Markets Fall: It was a case of more of the same in October as investors endured further losses across most asset classes. Excluding dividends, the benchmark US S&P 500 was down 2.2% in October, the Dow Jones Industrial Average decreased 1.4%, while the tech-heavy Nasdaq Composite fell 2.8%. This weakness was also seen in various global indices across developed and emerging markets. In local shares, the ASX 200 lost 2.8% after accounting for dividends. Small caps and listed property were thumped once again as rising risk-free rates dented valuations and increased funding costs. Gold and Bitcoin were noteworthy positive performers as investors sought safety and diversification.
  3. Weak Australian Dollar Benefits Australian Investors: The Australian dollar traded lower throughout October, again insulating unhedged domestic investors holding international investments. 
  4. Fixed Interest and Bond Market Turbulence: The rout in fixed interest returns continued, where the US 10-year Treasury yield briefly touched 5% for the first time since 2007. The sell-off permeated the global government bond market (including Australia) and in credit, with wider spreads seen in investment grade and high-yield bonds.
  5. Economic Resilience and Data Trends: On the economic front, the United States saw strong data, including impressive job creation, resilient wage growth, and robust economic growth. In contrast, Australia’s economic indicators were mixed, with a declining unemployment rate but concerns about inflation. European economies showed mixed results, while China’s industrial production, GDP, and retail sales performed positively despite challenges in the real estate sector and potential export restrictions.

 

 

Market Commentary

Investor tensions were further heightened in October as war broke out between Hamas and Israel. Despite the conflict, oil prices declined by around 10% during the month, with most of the damage coming in the final trading week. Meanwhile, European gas prices rose on fears of global supply chain disruptions. Commodity prices were a relatively bright spot in October, particularly where safe-haven gold was concerned.

Impaired sentiment continued to impact major indices, including the infrastructure and REIT sectors. Higher real yields have continued to detract from property and infrastructure returns, with small-cap returns experiencing a similar fate. The weaker Australian dollar (AUD) was again welcomed by domestic investors with foreign asset exposures. Indeed, the depreciation of the AUD over the last decade has strongly benefited unhedged domestic investors, particularly in developed market equities, where the depreciation has been more pronounced. For example, the annualised return for the MSCI ACWI-ex Australia has been boosted by more than three percentage points compared to its performance in local currency terms (11.9% vs 8.8%).

In fixed interest, government bond returns were negative in most developed markets as yields rose to multi-year highs in October. In Australia, heightened concerns around the path of inflation and interest rates saw 10-year government bonds briefly touch 5% later in the month. Japanese government bonds were not spared from the sell-off, as investors questioned the sustainability of the Bank of Japan’s (BoJ) yield curve control policy. During its October meeting, the BoJ redefined the 1% upper limit on yields from a strict boundary to a more flexible “reference” point.

 

Economic Commentary

On the economic front, US data regularly printed stronger than expected. The September nonfarm payrolls report stunned economists with the creation of more than 300,000 jobs (double the consensus estimate). Wage growth remained resilient, and inflation data, while trending lower, remained too sticky in the minds of market analysts. The advance estimate for Q3 US economic growth also shot the lights out, with activity surging at an annualised rate of 4.9%. Consumer spending drove the increase, while residential investment rose for the first time in nearly two years.

In Australia, the September unemployment rate fell to a three-month low of 3.6%, driven by a decline in workforce participation. Meanwhile, the RBA paused official interest rates for the fourth consecutive month in October while retaining a hawkish stance in its commentary. Finally, the CPI inflation data for the September quarter delivered an upside surprise that left economists scrambling to raise estimates. A much stronger-than-expected retail sales print (triple the consensus estimate) added further impetus to the view that the cash rate would be hiked at the November meeting.

Elsewhere, European activity was mixed, with soft German data prints pointing to further weakness. In contrast, the UK economy showed signs of moderate improvement. Turning to China, industrial production, GDP, and retail sales were positive surprises. However, continued weakness in the real estate sector and reports of further US restrictions on AI chip exports dampened investor sentiment.

 

Want to discuss the above information or your investments?

We hope you find the information useful, and if you want to discuss any details further or discuss your personal investment strategy, then please book a chat here

 

 

 

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Retirement Villages explained

Whether you or a loved one is considering a move into a retirement village, it can be a lot of information to process. Below, I run through some of the main things to know and consider when transitioning to a retirement village, including:

  • Occupancy and ownership structures,
  • Fees and charges payable, 
  • Homeownership rules for Centrelink,
  • Moving from the retirement village into residential aged care.

 

What is a retirement village?

Retirement villages are communities that generally provide accommodation, facilities and services to people over 55 and retired from full-time employment. Accommodation varies from independent living in self-contained units to assisted living in serviced units.

 

The occupancy and ownership structures

There are a variety of occupancy and ownership structures. Still, it is important to know that the most common form of occupancy and ownership structures are:

 

Leasehold and loan and licence arrangement (84%):  

  • Leasehold where the resident leases a unit from the village operator, is usually via a lease for 99 years or more. It is registered with the Land Titles Office.
  • Loan and licence arrangement where the resident provides the village operator with an interest-free loan in exchange for a license to occupy a unit (mainly offered by not-for-profit organisations). The licence is not registered with the Land Titles Office.

 

Strata title (11%) 

  • Strata title where the resident purchases a unit from the village operator or previous resident (mainly offered by for-profit organisations). The resident is the registered owner with the Land Titles Office.

 

Company title and unit trust (3%).

  • Company title structure is where the resident purchases shares in a company that owns the retirement village. These shares give the resident the right to occupy a unit in the retirement village.

 

Other structures

  • A unit trust where the resident purchases units in a trust, and the trustee owns the retirement village.
  • Rental arrangements where the resident rents a unit from the village operator under a residential tenancy agreement.

 

What are the costs, fees and charges?

What you have to pay and when varies based on the structure and agreement you choose, so always be sure to fully understand these before making a decision.

It can be confusing with different names/labels for all of the costs, but in a nutshell, they can be categorised as:

  • Entry price/Contribution,
  • Ongoing costs,
  • Departure/Exit fee.

 

Entry price/contribution

  • Simply the initial entry price paid when the resident moves in. 
  • It is a one-off payment negotiated between the resident and the village operator or previous resident.
  • A common entry contribution is under a loan-lease arrangement where a zero-interest loan is paid to the retirement village on entry.
  • Another type of entry contribution that non-profit organisations may charge is a donation payable on entry. 

 

Ongoing cost/fees

  • Residents will pay fees to contribute towards ongoing maintenance and management of the retirement village. This amount varies and is usually based on a budget for the entire village and spread across the residents. 
  • Ongoing fees may also include contributions to a ‘works fund’ for major improvements to the retirement village. 
  • Depending on the structure, residents may also pay for the cost of separately metered utilities or a shared cost divided among the residents.
  • Additional services, which are usually charged on a user-pays basis, can include things such as cleaning, meals, laundry and other personal services. These additional costs are a variable where a resident would only pay for what they use. 
  • Note that residents may have to continue paying for ongoing maintenance costs after they move out of the retirement village until a new resident moves in. There are limits that apply to these amounts.

 

Departure/exit fees

  • These can be referred to as departure fee, departure refund, deferred entry fees or deferred management fees. 
  • The exit fee is usually calculated as a percentage per year of either the entry price or resale price up to a maximum percentage. The fee is then often deducted from the money the resident is to receive back. 
  • The refund of the resident’s capital is determined by the type of legal and financial arrangement.

Homeownership rules for Centrelink purposes

This table sets out the homeownership status, asset test assessment and eligibility for rent assistance which is determined by whether the amount paid as an entry contribution exceeds the extra-allowable amount

To determine whether a resident is considered a homeowner for Centrelink purposes, the entry contribution (EC) is compared with the Extra Allowable Amount (EAA). The EAA is the difference between the homeowner and non-homeowner lower assets test thresholds (currently $242,000).

 

 

 

How can we help?

If you want to discuss your planning strategy to transition to a retirement village, then please get in touch and book a chat with one of our advisers.

 

 

 

Note: The information in this article is current as at 2 October 2023 unless otherwise specified.

 

 

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Bring Forward Non-concessional Contributions explained

To maximise the non-concessional contribution (NCC) opportunity, you may consider using the bring-forward NCC cap of up to $330,000, provided your Total Superannuation Balance (TSB) allows you to do so. If you are eligible, the bring-forward is triggered automatically when your total annual NCCs exceed the annual cap (currently $110,000).

From 2022-23 onwards, you are required to be under the age 75 on 1 July of the financial year to be able to access the bring-forward NCC cap. While age may determine whether or not a person is eligible to make NCCs above the annual cap, additional eligibility rules apply.

The maximum amount available under the bring-forward, as well as whether you have a 3 or a 2 year bring-forward period, depends upon your TSB on 30 June prior to the financial year in which the bring-forward is triggered. See table below.

 

If you make an NCC that exceeds the allowable amount based on your TSB on the prior 30 June, the contribution is assessed as an excess NCC. 

 

 

Things to consider

  • If you turn 75 in the middle of the next financial year, the next year will be the last financial year that you are able to use the bring-forward NCCs cap, and the super contribution must be made on or before 28 days after the end of the month you turn 75. 
  • Before you trigger the bring-forward NCC cap, it is important to check whether you previously triggered it and are still in a bring-forward period. Your myGov account shows whether you are already in a bring-forward arrangement.
  • Once the bring-forward period has expired, you may make further contributions within the annual cap or even trigger the bring-forward provisions again. 

 

How we can help

If you’re considering putting more money into your super, let’s chat. Our experienced advisers can help you figure out which superannuation strategies make sense for you.

 

 

 

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Carry-forward (catch-up) concessional contributions explained

Successfully claiming a tax deduction for personal super contributions can reduce your taxable income and the income tax payable. The basic concessional contributions cap for the 2023–24 financial year is $27,500. However, it is important to understand that you may be able to claim more than the annual concessional contribution cap in some cases by accessing the carry-forward concessional contribution cap.

 

What is the carry-forward concessional contribution cap?

You will have a higher available concessional contributions cap (than the basic cap) in the current financial year if you can carry forward and apply available unused concessional cap amounts from previous financial years.

From July 2023, individuals can look back and carry-forward their unused concessional contributions for the previous five financial years. As the measure started on 1 July 2018, individuals could only look back to the ‘start’ and carry forward one previous year from FY2020, then two years from FY2021 and so on.

You are eligible to carry forward unused concessional cap amounts from previous years, and effectively increase your contribution caps in later years, if you have a total superannuation balance of less than $500,000 at 30 June of the previous financial year, and have unused concessional contributions cap amounts from up to five previous years.

 

Important note for the 2024FY

Any unused cap amounts are available for five years and expire after this time. If an individual has an unused cap amount from the financial year ending 2019 and does not use that amount by the end of June 2024 it will expire.

Quick tips

  1. If you are not eligible in the current year due to exceeding the $500,000 total super balance threshold on 30 June 2023, you may be eligible next year if your total super balance on 30 June 2024 is reduced to less than $500,000.   
  2. Your total super balance and their unused carry-forward CCs can be found through your myGov account.  

 

How we can help

If you’re considering putting more money into your super, let’s chat. Our experienced advisers can help you figure out which superannuation strategies make sense for you.

 

 

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September 2023 Economic & market review – Fed Higher for Longer and Economic Contrasts

Talking Points

  1. Global shares decline amid fed’s ‘higher for longer’ stance: Global stock markets saw a downturn in September as the Federal Reserve’s commitment to holding interest rates higher disappointed investors.
  2. Market malaise and increased volatility: Market sentiment soured, leading to widespread declines in major indices and increased market volatility. This trend was marked by a decline in trading volumes and prominent short positioning across financial markets.
  3. Challenges in key sectors: Several sectors, including listed property, global REITs, and infrastructure stocks, faced challenges and underperformance due to changing market conditions, with energy and value sectors offering limited respite.
  4. Fixed-interest markets and concerns over bond bear market: The sell-off in US Treasuries and rising yields had a ripple effect on other sovereign bonds, including Australian bonds. This situation raised concerns about a potential bond bear market, causing losses in composite bond indices and affecting the gold sector.
  5. Global economic contrasts: The US experienced robust growth on the economic front despite challenges such as rising unemployment rates and inflation. In contrast, Europe grappled with higher oil prices and unexpected interest rate hikes. Key economic indicators from China also showed signs of improvement, indicating a potential shift in the manufacturing sector.

 

 

Summary

Financial markets took another leg down in September as investors came to grips with the narrative that the US Federal Reserve (the Fed) would need to keep interest rates higher for longer. Excluding dividends and share buybacks, the benchmark S&P 500 was down 4.9% in September, the Dow Jones Industrial Average decreased 3.5%, while the tech-heavy Nasdaq slumped 5.8%. This weakness was not limited to the US, as global indices across developed and emerging markets fell. However, a silver lining for unhedged Australian investors was the Australian dollar trading lower throughout September, partly insulating them from the losses.

In local shares, the ASX could not maintain its momentum from a rally in late August, with the S&P/ASX 200 index falling 2.8% after accounting for dividends. Small caps fared comparatively worse, posting a 4% decline. However, these moves paled compared to the 8.6% drop in listed property stocks, where rising risk-free rates revived valuation concerns and detracted from the impressive rally in A-REITs at the beginning of the financial year.

Fixed interest returns disappointed defensive investors, where exposures to safe-haven cash and high-grade credit continue outperforming government bonds. The ongoing large quantum of debt issuance by the US Treasury is proving to be an overhang. Finally, an extension of cuts in oil production by Saudi Arabia and Russia reignited inflation concerns and drove the price of crude above US$90/bbl.

 

Market Commentary

Global shares accelerated their downward trend in September as the Fed’s ‘higher for longer’ theme rang more loudly in the aftermath of the September FOMC meeting. Upwardly revised economic projections by Fed officials were a case of ‘good news is bad news’, with investors disappointed a further rate hike could occur in 2023 before making way for potentially just two rate cuts in 2024. The Fed’s ongoing resolve to tame inflation was not well received by investors, with matters exacerbated by another lift in oil prices as Russia and Saudi Arabia coordinated their efforts to extend restrictions on output. As a result, transport-related costs were higher during the month.

The malaise in sentiment saw broad declines across major indices, often characterised by poor market breadth as decliners easily outnumbered gainers, culminating in most sectors finishing in the red. Trading volumes decreased significantly, while increased volatility and short positioning became prominent features across financial markets. 

Our domestic sharemarket was not spared, as a jump in real yields put listed property to the sword, completely wiping the momentum seen in the sector since mid-July. Global REITs and infrastructure stocks similarly underperformed, with minimal respite to be found outside of energy and value plays.

In fixed-interest markets, the sell-off in US Treasurys continued in earnest, dragging other sovereigns along for the ride, including Australian bonds. Yields at the longer end of the maturity spectrum were particularly hard hit, imposing losses on composite bond indices and stoking anxiety that the bond bear market, which commenced in late 2021 had further to play out. Furthermore, the increase in yields and accompanying strength in the US dollar ensured that the gold sector underperformed.

 

Economic Commentary

On the economic front, data releases provided support that the US economy was experiencing a period of robust growth in the September quarter. In contrast, Europe was struggling with higher oil prices and an unexpected lift in official interest rates. 

In the US, jobs market data remained strong despite a rise in the unemployment rate from 3.8%. Nonfarm payrolls exceeded expectations, and wage growth remained firm while job openings continued to outpace the available workers. Underlying inflation showed further signs of stickiness, and there was a reversal in the favourable base effects seen earlier this year. Notably, the US national debt reached US$33 trillion for the first time in September, while “excess” savings by households from the pandemic had now been depleted. This resulted in growing credit card balances, especially among poorer cohorts.

On the domestic front, the RBA again paused the official cash rate at 4.10% at its September meeting, with the minutes revealing that the central bank was concerned with the impact strong population growth was having on rents and house prices. The monthly CPI indicator for August jumped to 5.2%, as rising fuel and utility prices led to a rebound in inflation from a 4.9% gain in July. It was the first increase in annual inflation since April.

In China, the manufacturing sector finally stopped contracting in September, with key indicators pointing to a slight expansion. Another positive sign was that August retail sales exceeded expectations and accelerated from the previous month, posting the largest increase since May.

 

How can we help

We hope you find the information useful, and if you want to discuss any details further or discuss your personal investment strategy, then please book a chat here

 

 

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