Superannuation News

Superannuation, sometimes known as your “nest egg,” is a key part of your lifestyle flexibility and retirement puzzle.

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

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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February 2024 Economic & Market Review – Global Markets Surge, Interest Rate Shifts, and ASX Reporting Season Insights

Talking points

  1. Strong Global Market Performance: In February, global markets experienced a surge in performance, fueled by the standout performance of select mega tech giants. Notably, the S&P 500, Dow Jones, and Nasdaq 100 all showcased notable gains, underlining the dominance of risk assets on the international stage.
  2. Interest Rate Dynamics: Throughout the month, there was a notable shift in interest rate dynamics, with traders recalibrating their expectations for a significant reduction in the US Fed Funds Rate. Surprising inflation and labour market data prompted a reevaluation, leading to higher yields and pressure on fixed interest returns.
  3. Emerging Markets Strength: The MSCI All Country World index, inclusive of dividends, delivered a strong 6% return in February. Moreover, the MSCI Emerging Markets index slightly outperformed expectations, benefitting from a late-stage resurgence, particularly notable in China.
  4. ASX Performance Lags Global Markets: Despite a solid interim reporting season, the ASX faced headwinds, failing to keep pace with its global counterparts. Weaker commodity prices exerted downward pressure, notably impacting the Resources sector, with the ASX Metals and Mining sub-index witnessing a decline of nearly 6%.
  5. Key Themes Evident in ASX Reporting Season: During the February reporting season, significant themes emerged within the ASX landscape. Notably, a heightened focus on cost control yielded favourable earnings results, with ASX 200 companies allocating a higher proportion of their free cash flow towards capital expenditure than the previous year.

 

 

Market Commentary

February saw global markets deliver much stronger returns in risk assets than domestically, thanks to positive economic data and stronger-than-expected earnings reports, particularly select mega tech names linked to the generative AI revolution. A prime example was Nvidia, which delivered another strong profit result, beating consensus expectations for earnings and sales, which resulted in another round of upgrades.

In Australian dollar terms, the MSCI All Country World Index returned 6%, including dividends, in February, while the MSCI Emerging Markets index performed slightly better, gaining 6.4%, including dividends, helped by a late rebound in China. In developed markets, Japan continued to outperform, with the Nikkei 225 Index forging a new all-time high for the first time in over three decades. Meanwhile, European stock markets underperformed on disappointing economic data releases.

On the domestic front, despite a solid interim reporting season, the ASX had a weaker month, underperforming global peers. While the Tech sector followed its global peers upwards, weaker commodity prices weighed on the Resources sector. The ASX Metals and Mining sub-index declined by almost 6%. The Energy sector was also weaker. 

Key themes during the ASX February reporting season included a greater focus on cost control helping drive more earnings beats than misses (Health Care and Resource firms the main exceptions where cost increases were more problematic). ASX 200 companies spent 55% of their free cash flow on capital expenditure (capex), up from 40% a year ago. Meanwhile, the domestic market’s cash conversion cycle continues to improve, thanks to lower inventory and receivables. Finally, older and wealthier cohorts benefiting from higher rates are spending and saving more, while younger and more indebted cohorts have pulled back on spending, having exhausted most of their savings.

On the interest rate front, traders pared back interest rate bets for a sharp reduction in the US Fed Funds Rate, as inflation and labour market data continued to surprise to the upside. At the beginning of the month, as many as six 0.25% cuts were being positioned for by Christmas 2024, but this was halved by month end. As yields rose, fixed interest returns again came under pressure, with most key benchmarks finishing February in the red. Meanwhile, the average rate on a US 30-year fixed mortgage rose to 6.94% at month end, its highest level in over two months. Elsewhere, oil prices continued to creep higher, while gold was virtually unchanged. The rally in crypto accelerated as Bitcoin spiked by 44% during the month, with speculation in numerous ‘coins’ reaching a fever pitch.  

 

Economic Commentary

On the economic front, the Reserve Bank of Australia (RBA) maintained a hawkish tone in its February board meeting. The RBA held the official cash rate steady at 4.35%, in line with expectations. While inflation continues to show signs of slowing due to weaker goods and energy prices, it remains well above the target 2-3% range. January labour market data was again relatively weak, with employment growth and hours worked trending downward. Elsewhere, preliminary retail sales data for January increased by 1.1% versus December, missing the market consensus of a 1.5% rise. Manufacturing data was also below expectations, as the industry contracted at the beginning of the year.

In the US, the economy added 353k jobs in January, well ahead of expectations. Wage growth was also unexpectedly firmer. Average hourly earnings growth has now picked up steadily since October, reaching 4.5% over the prior year. The GDP figures for the December quarter were also strong, growing by 3.2% annualised, while productivity growth was up 2.7% over the twelve-month period. However, January inflation data came in hotter than market consensus. Core CPI (which excludes food and energy) rose by 1% over the quarter, and producer prices were also stronger than investors were hoping for. Services inflation has remained sticky, and so-called ‘super core services’ inflation, which strips out rental costs, jumped 0.9% in January, the largest monthly increase since April 2022.

Euro Area inflation inched lower to 2.8% in the year to January, and annual core inflation continued to ease to 3.3%. The result was above consensus but still reached its lowest level since March 2022. Finally, official UK data revealed its economy entered a shallow technical recession at the end of 2023 amid a broad-based decline in output. Despite consecutive quarters of negative growth, UK mortgage approvals and house prices are now rising strongly, while the unemployment rate fell to 3.8% at the end of 2023, led by progress in full-time employment.

 

Got some questions or want to chat ?

Thanks for reading. If you have any questions or want to discuss your investment strategy, please book a chat here

 

 

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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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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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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.

 

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Big hat, No cattle

 

Most of us don’t like being asked how much money we make.

We’ve gotten really good, however, at building a material world around us that implies great wealth, even if the reality is something else entirely.

With our cars, our houses, and the clothes we wear, we are constantly signaling what we want the world to think about the very question we hate to answer.

And while we often treat these material things as a sign of our success, in reality, they’re usually just a front. In fact, most of us would be better off (financially speaking) buying a less expensive car and putting the leftover money into mutual funds.

Ironically, if we all just walked around with a big sign around our necks saying how much we make, we wouldn’t have to do all this posturing and pretending. Our relationship with money would change considerably if our financial decisions were transparent to the world.

For instance, what if the home in which we live could no longer hide that we’ve saved nothing for retirement?

Maybe then we would find it easier to focus on the financial choices that help us instead of hurt us.

 

 

 

 

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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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