Financial Planning

Ask our Advisors (Aug 2011)

Tue, 04 Oct 2011 08:29:00 GMT

SMSF not for everyone

My wife and I will be turning 60 in December. We have been retired for the past 2 years. We have drawn down to the non taxable limit on one of our two super funds. We have $400,000 in a term deposit maturing in June 2012 at 3.4%. There is $80,000 in one super account and $780,000 in the other which are invested in balance/growth area. We have about $50,000 in another fund that matures in 2016. What guidance can you give and would a SMSF benefit us?

If you haven’t run your own portfolio before a SMSF may not be for you. SMSF are not necessarily easy and foolproof. I would suggest that you put as much as you can (be wary of the investment caps) into super between now and 65 (no further contributions can be made without meeting the work test) so that you have as close to 100% of your income from a super pension where it will be untaxed.

I would like to keep 60% - 65% in equities depending on the state of the sharemarket.

You always need more than you think in retirement

I would like to know how much is enough in retirement? Is there a basic rule of thumb? I am currently 40 and looking to plan for retirement.

I don’t believe in rule of thumb, but I would suggest that you should aim to retire on 75% or more of your ‘cash in hand’ income. Hence if a couple retiring at age 65 would need to have $1.3 million to achieve a starting income of $75,000 a year indexed at 3% to meet inflation for about 22 years (87 year expectancy). However this assumes that your home will be significantly debt free to fund your entry into an aged care facility. However if one partner becomes ill sooner and requires to enter a nursing home this will throw out this neat calculation. You should never underestimate how much one needs in retirement.

Working a little post retirement can help build your super

I am a 66 year old pensioner and my husband is 68. We wish to downsize and enter a senior resort. We will be selling our house for $1.3 million to fund the purchase and will have $500,000 left over. We have a portfolio of shares worth $150,000 from which we receive dividends and and allocated pension of $30,000 each per year. What would be the most tax effective investment for the $500,000 and can we add this to our existing super account?

You existing allocated pension is paid from your superannuation fund and as you are over 65 you are not entitled to make additional contributions without meeting a ‘work test’ that is you need to work 40 hours within 30 days during the financial year. If you choose to meet the work test you can contribute $150,000 each financial year into you superannuation fund without being tax on the entry as this will be deemed ‘non-concessional contribution’. If you can’t meet the work test then you will need to invest these monies outside your superannuation account with an emphasis on security and income. There are many options available and hence you should seek professional advice to have a plan drawn up for you.

If you have a question for our Advisors please email m1fs@m1.com.au

Confusion Over Financial Planner Independence

Tue, 04 Oct 2011 08:30:00 GMT

Questions are being raised about the independence of the biggest financial groups.

Financial plannersworking for the Banks, AMP & AXA or part of their large dealer groups have a propensity to recommend their own products according to a survey by Roy Morgan Research of 250,000 financial planning clients over the past 5 years.

Advisers from AMP have directed over 80% to their own fund manager while ANZ have been the least with only 45.3% being directed internally.

While AXA saw a decrease of 7.3% in the latest period, this can largely be explained by a large increase in the proportion of funds being directed towards superannuation by their advisers. This is not unexpected given that in late 2009, AXA announced that it had completed the purchase of self-managed superannuation provider Multiport, which would likely be receiving the bulk of this difference

Own Product Bias

Financial Planning Group	Financial Planning Brands	Funds directed towards own products (Dec 2010)
AMP	AMP Hillross	81.3%
ANZ/ING	ANZ ING/Onepath RetireInvest	46.2%
AXA	AXA CharterFP	67.4%
CBA/Colonial First State	Commonwealth Colonial First State Financial Wisdom	77.0%
NAB/MLC	NAB MLC Garvan Godfrey Pembroke Apogee AdvantEdge	69.4%
Westpac/BT	Westpac BT	67.0%
TOTAL		72.0%

An industry communications director at Roy Morgan Research, Norman Morris says “While most who visit a financial planner under the banner of a major wealth company are aware of their ties, confusion continues around those who many perceive are independent, but are actually aligned. Given that these planners will likely still be tied to the groups Approved Product List (APL), it raises the issue of how informed consumers are to this potential conflict.

This should not come as any surprise seeing the Banks, AMP & AXA have invested millions in building these vertically integrated product manufacturing and distribution models.

Independence

The survey found that there was considerable confusion about the planners’ independence amongst clients of planners that brand differed from their parent. About half of all Hillross (AMP Brand), Garvan (NAB Brand), Godfrey Pembroke (NAB Brand) and Financial Wisdom (CBA Brand) clients thought their planner was independent.

Norman Morris says “For a client that may be entering an advice relationship on the premise that the financial planner they are visiting is independent of any major financial institution, however this is clearly not always the case and the lack of independence regarding these planner’s approved products raises the question of whether the best interests of the client are always being served.”

The law requires planners to disclose via their Financial Services Guide (FSG) any links they have to product providers and ownership, however these links are sometimes not made sufficiently clear to clients.

Open your Eyes

The vast majority of financial planners have some link to about a dozen dealer group with some connection to a product provider that provide greater access to products and investment platforms. However, the chief executive of the Association of Financial Advisers, Richard Klipin, says good advice is offered across the market and is not dependant on ownership structure.

The key document to view is the Financial Services Guide (FSG) which will disclose any conflicts that might arise. The FSG discloses the ownership and remuneration and if there are any restrictions on the advice they can give or products they can recommend.

Ask our Advisors (July 2011)

Tue, 04 Oct 2011 08:34:00 GMT

Deductions for Self Employed

Can someone who is self employed salary sacrifice into super and thus receive a deduction for superannuation contributions?

A person will often describe themself as self employed when in fact they are employed by a family company. This tax structure allows a self employed person to have an employer who can claim a 100% deduction for superannuation contributions

Self Funded Retire Super Deductions

I’m 62 and have been a self funded retire for the past 5 years, with an income derived from dividends and fixed interest of $80,000 per annum. Can I contribute to super and get a tax deduction on my taxable income? Is there a work test?

As you are under 65, you can make contributions to superannuation without passing the work test and as no employer is paying superannuation contributions for you. You are entitled to claim a tax deduction for the concessional contribution, which is limited to $50,000 a person aged 50 and over.

Super no threat to pension

My husband is 66 and currently on a pension. I am 61, a teacher and because of my reasonable income my husband’s pension has been reduced from $480 to $100 a fortnight. We own our own home, I have $400,000 in super my husband has $50,000 and he has a $150,000 inheritance in a term deposit. What is the most tax effective thing to do with the inheritance without it having an effect on his pension?

The means test won’t count your superannuation until you reach your pension age of 65 and your home will remain exempt while you are still living in it. The income test is diminishing your husband’s age pension. As your husband is over 65 he can contribute his inheritance into super provided he can meet the work test i.e. work for 40 hours within 30 days. This will allow for the term deposit income to no longer be assessed under the income test and this should allow for your husband’s pension to increase. If you have a question for one of our advisors email your question to m1fs@m1.com.au.