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While the government has announced plans to increase governance over the performance of super funds, super members will still need to actively monitor the performance of their fund to avoid being stapled to an underperforming one, says a mid-tier firm.

         

As part of its Your Future, Your Super package, the government revealed plans in the federal budget to staple existing superannuation accounts to a member in order to avoid the creation of a new account when the person changes their employment.

BDO partner, audit and assurance, James Dixon said placing an obligation on super funds to align performance with members’ best interests and ensure their members’ retirement savings are maximised is good news.

“All superannuation investment vehicles — whether they are a self-managed superannuation fund, a retail fund or an industry fund — should be on a level playing field when it comes to transparency and governance. Ensuring the needs of members are front and centre should remain the end game,” Mr Dixon said.

However, Mr Dixon noted that as with many announcements of this nature in the past, the devil is in the detail.

“Developing an appropriate benchmark to measure fund performance against will be key to this proposal,” he said.

“It must balance the need for short-term reporting transparency against the need for funds to invest for their members’ benefit. The metrics used to determine the benchmark itself must also be carefully considered, with a wide range of market, fund and investor factors that should be taken into account.”

He also stressed that despite this increase in government, Australian workers will need to actively monitor the performance of their super fund to avoid being stapled to an underperforming fund.

“APRA may eventually take action against an underperforming fund, but many factors influence whether a member should switch funds before that time,” Mr Dixon said.

Mr Dixon said super members may want to have a discussion with their planner or wealth adviser about their personal risk profile and the composition of the fund’s investments and their diversification, liquidity and any other factors that determine retirement goals.

 

 

Miranda Brownlee
22 October 2020
smsfadviser.com

 

Vanguard surveyed more than 850 millennials in the U.S. currently aged 24 to 39, who make at least US$50,000 per year, as part of a broader study on how people across different generations feel about retirement, investing, and financial advice during market volatility.

           

In just over two months from now, the oldest millennials will be turning 40.

It's an interesting milestone in the sense that parts of what some still refer to as the “younger generation” are not so young anymore.

In fact, many older millennials may have already been working for more than 20 years, as opposed to those at the bottom end of this generational cohort who are still aged in their early twenties.

The widely accepted age definition for millennials (also known as Gen Ys) covers people born between 1981 and 1996, making the youngest 24 years-old. Next year, they'll be turning 25.

Because of this wide age variance, there is likely to be a large variation in accumulated investment wealth across the millennials spectrum.

Where this all comes together from an investment perspective is in recent research conducted by Vanguard in the United States.

Vanguard surveyed more than 850 millennials in the U.S. currently aged 24 to 39, who make at least US$50,000 per year, as part of a broader study on how people across different generations feel about retirement, investing, and financial advice during market volatility.

The survey was active during May – the period when financial markets were staging a strong recovery after their sharp falls in February and March.

Views on investing

The events during the first quarter would have been the first experience for many millennials of a major correction on equity markets.

When describing their feelings towards investing at the time of the survey in May, almost half of millennials said they were cautious (46 per cent), and used words such as fearful (28 per cent), and sceptical (27 per cent).

This compared with before the COVID pandemic when millennials were understandably less cautious (32 per cent) and had a much higher leaning towards other words such as optimistic (29 per cent), and motivated (23 per cent).

That said, 74 per cent said they were interested in learning more about investing. That included 43 per cent who said they were somewhat interested, and 32 per cent who were very interested.

Vanguard's U.S. research ties in with the findings from the recently released 2020 ASX Australian Investor Study.

The ASX found that over the next few years the number of younger Australians actively investing will continue to rise. Intending investors have an average age of just 34, with 27 per cent aged under 25.

Among the “next generation investors”, as the ASX refers to them, 41 per cent list building a sustainable income stream as their top investment goal. Maximising capital growth was the next highest selection (25 per cent), followed by achieving a balance between capital growth and investment risk (16 per cent).

Views on retirement

On paper, the millennials generation is a long way from retirement.

But the reality is that a high percentage of millennials are actively thinking about retirement.

More than six in 10 U.S. millennials (61 per cent) said they plan to retire before age 65, and 22 per cent plan to retire before age 60.

According to the Australian Bureau of Statistics, the average retirement age in Australia is 55.4 years.

Nearly two-thirds (63 per cent) of those surveyed by Vanguard defined a successful retirement as being able to do what they want when they want.

That loosely fits in the Association of Superannuation Funds of Australia's “comfortable lifestyle” retirement standard, which factors in the ability to enjoy a good standard of living and make regular discretionary purchases.

ASFA's current budget calculations are that a single would need $43,687 a year to live a comfortable retirement lifestyle, and a couple $61,909 a year.

Almost 70 per cent of the U.S. millennials surveyed were confident they were putting away enough money to be financially secure in retirement.

However, once they reach retirement age, 39 per cent said they intended to pursue a new career at “retirement”, and 35 per cent planned to start a business.

The top reason for planning to continue to work was “to stay active and alert” (50 per cent), followed by “I enjoy what I do” (46 per cent), and “to have a sense of purpose” (43 per cent).

Conclusion

There's no doubt that when it comes to both investing and retirement, there's a lot of diversity across the millennials generation.

Older millennials, certainly in some cases, will be actively thinking about retirement already because they may even be considering retiring within the next 20 years.

Many will already own a home, have a family, and will have had the benefit of close to two decades of accumulated investment returns.

Younger millennials, on the other hand, may only be taking the first steps in their career, have limited assets, and have different investment objectives to their millennial elders.

Yet there are likely to be many commonalities, especially given the fact that almost three-quarters of the U.S. survey respondents, covering millennials of varied ages, said they were keen to learn more about investing.

In Australia, that relates back to around 70 per cent of next generation investors wanting to build sustainable income and maximise capital growth.

Yet, irrespective of generation, the fundamental principles around investing remain the same.

They revolve around setting appropriate investment goals that are measurable and attainable; having a well-diversified asset allocation strategy; controlling investment costs to maximise returns; and maintaining perspective with patience and discipline, regardless of short-term events.

 

 

Tony Kaye
Senior Personal Finance Writer
27 Oct, 2020
vanguardinvestments.com.au

 

 

Recent research has revealed that more than half of retirees are projected to fall short of their desired retirement income level by more than 10 per cent, says Russell Investments.

 

       

In a recently released white paper, Russell Investments said analysis of the financial goals and financial circumstances of more than 8,000 Australian superannuation members indicates that 64 per cent of the participants were projected to fall short of their desired income by more than 10 per cent.

“Our analysis also uncovers a second, poorly understood issue. The potential for overfunding — unintentionally saving more than needed,” it stated.

“Over one in 10 participants were projected to exceed their goal by more than 10 per cent, sacrificing spending now to achieve a future retirement income well above what they want.”

Based on the analysis, around 32 per cent were either on track or slightly above in terms of their projected retirement outcomes.

The research found that optimising contributions at the personal level can play a significant role in closing the retirement gap.

The research demonstrated that if individuals contributed 5 per cent of their salary in additional contributions when tracking behind, the analysis shows the proportion of members on track to their goal would increase by more than half.

The analysis also indicated that around one in five participants has little understanding of super and how their retirement savings were tracking.

“When asked whether respondents were aiming for a specific retirement goal, 21 per cent indicated they didn’t know or hadn’t thought about it,” the white paper said.

“This proportion of disengaged respondents was similar when asked whether their current super balance was ahead of, on track to, or behind where it needs to be to fund their retirement, with 16 per cent of respondents indicating they didn’t know or were unsure.”

The white paper also indicated that increasing growth allocations earlier in life, and more precisely reducing growth allocations when approaching retirement, can increase the projected retirement income for more than two out of every three people, while simultaneously reducing the impact of a significant market event later in life.

“In addition, by incorporating the individual’s desired income, asset allocation can be further optimised to reduce the chance of falling short. For example, if an investor is on track to their retirement income goal, but not above, a more defensive growth allocation can help ensure they don’t fall below their target income,” it said.

In line with the release of the research, Russell Investments has also launched a goals-based superannuation solution which uses proprietary algorithms to make it possible for every Australian to access a tailored investment strategy based on their unique circumstances and retirement income goals.

Russell Investments managing director, Australia, Jodie Hampshire said that while the Australian retirement system is considered among the best in the world, policymakers continue to debate how to improve the Australian system.

“Our analysis shows that optimising asset allocations and contributions at the personal level can form a substantial part of the solution,” Ms Hampshire said.

The GoalTracker solution factors in up to 10 individual data points, including a person’s age, super balance, salary plus capital market forecasts, to determine how each member is tracking towards their retirement income goal and to set up a customised asset allocation to ensure they have the best chance of reaching that goal.

 

 

Reporter
29 October 2020
smsfadviser.com

 

 

SMSF investors will increasingly be attracted to investments offering capital preservation post-COVID, with volatile markets and lower dividends compromising their ability to meet investment objectives, according to an asset manager.

 

         

SMSF investors will be placing a premium on preserving their capital in the next few years, with many investors no longer enjoying the tailwinds of strong equity markets that they did in the last decade.

Cor Capital managing director David Hood said the investment environment, both domestically and globally, is high risk, whether it’s assessed from a geopolitical, economic or health viewpoint.

“Although that’s the investment reality, it’s not reflected in the pricing of risk assets. But that day of reckoning must come – the markets can’t continue to defy economic reality forever,” he warned.

“SMSFs will not be immune to any market correction of risk assets. In fact, many will be particularly vulnerable for several reasons.”

The difficulty in obtaining advice, for example, due to its rising cost and the exodus of advisers from the industry and misplaced confidence in investment decisions are two of the factors placing SMSF returns at risk, he said.

“Further, in the past decade, and despite historically low interest rates in recent years, these SMSFs have been protected by their investment in fully franked ASX that have provided capital growth and healthy dividend income,” he explained.

“It’s our contention that investors should not expect a similar performance from equity markets in the coming decade, and that dividend income is also likely to be constrained, at least for the next few years.”

Mr Hood said the combination of weaker, and, just as importantly, more volatile markets for risk assets, and lower dividend returns, will be compounded by investors often failing to be able to articulate long-term investment strategies and stick to them.

With SMSFs looking for alternative ways of generating growth and income while preserving capital, there will be a growing appreciation of the need to find fund managers that can achieve these objectives without the need for high level of complexity or costs, he said.

“After the GFC, SMSFs increasingly shied away from fund managers that had failed to deliver during that crash and charged high fees for the privilege of doing so, with the bull market in equities in the past decade rewarding that strategy,” he stated.

“But in the wake of the COVID-induced recession, they may no longer have that luxury if analysts are correct in predicting much lower returns in the next decade, opening the door for fund managers with investment strategies that aim to protect their capital, maintain purchasing power and provide alternative sources of return not tied to high allocations to equities.”

 

Miranda Brownlee
21 October 2020
smsfadviser.com

 

 

The response by our Governments to the COVID-19 crisis has been a very good one.  Following is a comprehensive listing of links to important Federal and State initiatives and programs since the pandemic began.

 

         

Please click on the following links to access a wide range of Covid-19 related updates, initiatives, guidelines and resources from both Federal and State Governments.

Recent Updates:

 

Previous Updates:

  • Articles and Updates in other Latest News articles including:
    • Stage 3 – Covid-19 $1.1billion Domestic Violence, Medicare and Mental Health.
    • Stage 2 – Covid-19 – $66 billion stimulus package.
    • Stage 1 – Covid-19 Update – Small Business
    • Stage 1 – PM launches $17.6 billion virus stimulus plan
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