Profile Blog - Category ‘Financial Planning’

Under the current rules, the maximum amount of “concessional” superannuation contributions that can be claimed is $25,000.00 per person per annum.

           

 

This is referred to as the “concessional contributions cap”. Concessional contributions refer to those contributions that are claimed as a tax deduction by the person or entity paying the contribution. They include employer contributions, salary sacrifice contributions and personal deductible contributions.

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It might be dry old data but it's how you're county's going and it's used to make decisions that affect you every day.  

           

 

Please click on the following link to see all this interesting information. The areas covered are:

  • Overview
  • Markets
  • GDP
  • Labour
  • Prices
  • Money
  • Trade
  • Government
  • Business
  • Consumer
  • Housing
  • Taxes
  • Climate

 

Access all this data here.

 

 

tradingeconomics.com/australia

Severe market downturns feel anything but fair. In many ways the biggest risk facing investors now is the impulse to take action and to make hasty, short-term decisions based on emotional factors rather than accepting where we are today and riding things out.

       

The loss of market value that seemingly evaporates overnight is deeply unsettling and challenging even for committed, well-diversified long-term investors.

But market downturns are not unexpected – most of us will experience several during our lifetimes – particularly after such a long bull market run where market surprises were generally on the upside.

Australia we also should remember has not felt a recession in 29 years. That may feel like cold comfort at this time particularly because we are first and foremost dealing with a global health crisis that unravelled extremely quickly, and then the economic impacts that flows from the measures required to contain and combat it.

Uncertainty and the sense of loss of control are powerful emotions to grapple with. But what we know from past market events is that patience will be rewarded and recoveries can be just as sudden and strong.

The positive news is that the general consensus among economists is that while the recession will likely be sharp it is also likely to be relatively short and the upswing quite rapid. It has also been encouraging to see governments around the world prescribing measures to help hasten the recovery.

But the question about what to do – now – remains. At Vanguard we feel there are probably five things investors should think about:

  1. Tune out the noise. We all want to be informed but with dedicated television channels, websites and newsletters all on top of our normal media consumption habits this type of news event can be overwhelming. Consider checking in with one or two trusted sources and tune out the rest. It's ok not to be checking account balances when markets are falling.
     
  2. Revisit your asset allocation. These type of market events impact investors differently. But it is not all doom and gloom. Younger investors have that incredibly valuable asset – time – while those approaching retirement have just been given a sharp example of how much risk is in their portfolio. If it has surprised you then going forward as markets recover it may mean you should re-evaluate your risk tolerance and rebalance your portfolio to take a more conservative approach.
     
  3. We know we cannot control markets but there are some things we can control – like costs. Costs are particularly painful during downturns so take the time to review high cost investments in your portfolio. For those already in retirement it may mean temporarily trimming back on discretionary lifestyle spending to lighten the amount you need to draw down.
     
  4. Stay diversified. Different asset classes and sector exposures can help insulate your portfolio by spreading the risk.
     
  5. Set realistic expectations. Have a long-term plan and be realistic about returns you expect in the decades ahead.

Staying the course can pay off, abandoning course can be costly.

 

Written by Robin Bowerman
Head of Corporate Affairs at Vanguard.
31 March 2020
vanguardinvestments.com.au

 

 

Sometimes it is true that you don't know what you've got.  ​Till it's gone.  Music aficionados will recognise that line from Joni Mitchell's 1970s hit Big Yellow Taxi.

         

There will be many lessons we learn from the COVID-19 pandemic and its impact on our lives and our investment portfolios.

Few people will view risk – be it to their health or their investments – through the same lens again.

Rewind to the early days of a bright new year in January. The notion of a global pandemic that would infect more than 7 million people and result in more than 400,000 deaths (to date) and shut down large parts of the economy would have belonged firmly in the realm of Hollywood disaster movies rather than something you or your super fund had reason to worry about.

Liquidity is one of those things that investors – both professional and individual – can take for granted particularly after an extended period of relatively strong growth in investment markets and in Australia's case, no economic recession for 29 years.

Times of severe market disruption effectively stress test portfolios and their need for liquidity.

Large superannuation funds have been part of the public debate on liquidity in part because of their need to rebalance portfolios affected by the drop in market values but also because of the wide-ranging package of support measures initiated by the Federal Government that included varying the criteria for early access to super up to $20,000.

But it is not just large super funds that will be rethinking their approach to liquidity. Self-managed super funds also need to factor in the need for liquidity – particularly when they are approaching or indeed are already in the drawdown or pension phase.

Superannuation, by its nature and design, is a long-term investment. So liquidity can be traded off to a degree when the funds will not be needed to be drawn down for 30 or 40 years. Accordingly, for those SMSF trustees in their 30s or 40s liquidity is more an opportunity than a risk.

However, if you are approaching retirement the situation shifts significantly. The purpose of super is to provide the income to fund or supplement your lifestyle once the regular paycheck has stopped.

How you manage your funds' liquidity is always important but becomes critical when you hit the pension years because it is your responsibility as the trustee of your SMSF to be able to pay expenses of the fund and benefits to members as required. The liquidity challenge for an SMSF that is invested in one illiquid asset such as property can be dramatic when things do not go to plan.

There are a variety of strategies that specialist SMSF advisers deploy based on an individual's circumstances. But there are a number of risk areas for SMSFs in particular those with concentrated direct property portfolios.

Last year the Australian Tax Office sent letters to 18,000 trustees of SMSFs asking about the diversification within the fund's portfolio – the letter was sent to funds that had more than 90 per cent of their fund's assets in a single asset class – typically a property.

The ATO was not saying you could not invest everything in the one asset class – it just wanted trustees to be sure they understood the risks – particularly if limited recourse borrowing was involved – on return, volatility and liquidity and a properly considered investment strategy.

At the time there was commentary around whether it was a proper role for the ATO to ask such a question; for trustees that heeded the warning about the risks of lack of diversification and the potential liquidity risk it was prescient indeed.

An iteration of this article was first published in The Age on 13 May 2020.

 

Written by Robin Bowerman
Head of Corporate Affairs at Vanguard
19 May 2020
vanguardinvestments.com.au

 

The ATO has expressed concern that some trustees with diminished pension account values may be putting themselves at risk of exceeding their transfer balance cap by commuting their pension and then topping it back up.

 

         

In a recent discussion with Smarter SMSF, ATO assistant commissioner, SMSF segment, Steve Keating said the ATO is worried that some trustees don’t fully understand how the credits and debits in their transfer balance account operate, which may expose them to potential transfer balance cap issues.

“We’re concerned that where we’ve seen the value of pension accounts reduce, that some trustees may be putting themselves at risk of exceeding the transfer balance cap by commuting to roll back and then top up their pension because they may not properly appreciate how the credits and debits in their transfer balance account operate,” he explained.

“Without getting too technical, if a member starts a pension valued at $1.5 million which is today now worth only $1.2 million and they wish to roll it back into accumulation phase so that they can top it up with, say, $300,000 that they still have in accumulation phase, if they start a new pension at $1.5 million, they’ll be in excess of their transfer balance cap by $200,000.”

Mr Keating said this means the trustee will have to commute the excess, plus any extra transfer balance earnings from the pension as well as pay excess transfer balance tax.

He also reminded SMSF professionals and trustees that where a pension is being commuted in part, trustees must ensure that sufficient assets remain to meet the minimum pension payment status for that year based on the original value of the income stream at the start of the year.

“Trustees have an obligation to ensure that the commencement and commutation of pensions is supported by contemporaneous records and that the payments have been correctly characterised to allow the SMSF auditors to ensure that the minimum pension payment status had been met,” he said.

“There are transfer balance cap as well as exempt current pension income consequences if a pension fails to meet the standards, and these can lead to more and more complex TBAR reporting obligations in the future.”

 

Miranda Brownlee
24 July 2020
smsfadviser.com

 

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