What we learned this week 22 May
Staff reporter |
22 May 2015
1. Projecting final outcomes is problematic.
How much you will need depends on a host of factors that include your life expectancy, the state of your health, and what bequests you might expect to receive from other family members. I appreciate projected figures may be confusing but the actual dollar number in the year of retirement will depend on inflation rate between now and then.
For example, if you wished to retire at 66, and your planned expenses were $5000 a month in today's dollars they would be $9000 a month if inflation was 3 per cent and $13,500 a month if inflation was 5 per cent — the higher the rate of inflation, the higher the amount you could expect to receive on your investment. It is a good policy to form an association with an adviser as soon as you can, and then review your goals and your investment strategies each year in the light of what is happening with inflation and investment returns.
-- The Age.
2. SMSFs are looking to get away from cash.
Cash has been crunched in superannuation as record low interest rates shrink financial returns for conservative fund members. Andrea Slattery, CEO of the SMSF Association, says the claim that SMSFs invest mainly in cash is “a furphy”. She says SMSFs get a lot of international exposure through investing in Aussie companies with big offshore earnings. “SMSFs are more flexible & leading the market in moving into new investments,” she says. “In the main, people are more engaged, they trust their specialist adviser & are more comfortable with the decisions that have been made.” Self-managed does not mean doing everything yourself, and external advisers are important,” Slattery says.
-- Daily Telegraph.
3. Labor's proposed super taxes may hit more than thought.
Labor’s plans to hike up superannuation tax could affect more than twice as many people as it claims, raise less money than estimated, and hurt low-income earners as super funds pass on massive new compliance costs to all members, new analysis shows. The opposition’s proposal to tax retirees’ superannuation earnings above $75,000 a year at 15 per cent from 2017 would affect more than 125,000 taxpayers by 2027, more than double the number Labor claim are initially affected, according to modelling by the Parliamentary Budget Office. Cutting the threshold for the high-income super surcharge from $300,000 to $200,000 would affect 110,000 taxpayers initially, rising to more than 300,000 by 2027, it also shows.
-- The Australian.
4. The government will also face political problems over its super stance.
The lure of another election campaign where the Coalition could relentlessly beat up Labor as the high-tax party - using superannuation as the issue - has proved too much for the Abbott government, and the Prime Minister is now locked in behind the idea of no changes to superannuation, ever. After all, the whole "Coalition stands for lower taxes" thing worked a treat against the mining tax and carbon "tax". But the comparisons this time around don't really work, as shadow treasurer Chris Bowen pointed out at the National Press Club on Wednesday, when he accepted the political challenge laid down by the government and said "bring it on" to an election about superannuation.
5. Retirees to be worse off under government changes.
he number of Australians expected to be worse off in retirement is set to boom, with some facing a 10 per cent cut to their overall income following the government's proposed pension changes.
That is the argument of Industry Super Australia, which estimated middle income Australians would be dealt the heaviest blow - losing more than $100,000 over their retirement period if changes to the asset test get the green light. The Federal government is looking to tighten pension qualification tests in a move that has drawn criticism from across the superannuation industry.
Analysis by Rice Warner, which was engaged by ISA, found that the number of new retirees affected by the proposed changes will more than double from one in three retirees today, to around seven in 10 by 2055.
"The impacts of these changes are very significant for most of the working population. Executed in isolation they will reduce retirement incomes of middle income earners, not the well-heeled," said ISA chief executive, David Whiteley."Most middle income earners don't have discretionary income to make extra savings, so this change on its own means they will have to downgrade their retirement plans or work longer," he said.
Figures from the Australian Institute of Superannuation Trustees and Mercer also indicate that middle income earners would fare significantly worse than their high-income counterparts. Over a lifetime very high income earners are offered twice the level of government support, once super tax breaks are included, as their middle-income-earning counterparts.
-- The Age.
6. Most important figure, income in retirement, is often not provided.
A number of superannuation funds were delivering increasingly comprehensive projections to their members, however many more needed to improve on what they were providing, according to an applied finance academic. Macquarie University Applied Finance Centre (MAFC) associate professor Peter Vann told financialobserver that while superannuation updates usually included details of member contributions, account balance, fees, past year performance and various commentary, many fund members were still unable to work out what outcome they could expect in retirement. “For members who actually open and read the periodic summaries that their super funds send them.
-- Financial Observer.
7. Australia's tax burden high.
Our taxes are also high by international standards. The Coalition, Labor and the Greens will tell you that Australia's tax burden is about 28 per cent of GDP, compared with an OECD average of about 34 per cent. This is a con job using dodgy statistics.
The 34 per cent figure is a simple average that puts the same weight on each of the 34 countries of the OECD. Thus high-taxing Iceland has as much impact on the average as the lower-taxing United States, even though the US's population is 1000 times bigger than Iceland's.
If you properly account for the different sizes of the OECD countries, the average tax burden in the OECD comes out at 30 per cent of GDP.What's more, this weighted average for the OECD is bumped up by the inclusion of "social security" or "national insurance" contributions present in most countries of the OECD except Australia –while the tax burden figure for Australia is artificially kept down by the exclusion of superannuation guarantee payments.
8. Portugal sells negative debt as low global interest rates continue.
Portugal sold debt securities with a negative yield for the first time as the European Central Bank’s bond-purchase program helps to drive down borrowing costs.
The country’s debt agency sold 300 million euros ($333 million) of bills due in November 2015 at an average yield of minus 0.002 percent. That compares with an average yield of 0.047 percent at a previous auction on March 18. A negative yield means investors buying the securities now will get less back when the debt matures than they paid.