InvestorNews - IOOF · 2014-08-10 · we’ve received on your behalf have been invested into your...

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InvestorNews

2014

Time to focus on super

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InvestorNewsWinter 2014


Chris Kelaher welcome 1

Super changes on the horizon 2

Talkin’ about MySuper 4

Simplify your super 6

Self-managed super funds – are they worth it? 8

Become financially fit 11

Market commentary 12

Contents

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InvestorNewsWinter 2014


At IOOF, we’re passionate about your financial future. After all, we’ve been helping Australians to secure their financial future since 1846.

Once again, it’s been a big year for the super industry. One of the main things you’ve probably heard about is how important it is to bring your super accounts together, that is consolidate them into the one account. It truly is one of the easiest ways to boost your retirement savings and it’s now even easier. Did you realise that there are 1.9 million lost super accounts in Australia? That means that many of us are probably paying fees, charges and maybe even insurance premiums for accounts that we don’t even realise we have. It’s a waste of your hard-earned money, so I encourage you to read the article we’ve put in this edition of our magazine to find out how to take control today.

We’re always here to helpIf there’s anything we can do to help, or if you want an update on how your super is tracking, don’t hesitate to contact our client services team.

Thank you for trusting us to look after your super and we look forward to helping you build the life you want for yourself and your loved ones in retirement.

Christopher F Kelaher Managing Director IOOF Holdings Limited

Welcome to Investor News

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2 IOOF | Investor News

Super changes on the horizonSeveral announcements in the 2014/15 Federal Budget received a lot of press, including changes to superannuation guarantee (SG) rates and increases in the retirement age. Although these changes need to be approved and legislated by Parliament, the media storm does bring super front-of-mind for many people. This is a great time to focus on your super to ensure you are on track to meet your goals.

Changes to compulsory super ratesSG is the official term for compulsory super contributions made by your employer on your behalf.

The SG rate is currently legislated to increase incrementally until it reaches 12 per cent in July 2019. However, the Budget outlined slower increases to the SG rate with the 12 per cent rate not coming into effect until 2022, as the table shows.

Financial year commencing

Current legislated

SG rate (%)

New proposed

SG rate (%)

1 July 2014 9.50 9.50

1 July 2015 10.00 9.50

1 July 2016 10.50 9.50

1 July 2017 11.00 9.50

1 July 2018 11.50 10.00

1 July 2019 12.00 10.50

1 July 2020 12.00 11.00

1 July 2021 12.00 11.50

1 July 2022 12.00 12.00

Longer working life? The Federal Government proposed an increase in the age pension age (the age that you first become eligible to claim the age pension) to 70 years. The increase in the pension age will be introduced over time and affects you if you are currently aged 56 or younger.

There is also talk to lift the preservation age for accessing super benefits. Your preservation age is the age at which you can retire and access your super benefits, which is currently between 55 and 60 years, depending on the year you were born.

3IOOF | Investor News

Time to focus on your superAccording to recent research, most Australians will need around 60 per cent of their pre-retirement income to maintain their current lifestyle in retirement and many people will face a shortfall in their super1.

Although the increases to the SG rate and a longer working life could boost your super savings, this may not be enough to fund the lifestyle you want in retirement. Adding extra contributions to your super now can result in a substantial increase to your retirement savings down the track.

Ways to contribute

Salary sacrifice

Salary sacrifice allows you to contribute some of your pre-tax salary to super. This could reduce the amount of tax you pay, as super contributions are taxed at 15 per cent2 rather than your marginal tax rate. Salary sacrificing is a voluntary arrangement so not all employers will offer it.

Visit our website to access our salary sacrifice calculator. This will help you calculate your take home pay so that you can contribute an amount that suits you.

Personal contributions

You can boost your super by adding your own after-tax personal contributions. You can claim a tax deduction for personal contributions if you are self-employed, not employed or qualify for the ten per cent income test rule (where less than ten per cent of your assessable income is attributable to employment as an employee).

You may also be eligible for the Government’s super co-contribution scheme, or maybe you want to consider making spouse contributions. We recommend speaking to your financial adviser to see whether you can use these strategies as they depend on your personal circumstances.

1 ‘Retirement Savings Gap at June 2011’ – Rice Warner Actuaries for the Financial Services Council.

2 People earning above $300,000 per annum will be subject to a tax rate of 30 per cent.

Remember the limits There are rules and limits on how much you can contribute to super and these vary depending on the type of contribution you make and your personal situation.

Developing a super strategy isn’t difficult or daunting and allows you to take control of your future so you can have the retirement you deserve. For more information we suggest speaking to your financial adviser, visiting our website or contacting our client services team.


Talkin’ about MySuperYou’ve probably heard about MySuper – it’s part of the Government’s Stronger Super initiative which aims at improving the simplicity, transparency and comparability of default super options.

If you joined our fund prior to 1 January 2014 and did not make an investment choice, your contributions were directed to the default option selected either by your employer, or us as the trustee. If that’s you, from 1 January 2014, you will have become a MySuper member. As a result, you probably have two accounts or investment options right now.

If you are a MySuper member, since the launch of MySuper on 1 January 2014, all contributions we’ve received on your behalf have been invested into your new IOOF MySuper investment, and there has been no change to any of the investments you held prior to this date. Your original investment remains invested exactly as it was prior to the launch of MySuper. Before 1 July 2017, however, these will be transferred into your MySuper investment.


You have choicesYou can choose to remain in MySuper and your investments will be consolidated automatically – you don’t need to do a thing.

Alternatively, you can move your MySuper investment back to your original default option, choose a new option or stay where you are. The appropriate forms are available from your fi nancial adviser or our client services team.

If you are aff ected, we will write to you prior to the transfer.

Joined after 1 January 2014? If you joined our fund after 1 January 2014, you have the one account, regardless of what investment choice you have made. However you may choose to change your investment option at any time.

Your fi nancial adviser can helpAs always, we recommend you speak to your fi nancial adviser if you require assistance, or would like advice on choosing an alternative investment option. They can help you make the right decisions which will help you reach your retirement savings goals.

Choose a new option

Move back to your old option

Stay where you are


3 Research paper ‘Superannuation account consolidation’ by the Financial Services Council and DST Global Solutions, February 2012.

4 ATO lost and ATO-held super by postcode as at 31 December 2013.

Simplify your superHow many super funds do you have? If you have more than one, chances are you’re probably not keeping track of where your super money is invested.

In Australia, there are about 28 million super accounts3. This equates to nearly three accounts for every working Australian. Of this, there are around 1.9 million accounts that are classified as lost4 where the member has simply forgotten about their account or their fund has lost track of the member’s contact details.


Benefits of consolidating your super• Reduce your fees by paying only one set of fees. If you’re paying $5 per month in

member fees on three different accounts, this adds up to at least $180 per year in fees.

• It’s easier to keep track of the growth of your super savings by having your contributions go into one fund. What’s more, you’ll receive only one statement or update, meaning less paperwork to manage.

• It allows you to develop a focused and effective retirement investment strategy, as you don’t have a number of neglected, smaller accounts, which get eaten away by fees and inflation.

Easy consolidation with SuperMatchFinding all of your accounts is simple. The Government has launched SuperMatch, which allows super funds to obtain a single authority from a member to search for all of their accounts, find out where the accounts are located and consolidate them.

We’ve introduced SuperMatch for all our members to make the process of consolidating your super easy. SuperMatch allows us to contact the Australian Taxation Office on your behalf, who’ll provide a list of all your super accounts. We’ll then contact you with the search results and provide pre-populated transfer forms if you wish to consolidate. To find out more about SuperMatch, please email your details (including your name, current address and member number) to [email protected] and our member support team will get in touch with you.

Don’t forget your insurancePlease consider that you may have insurance cover attached to any super accounts that you are looking to consolidate. Insurance attached to these accounts may be cancelled as a result of transferring these accounts. You may, however, apply to transfer existing insurance to your super account by completing an ‘Application for insurance transfer form’ available from our website.

Tracking down your super doesn’t need to be difficult or time consuming. Our SuperMatch service makes it easy to locate and transfer your super allowing you to take control of your money – and your future.


Self-managed super funds –aretheyworthit?Many people are being advised to set up their own self-managed super fund (SMSF) so they can have more control over their retirement savings. But with increased scrutiny from the regulator, increased diligence of SMSF auditors and harsh penalties for non-compliance, are SMSFs worth it?

Essentially SMSFs are personal super funds that meet certain conditions, such as having four or less members, with each member being a trustee. An often used selling point for an SMSF is that they can give you total control over how your super is invested. However, while SMSFs may suit some people, they don’t suit everyone because with control comes responsibility.


Advantages of an SMSF Control over investmentsSMSFs off ers fl exibility with your investment options, giving you the ability to invest in assets such as direct property or collectables. As trustee, you’re able to modify these investments as you see fi t.

Large SMSFs can attract cost savings Generally, the total cost of managing an SMSF, regardless of whether it is worth $500,000 or $1 million, will be the same. In other words, the greater the account balance, the more cost eff ective an SMSF becomes.

Greater strategic opportunitiesSMSFs give the trustee control over the rules of the fund and how it operates, for example borrowing to invest.

What are the disadvantages? As trustee, you hold all responsibility and make all the decisionsBeing a member of an SMSF means you must be a trustee, or a director of a company that acts as trustee. All trustees are responsible for the running of the fund and must act in the best interests of members when making decisions. Even though you can engage the services of professionals (such as fi nancial advisers and accountants), as trustee you are ultimately accountable for the fund.

Risk of non-complianceAs trustee you must comply with all regulatory requirements at all times. Breaches of the super regulations and legislation could mean the loss of tax concessions, as well as fi nancial penalties and potentially criminal penalties for the trustee.

Do you have the expertise?Trustees set out the investment strategy for the fund and must take into account the personal circumstances of all fund members including their age, investment tolerance and attitude to risk. Hence it is advisable to have a strong level of investment expertise when running an SMSF. Even if you give control to a fi nancial adviser or accountant, you still need to keep abreast of your investments because, at the end of the day, it is your responsibility.


Do you have the time to be a trustee? The time required to manage your SMSF can also be a burden.

Expense To establish a viable SMSF, a minimum balance of $200,000 is suggested, otherwise the cost of running an SMSF may be too costly to justify. Accounting and audit fees are typically at a set rate, so you could be paying out a large percentage of your fund in costs.

Limited ability to diversify investments You may not have sufficient money to diversify across a range of assets.

Is an SMSF suitable for you? Setting up and operating an SMSF is a major financial decision. The responsibility for running the fund and complying with the law rests solely with you as trustee. You need to consider whether you have the time, knowledge and skill to manage your own super and enough in your super fund to make the fund viable.

Weighing up the optionsSuper funds offer a huge range of investment options that allow you to take control of your super without having the legal responsibility of being a trustee and running the fund.

Along with traditional managed investments, our Fund allows you to invest in property, fixed interest, infrastructure and alternative investments as well as shares, exchange traded funds and term deposits at competitive pricing. You have access to an extensive range of options, without the trustee responsibilities.

Deciding whether an SMSF is right for you is a very important decision, so we recommend you do your research and in particular, consider if you have the time. See a financial adviser to help you decide if it’s the right decision for you.


Become financially fitHow often have you thought “I wish I knew that?” Healthy finances are similar to your physical wellbeing – you need discipline and a good routine. We asked our staff members to share with us their tips to help you become more financially fit.

5 Article: Do Australians waste $8 billion worth of edible food each year; ABC News, 15 October 2013

Set yourself small, achievable goals such as taking your lunch to work or making your morning coffee at home. Kellie

Put together a budget and stick to it. There are many apps to help you or you can use our free budget calculator available on our website. John

Pay off your debt with the highest interest rate first, such as credit cards. Natasha

Be alert to scams and ignore pleas for help – or investment offers – from people you don’t know. Even pleas from people you know should be verified by calling them first if a request for money is involved. Rob

Salary sacrifice a portion of your pay rise, you won’t notice it coming out of your pay. Andrew

Australians throw out $8 billion worth of food annually5. Plan your meals weekly to ensure you only buy ingredients you need to reduce the amount you throw out. Cathy

Check your insurances for your home, contents and car regularly, say at the start of the new year. Discounts are available to new customers and you can also use the research to get a better deal from your existing insurer. Payal

Your superannuation is not just a forced savings plan, it’s your future. I think of my financial adviser as my personal trainer for my super and my future. Julie


Market CommentaryThe 2014 financial year turned out to be an excellent year for growth assets with the Australian share market up 17.25 per cent and international shares up 19.30 per cent. These are particularly impressive returns for a second year running, especially in a low inflation environment. Despite interest rates being at record lows, both domestic and international bonds also delivered notable returns which surpassed our expectations.

It appears that investors have been rewarded for being able to sustain periods of volatility during the year. We are all aware that share markets by their nature are volatile; however we believe that long term investors, who stay focused on their investment approach, have a greater chance of achieving their goals. While volatility may make the ride a bit uncomfortable, our experience shows that those who stay focussed on their long term objectives may come out ahead.

Australian sharesAustralian shares enjoyed good gains over the last financial year, although resources significantly underperformed other sectors due to concerns about the impact of slower growth in China. Companies offering sustainable and attractive dividends – especially in banking and telecommunications – did particularly well in this environment of very low interest rates.

The Australian dollar went on a bit of a rollercoaster ride over the financial year.

After reaching a low of US$0.89 in August, it then went on an upward path to US$0.97 in October. It then declined steadily to US$0.87 in January and has steadily increased to a recent peak of US$0.95. Going forward we believe the Australian dollar will come under renewed pressure as US interest rates eventually increase and with the potential for commodity prices to fall further, especially if China has slower growth.

International sharesThe international share market ended the year up over 19 per cent enabling investors to enjoy a second consecutive financial year of double-digit returns. It was the developed markets, supported by favourable government budgeting policies and historically low interest rates, that drove the strong performance and outperformed the emerging markets sector for the second year running.

European shares were the stand-out performer this year, followed by US shares. In the US there has not been a correction for over two years which makes some investors increasingly nervous, however many industry commentators are not viewing the markets as overly expensive.

China’s growth is slowing, but no one knows to what extent. The uncertainty is introducing volatility into the emerging markets and decreasing investor confidence. There are also varying degrees of social


and economic turmoil in various emerging economies such as Venezuela, Argentina, Brazil and Turkey due to election cycles and slowing economies, but all eyes are on the Ukraine and Russia situation.

PropertyIn broad terms, property markets strengthened during the financial year after a modest start. This can be attributed to the increased demand for most property sectors which has been borne out of improved confidence. In addition to improved confidence, the key drivers for the sector include interest rates, employment trends, retail spending and manufacturing.

Fixed interestBond returns were significantly lower for the year, with Australian bonds returning 6.1 per cent and international bonds 7.8 per cent. Cash returned 2.7 per cent. After reducing official interest rates in August 2013 to just 2.5 per cent, the Reserve Bank of Australia left interest rates unchanged.

The US Federal Reserve (Fed) continues to taper its bond buying programme and Treasury yields really haven’t risen. The Fed’s message is that it intends to keep cash rates low until the end of 2015. As a result, high yield fixed income has continued to do well as market participants search for income.

To 30 June 2014

Asset class Index Three month performance

(%)

12 month performance

(%)

Australian shares S&P/ASX 300 Accumulation Index 0.86 17.25

International shares MSCI All Country World ex-Australia Index ($A)

3.21 19.30

Australian property S&P/ASX 300 Property Accumulation Index

9.20 11.08

International property UBS Global Real Estate Investors ex-Australia Index ($AHedged)

8.01 15.77

Australian fixed interest

UBSA Composite Bond Index 3.11 6.09

International fixed interest

Barclays Capital Global Aggregate Bond Index ($A Hedged)

2.64 7.76

Cash UBSA Bank Bill Index 0.67 2.68

Source: Morningstar, BNP

Past performance is not a reliable indicator of future performance.

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Web www.ioof.com.au

Phone For IOOF Employer Super call 1800 333 500

For IOOF Pursuit call 1800 062 963

For IOOF Portfolio Service and LifeTrack call 1800 062 963 (for personal members) or 1800 653 894 (for corporate and employer members)

Email For IOOF Employer Super – [email protected]

For IOOF Pursuit, IOOF Portfolio Service and LifeTrack – [email protected]

IOOF Employer Super has been judged by Heron as ‘outstanding’ and has been awarded the highest rating with five Quality Stars for 2014.

Ratings are only one factor to be taken into account when deciding whether to invest. For more information on the meaning of these ratings and the rating scales used, please refer to the Heron Partnership website at https://www.heronpartners.com.au.

This document has been prepared by IOOF Investment Management Limited (IIML) ABN 53 006 695 021, AFSL 230524 as Trustee of the IOOF Portfolio Service Superannuation Fund ABN 70 815 369 818. IIML is a company within the IOOF group of companies, consisting of IOOF Holdings Limited ABN 49 100 103 722 and its related bodies corporate. This document contains general taxation information and general advice only. It does not take into account your taxation and financial circumstances, needs and objectives. Before making any decision based on this document, you should assess your own circumstances or seek advice from a financial adviser and from a registered tax agent or tax (financial) adviser for taxation advice. You should obtain and consider a copy of the relevant formal offer documents available from us or your financial adviser, before you acquire a financial product. The information in this document has been given in good faith and has been prepared based on information that is believed to be accurate and reliable at the time of publication on 1 July 2014.

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InvestorNews - IOOF · 2014-08-10 · we’ve received on your behalf have been invested into your...

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