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Category: Provision Newsletter Articles

Is your home underinsured?

Date: May 15th, 2018

Cold weather and faulty appliances can be a dangerous combination in winter – especially if your home is underinsured.

As we head into winter, now is the time to check your home heating appliances – and your home and contents cover. The cooler months typically see an uptick in home insurance claims with a rise of up to 47% in colder states like New South Wales though Victoria leads the country for claims in winter. Sadly, these claims are often the result of fire damage caused by dodgy appliances.

Research shows some of the most common causes of home fires in winter involve embers escaping from open fireplaces, electric heaters being knocked over, faulty electric blankets and even bathroom heat lamps exploding when they become clogged with dust.
That makes it worth keeping your home safe by giving heating equipment a once-over and a thorough clean. If in doubt, consider replacing older appliances. It’s better to be safe than sorry.

Four out of five homes are underinsured

It also makes sense to check that your home and contents insurance is up to date. Winter doesn’t just bring increased risks of fire damage, it can also deliver some wild weather.

Most Australians have home building and contents insurance, but many of us don’t have enough cover to protect what may be our most valuable asset – and one that could go hand in hand with a substantial mortgage.

It’s estimated that four out of five Australian homes are underinsured – meaning the property is covered for less than 90% of rebuilding costs. It’s an easy trap to fall into because home owners, understandably, simply don’t know what it would cost to repair or rebuild their homes. Yet that’s exactly what the “sum insured” is supposed to represent. The bottom line is that a lot of people are relying on some very rubbery figures to insure their home.

Calculating rebuilding costs just got easier

Playing a guessing game with home insurance can mean finding yourself wildly out of pocket at claim time – something that can be financially and emotionally devastating. Frankly, it’s not worth the risk.

The good news is that a new home insurance calculator is available on the Understand Insurance website. It provides a clear picture of the likely cost to rebuild your home, and it’s based on data from building cost estimator Cordell using the most up to date information to provide real-time cost estimates.

The calculator is worth a look – a colleague put her home to the test and was amazed to see the cost to rebuild her place is double what she expected. It’s a problem that’s easily solved. Paying just a bit more in premiums often buys a lot more cover.

But it’s also important to have the right policy in place for your needs, and that’s something where people add a lot more value than online calculators.

Please contact us on |PHONE| to be sure your home and contents cover is a good fit for your situation, your home and your budget.

 

Paul Clitheroe is a founding director of financial planning firm ipac, Chairman of the Australian Government Financial Literacy Board and chief commentator for Money Magazine.

Source : AMP 3 May 2018 

 

Important 
 
This article provides general information and hasn’t taken your circumstances into account. It’s important to consider your particular circumstances before deciding what’s right for you. Although the information is from sources considered reliable, we do not guarantee that it is accurate or complete. You should not rely upon it and should seek qualified advice before making any investment decision. Except where liability under any statute cannot be excluded, we do not accept any liability (whether under contract, tort or otherwise) for any resulting loss or damage of the reader or any other person.

 

 

 

Federal Budget roundup 2018-19

Date: May 14th, 2018

Federal Treasurer Scott Morrison handed down his third Federal Budget. Among the proposed changes, he announced tax cuts and changes to super and social security.

Read on for a round-up of the proposals put forward and a look at how they might affect your household expenses and financial future, whatever your stage of life.

Remember, at the moment these are just proposals and could change as legislation passes through parliament.

Tax

Personal income tax changes

The government is proposing income tax cuts over seven years through a three-step process:

1. Starting in the next financial year (2018-19), a new Low and Middle Income Tax Offset (LMITO) will be introduced to provide a tax cut of up to a maximum of $530 per year for those earning up to $125,333. Under the LMITO measures:

  • Those earning up to $37,000 will see their tax payable reduced by a maximum of $200.

  • Those earning $37,001 – $48,000 will see their tax payable reduced by up to $530.

  • Those earning $48,001 – $90,000 will see their tax payable reduced by the full $530.

  • For those earning between $90,001 – $125,333, the offset reduces at a rate of 1.5 cents for each dollar.

The tax benefits arising from the introduction of the LMITO will be received as a lump sum following lodgment of your tax return. This is in addition to the existing Low Income Tax Offset, currently a maximum of $445 for those earning up to $37,000. This offset is also proposed to increase to up to $645 from 1 July 2022.

2. From 1 July this year, the government is proposing to increase the top income threshold of the 32.5% tax bracket from the current $87,000 to $90,000. This change in threshold will give affected taxpayers a maximum tax reduction of $135 (which is in addition to the tax reduction they will receive under the LMITO).

This will be followed by a proposed increase in the top income threshold of the 19% tax bracket from $37,000 to $41,000 and a proposed increase in the top income threshold of the 32.5% tax bracket from $90,000 to $120,000, commencing 1 July 2022.

3. From 1 July 2024, the government is proposing to remove the 37% tax bracket completely and increase the top income threshold of the 32.5% tax bracket from $120,000 to $200,000.

This will mean that the 32.5% tax bracket will apply to people with taxable incomes of $41,001 to $200,000, while those earning more than $200,000 will pay the top tax rate of 45%.

Medicare levy

The proposal in last year’s Budget to increase the Medicare levy from 2% of taxable income to 2.5% has been scrapped.

The government is also proposing an increase in the thresholds at which the Medicare levy becomes payable for low-income singles, families, and seniors and pensioners starting this financial year.

The threshold for singles will increase to $21,980 and the threshold for families will increase to $37,089, plus $3,406 for each dependent child or student.

For single seniors and pensioners, the threshold will increase to $34,758, while the family threshold for seniors and pensioners will increase to $48,385, plus $3,406 for each dependent child or student.

Super

Work test changes for recent retirees

Currently, people aged 65 to 74 must work a minimum of 40 hours in a consecutive 30 day period in a financial year in order to contribute to their super.

From 1 July 2019 the government is proposing people with super balances of less than $300,000 will be able to make voluntary contributions to their super for a year following the financial year in which they last met the work test. The changes will give recent retirees additional flexibility to get their finances in order as they transition to retirement.

The existing contribution caps will apply, and they’ll also be able to carry forward any of their unused concessional contribution cap of $25,000 from previous years commencing from 1 July 2018, enabling them to make concessional contributions of more than $25,000 in the following year.

For example:

Jason retires from full-time work on 1 May 2020, aged 66. His total super balance is $280,000 on 30 June 2020.

On 1 August 2020, Jason sells his share portfolio and wants to contribute the proceeds into his super. Under the current rules he doesn’t meet the work test in the 2020-21 financial year, so he can’t make any voluntary super contributions after 30 June 2020.

Under the proposed changes, Jason could contribute $30,000 in concessional contributions in 2020-21 (as he has $5,000 in unused concessional contributions he can carry forward from the 2019-20 financial year). In addition, he could also contribute up to $100,000 in non-concessional contributions in 2020-21.

Changes to insurance within super

From 1 July 2019, the government is proposing to change taking out life insurance inside super to an opt-in basis for:

  • People with super balances of less than $6,000, or

  • People who are under 25, or

  • People whose accounts haven’t received a contribution in 13 months. 

The changes are intended to ensure that the retirement savings of young people or those with low balances aren’t eroded by premiums on insurance policies they don’t need or aren’t aware of. It will also reduce the likelihood of having duplicate insurance cover in multiple funds.

Protecting low super balances and banning exit fees

The government is proposing to ban exit fees when people decide to leave a super fund from 1 July 2019. It’s also been proposed that a 3% annual cap be introduced on fees such as admin and investment fees for super accounts with balances of less than $6,000.

Opt-out of super guarantee contributions for some high income earners

High income earners earning more than $263,157 with multiple employers will be able to nominate that their wages from certain employers aren’t subject to super guarantee payments, under a proposal to be implemented from 1 July 2018.

This will help them avoid breaching the $25,000 concessional contributions cap as a result of compulsory super contributions made by their employers.

Social security

Extending the pension loan scheme

The Pension Loan Scheme is basically a reverse mortgage scheme administered by Centrelink, which allows those receiving a part Age Pension and those who aren’t receiving an Age Pension payment (because they’ve failed either the income or the assets test) to be paid a ‘top up’ loan to ensure they receive the equivalent of the full Age Pension amount.

The government is proposing expanding eligibility for the scheme to all Australians of Age Pension age, including those on the full Age Pension and self-funded retirees, from 1 July 2019.

Under the proposal, the maximum allowable combined Age Pension and scheme loan will be 150% of the full Age Pension rate.

For example:

Susan is a single age pensioner who currently receives the full Age Pension of $23,598 per year. Under the proposed changes, Susan can increase her annual payment to $35,397 which will include her $23,598 in Age Pension and a tax-free loan amount of $11,799, repayable when her property is sold.  

Extending the pension work bonus

The government is proposing to increase the work bonus for employees who have reached their Age Pension age to $300 per fortnight, up from $250 per fortnight, from 1 July 2019.

The work bonus allows employees to reduce the amount of employment income they have assessed under the income test for social security purposes.

It’s also proposing to extend eligibility for the work bonus to the self-employed. Currently, the work bonus is only available to employees (including those employed by their own company) but not to sole traders or partners in a partnership.

Introduction of means testing of new income streams

Also from 1 July 2019, the government is proposing to introduce new means testing rules for new pooled lifetime income streams, including new lifetime annuities and new deferred lifetime annuities.

Under the proposal:

  • 60% of all pooled lifetime product payments will be counted as income

  • 60% of the purchase price of the product will be counted as an asset until age 84, or for a minimum of five years, reverting to 30% for the rest of the person’s life.

These proposals won’t apply to pooled lifetime income streams purchased before 1 July 2019, which will be subject to the current means test rules. Means testing of flexible account-based pensions and existing annuities won’t change under this measure.

Aged care

The government is proposing the creation of an additional 14,000 high level home care packages for people who access aged care services in their homes over four years from 1 July 2018. In addition, an extra 13,500 residential aged care places will be released in the 2018-19 Aged Care Approvals Round.

Source : AMP 9 May 2018 

Important 
 
This article provides general information and hasn’t taken your circumstances into account. It’s important to consider your particular circumstances before deciding what’s right for you. Although the information is from sources considered reliable, we do not guarantee that it is accurate or complete. You should not rely upon it and should seek qualified advice before making any investment decision. Except where liability under any statute cannot be excluded, we do not accept any liability (whether under contract, tort or otherwise) for any resulting loss or damage of the reader or any other person.

 

How much super should I have at my age?

Date: May 02nd, 2018

We look at the average super balances for different age groups in Australia so you can see how your super savings compare.

A healthy super balance can be a key ingredient in being able to live the life we want in retirement. But for many people, retirement is a long way off, and it can be hard to know if your super is on track. If you’ve been asking yourself – how much super should I have at my age? – read on to find out.

How does your super compare?

The table below shows the average super balances for Australian men and women of different ages (excluding those with no super) so you can compare your balance to others your age.   

 
Age Average balance – men Average balance – women
20-24  $5,924 $5,022
25-29  $23,712 $19,107
30-34  $43,583 $33,748
35-39  $64,590 $48,874
40-44  $99,959 $61,922
45-49  $145,076 $87,543
50-54  $172,126 $99,520
55-59  $237,022 $123,642
60-64 $270,710 $157,049

Source: Association of Superannuation Funds of Australia, Superannuation account balances by age and gender 2015-16, October 2017, pg. 9.

Does your super stack up?

If your balance looks low, there could be a number of reasons why your super is lagging your peers, such as taking time out of the workforce to study, travel, raise children, care for older relatives, or being out of work, working part-time, or earning a lower wage than others your age.

As the figures show, these issues particularly affect women, as they have lower super balances than men across all age groups.

Will your super be enough to retire on?

Even if your balance is above others of your age, will it be enough for a comfortable retirement?

The Association of Superannuation Funds of Australia (ASFA) says that “many people will still retire with inadequate superannuation savings to fund the lifestyle they want in retirement” and that “most people retiring in the next few years will rely partially or substantially on the Age Pension for some or all of their retirement as they have inadequate super savings”.1

The ASFA retirement standard estimates singles will need retirement savings of $545,000 for a comfortable retirement, while couples will need combined retirement savings of $640,000.2

Our super simulator can help you work out how much super you will have at retirement based on your current balance.

What to do if your super needs a boost

  • Firstly, search for lost super. Money belonging to you might be sitting in an account you’ve forgotten about.

  • Secondly, if you have super with multiple funds, think about consolidating it into one account and you could save on fees and charges that could be eating into your balance. However, you’ll need to check for exit or termination fees, and ensure that your insurance cover isn’t affected.

  • And thirdly, you could consider changing how your super is invested, for example, by switching it into a more growth-focused investment option. But bear in mind that returns are not guaranteed, and that higher risk accompanies the opportunity for high returns. To change your investment option, contact your super fund.

Once you’ve got your super sorted with these quick wins, you can consider ways to boost your balance, including:

  • Salary sacrificing: you can contribute extra cash into your super from your before-tax salary and it will only be taxed at 15%3, rather than at your usual marginal tax rate. However, make sure your total super contributions (including any your employer makes on your behalf) don’t exceed $25,000 per year. Speak to your payroll department to set up a salary sacrifice.

  • Personal tax-deductible contributions: if your employer doesn’t offer salary sacrifice, you’re unemployed, self-employed or don’t want to salary sacrifice, you can make a personal tax-deductible contribution to your super, which is also taxed at 15%, and subject to the $25,000 per year limit.

  • After-tax contributions (also known as non-concessional contributions): There’s a $100,000 limit per financial year on the amount of after-tax contributions you can make. If you are under age 65, you can also ‘bring forward’ the next two years’ worth of after-tax contributions, and make up to $300,000 contribution in a financial year.4

  • Spouse contributions: If your partner is out of work, a stay-at-home parent, working part-time or earning less than $40,000, adding to their super could benefit you both financially.

  • Government contributions: If you’re a low or middle-income earner, you may be eligible for contributions from the government or tax-offsets when you add after-tax money to your super.

   For more help to ensure you’re on track for a comfortable retirement, please contact us on |PHONE|

Source : AMP 1 May 2108 

     1 Association of Superannuation Funds of Australia, Superannuation account balances by age and gender 2015-16, October 2017, pg. 7.

     2 Association of Superannuation Funds of Australia, ASFA Retirement Standard, pg. 4.
     3 Or 30% if you earn $250,000 a year or more.
     4 Providing your total super balance at 30 June 2017 is less than $1.4 million.

Important 
 
This article provides general information and hasn’t taken your circumstances into account. It’s important to consider your particular circumstances before deciding what’s right for you. Although the information is from sources considered reliable, we do not guarantee that it is accurate or complete. You should not rely upon it and should seek qualified advice before making any investment decision. Except where liability under any statute cannot be excluded, we do not accept any liability (whether under contract, tort or otherwise) for any resulting loss or damage of the reader or any other person.


 

Self-employed? There’s still time to grow your super

Date: Apr 27th, 2018

While approximately 1.3 million Aussies run their own show, one in five has no superannuation at all.

Many Australians see self-employment as a goal worth aiming for. But running your own show can mean retiring with very little in super savings – one in five self-employed people have no super at all compared to just 8% of employees.

Self-employed women are especially hard hit. Among women aged in their sixties, the average super balance for wage and salary earners is $175,000 – double the average balance of $83,000 for women who run their own business.

Self-employed workers face unique hurdles

The Association of Superannuation Funds of Australia (ASFA) is calling for the Superannuation Guarantee, which underpins compulsory employer-paid super contributions, to be extended to include those who work for themselves. With around 1.3 million Australians running their own show, the idea certainly has merit.

However, as any self-employed person will know, it’s not always easy finding the money to contribute to super. Spare cash is often re-invested in the business or set aside to cover tax bills. Self-employed people can face uncertain income streams, and it may seem sensible to squirrel money away for those times when income is sporadic or leaner than usual.

Make growing super a goal to work towards

Nonetheless, if you work for yourself there are some good reasons to contribute to super. For starters, it offers a source of income in retirement – one that could be more of a sure thing than relying on the sale of your business to fund life after work. 

Adding to super may also provide tax savings today. If you’re self-employed you can claim an annual tax deduction for up to $25,000 in “concessional” (before-tax) super contributions. Incidentally, this cap now applies across all age groups – a change from previous years when older Australians were able to claim a bigger tax break for super contributions.

Concessional contributions are taxed at 15% within your fund. If this is less than your personal tax rate, adding to your super could be a very tax-friendly way to save for the future. That said, if you are a low to middle income earner, claiming all your super contributions on tax may see you missing out on the government’s co-contribution scheme. It’s an area where it pays to speak to your financial adviser to help you decide the right blend of before and after-tax contributions.

Small steps may generate big results

Super contributions don’t have to be large or made via a single lump sum. It can be far easier on your cash flow to make small, regular contributions, and thanks to the power of compounding returns, even modest contributions could make a valuable difference to your final nest egg. An easy way to make growing super effortless may be to set up regular, automatic payments to your fund. Talk to your financial adviser about an amount you can comfortably contribute to your super on a regular basis.

If you intend to claim a tax break for contributions to super, be sure to let your fund know in writing before you lodge your tax return for the current financial year. This is another area where you can contact us on |PHONE|for the reassurance of professional support.

 Source : AMP 26 April 2018 

Paul Clitheroe is a founding director of financial planning firm ipac, Chairman of the Australian Government Financial Literacy Board and chief commentator for Money Magazine.

Important 
 
This article provides general information and hasn’t taken your circumstances into account. It’s important to consider your particular circumstances before deciding what’s right for you. Although the information is from sources considered reliable, we do not guarantee that it is accurate or complete. You should not rely upon it and should seek qualified advice before making any investment decision. Except where liability under any statute cannot be excluded, we do not accept any liability (whether under contract, tort or otherwise) for any resulting loss or damage of the reader or any other person.

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