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Category: Provision Newsletter Articles

When super isn’t compulsory

Date: Feb 13th, 2019

As Australia’s $2.8-trillion super system attracts even more headlines than usual, more people may mistakenly assume that almost everyone in the workforce is covered by at least compulsory contributions.

In reality, the position is far different.

A research paper* from the Association of Superannuation Funds of Australia (ASFA) reminds us that a “substantial proportion” of Australia’s workforce is self-employed and therefore does not receive superannuation guarantee (SG) contributions.  

In other words, they are out in the super cold – unless they are among the small minority of the self-employed who make voluntary contributions or who have built-up some super savings from past employment.

Based on Australian Bureau of Statistics data, ASFA’s paper points out that 1.267 million people or about 10 per cent of our total workforce, as at August 2017, were owner-managers of unincorporated small businesses as their main occupation.

And the percentage of the workforce that is self-employed and uncovered by compulsory super contributions is expected to rise with the seemingly-relentless growth of the gig economy.

Here’s another key statistic. Some 20 per cent of the self-employed have no super whatsoever compared to 8 per cent of employees.

Critically, any super held by the self-employed is often extremely small, arising from whenever they have been classified as employees and eligible for compulsory contributions. Often, their modest super savings arise from the time they first joined the workforce and from occasional employment.

It seems paradoxical that the self-employed are among the most enthusiastic supporters of self-managed super when the majority of the self-employed have little or no super.

What can a self-employed person take to make that they don’t miss out on super? Here are a few tips:   

  • Try to make regular contributions as if employed: Think about making contributions that are at least the equivalent of the compulsory contributions you would have received if employed. (The superannuation guarantee rate is currently 9.5 per cent of an employee’s ordinary earnings up to a maximum salary amount.)

  • Claim a tax deduction for concessional contributions: The self-employed can claim tax deductions for their concessional (before-tax) contributions. The annual concessional cap for all eligible super fund members is $25,000. (Concessional contributions comprise compulsory contributions, salary-sacrificed contributions and personally-deductible contributions by eligible self-employed individuals and investors.)

  • Contribute early, contribute often and contribute as much as you can afford:  By following this disciplined approach, you will reduce the chances of being left behind employees with your super savings.

  • Look for opportunities to contribute more: If you receive, say, an inheritance or sell a non-super investment, consider contributing some of the money to super within the contribution caps. (The standard non-concessional, after-tax, contributions cap is $100,000 for 2018-19. Fund members under 65 have the option of contributing up to $300,000 in non-concessional contributions over three years, depending upon their total super balance.)  

  • Think carefully before cutting your contributions if cash is tight: A temptation for the self-employed is to cut super contributions if business cash-flow becomes tight. Consider the long-term implications for your retirement savings of reducing your contributions; there may be other ways for your business to save money.

  • Don’t overlook the insurance side of super: Most Australians with life and permanent disability insurance obtain at least default cover through their large super funds. And many of the self-employed also choose to hold income-protection insurance through their funds.

  • Aim to obtain asset protection with super: Self-employed business owners sometimes seek advice about how their super savings may be protected in the unfortunate event of a future bankruptcy – subject to claw-back provisions in bankruptcy law.

  • Watch for a gig-economy super trap: Understand that employers are not obliged to make super guarantee contributions for employees earning less than $450 a month before tax. This means, for instance, that employees making up their incomes doing a number of part-time jobs for different employers may fall below the threshold for each.

  • Guide young family members towards super: If you have young family members working in the gig economy, perhaps in a series of part-time jobs, consider talking to them about the benefits of making voluntary super contributions.

Most of us have probably heard a self-employed business owner say “my business is my super” or similar words. Their expectation is often to eventually sell their businesses to raise enough capital to finance their retirement. But how realistic are those expectations?

As a past ASFA research paper points out that while some of these businesses may have a value of “a million dollars or more”, others may be worth may worth “little more than the market value of a second-hand utility or truck and some tools of trade”.

*Superannuation balances of the self-employed by Andrew Craston, Association of Superannuation Funds of Australia, 2018.

 Source : Vanguard February 2019 

By Robin Bowerman, Head of Corporate Affairs at Vanguard.

Reproduced with permission of Vanguard Investments Australia Ltd

Vanguard Investments Australia Ltd (ABN 72 072 881 086 / AFS Licence 227263) is the product issuer. We have not taken yours and your clients’ circumstances into account when preparing this material so it may not be applicable to the particular situation you are considering. You should consider your circumstances and our Product Disclosure Statement (PDS) or Prospectus before making any investment decision. You can access our PDS or Prospectus online or by calling us. This material was prepared in good faith and we accept no liability for any errors or omissions. Past performance is not an indication of future performance.

© 2019 Vanguard Investments Australia Ltd. All rights reserved.

Important:
Any information provided by the author detailed above is separate and external to our business and our Licensee. Neither our business, nor our Licensee take any responsibility for any action or any service provided by the author.

Any links have been provided with permission for information purposes only and will take you to external websites, which are not connected to our company in any way. Note: Our company does not endorse and is not responsible for the accuracy of the contents/information contained within the linked site(s) accessible from this page.

7 considerations when choosing a school for your kids

Date: Feb 01st, 2019

Deciding on a school could be as simple as geography but sometimes other factors, like your finances, play a part in the selection process.

If you’re thinking about what school to enrol your children into, it might be a more complicated decision than merely opting for something in the local area.

Family values, student facilities, extra-curricular activities and your financial situation could all come into play. We look at some of the things to consider and what you can expect to pay.

1. Choosing a school close by

Attending a school close to home can have its advantages—your kids’ classmates will often live nearby and as a result, also be involved in the same sports or extra-curricular activities.

Time and money can also be saved on commuting when school is a short stroll, lift or bus trip away.

2. Family values and personal preferences

You may want to think about whether a school’s culture, philosophy, religious affiliations or emphasis on academia, arts or sporting achievements align with your own family ideals.

It’s also worth considering whether you have preferences around things like class sizes, assessment techniques, disciplinary policies, single-sex or co-ed environments, and teacher/parent communication.

3. Facilities, support and additional programs

Other things that may be important to you and your family might involve the amenities and services on offer, such as:

  • Library, computer room, science lab

  • Facilities for sport, music and art

  • Playgrounds and cafeterias

  • Counselling services and first aid

  • Before and after-school care 

  • Extra-curricular activities and programs

  • Language, literacy and numeracy tutoring

  • Financial support or incentives, including scholarships.

4. What you can expect to fork out

According to figures from ASG, for a child born today, the total cost of schooling in a capital city (from ages 0 to 17) is estimated to be around1:

  • $68,007 if they attend government schools

  • $252,085 if they attend systemic/catholic schools

  • $499,593 if they attend private schools.

For many families, money will play a part in the decision-making process, which is why it’s a good idea to start planning for your children’s education early on—think school fees, uniforms, travel, stationery and additional activities.

While there’s a significant variation in cost, expensive schools don’t necessarily guarantee a greater experience or better results.

5. Government subsidies

Depending on where you live, you may be eligible for financial benefits to help with things such as transport, textbooks, extra-curricular activities and other education-related expenses.

Check out our article for a bit of a rundown on what’s available in different Australian states and territories – Are you eligible for school subsidies?

6. Waiting lists and entry requirements

Some schools have waiting lists and entry requirements which may depend on academic or sporting achievements, or whether you’re located in the school’s district.

It’s worth researching these things early on because while you may think you have plenty of time to decide, realistically you may not, with some schools advising to enrol your kids immediately after birth.

7. Ways to narrow down your shortlist

If you’ve narrowed down your shortlist, but are still undecided, a bit of extra research could help. You can check out performance data online via My School, which includes recent NAPLAN results.

Numbers aren’t everything though, so look to other sources of information to gauge school attitudes and strengths, such as the school website, annual reports, open days, information nights and associated online networks.

Talking to staff, the principal, other students’ parents and the wider community could also go a long way.

Source : AMP January 2019 

 Important information:This information is provided by AMP Life Limited. It is general information only and hasn’t taken your circumstances into account. It’s important to consider your particular circumstances and the relevant Product Disclosure Statement or Terms and Conditions, available by calling 13 30 30, before deciding what’s right for you. Read our Financial Services Guide for information about our services, including the fees and other benefits that AMP companies and their representatives may receive in relation to products and services provided to you. All information on this website is subject to change without notice. Although the information is from sources considered reliable, AMP does not guarantee that it is accurate or complete. You should not rely upon it and should seek professional advice before making any financial decision. Except where liability under any statute cannot be excluded, AMP does not accept any liability for any resulting loss or damage of the reader or any other person

 

Are you a woman who’s in control of her finances?

Date: Feb 01st, 2019

 

Are you a woman who’s in control of her finances?

With many women likely to become solely responsible for their financial wellbeing at some point in their lifetime, you might very well want to be.

Higher rates of divorce coupled with women living longer than men1 brings to light an important point, if you’re a woman, and that’s the likelihood that at some stage in your lifetime you’ll be responsible for your own financial wellbeing (if you aren’t already).

If you’re thinking, (meh!) my other half will always take care of me, you might be interested to know that according to a study published by UBS Wealth Management in the United States last year, eight out of 10 women will become solely responsible for their financial wellbeing at one point or another2.

We take a look at some of the insights that came out of the report, as well as what tips women had for other women in regard to their money matters.

Findings from the report

Some of the statistics that came out of the study included the following3:

  • 59% of divorcees and widows wish they’d been more involved in long-term financial decisions.

  • 56% of divorcees and widows discovered financial surprises after the fact, such as high debt, outdated wills and hidden accounts.

  • 53% would have done fewer household chores to find more time for finances.

  • 98% encouraged other women to take a more active role in their money matters.

Cross-generational differences

According to the report, younger women were perpetuating rather than transforming the status quo, with 61% of Millennial women leaving financial decisions to their partner, compared to 55% of Generation X women and 54% of Baby Boomer women4.

Despite this, younger women were also more likely to believe they should be doing more to better manage their finances than their older counterparts5.

Meanwhile, the reasons why women minimised their role in major financial decisions, included men being seen as financial providers, men often being the bread winners within the household and time constraints providing challenges for women, as they often took on the majority of household duties, which included paying bills and tracking day-to-day spending6.

Actions you could take today

Some insights that came out of the research included7:

  • Know what assets and liabilities you have

  • Know what you want in life

  • Know what cashflow you have to meet your short-term expenses

  • Know what you’ve got behind you for your longer-term needs, like retirement

  • Know what you want beyond that, such as whether you want to leave an inheritance

  • Have the money talk with your partner

Please contact us on |PHONE| if we can be of any assistance on this topic 

1-7 UBS Report – Own your worth (How women can break the cycle of abdication and take control of their wealth) pages 1, intro, 2, 3, 5, 6, 9

Source : AMP January 2019

 Important information:This information is provided by AMP Life Limited. It is general information only and hasn’t taken your circumstances into account. It’s important to consider your particular circumstances and the relevant Product Disclosure Statement or Terms and Conditions, available by calling 13 30 30, before deciding what’s right for you. Read our Financial Services Guide for information about our services, including the fees and other benefits that AMP companies and their representatives may receive in relation to products and services provided to you. All information on this website is subject to change without notice. Although the information is from sources considered reliable, AMP does not guarantee that it is accurate or complete. You should not rely upon it and should seek professional advice before making any financial decision. Except where liability under any statute cannot be excluded, AMP does not accept any liability for any resulting loss or damage of the reader or any other person

New Year resolutions, New Year strategies

Date: Jan 23rd, 2019

Here’s some good news for investors. With a few straightforward New Year resolutions and strategies, they can become better investors and better managers of their personal finances.

Key aims should be to save more, become better at handling inevitable market volatility, overcome investment inertia, reduce your debt and make sure you are following the fundamentals of sound investment practice.

Here are six New Year resolutions and strategies to think about:

Become a more disciplined, volatility-resilient investor: The higher share market volatility marking the final few months of last year and the beginning of 2019, highlights once again why investors should develop strategies to cope with volatility.

Block out market “noise”. Make sure you don’t overreact to daily market commentary and news, ignore short-term fluctuations in share prices and don’t get distracted by the rollercoaster emotions of the investment “herd”. Critically, set and adhere to an appropriately diversified asset allocation for your long-term portfolio – and monitor regularly particularly if your circumstances change.

And don’t try to time the market by attempting to pick the best times to buy or sell shares – typically market-timers sell after prices have fallen only to buy back after prices have risen.

When share prices sharply fall, investors often feel a hard-to-resist urge to do something when the best course is often to do nothing.

Increase your super contributions: Are you making the highest salary-sacrificed and tax-deductible contributions that you can afford? If not, consider increasing contributions from the beginning of 2019. The concessional (before-tax) contributions cap for all eligible super fund members is $25,000. Increasing your super contributions is a great beginning to breaking through the investment inertia that often gets in the way of investment success. (Concessional contributions are compulsory, salary-sacrificed and personally-deductible contributions.)

Cut your investment costs: This is one of the most straightforward ways to improve your chances of investment success in 2019 and beyond. Every dollar less paid in investment costs, including investment management fees, is a dollar more to invest.

Cut your debt: With Australia’s household debt at a record high, most of us have a powerful motivation to reduce our debts. In short, the more you are spending on paying back personal debt and on loan interest, the less you have left to invest and reach other goals such as eventually owning a debt-free home.

Control your credit card: A fundamental way to reduce debt in 2019 is to keep your credit card under tighter control. Aim to pay off your total credit card bill each month to avoid any interest and think about reducing your card’s credit limit. The typical Christmas splurge on credit provides an extra incentive to rein in credit card debt from early in in 2019. And consider the increasingly-popular alternative of having a debit card instead of a credit card. With a debit card, you can spend only your own money.

Boost your mortgage buffer: By making higher repayments on your home loan than required, you can build a mortgage buffer to help handle possible future financial setbacks and rate rises. And a mortgage buffer may enable you to pay off your home sooner. The Reserve Bank has noted in the past that many mortgages have taken advantage of low interest rates to build their mortgage buffers.

Be sure you are not being unrealistically ambitious with your resolutions, and not setting yourself up to fall short.

Have a prosperous New Year.

If you seek further assistance on this topic pease contact us on |PHONE|

Source : Vanguard January 2019 

Reproduced with permission of Vanguard Investments Australia Ltd

Vanguard Investments Australia Ltd (ABN 72 072 881 086 / AFS Licence 227263) is the product issuer. We have not taken yours and your clients’ circumstances into account when preparing this material so it may not be applicable to the particular situation you are considering. You should consider your circumstances and our Product Disclosure Statement (PDS) or Prospectus before making any investment decision. You can access our PDS or Prospectus online or by calling us. This material was prepared in good faith and we accept no liability for any errors or omissions. Past performance is not an indication of future performance.

© 2019 Vanguard Investments Australia Ltd. All rights reserved.

Important:
Any information provided by the author detailed above is separate and external to our business and our Licensee. Neither our business, nor our Licensee take any responsibility for any action or any service provided by the author.

Any links have been provided with permission for information purposes only and will take you to external websites, which are not connected to our company in any way. Note: Our company does not endorse and is not responsible for the accuracy of the contents/information contained within the linked site(s) accessible from this page.

 

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