Baby Boomer Bulletin No.47 September 2016

Transcription

1 Baby Boomer Bulletin No.47 September 2016 Hi everyone Please enjoy. Super to Become Bigger Asset than Housing? A 12 year longitudinal survey of more than 19,000 Australians has revealed some fascinating insights into our superannuation balances. The author of the most comprehensive long-term study of Australians believes superannuation will become the average Australian s biggest asset in 13 years or sooner, overtaking housing the great Australian dream. The results of the University of Melbourne s Household, Income and Labour Dynamics in Australia (HILDA) survey revealed average super balances grew over twice as fast as net home wealth between 2002 and The average household superannuation balance grew 66 percent from $112,114 in 2002 to $186,011 in But average net home wealth (mean home value minus mean home debt) only grew 27 percent from $229,900 in 2002 to $291,552 in HILDA Deputy Director (research) Professor Roger Wilkins told Fairfax Media this trend is likely to continue. I would expect house price growth to be lower than has been sustained since 2002 and therefore think superannuation will overtake the family home sooner than 2029, he said. What is the HILDA survey? The HILDA survey tracked the lives of more than 19,000 Australians between 2001 and It interviewed participants annually to develop insights into 12 topics: family life; economic wellbeing; labour market outcomes; household wealth; housing wealth; superannuation; material deprivation; child health and heath care utilisation; private health insurance; physical activity; and sleep. See the full report (PDF)

2 HILDA Report Superannuation Findings Regarding superannuation, here are some of the HILDA survey s main insights: In 2002, mean superannuation balances peaked at age for men and for women. In 2014, mean superannuation balances peaked at age for men and for women. Are We Getting Richer? Thanks to the HILDA survey, we can also compare the super balances of age groups in 2002 with the same age groups in For example, as you can see below, men and women aged in 2014 had over $120,000 more super than men and women aged in Change in average superannuation balance from 2002 to 2014 (Over 50s) AGE MEN WOMEN $45,868 +$30, $31,178 +$52, $169,939 +$98, $118,489 +$107, and over +$53,391 +$20,257 Source: HILDA Findings Change measured in December 2014 prices. Why have we seen this rise in average balances? There could be a range of reasons, but government policy has probably had one of the biggest impacts. For instance, there

3 have been increases to the minimum super contribution rate. When the Superannuation Guarantee was introduced in 1992, the rate was 3% of earnings. It s currently at 9.5%, with scheduled proposals to increase it to 12% by Better tax incentives would have also played a part. For example, in 2006 the Howard Government moved to exempt from income tax all superannuation earnings and drawdowns in retirement, which may be an incentive for current workers to increase their superannuation savings. Professor Wilkins told Fairfax Media this surprisingly little growth might be because of subdued share market returns and lower work participation since the GFC. When you look at how big the growth is for the older age groups I think a lot of that is driven by people piling all their assets into this tax-sheltered option as they reach retirement age, he said. 3 Questions Asked when Setting Up an SMSF Corporate Trustee Peter Townsend Do I need a company secretary for my proprietary company? There is no obligation on a company to appoint a company secretary. However, if it does, at least one of the secretaries must ordinarily reside in Australia. It is important that the company secretary consents in writing to the appointment by the director(s) and that they are not a disqualified person. While you do not have to appoint a company secretary, it is something you may want to consider doing now, particularly for the purposes of signing under s127 of the Corporations Act. Some third parties, such as banks or land titles offices in various states, require companies to execute documents under this section so they are able to rely on the assumptions set out in s129 (that is, that the document was validly executed and binding on the company). In the case of a sole director company, also appointing them as the company secretary allows the director to sign documents by themselves, without the need to share control of the company and the SMSF with a second person. This is particularly appealing when the sole member does not want the rest of their family to know details of the affairs of the SMSF. In the case of a two-director company, having the directors also act as company secretaries means that in the event of death or loss of capacity of one of them, the remaining director is already empowered to execute documents by themselves. There are several methods available to a company to execute documents (for example, under the terms of its constitution).

4 However, where there is no company secretary, we have seen instances where banks have requested that further documentation be prepared to confirm the valid execution of the documents. Does the corporate trustee have to be a "special purpose" company? A special purpose company is a company which is established for a specific purpose and includes a company that will only act as the trustee of a regulated superannuation fund. A corporate SMSF trustee is not required to opt for the special purpose status. However, the recommended practice is to do so. One of the reasons is that the constitution is generally more appropriate to the management of an SMSF in terms of voting rights and automatic appointment of a legal personal representative in the event of death/incapacity. It also offers a greater level of asset protection since SMSF assets are kept separate from business or other trust's assets that the company may hold. As a further incentive, the status entitles the company to a heavily discounted ASIC annual review fee of $47, compared to $249 for a standard company. It is important to select the type of company at the outset because the constitution will be slightly different depending on its status. In the case of a special purpose company, there must be a clause prohibiting the distribution by the company of income or property to its members. Do not despair if that is not how you established your corporate trustee: it is possible to change the status of a company from standard to special purpose (and vice versa) by changing its constitution. However, this will generally incur costs. A company which will act as trustee of a holding (bare) trust for the purposes of a limited recourse borrowing arrangement is not entitled to the special purpose status. How many shares should be issued to the members of the SMSF? The class and number of shares to be attributed to each member will generally depend more their estate planning needs and strategies rather than on the administration of the SMSF. For the latter purpose the shareholding is effectively irrelevant. However, the company constitution, Will and enduring power of attorney documentation of the deceased/incapacitated director will need to be carefully drafted to ensure their voice continues to be heard and their wishes carried out. The documents need to work together to achieve the required aims. Ensuring all the documentation works together is even more relevant where the director only has one share but has nominated several attorneys/executors. Indeed, some constitutions give the voting right attached to that share solely to its first registered co-owner, giving only this person the right to vote. Also, if the attorneys were appointed to act jointly, they would need to find a consensus when exercising their single vote.

5 Grey Nomads/Spring Chickens: Who pays more for Travel Insurance? How much does travel insurance really cost, and can you get cheap travel insurance if you re younger? Who pays the most for travel insurance? Well let s face it with the Aussie dollar having fallen, our lower exchange rates are making it more expensive to travel. But don t let that stop you! What do travel insurance premiums really cost? And who pays the most for their insurance students, retirees, or maybe families with growing tweens? How much can you expect to pay? CANSTAR rates travel insurance for a few different profiles of traveller: singles, couples, and a family with two kids Use the interactive selector to find out the average premiums for travelling to your dream destination Are there any one premium fits all policies? You ll be pleased to hear that 41 of 76 eligible insurance providers offer policies where the same premium is charged for ages This equates to 131 of 280 individual travel insurance policies. Some insurance providers will also only cover travellers up to different maximum ages. If you re an older traveller of 60 or above, the first thing you need to check in a product disclosure statement (PDS) is the maximum age covered for travellers. Our research shows a Comprehensive policy is likely to cover you to an older age than a Basic or Essential policy. Why doesn t everyone pay the same? The cost of travel insurance depends on what risks you need to be covered for. This is why many other factors other than your age also affect how much your travel insurance may cost: Where you go: The country you re travelling to changes the amount your travel insurance will cost because each country has a different level of risk for various events happening. This doesn t apply for domestic travel insurance. Type of travel: The type of trip you are taking will involve different levels of risk.

6 Length of trip: The longer you are away, the higher the cost of insurance (generally). But the cost of insurance is still a very small proportion of the overall cost of your trip. How you play: The activities you plan to participate in while away can affect the risk level. So you will typically pay more to add optional extra cover to your policy if you want to do risky or dangerous activities, e.g. skiing cover or water sports cover. (Remember, some risky or dangerous activities are excluded from cover altogether, so make sure you know what you are covered for overseas.) Pre-existing medical conditions: If you have a health condition that may affect you while you re away, and that condition is included within your travel insurance policy, then your insurance may be more expensive to reflect that risk. The level of cover or limits you choose: Obviously Comprehensive policies are more expensive because they cover more risks than policies labelled Basic or Essential. Optional extra cover you choose: The usual examples are if you want to be covered for skiing, water sports, or extreme sports like rock climbing. Other examples include cover for continuing to house your pet in a boarding kennel if your return is delayed. But why does age matter? It basically comes down to health reasons. Different health conditions may affect a traveller depending on how old they are. For example, there are many health conditions that are more common for older travellers, such as pre-existing medical conditions, heart problems, cancer, and diabetes. Meanwhile, asthma is one health condition that is typically more common among younger travellers. Am I covered to the same level? Be reassured: regardless of your age, if you are covered for an event then you will be covered to the same level as someone of any other age. If you re young, you might be paying less but you won t be covered for less. For example, overseas hospital expenses might be covered up to $2,000 for singles, and $4,000 for couples or families, and this level of cover is not dependent on your age but on the number of people being covered. It s important to note though that many pre-existing medical conditions may be excluded from your insurance policy, and as you age you are likely to have a greater number of

7 pre-existing conditions. Hence it s important to read your policy document carefully to ensure that you know what you are and are not covered for. Is cheap travel insurance okay? The level of benefits and cover you receive is dependent on the type of policy you choose. There are a range of options, from Essentials Only policies to Basic policies and then Comprehensive policies. When it comes to cheap travel insurance policies, our research shows that the saying that you get what you pay for is often true. While the various types of policies typically have a range of covered events in common, Comprehensive policies often cover more things and they cover these things to a higher level of benefit. No matter what you re paying for your travel insurance, the key is to ensure you re covered. How to get good value for your money We ve taken the stress out of searching for the most comprehensive policy and best value for money, by researching and rating travel insurance for you. Find out who provides outstanding value travel insurance for Australian travellers overseas and within Australia with CANSTAR s 2016 star ratings. Source: Based on products assessed for 2016 star ratings. Great Minds Discuss Ideas; Average Minds Discuss Events; Small Minds Discuss People. Eleanor Roosevelt

8 HOW TO TALK MONEY #6 Underwriting: What happens when an investment firm, such as a bank agrees to buy any unsold shares from a company after it has offered them to the public or what happens when assessing whether a person can afford a loan from a financial institute. Unsecured Loan: A loan is backed by a particular asset; if the person does not pay back the loan, the lender cannot take any asset in return, but can still take the person to court. Secured Loan: A loan that is borrowed against a particular asset, known as security. If the person cannot make the loan repayments when they are due, the lender can take the ownership of the asset. SWIFT: Society for Worldwide Interbank Financial Telecommunication currently provides secure messaging and transaction services for over 7000 financial organisations located in 194 countries. Surety: Similar to a guarantor, someone who takes responsibility for someone else s debts or promises, and guarantees that they will be paid or fulfilled. Spot Rate: The exchange rate for foreign exchange transactions that are carried out straight away. Rights Issue: An issue of extra company s shares to shareholders at a discount based on the number of shares they already hold; shareholders can sell the rights if they do not wish to use them. Thank you for your time today. I look forward to, and welcome, any feedback or suggestions for future topics of interest. Best Wishes Dian Clayton Baby Boomers Bulletin Coordinator dianc@bigpond.com Please remember that AIR is not an advisory body, so while we provide general information within this Bulletin, we cannot provide specific advice on your personal circumstances nor does AIR recommend particular products or services. Please seek your own advice.