Alcoa of Australia Retirement Plan

Transcription

1 Alcoa of Australia Retirement Plan Member Newsletter September Focus on share markets Since you received our previous member communication from the Plan, there has been considerable share market volatility worldwide. Share market volatility and its impact on super returns can be very distressing (refer to What s behind the share market volatility? in this newsletter). However, the Alcoa of Australia Retirement Plan is here to help. There are a number of resources available to you as a Plan member, to help you manage your retirement savings through the current share market fluctuations: ff Visit the Plan s new look website at for a variety of articles on the current state of the share market; ff Phone the Plan Helpline on The Plan offers limited free financial advice over the phone and can help you with such matters as deciding which investment option is right for you and whether you should make additional super contributions; ff Refer to your Plan member communication material, such as this newsletter, the Product Disclosure Statement and the latest Annual Report to Members for current investment information; and ff Arrange an appointment with a licensed, or appropriately authorised, financial adviser to assist you with making decisions regarding your super and other investments. Contact the Plan Helpline if you require any assistance. What s in this issue? In this update we will cover: ff 2008 Alcoa Plan returns at a glance ff The latest news on your Plan ff Recent investment performance for the Plan ff What s behind the share market volatility ff Inside the 2008 Federal Budget ff Want thousands of dollars extra when you retire? 2008 Alcoa Plan returns at a glance The Plan returns for the year ending 30 June 2008 were: Defined Benefit Section Effective Rate of Return: -8.88% Accumulation Section Investment Option Annual Rate of Return Equity Option % Growth Option -8.97% Capital Stable Option -1.77% Cash Option 4.65% Pension Section Investment Option Annual Rate of Return Equity Option % Growth Option % Capital Stable Option -2.15% Cash Option 5.53% For comparison, the Australian All Ordinaries Accumulation Index returned % and the MSCI World ex-australia Index returned % for the same period. Refer to Recent investment performance for the Plan in this issue for more details.

2 The latest news on your Plan New look website The Trustee is pleased to advise members that the Plan s website has been redeveloped and contains lots of new information, including the latest investment return details for all sections of the Plan. Visit the website at and see the changes for yourself! Enclosed with this newsletter is a Fact Sheet called Access to the Plan s website which gives information about how to login to the website to access your personal information and other Plan documents. Educational Fact Sheets The Trustee has invested considerable effort over the past few months in ensuring that relevant and fresh information is available for Plan members on topics that are important to you. 2 As such, a new page has been added to the website, containing a variety of Fact Sheets to help members to better understand the range of benefits available to them in the Plan. Some Fact Sheets that are now available on the website include: ff Superannuation guarantee legislation and ordinary time earnings ff Approaching retirement ff Transition to retirement allocated pensions ff Allocated pensions ff Investment choice basics ff Rolling over your super New Fact Sheets will be progressively added to the website over the coming weeks, so we encourage you to login regularly to see the latest additions. Product Disclosure Statements (PDSs) The Plan s PDSs for Accumulation, Retained, Spouse and Pension members were updated in February 2008 and have again been updated in August 2008 with the latest investment returns. You can download your copy by logging on to the website at Please note that an error was identified in the PDSs dated 29 February 2008 relating to the 5-year compound returns for the Accumulation, Retained Spouse and Pension investment options. The error has been corrected in the PDSs dated 1 August 2008.

3 Benefit projection calculator Members were advised in their 2007 Annual Benefit Statements that a calculator for projecting retirement benefits would be available on the Plan s website in The development of this calculator is progressing, however it has taken longer than originally planned. The Trustee is continuing to work with software developers to ensure that a benefit projection calculator is available to Plan members as soon as possible. Education program The Trustee is currently liaising with the Plan s Administrator, Mercer, to arrange a series of member education seminars at Alcoa worksites across Australia. The seminars will cover the topics of wealth creation and transitioning to retirement, with a particular focus on the various facilities available within the Plan. Further details will be provided to members as soon as they are available. Minimum insurance From 1 July 2008, each employer s default superannuation fund must provide a minimum level of death insurance cover to members. The Alcoa of Australia Retirement Plan is the default superannuation fund for Alcoa employees. The Trustee has reviewed the death insurance cover already provided to Plan members and no change was required to the current insurance arrangements. However, casual employees are now able to apply for additional voluntary death cover. If you would like to find out more, please contact the Plan Helpline on or read the latest Accumulation PDS available from the Plan s website. Your Plan Helpline limited financial advice available for free Did you know that you can access limited free financial advice via your Plan s Helpline? Qualified financial advisers are available to assist you with basic inquiries, such as whether to switch investment options or whether making salary sacrifice contributions is right for you. Contact the Plan Helpline on to talk to a financial adviser today. Who manages your Plan? Your Plan is managed by a Trustee company which has eight directors four directors are appointed by the members of the Plan and four are appointed by Alcoa. The directors must run the Plan in accordance with the governing legal document, the trust deed, and in line with current superannuation laws. Your current Trustee directors are detailed below. Member-appointed representatives Andy Hacking: Located in Kwinana, Andy joined Alcoa in 1989 and has been a Trustee Director since February Brett Noonan: Brett joined Alcoa in 1987 and is located at Point Henry. He has been a Trustee Director since February Peter Rozentals: Located at Pinjarra, Peter joined Alcoa in 1975 and has been a Trustee Director since February Dave Thomas: Dave joined Alcoa in 1986 and is located at Portland. Dave has been a Trustee Director since February Employer-appointed representatives Tom Adams: Finance and Business Services Director, Tom joined Alcoa in 1985 and has been a Trustee Director since Kim Horne: Kim joined Alcoa in 1974 and is currently the Director, Human Resources and Employee Health and Safety. Kim has been a Trustee Director since August Jann Kinsela: Currently the Human Resources Manager for Victorian Operations, Jann joined Alcoa in 1989 and has been a Trustee Director since February, John Phillips AO Chairman: John was appointed by Alcoa as an independent Trustee Director in The current Chairman of the Foreign Investments Review Board and Chancellor of the University of Western Sydney, John has held a number of senior board positions in finance and related industries including, Deputy Governor of the Reserve Bank, Chairman of AGL, Board Member of Woolworths, QBE and WMC. 3

4 Recent investment performance for the Plan Accumulation Section The table below shows the rates credited for each investment option for the 12 months to 30 June 2008 for members in the Accumulation Section as well as members in the Benefit Retention facility. The rates are based on the actual performance of the Plan s investments, less allowances for tax on investment earnings and investment expenses. Month Equity option Growth option Capital Stable option Cash option Jul % % % % Aug % % % % Sep % % % % Oct % % % % Nov % % % % Dec % % % % Jan % % % % Feb % % % % Mar % % % % Apr % % % % 4 May % % % % Jun % % % % Annual Returns % -8.97% -1.77% 4.65% Pension Section The table below shows the rates credited to the accounts of Allocated Pension members for each investment option for the 12 months to 30 June The rates are based on the actual performance of the Plan s investments less allowances for investment expenses. Month Pension-Equity option Pension-Growth option Pension-Capital Stable option Pension-Cash option Jul % % % % Aug % % % % Sep % % % % Oct % % % % Nov % % % % Dec % % % % Jan % % % % Feb % % % % Mar % % % % Apr % % % % May % % % % Jun % % % % Annual Returns % % -2.15% 5.53% Defined Benefit Section For Defined Benefit members, your Additional Supplementary and rollover benefits (if any) are credited with Plan earnings as shown below: Effective rate of net earnings for the year to 30 June 2008: -8.88% Your 2008 Annual Report to Members, due to be issued by October 2008, will contain further information on the Plan s investment performance, including the five year compound returns for the Defined Benefit section and for each investment option.

5 What s behind the share market volatility? The current situation has its roots in the US housing sector and shows just how globalised financial markets have become. Since 2005 the US housing market had experienced easy financial liquidity conditions and low interest rates, which combined to allow high numbers of people with poor financial prospects to borrow money. As US interest rates increased, the housing market faltered and borrowers began defaulting on their mortgages. In the second half of 2007, the disruption in the credit market spread to the banking system, and shares in major banking and other financial institutions have fallen significantly over the period. Whilst record oil and energy prices are providing strong positive returns for the resources sector, the credit crisis combined with persistent inflationary pressures and slowing global growth has driven the significant decline in equity markets that we have seen both in Australia and around the world. In addition, the fall in face value of overseas investments has been compounded by the strong appreciation in the Australian dollar. Has super investment performance been affected? Volatility is affecting the investment performance of Australian super funds, including the Alcoa of Australia Retirement Plan. This comes after several years of strong investment return performance. The return performance of a number of the Plan s investment options, particularly those with a significant exposure to shares, will be affected by the volatility. Generally though, these investment options aim to meet their objectives over the long term. How is the Alcoa Plan responding? The Plan s Trustee is monitoring developments in the sharemarkets closely and constantly. In association with the Plan s investment adviser, the Trustee considers the impact of sharemarket volatility on all member investment options and the underlying investment strategy. Based on this assessment, the Trustee has not made any material changes to the underlying structure of its investments. The reason for this is the Plan s investment strategy for each option is set by taking a long term view about expected performance, and this takes into account the fact that volatility does occur in the short term. In particular, the Trustee is satisfied that the current market volatility does not warrant any material shift in the nature or risk profile of the underlying investments, and therefore there is no reason to expect that the stated investment objectives for each investment option is no longer relevant. Refer to the Plan s current PDS or Annual Report (available from the Plan Helpline or the website) for information on the investment objectives of each option. What should you do? Although it is always distressing to experience negative returns, you should avoid short-term decision making about your super. Some common responses to volatility include alarm ( maybe I should cut my losses and sell ), emphasis on hindsight ( fund managers should have seen this coming ), group mentality ( everyone s switching to cash, maybe I should too ) and overconfidence ( long-term strategies are for investors less experienced than me ). How you respond should really depend on a range of personal financial factors and your super strategy. One possible response is to take no action at all. What is the outlook for the balance of 2008 and beyond? In the first quarter of 2008 we formally entered a bear market. Companies here and in the US are generally reporting earnings below expectations and are downgrading future earnings expectations. This is flowing through to the Australian and international sharemarkets. This is likely to continue for a period of time. Therefore, it is possible that markets may fall further. However, on a more positive note, fundamental value in stocks is beginning to appear. This is likely to mitigate or cushion further falls. In addition, the Australian economy remains strong and has been supported by the resources boom, which is providing an additional buffer. Ultimately, it s the economy that will determine the direction of markets and how long the bear market cycle continues. It is important to remember that share markets move in cycles and have historically always recovered after a downturn. 5

6 Inside the 2008 Federal Budget 6 The new Labour Government presented its first budget in May In the Budget the Government confirmed a number of previously announced initiatives and announced new changes which impact on superannuation, taxation and government support payments. The 2008 Federal Budget includes: ff The inclusion of some salary sacrifice contributions in the definition of income used to assess eligibility for the Government Co-contribution; ff Changes to super for temporary residents; ff Personal tax cuts in the current and subsequent two financial years; ff The introduction of the First Home Saver Accounts (FHSAs) the Budget included some changes to this new scheme which the Government had announced prior to the Budget; ff A review of Australia s Future Tax System; and ff Changes to Fringe Benefits Tax (FBT) exemptions. Commitment confirmed In contrast to previous years, there have been few changes to both the structure of super or to the way super is taxed. The Federal Government has confirmed its commitment to providing tax-free super payments for people aged 60 or over, whether they take their super as a lump sum or a pension stream. Government Co-contribution Currently, people can use salary sacrifice arrangements to reduce their assessable income. This means that they may then qualify for the Government Co-contribution if they make after-tax contributions to super. The Government has indicated that from 1 July 2009, certain salary sacrifice contributions will be included in the definition of income for determining eligibility for the co-contribution. This chance means that the co-contribution may no longer be available for people utilising this salary sacrifice strategy. Super and temporary residents On 8 August 2008, Senator the Hon Nick Sherry, Minister for Superannuation and Corporate Law announced changes to the prior Government s proposed approach to temporary residents superannuation, which the Labor Government had previously supported. The Government s revised position follows extensive industry consultation. The new changes will: ff Enable the same superannuation payment arrangements to apply to all employees in a workplace ff Allow for continued insurance coverage for temporary residents as they will continue to be fund members while they reside in Australia ff Allow for the full payment of superannuation to temporary residents at any time following their departure from Australia ff Significantly reduce the compliance costs for the super industry Full details are not yet available but it appears unclaimed benefits for temporary residents will need to be transferred to the ATO after the person has left Australia. The member would then need to claim their benefit from the ATO. The changes will take effect after the legislation is passed by Parliament, expected later this year. Fringe Benefits Tax (FBT) The 2008 Federal Budget also included proposed changes to tighten the exemptions on Fringe Benefits Tax (FBT) for items such as laptops, personal digital assistants (PDAs) and tools of trade primarily used for private purposes. These FBT concessions are to be removed with effect from Budget night, that is 13 May You should consider seeking financial advice in relation to salary packaging arrangements and the impact of these changes on your circumstances. First Home Saver Accounts The Budget included some changes to the First Home Saver Accounts (FHSAs) scheme previously announced by the Government. The scheme will now commence from 1 October FHSAs will work like super funds, with a 15% contribution tax on pre-tax contributions and a 15% tax on investment income. The Government will contribute 17% of any personal contributions up to $5,000* made to an account each year. The maximum account balance is $75,000* with no further personal contributions allowed after reaching this limit, however Government contributions and investment earnings can continue to be added. Benefits can be withdrawn for a first home purchase after at least four years of contributions. If the FHSA is not used to purchase a first home, the account must be transferred to superannuation where it will be preserved. * These limits will be indexed each year

7 Means tests for Government payments Personal tax cuts From 1 July 2009, the definition of income used to determine a person s eligibility for government support payments will be expanded. The expanded definition will include certain salary sacrificed contributions to super. This new definition will have an effect on government support programs such as Family Assistance and Child Support. Additionally, as mentioned earlier, salary sacrifice payments to super will now be included in income when determining a person s eligibility for co-contribution payments. In the 2007 Federal Budget, the Howard Government announced personal income tax cuts to come into effect from 1 July In addition to these tax cuts, both parties offered further tax cuts during the lead up to the November 2007 election. The Government reaffirmed these tax cuts in the Budget and the new tax rates are now in place. Australia s Future Tax System The Government has announced that it will conduct a comprehensive review of Australia s tax system to create a tax structure that positions us to deal with the demographic, social, economic and environmental challenges of the 21st century. Other super initiatives ff A Financial Services Working Group has been established by the Federal Government. Among other things, the group will examine disclosure documents to facilitate shorter and simpler statements, which will help super members in the decision-making process. ff In February 2008, the Federal Government introduced legislation to make super lump sum payments tax free when paid to persons suffering from a terminal medical condition. ff The Government also began consulting various industry organisations and practitioners about a range of governance matters for Self Managed Super Funds. 7

8 Want thousands of dollars extra when you retire? There are a number of easy ways to boost your super savings through the Fund. Making voluntary contributions to your super can be a smart move. Over time, with the effect of compound interest, you could add thousands of dollars to super and help close any income gap in retirement. Concessional super contributions Pre-tax or concessional contributions to super include employer and salary sacrifice amounts. Concessional contributions are before tax, which means they are only taxed at 15% rather than your marginal rate. Lots of Alcoa members make additional contributions via salary sacrifice to boost their retirement nest egg. For example, some contribute small pre-tax amounts from their salary of 1%, 2% or 3% per year. While you can choose to contribute a higher rate, your total concessional contributions should not exceed $50,000 per financial year or $100,000 for those turning age 50 between 1 July 2007 and 30 June If you do, an additional tax of 31.5% will apply for amounts over this limit (making a total tax of at least 46.5% on any excess). Non concessional super contributions After-tax or non-concessional contributions to super include personal savings and salary or wages on which you ve already paid income tax at your marginal rate. Non-concessional contributions are a common and effective way to build retirement savings. Many members nearing retirement cash in investments and use the proceeds to make a non-concessional contribution to super but you must plan your super contributions carefully or there could be tax consequences (see below). Sky s the limit, but only if you plan carefully Non-concessional contributions are subject to caps of $150,000 per financial year. Members under age 65 (at the start of the financial year) can bring forward two financial years of non-concessional contributions in one year. You can stagger them over a three year period but cannot exceed the $450,000 non-concessional limit. If you do, a penalty tax may apply. To avoid paying a tax of 46.5% on non-concessional contributions in excess of the limits, the trustee recommends that members seek advice from a licensed, and appropriately authorised, financial adviser. For more information about non-concessional contributions, contact the Plan Helpline on Super co-contributions If you re eligible and make a non-concessional contribution to super, the Government will match it with a super co-contribution. The co-contribution provides up to $1.50 for every after-tax dollar contributed to super, however a maximum co-contribution of $1,500 per annum for a $1,000 contribution applies. To be entitled to the maximum co-contribution, you must receive less than $30,342* of total income (includes assessable income and reportable fringe benefits), earn at least 10 per cent of your income as an employee, be under 71 at the end of the financial year in which you make the after tax contribution, be an Australian citizen or permanent resident and lodge a tax return for that financial year. A means test is used and the co-contribution is calculated on a sliding scale the more total income you have the less co-contribution you will get. A maximum co-contribution of $1,500 per annum is available to those with total income of $30,342 p.a. or less. The co-contribution then reduces by 5 cents for every dollar of total income above the minimum threshold of $30,342 and cuts out altogether at $60,342* p.a. of total income. It sounds a bit complicated, but it s actually quite simple! Make a non-concessional contribution to your super before the end of the financial year and, if you re eligible, the Government will automatically pay a super co-contribution into your account. To work out how much you could be eligible for based on your contributions, call the Plan Helpline on *2008/2009 Any Questions? If you have any questions regarding the information in this newsletter, or regarding the Alcoa Plan, you can: ff Log onto the Plan s website at and access the various Plan documents and information; or f f Phone the Helpline on If you would like advice that takes into account your specific financial situation, needs and objectives, you should contact a person or organisation that is licensed to provide personal advice, such as a licensed financial adviser. Issued by Alcoa of Australia Retirement Plan Pty Ltd ABN RSE Licence No. L as Trustee of the Alcoa of Australia Retirement Plan ABN RSE Registration No. R