Dow Australia Superannuation Fund Superannuation Changes November 2016
Disclaimer The information in this presentation is general information only. It is not personal advice. This presentation is not intended to and should not be taken as a recommendation of any investment options and it does not take into account your particular objectives, financial circumstances or needs. Before making any investment decisions regarding this information, you should read the Fund's Product Disclosure Statement or member booklet for your category membership, and also consider your objectives, financial situation and needs. You may also wish to consider obtaining professional advice before making your decision. Towers Watson Australia Pty Ltd, ABN 45 002 415 349, AFSL 229921
Agenda Dow Australia Superannuation Fund Investments including upcoming changes in 2017 Contributions and tax Legislative update superannuation and pensions 1 January 2017 Centrelink changes Action plan Questions
What do you think? When I retire. Social security will be much less generous than it is now? 70% of Australians agree The medical benefits provided by the government will be worse? 65% of Australians agree I will be much worse off than my parent s generation are/were in retirement? 70% of Australians agree Note: Percentage agree or strongly agree, not at all confident or not too confident Source: 2015/2016 Willis Towers Watson Global Benefits Attitudes Survey Sample: All full time employees
Fund Overview Dow contributes: 9.5% of Ordinary Time Earnings, plus 1% of your Fund Salary if you contribute an additional 2%, or 1.5% of your Fund Salary if you contribute an additional 3% Note: You will receive the same level of Company contributions regardless of which super fund you choose Your and the Company s additional contributions can be paid into a different fund to your 9.5% employer contribution Dow contributes an additional 1.2% of your super salary to the Fund to fund your Death and Total & Permanent Disability (TPD) insurance premiums This counts towards your concessional contribution cap
Insurance The Fund provides Employee members (not Retained or Spouse), including Insurance Only members (i.e. members who have exercised Choice of Fund), with a basic level of insurance cover for Death and TPD: 15% x future period to age 65 x Salary The basic insurance is added to the sum of your superannuation accounts when a Death or TPD benefit is paid You can also apply to top up your insurance cover: Additional voluntary insurance is purchased in units of cover, with each unit costing $5.00 per month Spouse members are eligible to purchase life insurance cover through the Fund, with each unit costing $3.00 per month
Fund s investment performance Investment Options 1 Jan 30 Sept 2016 5 Year Average (p.a.) 10 Year Average (p.a.)* Packaged: Assertive 5.4% 12.1% 5.4% Growth 5.6% 9.3% 4.9% Conservative 4.7% 6.4% 4.7% Asset Class: International Shares 4.6% 13.6% 5.4% Australian Shares 6.0% 10.2% 2.7% Property 6.2% 13.4% 3.9% Fixed Interest 4.6% 4.7% 5.7% Cash 1.1% 2.1% 2.9% * The Cash, Fixed Interest, Property, International Shares and Australian Shares options commenced on 1 January 2008 and therefore the return for these options is the average since this date. Note: The above figures are annualised returns as at 30 September 2016 and are net of tax, investment and account based administration fees, indirect costs and any allowance made for the build up of the Fund s Operational Risk Financial Requirement Reserve.
Investment markets Economic growth and inflation to be muted Domestic growth currently 3.3% pa Cash rates to remain low RBA has cut interest rates twice in 2016 Cash rate currently 1.50% pa Market volatility to persist BREXIT US Election Geo political risks
Historic asset class performance Year to 30 June 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Australian Shares 30.3-12.1-22.1 13.8 12.2-7.0 20.7 17.6 5.7 2.0 International Shares (unhedged) 7.8-21.3-16.3 5.2 2.7-0.5 33.1 20.4 25.2 0.4 International Shares (hedged) 21.4-15.7-26.6 11.5 22.3-2.1 21.3 21.9 8.5-2.7 Australian Property 25.9-36.3-42.3 20.4 5.8 11.0 24.2 11.1 20.3 24.6 Cash 6.4 7.4 5.5 3.9 5.0 4.7 3.3 2.7 2.6 2.2 Australian Fixed Interest 4.0 4.4 10.8 7.9 5.5 12.4 2.8 6.1 5.6 7 Diversified 18.2-11.0-14.4 11.1 9.6 1.7 17.3 14.2 9.8 4.7 Note: The returns detailed above are not the same as the Fund s asset class investment options. The Diversified Portfolio is a portfolio constructed from the returns of these market indices with the asset allocation of: 35% in Australian shares, 12.5% in international shares (unhedged), 12.5% in international shares (hedged), 25% in Australian fixed interest, 10% in Australian property securities, 5% in cash. Source: Vanguard.
Strategic Asset Allocation changes The investment industry believes we are facing a period of lower investment returns and increased volatility The Fund is changing the asset allocation of the packaged options with the aim of achieving smoother investment returns What s Changing? Increased allocation to international shares and reduction in Australian shares Further diversification through alternative risk premia: Special type of diversifying investment Introduce new return drivers Reduce reliance on shares to drive returns Reduced correlation with equity markets Lower cost than traditional hedge funds
Strategic Asset Allocation packaged options Conservative Growth Assertive 17% 10% 10% 28% 26% Current 44% 19% 21% 26% 50% 50% New 40% 15% 6% 14% 25% 25% 35% 12% 28% 70% 30% Note: 12 month transition period commencing 1 February 2017
Legislative update Pensions from 1 July 2017 $1.6 million balance transfer cap Will limit amount than can be transferred to a tax-free pension Excess benefits can be retained in accumulation or withdrawn Penalty taxes apply to excess amounts not withdrawn or retained in accumulation < $1.6 million transfer cap > $1.6 million transfer cap Income Capital Gains Income Capital Gains Zero A maximum of 15%, can be reduced by deductions and other offsets such as imputation credits 15% for assets held less than 12 months 10% for assets held more than 12 months
Pension Strategies Couple 1: Super = $2,000,000 Super = $200,000 Combined tax free pension = $1,800,000 Accumulation = $400,000 Couple 2: Super = $1,100,000 Super = $1,100,000 Combined tax free pension = $2,200,000 Accumulation = $0
Superannuation Concessional Contributions Concessional contributions include superannuation guarantee, employer funded insurance premiums and salary sacrifice contributions The superannuation guarantee (SG) requires employers to contribute 9.5% of employees ordinary time earnings (OTE) to superannuation The superannuation guarantee will increase to 12% by 2025/26 Effective date SG < 30 June 2021 9.5% 1 July 2021 10% 1 July 2022 10.5% 1 July 2023 11% 1 July 2024 11.5% 1 July 2025 12%
Superannuation Concessional Contributions Current Legislation From 1 July 2017 Concessional contribution cap ¹ Subject to the work test < age 50 $30,000 50 65 years $35,000 65 75 years¹ $25,000 The concessional cap will reduce to $25,000 per annum regardless of age from 1 July 2017 Concessional contributions taxed at 15% For individuals with assessable income in excess of $300,000 ($250,000 from 1 July 2017) concessional contributions taxed at 30% under Division 293. Assessable income includes your concessional contributions 85% of excess concessional contributions can be withdrawn and taxed at your marginal tax rate (less 15%)
Salary sacrifice Gross Salary $90,000 $90,000 $75,000 Salary $15,000 Super Less Tax ($22,731) ($17,422) ($2,250) Net Investment $57,578 $12,750 Net position $67,269 $70,328 This represents a $3,059 increase on current position The above figures assume no other income sources and include Medicare Levy
Salary sacrifice For each $1,000 salary sacrificed to superannuation within the concessional cap, the net benefit is $850 (net of 15% contribution tax) Compared to personal income taxed at marginal rates: Taxable Income Marginal Rate¹ Net Income Difference Required Return < $18,200 Nil $1,000 - $150-15.0% $18,201 - $37,000 21.0% $790 $60 7.6% $37,001 - $87,000 34.5% $655 $195 29.8% $87,001 - $180,000 39.0% $610 $240 39.3% $180,001 - $300,000 49.0% $510 $340 66.7% > $300,000 49.0% $510 $190 37.3% ¹ Rates quoted include Medicare and Budget Repair Levy. Budget Repair Levy ceases on 30 June 2017 Division 293 income threshold reduces to $250,000 from 1 July 2017
Superannuation Non-concessional Contributions Made on an after tax basis, contribution tax does not apply From 1 July 2017 the non-concessional cap will reduce to $100,000 per annum, with a two year bring forward of $300,000 available prior to age 65 Nonconcessional contribution cap < age 65 Current Legislation From 1 July 2017 $180,000 or $540,000 two year bring forward $100,000 or $300,000 two year bring forward 65 75 years¹ $180,000 $100,000 ¹ Subject to the work test Transitional arrangements apply to two year bring forward Non-concessional contributions not permitted once superannuation benefit exceeds $1.6 million Previously announced $500,000 lifetime cap will not proceed
Legislative update Low income tax offsets from 1 July 2017 Low Income Superannuation Tax Offset (LISTO) Will reduce tax on superannuation contributions for individuals with taxable income less than $37,000 per annum Annual cap of $500 ATO will determine eligibility and pay offset to superannuation fund directly Extension of low income spouse contribution tax offset Tax offset of 18% of contributions made by a contributing spouse, up to $540 Income thresholds will increase: Current From 1 July 2017 Lower threshold Upper threshold Lower threshold Upper threshold $10,800 $13,800 $37,000 $40,000
Government Co-contribution Provides an incentive for individuals to make after tax contributions to superannuation At least 10% of assessable income must be from employment and a tax return must be submitted The maximum annual Government Co-contribution is $500 based on a member contribution of $1,000 pa For 2016/17, entitlement decreases by 3.333 cents per $1 of income above $36,021 pa and ceases at income of $51,021 pa
Contribution splitting Enables 85% of concessional contributions, irrespective of their source, to be transferred to your spouse s superannuation account The 85% represents concessional contributions less 15% tax Split contributions count towards the contributing member s concessional cap, not the recipient spouse s concessional cap
Contribution splitting Implemented retrospectively for the previous financial year May result in a more equitable distribution of superannuation benefits, which will be beneficial if proposed $1.6 million transfer balance cap is legislated To be eligible, the receiving spouse must not have satisfied a superannuation condition of release Contribution Splitting Form is available from the Fund website Contribution splitting fee applies
Preservation Cannot access preserved benefits until you: Leave the company after age 60 Leave the company after your preservation age and the trustee is satisfied that you intend to permanently retire from the workforce Attain age 65 Born Preservation Age Before 1 July 1960 55 1 July 1960 and 30 June 1961 56 1 July 1961 and 30 June 1962 57 1 July 1962 and 30 June 1963 58 1 July 1963 and 30 June 1964 59 After 1 July 1964 60 Death, Total & Permanent Disablement or Terminal Illness Satisfy a condition on compassionate grounds or due to financial hardship
Legislative update Transition to Retirement Pensions The tax exemption applicable to investment earnings from assets supporting Transition to Retirement Pensions will be removed from 1 July 2017 Income Capital Gains Current Legislation From 1 July 2017 Tax-free A maximum of 15%, can be reduced by deductions and other offsets such as imputation credits 15% for assets held less than 12 months 10% for assets held more than 12 months May still be appropriate for some individuals to maintain transition to retirement pension post 1 July 2017 Appropriateness of a transition to retirement pension depends on individual circumstances
Centrelink Age Pension Eligibility age Date of Birth Male Female 1 July 1947 31 December 1948 65 years 64.5 years 1 January 1949 30 June 1952 65 years 65 years 1 July 1952 31 December 1953 65.5 years 1 January 1954 30 June 1955 66 years 1 July 1955 31 December 1956 66.5 years After 31 December 1956 67 years
Centrelink Age Pension Current Legislation as at 20 September 2016 Homeowners Lower threshold Upper Threshold Maximum Pension Single Couples Asset test $209,000 $793,750 $877.10 pf Income test $4,264 $49,873 ($22,804.60 pa) Asset test $296,500 $1,178,500 $661.20 each pf Income test $7,592 $76,357 ($34,382.40 pa combined) * Inclusive of Pension and Clean Energy Supplements Excludes family home, superannuation assets prior to attaining age pension eligibility age and up to $250 of employment income per fortnight Above the lower threshold, pension entitlement reduces: Asset test - $1.50 per fortnight per $1,000 of assessable assets Income test - $0.50 per fortnight for singles and $0.25 for each member of a couple, for each $1,000 of assessable income
Centrelink Age Pension From 1 January 2017 Increase of the lower asset test threshold for homeowners and non-homeowners Increase of the asset test taper from $1.50 per fortnight to $3.00 per fortnight per $1,000 of assets over the lower asset test threshold, resulting in a reduction in the upper asset test threshold for homeowners and non-homeowners Single Couples Lower Threshold Upper Threshold Current Proposed Current Proposed Homeowner $209,000 $250,000 $793,750 $542,500 Non-homeowner $360,500 $450,000 $945,250 $742,500 Homeowner $296,500 $375,000 $1,178,500 $816,000 Non-homeowner $448,000 $575,000 $1,330,000 $1,016,000
Centrelink Age Pension Asset test changes will increase entitlement for some individuals and decrease entitlement for many individuals Individuals who lose age pension entitlement due to the 1 January 2017 changes will be issued a Commonwealth Seniors Health Card To achieve ASFA Retirement Standard comfortable lifestyle: Singles need to save an additional $115,000 prior to retirement Couples need to save an additional $130,000 prior to retirement Salary sacrifice required prior to retirement to meet savings shortfall: Years from retirement Single Couple (each) Source: Colonial First State. 2 years $65,798 pa $37,190 pa 5 years $24,815 pa $14,024 pa 10 years $11,233 pa $6,346 pa
Are you on track? A comfortable retirement lifestyle: $43,062 pa for Singles $59,160 pa for Couples 19.2men 22.0women current life expectancy at age 65 42 % Australians intend to employees believe they have retirement resources to last 25 years Mean superannuation balance for 60-64 year olds $292,510 for men $138,154 for women 53 % individuals expect superannuation to be their main source of retirement income 71 % retire after age 65 with 23% intending to retire after age 70 Sources: Towers Watson Retirement Attitudes Survey, 2011; Australian Bureau of statistics (ABS) 2016; ASFA Retirement Standard June 2016; Australian Government Actuary, Australian Life Tables 2010-12.
Retirement illustration Your Annual Benefit Statement assists you in checking your progress towards your retirement goals This year it includes a personalised estimate of: how much super you may have at age 67, assuming you continue to contribute at your current level what annual income you might receive for 25 years, assuming you retire at age 67 and inclusive of age pension entitlement (assuming you have a partner and excluding other investment assets) Note: estimates are based on individual account information and a number of assumptions, which are prescribed by the regulator and are not guaranteed. As your own situation will likely be different, we encourage you to use the Fund s Retirement Planner to obtain an estimate that better reflects your own circumstances.
Your action plan Have you Reviewed your superannuation contribution strategy Pre and post 1 July 2017 salary sacrifice contributions Government Co-contribution Spouse contributions Contribution splitting Assessed the appropriateness of your current investment choice Considered whether your insurance cover is sufficient? Got a valid superannuation death benefit nomination, Will and Power of Attorney?
Questions More information on the Dow Australia Superannuation Fund can be found at http://mysuper.towerswatson.com/dow Dow Australia Superannuation Fund administrator Phone 1800 127 953 Willis Towers Watson Financial Planning Phone 03 9655 5421 Email carol.doloughan@willistowerswatson.com