Slides download from :www.ncba.com.au/downloads InvoCare Tweaking Your Super Nick Bruining CFP, B Com, Dip FP, CPL(H), FFPA, FAICD, APMESA Authorised Representative N.C. Bruining & Associates Pty Ltd AFSL 245514 Slides download from :www.ncba.com.au/downloads

WARNING The information provided in today is of a general nature only. It is not personal specific financial advice. You should not: Take any action Dispose of any investment or asset Purchase any investment or asset Rely on the information contained in this presentation without first seeking professional advice based on your own specific situation. The information may contain errors or omissions which could significantly impact your position. Single Blokes Head Spin Complicated System Educating you BG Nick Who ? DIY Planners Looking for a planner Keep existing one honest Based on 25 years Clients Millionaires Few Under $100K Majority between $100K - $500K Tricks and Tips Insight on how the industry Works

SUPER and account based pensions History Govt Large Corps 83 Age Pension 88 3% 92 ATO $1,800,000,000,000

What is super ? A series of rules which, if followed, Super and account based pensions What is super ? A series of rules which, if followed, provide relative tax and Centrelink benefits Rules set out in a Trust Deed Comply with the SIS Act (and others) Two Components The “Box” that holds the investments The underlying investments in the fund Trust Deeds Vary

Investments and how they “work” Dealing with relatively simple structures Extra Complexity usually means extra costs Extra Complexity often equals extra risk Your Super invests into these areas Deposits Cash, Term Deposits, Bonds Real Estate Residential Commercial Business Investments Direct Shares

Measuring Return The components Income - where a payment is received in the year Interest Sometimes expressed as yield Growth – where the value of the asset grows Gold Vacant Land + 1 Year, expressed as compound return Most investments combine both Property Shares Animated Screen

Deposits Online Accounts Cost Savings § Security Introductory Rates ∆ Getting the best deals www.canstar.com.au

Debentures Spread the risk Investments and how they work Debentures Loans from the general public Rates generally higher Much higher risk Need to understand where the money ends up Is the loss of every last cent of your money worth an extra percent or two? Spread the risk

Investments and how they work Bonds Loans to governments and corporations Primary and Secondary Markets More Bonds than shares More developed market in the US Determinants Coupon rate Prevailing Rates Duration Risk Demonstration

Investments and how they work Real Estate Direct Residential Larger Market – more customers On costs carried by owner Yield typically 3 – 5 % Commercial Smaller Market – fewer customers On costs passed onto tenants Longer term leases Yield typically 7 – 9 %

Pros Cons Real Estate Tangible Easily understood Set and forget Highly developed support industry Has shown good growth over time Cons Large Capital Outlay Concentration Risk Illiquid Inefficient Market Growth is not consistent

Investments and how they work

Business Investing/Shares Investments and how they work Business Investing/Shares What is a share? Pays out profits as dividends ∆ Value of share moves up and down with value of company Many, many influences Australian International Specific and Systemic Risk Managed through diversification Minimum 8 stocks in portfolio Franking Credits

Shares Pros Cons Small holdings possible Generally liquid Investments and how they work Shares Pros Small holdings possible Generally liquid Efficient market Cons Intangible Risks Efficient Market It IS a business with assets

Alternate Vehicles to invest Investments and how they work Alternate Vehicles to invest Trusts (or how your super invests your money) Significant Diversification But can have specialisation Trustee/Manager Open Ended ie: they issue more units Flow through of benefits § Active or Passive Management Costs of Trusts Retail Wholesale

Cost of Trusts / Managed Investments Investments and how they work Equally applies to superannuation funds Asset allocation, Fees, Then competence determines returns All transaction costs are immediately recoverable Trustee Fee 0.1% – 0.3% (Usually in Invest Mgt Fee) Investment Management fee 0.25 % (cash) – 2.5% per annum ∆ 1.8% Retail 1.0% Wholesale

Cost of Super / Managed Funds Investments and how they work Platform Fee Typically 0.3% - 1.5% (1.0%) ∆ Adviser Fee (can be inc above) Typically between 0.2% - 1.0% (0.55%) So what’s it costing ? Platform Cost 1.0% Investment Fee 0.8% Adviser fee 1.0% Total Cost 2.8% Australian Super ? ~ 1.2 % per annum

Investments and how they work Asset Allocation The amount you allocate to each investment sector Varies as your priorities and life expectancy changes

Investments and how they work Time Frame v Risks Short Term 0 – 2 years Cash & TDs Medium term 0 – 5 years Blend of deposits and growth Longer Term 5 years plus Growth, shares property

Look at the underlying asset allocations Investments and how they work Diversified Funds Look at the underlying asset allocations One person’s balanced is not another’s Strategic and Tactical Asset Allocations Strategic: Benchmark Tactical: Ability to deviate from benchmark Can shift your exposure dramatically

Aus Super abt 54 % Defensive, CFS 74% Defensive Aus Super 35% Growth, 26% Growth

The biggest mistake.... Markets Up? Markets down? Investments and how they work The biggest mistake.... Basing an investment decision on what’s just happened You must assess the current and future conditions not what’s happened. It may have an influence, but won’t define Markets Up? Inflow significant Markets down? Out it goes!

Tricks of reporting

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Tax explanations The two phases of operation Accumulation Pension Super and account based pensions Tax explanations The two phases of operation Accumulation Money goes in Money is Parked Earnings taxed at 15% Pension Money comes out Earnings tax - nil gearing

Putting Money In Age up to 65 Over 65-74 Over 75 No Breathing Super and account based pensions Putting Money In Contribution Rules Eligibility Age up to 65 Breathing Over 65-74 40 hours in a consecutive 30 day period Over 75 No

Someone’s getting a tax deduction Super and account based pensions Concessional Someone’s getting a tax deduction = 15% tax on contributions Compulsory 9.50%, Super Guarantee Salary Sacrifice Redirecting pre-tax to super eg.earning $70,000 pa Redirect $20,000 to super Boss calculates tax on $50,000 Not compulsory to be offered Beware of contributions under $18,200 July 1 14, goes to 9.5% 0.5% each year until 12 by July 19 300K plus 15% extra Taxable Income, Concesion Super, Adj FB, net inv loss, pensions less child support Be carefull when cont hits GESB Untaxed

No Tax deduction claimed = No Contributions tax Age Still Limits apply Non Concessional No Tax deduction claimed = No Contributions tax Age Still Limits apply

Contribution Caps Non Concessional $180,000 Super and account based pensions Contribution Caps Under 50 = $30,000 concessional # Over 50 = $35,000 concessional Excess returned less marginal tax rates Non Concessional $180,000 Bring forward 3 years if under 65

Other Contribution Incentives Super and account based pensions Other Contribution Incentives Co Contribution § $34,448 for each $1, max $500 Reducing at 3.33c per dollar $49,448 – must be non concessional Links up with Tax Return Spouse Offset 18% up to $3,000 = Reduces over $10,800 to $13,800

Super and account based pensions GETTING IT OUT Conditions of release Death TPD Severe Financial Hardship Reaching Preservation Age 55 if born before 1/7/1960 – Taxable Exempt – Exempt Lifetime $185,000 # 13 fortnighs on centrelink supprt Preservation 55 born before July 60 then increasing by 1 year per year After june 64 – 60

Super and account based pensions GETTING IT OUT (cor) 60 if job ceases - Exempt 65 if fund permits No compulsory cashing Transition to retirement Account Based Pension

Account Based Pensions Super and account based pensions Account Based Pensions Reverse of Super- What we do at retirement Frequency, what you want Take out rate + earnings determines how long it lasts. Tax Free on Earnings Tax Free if over 60 Tax under 60 Exempt/Taxable X Payment (at start date)

Super and account based pensions eg. $200,000 fund, $50,000 exempt Payment of $1,000 50/200 X $1,000 = $250 exempt 150/200 X $1,000 = $750 taxable But 15% tax credit

Must Take out minimum amount Super and account based pensions ABP Drawdown Must Take out minimum amount < 65 4% 65-74 5% 75-79 6% 80-84 7% 85-89 9% 90-94 11% 95 or more 14%

Transition to Retirement ABP Drawdown Transition to Retirement Max 10% of Account Balance Restriction relaxed on Condition Of Release Income from ABP effectively funds increased Salary Sacrifice to super. Pros Nil Tax on ABP’s Earnings Cons Requires you to draw-down ABP

Use Account Based Pension Under Centrelink Income test In Retirement How much do you need? Example John and Mary, both 65 Need $45,000 pa Have $260,000 in super, $7,000 savings $130,000 car and contents Use Account Based Pension $250,000 x 5% = $12,500 Under Centrelink Income test = $250,000/18.54 (life expectancy) = $13,484 deducted from actual payment received. $12,500 - $13,484 = NIL

How much do you need? Below $284 per fortnight allowed Income Test – Nil Asset test, Under threshold of $284,000 ? ABP = $250,000 + Money in the Bank $7,000 + Car and Contents $20,000 (Use Scrap value Not replacement) Total Centrelink Assets $277,000 Asset Test - Nil Full Pension of $33,035.60 per annum Add ABP Payment of $12,500 per annum Total = $1,751.37 pfn or $45,535 pa & No tax! ($55,940) Or same as $1,138,375 @ 4%