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June 2007 |
In this issue: |
Hello and welcome to another edition of CommonCents, the KFG Wealth Management quarterly client e-newsletter.
For those new clients who have joined us since our last edition, welcome on board and we hope that you find some value in this communication. The purpose of CommonCents is to keep you updated with events that impact our financial world, plus offer you an array of articles that you may find of interest.
In our last edition of CommonCents, I mentioned how we were about to move into the ‘Super’ silly season, where superannuation planning seems to take precedent of all other forms of financial planning.
In the last month or so KFG has hosted a number of public seminars and client briefings focused around de-bunking the complexity of superannuation and in particular, concentrating on the opportunities leading up to the end of our financial year on 30 June.
As we suspected, the interest and attendance at these events was extremely high, reinforcing to us the confusion that is still in the market place over superannuation. Of course this is understandable when the rules seem to change every year and when legislative changes can create uncertainty for many people around the critical pre-retirement period.
Over many years of dealing with superannuation changes and communicating the benefits of retirement planning to thousands of Australians, we have found that we it is important to break down the importance of superannuation and the advantages in using super into bite-size, simple language that we all can understand. A clearer understanding of super allows us comfort in the knowledge that moving goal posts will not trap us!
But now, just to whet your appetite, here are the five ‘Super’ tips we covered during our sessions:
Tip # 1 – Mind your own business…and start now!
Tip # 2 – Will the real Super, please stand up!
Tip # 3 – How much? – As much as you can
Tip # 4 – Is your salary working hard enough?
Tip # 5 – Everything else!!!!
The full session presentations are available on our website, so if you were unable to attend any of the seminars, please feel free to log onto www.kfg.com.au and read more about what we have called the most significant changes in superannuation, perhaps ever. Of course, you can also contact one of the KFG planners who will be more than happy to run through the information with you
As always, please don’t hesitate to call our office on (08) 8415 2700 and speak with any of the KFG team if you would like to discuss superannuation or any other aspect of your financial affairs. Enjoy CommonCents!
Scott Kirkwood
Managing Director
2007 Budget Update
Changes in the tax rates as of 1st July 2007 means that you should now find more money in your bank account. But what else changed that you might not have seen yet? Here is a quick run-down of some of the changes.
Personal Tax
As well as the personal tax rates changing for “working” Australians, they also changed for those taxpayers who are “Senior Australians”.
This means that the amount of income that a Senior Australians Tax Offset (SATO) recipient can receive without paying tax has increased. From 1 July 2007 a single person receiving SATO can earn $25,867 before paying tax, and don’t forget that income from a retirement income stream is now tax-free too!
Personal Income Tax Returns
From the 2007/08 income year, the Australian Taxation Office (ATO) will be able to pre-populate electronic individual income tax returns.
This means that if you prepare your tax return electronically on the ATO website, some of the information you may require will populate into the return for the current year. For example, if your employer lodged your payment summary details electronically with the ATO, those details will already be in your tax return when you come to prepare it. Also, the ATO will enter the deduction amounts from the previous year for taxpayers who have claimed small deductions in the previous year.
Superannuation
The Government announced as part of Budget 2007 that an additional one-off co-contribution into superannuation would be made to people who were eligible to receive the co-contribution in the 2005/06 income year.
For example, if you received a co-contribution of $1500 for the 2005/06 year then you will now receive an extra $1500 into your super account. No further action is required of you if you are eligible for this bonus payment, as the ATO will calculate this amount and pay it to your superannuation fund automatically.
Improving Child Care
Childcare incentives come in two forms: the child care benefit and the child care rebate.
The government has announced that they intend to increase the level of assistance provided by these measures and improve the way they are administered. More details of the changes to childcare payments can be found in “A Guide to the 2007 Federal Budget” which is in the Articles of Interest section of our website.
A number of Centrelink payments and rules have also changed as a result of the 2007 Federal Budget, and KFG’s Karen Haskard tells you more about that below.
2007 Centrelink Update
There have been a number of changes announced to the social security rules and these will take effect from 20th September 2007. Karen Haskard, KFG financial planner, writes:
The key changes to social security are:
- Complying income stream will no longer be exempt from the assets test.
- The thresholds for the assets test have increased.
- Seniors Bonus payment to be paid this year.
Let’s have a look at these in more detail:
Complying Income Streams – losing the exemption:
Certain income streams (i.e. Term Allocated pension, lifetime pension, annuities) have been classed as complying income streams and they have been allowed to be fully of partially exempt from counting towards a client’s asset test assessment.
The amount of exemption allowed depended on when you purchased the income stream, as outlined in the following table:
‘Complying’ income streams Commenced: |
Ongoing Assets Test Exemption |
Before 20 September 2004 |
100% |
Between 20 September 2004 and 19 September 2007 |
50% |
If you already have a complying income stream in place you will be able to retain your current assets test exemption.
However, if you purchase a complying income stream after 20th September 2007 you will not be eligible for any assets test exemption and your income stream will be fully assessed by Centrelink. You may find that you will not qualify for any Centrelink benefits and you may only qualify for a significantly reduced level of Centrelink benefits.
To make the most of the current social security rules you will need to purchase a complying income stream prior to 20th September 2007. You will then be eligible for a 50% assets exemption for your income stream, which may lead to increase Centrelink pension benefits.
Before purchasing a complying income stream you need to make sure that it will suit your overall needs. Complying income streams are less flexible than other pension or income stream products. They generally pay a set level of income for a fixed term and lump sum withdrawals are only allowed in very limited circumstances.
Thresholds for the assets test have increased:
From 20th September 2007 the Assets Test taper rate will be halved from $3.00 to $1.50 per fortnight for each $1,000 in assets over the relevant limit. Certain assets such as a family home are fully exempt from being assessed under the assets test.
The table below compares the assets homeowners can hold before Age Pension benefits will cut out – before and after 20 September 2007:
Before 20 Sept 2007 |
From 20 Sept 2007 |
|
Single Homeowner |
$338,500 |
$515,000 |
Couple Homeowner |
$523,500 |
$818,000 |
If, prior to 20 Sept 2007, you had assets over the current assets test limit and where ineligible for Centrelink benefits you may now be eligible for benefits from 20 September 2007. You will need to re-apply to Centrelink to be reassessed for any eligibility.
Should you be currently receiving a part pension the increased assets test threshold may mean that you are eligible for an increased Centrelink pension.
Senior Bonus Payment
In this year's budget it was announced that a Senior Bonus Payment will be paid.
Most people who are of Age Pension age or, for veterans, of Service Pension age will receive a one-off tax-free payment of $500 before July this year.
You must be qualified as at 8 May 2007 to receive either the Utilities Allowance or Seniors Concession Allowance (which is paid to persons holding a Commonwealth Seniors Health Care Card or DVA Gold Card). It will also be paid to people not of pension age who receive Widow Allowance, Partner Allowance or Mature Age Allowance as at 8 May 2007.
For further information, or if you have any queries, please contact your KFG financial planner on (08) 8415 2700.
(Source: "Making the most of the new super rules – making the most of social security" – MLC Limited, Dec 2006)
Reverse Mortgages
A reverse mortgage allows you to access the equity in your home via a loan secured by your home. You can usually choose to receive either a lump sum, a series of regular payments from the loan, or a combination of both.
But how do they actually work? Who can utilise them? Are there any pitfalls? Debt Solutions Manager, Sofie Standfort and Harry Baumeister of KFG Wealth Management take a look:
Sofie Standfort, KFG’s Debt Solutions* Manager says:
“Did you know that only 17% of retirees have enough private income that is greater than or equal to the government pension?
These same people will have run down their funds in their superannuation substantially by the time they reach the age where they need age care.
Reverse mortgages are becoming a very common means for retirees to be able to afford the lifestyle they are used to without selling their homes. You can use the equity in your home to pay for a holiday, medical expenses, supplement income or give to the kids.
A reverse mortgage does not require repayments and you can capitalise the interest above your borrowing limit. The bank will only require the debt to be paid when the property is sold or when a person passes away. It is recommended that you talk with the beneficiaries of your estate before going ahead with applying for this loan.”
Harry Baumeister, with 28 years in the banking sector and Senior Financial Planner at KFG says:
“In retirement, a reverse mortgage used in a common sense way can be a very powerful tool to supplement your income, but people need to be careful.
Early mistakes in the UK should not happen in Australia. Reverse mortgages started much later in Australia, and we are heavily regulated in Australia. In the UK (early 1980’s), reverse mortgages were mis-used and people were evicted from their homes. Or, when they got older, they had no equity left in their home to pay for aged care facilities.
From a Centrelink perspective, by receiving a regular monthly amount, to supplement your pension income, plus any other income you may have (e.g. Allocated Pension), can be very beneficial. Your reverse mortgage income is not counted as income. If however you draw down a lump sum, and put this into a bank account, term deposit or buy shares, then your income will be deemed, and asset assessed."
If you want to know more about reverse mortgages, click here – but most importantly, seek the advice of a Financial Planner accredited in reverse mortgages when looking at your personal circumstances and certainly before taking one out!
Last month KFG conducted seminars on superannuation. KFG’s CEO, Scott Kirkwood, presented the 5 key tips for looking at your super situation. Click here to view KFG’s 5 ‘Super’ tips.
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Liz Scholz is one of KFG’s stalwarts and is well known to many of our clients. This month, we put Liz under the spotlight and she tells us a little more about herself. |
CC: How long have you been in the financial services industry?
LS: That’s a bit like asking a woman how old she is, as it gives her age away…24 years.
CC: How did you get into financial planning?
LS: My journey began with AMP as a junior and I worked my way through to a management position. Then due to AMP centralising interstate, I decided to take a break and pursue some of my own personal goals and dreams helping and supporting others in the community. But five years on, earning a living became a necessity. I remembered Scott Kirkwood who was a friend with whom I had lost contact in recent years. Knowing he was running his own wealth management business I approached him about joining his team – and the rest is history. I haven’t looked back.
CC: What do you like most about being in the financial planning business?
LS: Working for KFG has simply been an extension of my passion to help others, whether it is staff or clients…only now I get paid to do it. Bonus!
CC: What types of people do you think benefit from seeing a financial planner?
LS: As Harry said in Spotlight last month, all types of people can benefit from seeing a Financial Planner. I often hear people say, “But I don’t have much money…” and they therefore don’t seek advice from a Financial Planner and get started on the journey. Of course this is a real misconception. The truth is, getting started on the journey is what makes all the difference as to how you will arrive at your destination.
CC: Tell us about your worst moment in financial planning?
LS: I have to agree with Harry (in our last issue of CommonCents) on this one – October 1987’s stock market crash. As manager of the AMP Customer Service area, having to deal with understandably distressed and angry clients who had suddenly lost money in the crash. Especially those retirees who hadn’t much time to recover their losses…it was terrible.
CC: And your favourite moment?
LS: The great experiences in being part of great team whose drive and passion is to help people achieve their financial dreams and goals. It’s a great feeling when you had been involved in the early stages of implementing a client’s portfolio and years down the track you get to see what a difference and impact that has made to their financial situation. It’s a wonderful feeling to be a part of that journey.
CC: What do you do when you're not working at KFG?
Bush walks, walking the dog, gardening, reading, holidays overseas and experiencing other cultures, family and friends.
CC: What do you think is the biggest challenge facing people today regarding their finances?
LS: Many people have a “when I…then I’ll…” attitude. For example, people will say, “When we’ve saved and bought our first home then I’ll see a Financial Planner.”
The next thing you know, the kids have come along, and then it’s, “When we are back on two incomes again then I’ll see a financial planner.” Before you know it, the kids have all grown up, left home and retirement is just around the corner.
Sadly, this is when people suddenly think, “Do I have enough money to retire on?” For many it is now too late and if simple steps had been put in place earlier on, they could have been enjoying their retirement years in comfort – doing the things they had hoped to be doing instead of it still only being a dream.
The Investment Review & Outlook for 2007 is available by clicking here.
The Australian economy
Despite record low levels of unemployment, the Wage Price Index for the March quarter showed lower than expected wage growth at 1.0% for the quarter. Following the data, the Reserve Bank of Australia elected to keep the official cash rate unchanged at 6.25% at its June meeting…read more.
Australian shares
The All Ords Index closed May at 6341.79, up 3.0% on April, driven by strengthening global markets and an improved global growth outlook…read more.
The global economy
Stronger economic data is flowing out of the US, with the housing market showing signs of improvement and strengthening payroll data. However, US inflation is showing\no signs of decreasing, with the latest data showing core inflation of 2.4% annualised….read more.
International shares
Global markets performed well during the month on the back of widespread strong economic data…read more.
Whether it is just for a quick chat or to make an appointment, you can contact us by telephone: (08) 8415 2700, fax: (08) 8415 2701 or on e-mail: infowm@bernielewis.com.au.
Even better, drop in and see us at Level 6, 13 Grenfell Street, Adelaide. We really do have great coffee!