Category Archives: Ciara’s Updates

Are your ducks in a row or will it be the usual New Year’s resolution?

Should your resolution to get your finances in order really wait until the New Year?

If you’re anything like me, you love a good schedule. If it’s not in the calendar, it’s generally not happening!

One common trap we find ourselves in as we start to head towards Christmas is the ‘I have scheduled this for early next year’ trap. There is no real reason things have to wait until 2024, it’s simply the fact that next year is now ‘just around the corner’ and it takes a little pressure off not to have to worry about something until then.

Aside from the fact that our best intentions to get onto something early next year often go awry when we find ourselves unexpectedly busy in January and then start to think, ‘I will get on to this before the end of the financial year’, there are a few big reasons that waiting to do a little thing can turn into a big thing.

If you are considering applying for Centrelink benefits

  • Applications for Disability Support Pension and Age Pension can take six months or longer based on the current backlog at Services Australia.
  • You may be entitled to backpay if it takes a significant amount of time to process your application, but this will only be the case if you have submitted all the required documents.

If you are considering taking out Income Protection, Life Cover, Trauma or Total Permanent Disablement Insurance

  • Insurers can and do increase their premium rates.
  • If you have a birthday in the new year the first year’s premium will be more expensive.
  • There could be a change in your health circumstances. Sadly, accidents are far more common in holiday season.

If you are considering changing your super or ordinary investments

  • Unfortunately, I have noticed many investments that have recorded a negative return or a return of under 1% this year. Of course, the sooner changes are made the more growth potential there is. If a super rollover is needed, that can take several weeks.

If you are considering contributing to super or starting a new investment

  • If you are intending to make regular tax-deductible contributions to super,  such as salary sacrifice, the sooner you start the lower your tax bill will be by year end.
  • If you are keen to invest, your excess money will not be working for you sitting in the bank for the next couple of months.

If you are considering retirement

  • This one is simple. The sooner you start planning the sooner you can retire!

I could go on about how much interest you end up paying when you delay reviewing your loans, how postponing setting up Wills and Powers of Attorney can lead to complexities for families, and how much money you can save just by looking at all of your policies closely – but you get my point. The sooner, the better!

I have decided that 2024 will kick off on the right foot if I get all my ducks in a row before the end of the year.

What’s on your list of things to do?

Ciara

The Budget – No Surprises Here?

Australians watched with great anticipation as Treasurer Jim Chalmers stood centre stage to deliver the Federal Budget this week.

The Treasurer acknowledged our pressing concerns ‘inflation is driving interest rate rises and eroding real wages’ and admitted to the elephant in the room. The reality is these uncertain economic times are not expected to pass us by anytime soon.

Mr Chalmers confirmed that the next two years will be the weakest for global growth in over two decades. Whether we are using the words ‘Global Financial Crisis’ or ‘recession’ makes little difference when we many of us are facing financial pressures we have never experienced.

With economic growth expected to fall from 3.25% to 1.5% next year, there has never been a better time to, as the Treasurer puts it, ‘deliver for those most in need’.

Social Security and Healthcare

Under the Cost of Living Package, households who are receiving social security benefits, including Age Pension, Disability Support Pension and Family Tax Benefits will receive $400 off electricity bills, with eligible small businesses benefiting from a $650 decrease to their bill.

There will be a $40 payment increase per fortnight for recipients of Job Seeker, Austudy and Youth Allowance. Recipients aged 55 and over on Job Seeker will be entitled to increased benefits, which were previously only available after age 60.

$2.2 billion will be invested in increasing access to medicines under the Pharmaceutical Benefits Scheme.

Eight more urgent care facilities will be built to improve access to medical care for those in remote areas and growing suburbs. Additional funding will be provided to extend the provision of essential services at pharmacies, including increasing access to vaccinations.

The Medicare bulk billing incentive will be tripled to encourage medical practitioners to provide bulk billed services to vulnerable patients, such as pensioners and those with a disability.

Accommodation

To reduce the impact of the rental crisis, the maximum rate of Rent Assistance will be increased by 15% and 1 million homes will be built over five years from 2024 under the $10 billion Housing Australian Future Fund.

National Disability Insurance Scheme and Aged Care

$36 billion in funding will be directed towards Aged Care initiatives in 2023/24, including increasing award wages for 250,000 Aged Care workers by 15% and increasing access to Home Care Packages.

States and Territories will cooperate with the Federal Government to ensure that NDIS is sustainable and serving its purpose to support those who need it most.

Superannuation and Pension

Employers are currently required to pay super guarantee contributions for their employees on a quarterly basis. The Budget proposes that this be changed so that compulsory super contributions are paid when the employee receives their usual pay, whether that be weekly, fortnightly, or monthly. The rate will continue to increase in 0.5% instalments until it reaches 12% on 1 July 2025.

There has been no announcement regarding extending the Covid minimum pension payment provisions, which have recently allowed those in receipt of Transition to Retirement and Account Based Pensions to half their pension payments.

This indicates that those on the minimum pension payment will be required to return to the standard minimum based on their age, as of 30 June 2023.

Taxation

There has been no announcement on any changes to the previously proposed Stage 3 personal income tax reductions, therefore it is expected that the current 32% Marginal Tax Rate bracket will reduce to 30% and apply to those earning up to $200,000 from the 2024/25 financial year. The Medicare Levy Exemption threshold will also increase as planned next year.

The Low to Middle Income Tax Offset offered last financial year has not been extended.

How the Budget initiatives will be funded

Currently superannuation held in accumulation phase is taxed at 15%. The Government proposes that those with a balance of over $3 million will be taxed an additional 15% on any funds over that amount from 1 July 2025.

Tax will be raised by 5% on tobacco products for the next three years and tax compliance programs will be extended to ensure that over due tax obligations are recouped.

A minimum global and domestic tax of 15% will be imposed on large multinational companies.

The Conclusion

I have heard and read the same statement many times since the 9th of May Budget. ‘There are no surprises’.

I agree, the Budget gave us no major surprises. It confirmed that yes, times are tough, but we do have a way forward. That way forward will become obvious over time as we start to see economic growth increase and inflation decrease slowly. This will be assisted by a significant Government investment in education and training, renewable energy and digital technology, to name a few.

We can feel a sense of security that our banking system has remained comparatively strong and stable, following recent turmoil in the sector in the United States. We are told that we can expect wage growth and continued low unemployment rates and it appears that we may look forward to lower debt under the Labor government.

As always, it is difficult to cover all the information contained in the various Budget Papers in one short article, but what we are seeing is largely positive.

If you have questions on how the Budget announcements will impact on you and your family, give us a call on 08 6245 9245.

Ciara

 

 

The Hidden Value of Financial Advice

The last few months have come and gone so fast. I can’t believe we are heading towards Christmas!

This quarter we have discovered benefits for our clients in unusual places and provided value in uncommon ways.

Sarah’s Story

Sarah is a Bank Teller who came to us because she was in a car accident that left her unable to walk.

As I am sure you know, the share market has been incredibly volatile, so she also needed some help with her investment portfolio.

We began a Centrelink assessment and encouraged her to consider her Estate Planning needs such as Powers of Attorney.

Then an unusual thing happened when we reviewed her superannuation.

The Life and Total Permanent Disablement Cover in Sarah’s super policy expires at age 65 according to the terms and conditions in the Product Disclosure Statement. Sarah is now 68 years old, and her super fund has continued to deduct premiums from her balance for the last three years, while clearly acknowledging in her super statement that she has no insurance at all.

Needless to say, we are currently working with the super policy to get Sarah a refund.

Tom’s Story

Tom had a successful Total Permanent Disablement claim paid to his superannuation policy in 2020, because his progressive neurological condition has significantly reduced his capacity to work. The super and insurance benefits were then rolled over to a new super fund, with the plan of starting a pension in future years.

Upon review of the Rollover Benefit Statement from the original super policy, we found that the super and insurance monies had been classed as ‘preserved’. As super must be classed as ‘unrestricted, non-preserved’ to be accessed, this would mean that despite having had a successful Total Permanent Disablement claim in 2020, Tom would not have been able to access his super under the new policy until he turned 60 years old, which is another five years away.

We contacted the original super fund and requested that they fix the error on the original Rollover Benefit Statement and send a revised copy to the new super provider.

Tom will now be able to draw a pension from his new super account when he needs it.

Feel free to get in touch before the Christmas break if you think it’s time for a review of all things financial. Who knows what extra value we can dig up with just a few more weeks of hard work remaining for the year.

The weather is amazing, and the beach will soon be calling my name.

If I don’t speak to you before the New Year – all the best to you and yours!

Ciara

The Budget – You deserve answers

I hope I can be forgiven for being a little late off the mark with my review of the Budget this time around. I must not be the only one feeling a little flat after the announcement last night.

Treasurer Jim Chalmers got my attention by immediately calling out the cold hard truth ‘Australians have been resolute and resilient in hard times’.

We have had no choice but to tighten our belts in response to being hit with ongoing cost of living pressures and interest hikes. To be honest, I feel it is little help being told to prepare for the possibility of another global recession.

When we learn that real wages are lower now than they were ten years ago and we have in front of us rising electricity bills, expensive fuel and groceries and waning market sentiment, we don’t need anybody to state the obvious, what we need are answers.

So, I did my best to find them.

Wages

Problem: Wages are not keeping up with inflation, so many are struggling to pay their bills.

Answer: Our new government will ensure a pay rise for 2.7 million minimum wage earners.

There will be increased Child Care Subsidies and 26 weeks of paid Parental Leave offered by 2026.

The cost of medication will decrease with the general patient co-payment on the Pharmaceutical Benefits Scheme reducing from $42.50 to $30.00 from 1 January 2023.

Housing

Problem: Our rental supply is not keeping up with demand and there is a waiting list for social housing.

Answer: The Housing Accord will be established between state and territory governments, along with the construction industry. This will deliver 1,000,000 new homes by mid-2029.

The Government will supply another 10,000 affordable dwellings, with states and territories to provide up to another 10,000.

Unemployment

Problem: The unemployment rate is forecast to increase to 4.5% by June 2024.

Answer: $1 billion will be invested in free TAFE courses, in addition to $770 million to be invested in schools and training for teachers. Further initiatives will be funded to ensure increased University positions are available to financially disadvantaged students.

‘Sustainable, well paid jobs’ will be created through the $15 billion National Reconstruction Fund, focusing on clean energy manufacturing, new technologies, agriculture and critical minerals.

Climate Change

Problem: More focus needs to be given to the energy crisis.

Answer: The Treasurer announced that a further $20 billion will be allocated to climate change initiatives, including building electric vehicle charging stations on our freeways, investing in wind farms and clean renewable energy.

This is expected to create ‘thousands of jobs’ across Australia.

Aged Care

Problem: Aged Care funding is complex and home care provider fees lack transparency, which can lead to care recipients paying costs they were not aware of or did not understand.

Additionally, there is a long way to go to improve the quality of care, based on the Royal Commission findings.

Answer: The government will have the power to cap administration and management fees charged by Aged Care providers. Exit fees will now be prohibited from being charged when a recipient ceases care.

There will also be further strengthening of regulation, including enforced improvements to nursing, food, and facilities, along with greater whistle-blower protections.

The National Disability Insurance Scheme (NDIS)

Problem: The National Disability Insurance Scheme has led to a backlog of submissions to the Administrative Appeals Tribunal (AAT), with disabled persons and their families often disputing funding decisions.

Answer: The Government will provide additional funding, including $18.1 million over two years to review the NDIS design, operations, and sustainability. An additional $12.4 million will be invested to provide better and earlier outcomes for NDIS participants.

Centrelink/DVA and Part Time Work

Problem: Older Australians who would like to work on a part time or casual basis have limited ability to do so without it impacting on their Centrelink Age Pension entitlements.

Answer: Age Pension or DVA recipients can currently earn up to $300 per fortnight in employment income before their benefits are reduced. The income limit will now effectively be increased to $454 per fortnight this financial year.

Centrelink and Downsizing your Home

Problem: Australians on Centrelink benefits who would like to sell their home to downsize are hesitant to do so, because holding the cash in the bank for an extended period while looking for a new property can affect their entitlements.

Answer: Proceeds from the sale of the family home will not be asset tested for two years if proceeds are to be used to buy, rebuild or renovate a new home. This is an extension on the current one-year exemption.

Now I have gone through all of that, my spirits have been lifted.

The Treasurer made no real comment on tax, so there is no expected change to the Stage 3 tax cuts due to take affect from July 2024. There was also very little discussion on superannuation, other than to confirm the previously announced downsizer contribution changes.

Annual inflation is expected to peak at 7.75% in late 2022 before slowly moderating back to RBA targets. Economic growth is forecast to slow to 1.5% in 2023/24.

Knowing this, we can be thankful that superannuation is proving to be a largely predictable investment, with no planned changes to super tax or contribution rules in sight.

We can also breathe a big sigh of relief that the new Government’s ‘solid and sensible’ measures to manage debt don’t include immediate tax hikes.

I know talking Politics is frowned upon but I do believe the assertion that Labor is a modern Government that seems to be in touch with the best interests of the next generation.

I have hope that this will serve us well as we continue to navigate these uncertain times.

Ethical Investing – What’s ethical about it?

There is nothing I value more than honesty and transparency, so let’s be honest about the financial planning world. Like many other industries it is not immune to fads. The next ‘in’ thing, the whole ‘I want what he’s having’ feeling.

Some years back Self Managed Super Funds were that thing. I am not saying that I don’t recommend SMSFs, but they are designed for the right people at the right time. Setting up a Fund is not a good idea because your neighbour has one!

Looking back (and showing my age) agriculture was the thing. People flocked to invest in trees, many not having the faintest idea of the various risks involved. You might not want to hear the horror stories I have heard from that time!

So now all the hype seems to be around cryptocurrency and ethical investing. I am going to leave the Bitcoin conversation for another day and focus on ethical investments.

The Fine Print

This will not surprise my clients, but I do buy into the theory of investing ethically, yet I strongly encourage you to read the fine print.

I spoke to a gentleman yesterday from a high-end software company. Their software is essentially designed to tell you whether the ‘ethical’ investment you are considering is indeed ethical, using a sophisticated scoring system.

The process starts with understanding what ethical means to you. This is a conversation I have been having with my clients for years.

We work to find your purpose, the thing that drives you to invest ethically. Do you disagree with companies that invest in gambling, smoking or drinking? Are you concerned about the impact coal mining has on the environment? Do you want to be involved in businesses that are championing diversity and inclusion?

Once you have found your key motivating factors, it is time to see what investments are out there that will help you to feel as though you are investing to become part of the solution, not the problem.

Green Washing

The wild card that we are then forced to deal with is ‘green washing’. This is where the naming conventions used by investment managers are false or misleading.

This week the Australian Competition and Consumer Commission (ACCC) announced that they are actively targeting businesses that ‘undermine consumer trust and confidence in the market, by falsely promoting environmental or green credentials to capitalise on consumer preferences’. The ACCC are calling for reliable scientific reports and clear third-party evidence to prove that products that claim to be sustainable are. This will better protect the businesses that are investing millions into innovation in this space, as well as the consumers who are buying into these products.

The Next Step

So, you have found your reason to invest ethically, you have found a fund manager that is not distorting their green credentials and you are ready to invest.

Now it’s time to consider investment performance in this volatile market. If your ethical preferences are too restrictive, you may have to forgo returns in your quest to make a difference.

As you can see, ethical investing is not a short discussion, but it’s a worthwhile one to have.

The Quarter in Review

Many of you have now been to our new offices on Hood Street or enjoyed a coffee with us at our local haunts Honey Beanz or Lot Six Zero.

Having spent a good part of the last 20 years in the financial advice world, it is wonderful to be able share the excitement of Beachton Wealth with you. Ours is a business that was created with the sole intention of helping people retire with confidence.

Those who know me well, know how passionate I am about early retirement planning for disabled clients. It is also more than likely that you have heard the story about the first client interaction that made me realise this was my future.

The client’s question was simple ‘Can we afford to retire and travel around Australia in a caravan’ my answer was just as simple – ‘Yes’. That is all advice really comes down to at the end of the day.

Can you say with certainty that your goals are achievable? If you can’t, why not find out?

Aside from putting up furniture, connecting NBN and new phones and generally running around like headless chooks for the first month of the big transition, here are a few things we have achieved.

• Comprehensively reviewed Mark and Jill’s insurance policies and saved them over $30,000 per year including super and non-super costs. Established an investment account for them to deposit their non super savings, which were approximately $24,000.

• Applied strategic planning to minimise income tax and Capital Gains Tax implications to save Jo around $15,500 this financial year.

• Processed super strategies for Tara and James, which will increase their Centrelink entitlements by around $56,000 in total over the next three years.

We have established pension accounts, annuities, and funeral bonds. We have had Wills reviewed and tax returns analysed, contended with changing RBA rates and volatile economic conditions. – it has been busy and exciting, and we wouldn’t have it any other way!

Stay tuned for our thoughts on how the change of Government could impact on your retirement plan.

The Budget – An Incentive to Prepare

The night of the Budget is a big event for me.

I admit that while I will readily accept the term ‘nerd’ as a compliment, I am not typically someone who hangs around waiting for the next finance report on ABC. Of course, I get inundated with updates and debriefs on all things financial every day, so if I turn the TV on, I prefer mindless entertainment. I won’t go into specifics for fear of judgement!

The Budget is an exception.

I turn the news on as soon as I can and hang on the Treasurer’s every word, while I am doing the most important part of my job – learning how the Government announcements will affect my clients.

Pensions
Firstly, let’s talk about pension accounts.

The 50% reduction in legislated minimum pension payments has been extended to 30 June 2023. The need for this initiative to run over four financial years is clear, as we combat the increased level of market volatility caused by Covid 19. International asset classes have also suffered through the impact of the war in Ukraine, while locally we have experienced floods, draughts, and bushfires. It is unlikely that economic conditions will settle in the foreseeable future.

This reduction allows individuals aged between 65 and 74 to reduce or retain their pension payments at a low 2.5% per year. If you don’t need additional income to support your living expenses, the major benefit is the reduced requirement to sell down assets within your pension account, allowing your portfolio to spend more time in ‘recovery mode’.

Additionally, if you run a Self Managed Super Fund (SMSF) and have Members in both Accumulation (Super) and Pension, it can help to maximise the balance of your Fund held in retirement phase, where earnings are not taxable. It can also save brokerage costs, if you happen to be drawing pension income from a share portfolio within your SMSF.

Social Security
If you are drawing a super pension, you may also be receiving Centrelink or Department of Veterans’ Affairs benefits.

If you are the recipient of Age Pension, DVA Pension, Carers Allowance, Disability Support Pension, or a number of other Service Australia payments, you will benefit from a one-off Cost of Living payment of $250 in April 2022.

If you have a Commonwealth Seniors Health Card, Veterans Gold Card or Pensioners Concession Card, you are also eligible.

$250 will not do much to cover the family essentials, but everything helps!

Taxation
Along with the social security benefits, the government has announced that the Low and Middle Income Tax Offset (LIMITO) will increase.

A $420 ‘Cost of Living Tax Offset’ will be added for individuals falling within the income range of $48,000 and $126,000 per year. This will effectively increase the LIMITO to $1,500 per eligible individual this financial year.

The benefit will be payable when you complete your tax return for the 2021/22 financial year. Sadly, there has been no announcement on extending the LIMITO initiative passed this financial year.

The Medicare levy has also been increased by the Consumer Price Index. Given that revenue from the levy covers only 10% of the cost of health care in Australia, this is to be expected. The good news is, the Medicare levy income threshold has been increased, with the family threshold for seniors and pensioners at $51,401.

Superannuation
This time around there was very little news on the super side of things, aside from the removal of the $450 per month income threshold for Superannuation Guarantee eligibility; so we’ll spend some time revisiting last year’s Budget announcements.

In 2021 Frydenberg announced the potential removal of the work test for individuals aged 67 to 74. This would allow members to make voluntary post tax contributions to super without requiring them to be working 40 hours or more over a 30-day period.

If an individual contributed between those ages whilst they were retired, and no other special circumstances applied, they would risk breaching super rules. If the individual chose to leave that contribution in super, 47% tax would be payable. I am pleased to say, the removal of the work test will be effective on 1 July 2022.

The next major change for those who are retiring or transitioning to retirement is the extension of the bring forward rule. ‘Bring forward’ is a super strategy that allows an individual to use up to three years of their annual post tax contribution limit in one financial year. In dollar terms, at this time it is the difference between someone being able to contribute $110,000 or $330,000 the year they retire, as an example.

This flexibility has been widely used by our clients aged up to 67, but will now be available until individuals are 75 years old, effective next financial year.

Another important proposal was the plan to extend eligibility for ‘downsizer contributions’. This is where you have the option to increase the amount contributed to super following the sale of your home, under certain conditions. The strategy has been limited to clients aged 65 and older but will be available from age 60 as of July, which can provide individuals with the option to plan their retirement earlier.

Disability
If you have a disability and are looking to remain in the workforce in some capacity whilst you plan your retirement, more employment options may be available.

$44.6 million will be invested over two years from 2022 to 2023 to continue to support businesses who employ mature age Disability Employment Services participants. This will be provided through the Restart Wage Subsidy.

Aged Care
Aged Care funding and reforms have been a key of focus of both the Opposition and the government in power. Findings from the Royal Commission into Aged Care Quality and Safety were certainly concerning, and it is widely understood that increased government subsidies and private funding is critical to improve the quality of care across the country.

The Government has announced that they will contribute a further $468.3 million into the sector over the next five years to implement an effective response to highlighted training and governance inadequacies, along with another $458.1 million, to assist with managing the impact of Covid19 in the sector.

Other Initiatives
There will be a temporary reduction in the 44.2 cents per litre fuel excise to 22.1 over the next six months, which will alleviate the ludicrous cost of petrol for now, assuming petrol stations pass the reduction on to motorists.

Plenty of tax incentives will be available to encourage small business owners to invest in training and digital adoption.

The new home guarantee will be extended to allow more entrants into the property market.

Employee share schemes will also be expanded, and red tape will be reduced to allow for more monies to be directed to businesses and share markets.

Conclusion
As usual, we walk away from the Budget feeling a sense of ease, like we are being taken care of.

In reality, we know that times are difficult and a small incentive here and there is not enough to alleviate the financial pressure that market volatility, increased living costs and Covid19 has caused.

If a global pandemic has taught me anything, it is that planning for emergency events is critical.

A modern retirement plan will take advantage of the increased flexibility we have been afforded with regard to super contributions and pension payments, it will plan to maximise social security benefits and minimise tax. We will now instinctively add into our financial strategy a plan for the unexpected, such as sudden market downturns or insurable events.

We will consider contingencies, such as the possible need for Aged Care for you or your family in future years.

This is not pessimism, this is preparation.

We know now, more than ever, that it pays to be prepared!

Ciara Brennan