Written by Hudson Adviser Michal Park
Superannuation is back in the spotlight once again after a draft report was released by the Productivity Commission last month. The Government tasked the Commission back in February 2016 to assess the performance of the super system to determine if it is meeting the needs of members and retirees and providing the best possible investment returns.
In the draft report, the Commission have identified a number of key points, most notably:
- Structural flaws like multiple accounts and entrenched underperformance eroding member accounts,
- Duplicate or unsuitable insurance policies within super, and
- Members being empowered to choose their own super product.
With over 40,000 super options offered by APRA-regulated funds on the market, it can be an overwhelming task for an individual to choose the best fit for them. Generally, individuals can choose between the following super categories:
- Retail funds
- Industry funds
- Public Sector Funds
- Corporate funds
- Eligible Rollover funds
I’m going to focus on retail and industry funds as there has been and is an ongoing rivalry between the two. The general consensus is that industry funds have outperformed retail funds over time. I dispute this having seen my own retail super balance achieve returns of 21.70% (year to date), 22.37% for the 2016/17 financial year and 14.07% per annum from October 2008 to date.
For all those asking - yes these returns are the result of fairly aggressive investment options, but that is my point. Industry funds simply do not provide the same level of investment choice to enable these sorts of returns.
Retail funds are not for everybody. There is generally a higher fee structure to reflect the benefits and opportunities available to the individual. But it is important to look at the performance figures net of investment fees for a true reflection of the returns.
Industry funds have their place, and I would say they are truly suited to individuals with superannuation balances below $50,000, where there is a limited chance that the balance will be eroded by fees. In my experience and opinion, superannuation balances in excess of this would benefit from a more tailored approach to investment, using both active and passive fund managers to cap fees and maximise returns.
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Written by Hudson Adviser Phillip McGann
A must for all property owners is to make sure you have in place Landlords Protection insurance As the name suggests Landlords Insurance is an insurance policy that covers some of the risks arising out of being a Landlord.
Good tenants are usually the norm and flow from a good thorough selection process by a competent rental agent and good ongoing management there-in including regular inspections and a tight control of rental payments
However occasionally tenants do things they should not and that is where Landlords Insurance comes into its own
Landlord Insurance policies can cover off for events such as;
- wilful damage by a tenant to the property
- loss of rent if the tenant defaults on payments
- legal costs incurred in taking action against the tenant
Policies may well cover off on contents owned by the landlord but not those owned by the tenant.
I have come across a few (not a lot but enough) Hudson Members who have had to claim on their Landlord policies in the event of the tenant leaving the property in disrepair and with rent owing. The rental Bond (usually one months rent) will cover part of this cost but often not all of it and so having the safety valve of a dedicated insurance policy in place to cover off on the above issues is vitally important and a must for all landlords. And also it is tax deductible
The premium cost of Landlords insurance will vary widely depending on what the policy actually covers and what the rental income of the property is but a range of $250 to $550 per annum is reasonable If you are paying more than that or wish to get a guage of whether your current policy is reasonable then ring around. It is a very competitive market.
NOTE: This type of general insurance is NOT offered by the Hudson Insurance team.
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For most Australians, their 60s is the decade that marks retirement. For some this means a graceful slide into a fulfilling life of leisure, enjoying the fruits of a lifetime of hard work. However, for many it means a substantial drop in income and living standards. So how can you make the most of the last few years of work before taking that big step into retirement?
Are we there yet?
Allowing for future age pension entitlement the Association of Superannuation Funds of Australia (ASFA) calculates that a couple will need savings of $640,000 at retirement to maintain a ‘comfortable lifestyle’.) ASFA equates ‘comfortable’ to an annual income of $60,264.)
How are we tracking as a nation?
In 2015-2016, 50% of men aged 60-64 had super balances of less than $110,000. For women the figure was a more alarming $36,000 – not even enough to provide a single person with a ‘modest’ lifestyle. (ASFA estimates that to upgrade from a ‘pension only’ to a ‘modest’ lifestyle would require a retirement nest egg of $70,000.)
Last minute lift
If your super is looking a little on the thin side there are a few ways to give it a boost before retirement.
- Make the most of your concessional contributions cap. Ask your employer if you can increase your employer contributions under a ‘salary sacrifice’ arrangement. Alternatively, you can claim a tax deduction for personal contributions you make. Total concessional contributions must not exceed $25,000 per year, although from July 2018 you may be able to carry forward any unused portion of this cap for up to five years.
- Investigate the benefits of a ‘transition to retirement’ (TTR) income stream. This can be combined with a re-contribution strategy that, depending on your marginal tax rate, can give your retirement savings a significant boost.
- Review your investment strategy. A common view is that as we near retirement our investments should be shifted to the conservative end of the risk and return spectrum. However, in an age of low returns and longer life expectancies, some growth assets may be required to provide the returns that will be necessary to support a long and comfortable retirement.
- Make non-concessional contributions. If you have substantial funds outside of super it may be worthwhile transferring them into the concessionally taxed super environment. You can contribute up to $100,000 per year, or $300,000 within a three-year period. A work test applies if you are over 65.
- The 60s is often a time for home downsizing. This can free up some cash to help with retirement. The ‘downsizer contribution’ allows a couple to jointly contribute up to $600,000 to superannuation without it counting towards their non-concessional contributions caps.
Bye-bye tax, hello aged pension?
One reward, just for turning 60, is that any withdrawals from your super account will be tax-free. This applies to both lump sum withdrawals and income stream payments. Depending on the preservation status of your funds you may need to meet a condition of release to access your superannuation.
Based on your date of birth, somewhere between age 65 and 67 you’ll reach age pension age. The age pension is subject to both an assets test and an income test and some advanced planning can boost your eligibility for the pension. For example, the family home is exempt from the assets test. Releasing cash by downsizing may reduce your eligibility for the age pension.
Get it right
This important decade is when you will make the key decisions that will determine your quality of life in retirement. Those decisions are both numerous and complex.
Quality, knowledgeable advice is critical, and wherever you are on your path to retirement, now is always the best time to talk to your licensed financial adviser at Hudson Financial Planning.
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Whether it’s due to over-enthusiastic lenders or desperate borrowers, failure to adhere to robust lending standards can land some borrowers in serious financial distress. In many cases the difficulties experienced by these borrowers could have been avoided if the lenders had complied with their responsible lending obligations.
In brief, this means inquiring into a borrower’s financial situation and requirements, verifying the information supplied, and making an assessment as to whether or not the credit contract is suitable for the borrower. Ideally, the lender should also consider the ability of the borrower to maintain loan payments if there is an increase in interest rates. This is a common pathway into mortgage stress – the situation where loan repayments take up too large a fraction of household income.
In the past, lenders often relied on loose assumptions of household expenditure when estimating a borrower’s financial commitments. That’s no longer the case, so if you’re looking for a new loan or to refinance an existing one, be prepared to provide the following information and documents:
- The amount and source of your income, and duration and type of employment. This will need to be documented via payslips or through bank statements and tax returns if you are self-employed.
- Your fixed expenses such as rent, other loans, credit cards, child support, insurance premiums and school fees.
- Your variable expenditure, including food, holidays and entertainment.
- Your age and number of dependants.
- Details of your assets with a focus on financial assets.
- Information on any foreseeable changes such as retirement.
You can also expect your prospective lender to delve into your credit history.
If you are using the loan to buy an investment property make sure you disclose this. You will likely face a higher interest rate, but don’t be tempted to deceive the lender. They are adept at detecting so-called ‘occupancy fraud’. You may also need to come up with a bigger deposit on an investment property purchase. This will decrease the sum you can borrow, limiting the price range in which you can buy.
Age needn’t be a barrier to taking out a home loan. However, anyone borrowing with a likelihood of retiring before the loan is paid off needs to have an exit strategy. This could be paying off the loan with superannuation, downshifting to a cheaper home, or even taking out a reverse mortgage.
Tighter adherence to responsible lending practices could likely lead to a reduction in the amount that people can borrow. However, this reduction in the amount of money flowing into the housing market should dampen down growth in house prices. Overall, more responsible lending may not have a major impact on housing affordability, but preferably see a reduction in the number of households experiencing mortgage stress.
Having answers to all the questions and the right documentation will come in handy when it’s time to apply for a loan. If a new loan or refinancing an existing one is on your radar, ask your financial adviser to help you prepare ahead of time.
a) Not for publication (for compliance purposes)
www.asic.gov.au Responsible lending
Financial Ombudsman Service www.fos.org.au Responsible Lending Conduct Obligations & Maladministration
b) For publication (for readers’ information)
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I took my annual sojourn to the 2018 Caravan Camping Show, this time in Perth, where I was hoping to find all the latest and greatest in gadgets, vans, motorhomes and camper trailers.
Alas this past year hasn’t been the year of innovation or the advent of new players to the market, which left me slightly disappointed.
But it was a great place to check out the RV air conditioning range - how well they worked, were they noisy, did they cool the entire van? – it was 37c outside and the best place to be was inside a van with a/c.
I found two salesmen lounging inside a van that had the door firmly closed. “Shut the door. If you want to know anything don’t ask, it’s too bloody hot to sell vans!” was their welcoming statement. Obviously not the company owners or WA residents use to the heat.
But for those that are new to the RV industry it’s a great day out. Perfect for researching your next purchase, being able to see, touch, and explore all the different varieties of RV’s along with your favourite burger stand all in the one place, it’s a window shoppers delight.
It beats driving all over the city to the various RV lots (why are they never all in the same suburb?) and being pestered by commission hungry salesmen.
However, is it a good place to part with your money?
From what I could see the ‘show’ deals on offer were OK but nothing exceptional. I came away convinced I could get the same, if not better deal by negotiation at the sales yard. Some of the giveaways looked attractive but had no real value when it came to your hip pocket.
My tip; if there was a van or two you were attracted to at the show. Go home and do more homework on the internet, read brochures, a visit to the showroom, even the factory.
Then if it is the ‘one’ do not hesitate in asking for the ‘show’ special price. They can hardly deny you as they have already proven they can afford to discount and throw in extras. Believe me they want the sale whatever it costs.
Shows are not the place to make impromptu decisions about major purchases and the wrong call could live with you for a long time.
On the other-hand if you have already done all your research and narrowed it down to one or two, then the show is the perfect place to put your negotiation skills to the test.
All the staff manning the stands are there for one reason only – to make a sale. You are in the driver’s seat so make the most of it. Pit one against the other to get the best deal possibly subject to you signing on the dotted line during the show.
Photo courtesy of Caravan Industry Association Western Australia
And don’t forget to insist they refund your show entry fee!
What about ancillary equipment?
They too are there to tempt you to buy on the day with a discount or added extras to sweeten the deal.
Here’s a good tip; I took along my son and whilst I was talking to the salesperson gathering as many useful facts as I could, he was checking out the same product on the internet. He then discretely showed me the best deal he found. About 70% of the time it was cheaper to buy online, even with postage.
The added extras on offer can be appealing but do you really need them?
A good example was the Hema GPS Navigating system (I was sorely tempted) they had just launched their latest upgrades which were impressive and in my humble opinion puts them a notch above the competition. But their ‘show’ special included a free copy of Camps 9 and a sun visor for the in-car unit.
It all looked appealing but he had just spent ten minutes extolling the virtues of how Hema maps now includes (superimposed) all the Camp 9 free camps sites and relevant information at the tap of the screen.
Surely this made the ‘book’ redundant. I would have thought the whole point of buying the GPS unit would be to save weight and no need to carry a large heavy book with you.
The visor I was on the fence about, I’ve made them myself from stiff black foam for less than $2 which work just as well as the commercial version.
Back to the show
Tips on how to make it an enjoyable productive day
- The ‘expert’ talks are always worth a visit, never too experienced to learn something new.
- Take a packed lunch – the food outlet prices were outrageous, feeding a family could set you back the price of a spare tyre on your new van!
- Pack a hat, sunscreen and a note book. And an umbrella if you live in Melbourne!
- Do your homework ‘before’ you go. That way you already know what to look for and are not blinded by the fancy lights, show specials and perfected sales pitches.
- Most city shows include free public transport in the price of the ticket. Use it to its max. We jumped on the train and went sightseeing afterwards. The train staff had no problem with our travels as we had a valid ticket in their eyes. No parking fees, no peak hour traffic to negotiate. Can enjoy a beer or two?
- Keep your credit card in your pocket until you have done all your homework
- Check-list all the important things you require in your RV, attach to a clip board. This not only saves time, it also impresses the salespeople. You’ll be amazed how quickly you rule out numerous vans giving you more time to focus on the ones that suit your needs. Great tool for getting the truth from sales staff, they think you know what you are talking about!
- Always ask if they welcome visits to the factory, even if not in your state, those that say yes have nothing to hide!
- Take a young person with you, to do the google searches on their smart phone! You will save more than the price of their ticket and an ice cream.
- Have fun. Poke around, open draws, swing on the cupboards, crawl underneath, grab the free hat. It’s an adult’s playground with no rules. The cheapest fun you will have for a while.
Finally: I came away realising there is no substitute for hands on experience. I certainly knew a lot more than many of the sales people I spoke to – simply because; I live
and travel in an RV full time and they don’t. And I’ve done my homework!
My pick of the show:
- Avida Motorhomes and Caravans - light well-built vans with an impressive 925kg load allowance. Attention to detail and some very innovative space saving ideas.
- Hema GPS Navigation – Everything you need to get around on and off road. Easy to use. Possibly a marriage saver when it comes to map reading
- Caravan Weighing WA (I believe there is a similar service in QLD) They come to you to weigh your caravan, vehicle, trailers. A great service and so much easier when it comes to emptying your RV to be weighed. Peace of mind knowing you are legal or not.
- Dometic Annex – Brilliant design, modular, fits all vans so you can take it with you when you upgrade. But best of all lightweight and value for money in comparison with other annexes. I own one and I should know. This was one product where the ‘show special’ price was a bargain.
This article is an extract from his RV Newsletter ‘Aussie Life On Wheels’ which thanks to Hudson Financial Planners, you can grab the first issue FREE by clicking this link: www.AussieLifeOnWheels.com/free-issue.html
Here you will find other informative ramblings, plus lots more tips, laughs and exciting places to visit in your RV. A good read.
Chad and his partner are veteran caravaners. (10 years into a 2-year trip around Australia!). Chad has spent years researching vans and equipment, knows most of the ins and outs of living on the road and how to earn a living from their van.
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