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Welcome to the latest edition of Your Financial Future.
In this issue, we examine what the volatile investment markets mean to you and highlight important changes to super announced in the May Federal Budget that may affect your retirement strategies.
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We also explain why we will no longer automatically post our annual reports out to you in a printed form (unless you specifically request us to do so) and provide some reasons why, despite the global financial crisis, super is still a good investment.
In addition, we detail some of the costs you should be wary about when making investments and we discuss why now may be a good time to give your home loan a “health check”.
As usual, we also include an offer from the Fair Go Member Benefits program.
Are we seeing green shoots?
 | Michael Block,
GM Investments |
Over the past three months share markets in Australia and overseas have recovered from their lows, the $A has steadily risen and the demand for risky assets has increased.
The most common phrase associated with this situation is “green shoots” suggesting that there is hope for an early recovery in 2009/2010 and that there are signs of regrowth. The term may even suggest that any downturn will not be as severe as first anticipated.
We are pleased with the rise in prices and the renewed optimism but urge caution about expecting the high growth of 2002 to 2007 to re-emerge.
Perhaps this is a case of investors not seeing the forest for the green shoots.
Our view is that the share market was unrealistically high in 2007 because company earnings were at peak levels and share prices anticipated further high growth.
It was no surprise that prices would return to more realistic levels at some point but it was a huge surprise just how savage and quick the falls in equity prices were, taking more than 50% off Australian stock prices.
We believe that just as prices were unrealistically high in 2007, they also became unrealistically low in 2009, well below long-term averages and driven by an anticipation that the economy would be even worse than initially expected.
With that in mind, it seems to me that the recent buoyancy is more likely to be the market correcting the panic of 2008/2009 and returning prices to a more normal level than a new bull market.
Let’s not lose sight of the big picture, the forest, if you will.
Once this cycle of correcting an overshoot on the downside is finished, further gains depend on real economic growth.
We believe that the path ahead is volatile and uncertain and that we would not expect the markets to reach their 2007 peaks anytime soon, especially if the economy grows at a more modest pace.
On that basis we would not expect share prices to continue rising at a fast pace.
It is too early to say what might happen in the longer term. The unusual market volatility of the last year or so may continue for some time to come and much will depend on developments in the world economy. While I welcome the market rally and the return of investor confidence I couldn’t say, to maintain the botanical analogy, that we are out of the woods just yet.
The 2009 Federal Budget
Federal Treasurer Wayne Swan announced some changes to super in the May Federal Budget that may affect your super savings. Here is a summary of the changes you need to know:
The Co-contribution Scheme
The Government will temporarily reduce the amount by which it will match the after-tax personal super contributions you make as part of its Co-contribution Scheme. The maximum matching rate will fall from $1.50 to $1.00 (from 1 July 2009), but will revert back to $1.50 in the 2014/15 financial year.
Despite the reduction in the rate, the Co-contribution Scheme still provides a return that’s hard to beat and is one of the best ways of boosting your retirement savings.
If you have an annual income of $31,920 or less, the Government will match your contribution with a payment of $1.00 for every $1.00 you put in up to a maximum of $1,000. The amount the Government pays steadily reduces on incomes over $31,920 and stops after the income level tops $61,920.
If you’d like to benefit from this scheme, please contact Member Services on 1300 369 901.
Concessional contribution cap to halve from 1 July 2009
The cap on concessional contributions will be reduced from $50,000 to $25,000 a year (indexed) from the 2009/10 financial year.
Concessional contributions are before-tax contributions to super. These are taxed at the concessional contribution tax rate of 15% and include the Superannuation Guarantee (SG) payments and your voluntary salary sacrifice contributions.
The transitional concessional contributions cap for those aged 50 and over - or who turn 50 before the end of the 2011/12 financial year - will also be reduced from $100,000 to $50,000 a year (not indexed).
The annual cap on non-concessional or after-tax contributions will remain at $150,000 in the 2009/10 financial year. After that, it will be six times the level of the (indexed) concessional contributions cap.
If you are affected by the changes and would like to discuss your options please call 1300 369 901 for assistance.
Lost super
From 1 July 2010, super funds like EISS will be obliged to transfer any lost super accounts to the Australian Tax Office (ATO). This will include lost accounts with balances of less than $200 and those which have been inactive for more than five years and for which there are not sufficient records to identify the owner.
If you believe you have any lost super, you can track it down at www.ato.gov.au/super or by calling 13 28 65. You will be able to reclaim lost super from the ATO at any time.
Online annual reports
Please note that in future, we will no longer automatically post our annual report out to you in a printed form unless you ask us to do so. Instead, our annual report will be available on our website at http://www.eisuper.com.au/documents/reports.asp
This will save the unnecessary printing and postage costs involved in sending out printed annual reports to members who may not be interested in receiving them and will allow us to use the savings elsewhere to provide better services to you.
It also has considerable environmental benefits. We will need to use far less paper and our carbon footprint will be smaller because of the energy savings from a reduced amount of printing, collating, transport and postage activity. In addition, fewer annual reports will end up as landfill or fodder for recycling.
Printed annual reports will still be available for any member who requests one and if you would like one sent out to you please call Member Services on 1300 369 901. Your request will be recorded and an annual report sent out to you when they are printed towards the end of this calendar year.
Why super is still a good investment
Feeling nervous about investment markets and your superannuation returns? ASFA – the Voice of Super has provided the following observations to reassure investors:
- During the biggest global financial crisis since the Great Depression, super funds have held up relatively well. Super funds, on average, are down about 20% from their highs of 2007, while the share market itself was down by as much as 40% in early March. While this is clearly not good for members – particularly older members about to retire, super funds like the Energy Industries Superannuation Scheme are run conservatively and the negative returns reflect the broader market. This contrasts sharply with the 200,000 or so investors, mostly retirees, who have lost much more, sometimes all of their savings and their homes, investing outside super in property-backed debentures or share market gearing, property development projects and tax-effective agribusiness investments.
- The rebound in the share market during the last quarter highlights the perils of trying to time markets and, as such, switching portfolios, particularly when the market is low, is rarely in the best interests of investors.
- The negative return of the past two years is a very unusual result. Researcher Warren Chant of Chant West has noted: “The probability of two consecutive years of negative returns is really low, about one year in 25.”
- During a working life of 35-40 years and 20 years in retirement, Australians can expect numerous market cycles. Experience tells us that patience, confidence and resilience are essential ingredients for recovery.
The costs of investing
Investors often ignore the costs of investing when markets and returns are rising. Reining in these costs, however, can be just as important as choosing the right investment.
These unnecessary costs may appear small, but over time they add up and compound, and can really make a difference to how much you manage to accumulate for your retirement. For example, total annual fees and other costs of 2% of your investment balance, rather than 1%, could reduce your final return by up to 20% over a 30 year period - for example, reduce it from $100,000 to $80,000. This is money lost that can’t be invested or used elsewhere.
So what are the costs to look out for?
Inflation
Inflation can really eat into your returns. You may, for example, have taken out a term deposit that pays 4.5% a year. Remember that if the inflation rate is 2.5% a year – as it was for the March 2009 quarter – then the real or actual rate of return on your investment will only be 2% per annum.
Tax
The rate of tax you pay will depend on your own personal income tax rate and the type of investment you make.
Remember that investing in super can have tax advantages which are not available outside of super. While invested in super, investment earnings are taxed at a maximum rate of 15% and there is no tax payable on end benefits taken after you turn 60.
Adviser fees and commissions
Some financial advisers charge a flat fee-for-service. Others charge a commission or percentage of the value of your investment with them. The latter can be negotiable, especially if the size of your investment is large. The commissions are paid each year even if no further advice is received from the adviser.
Remember that as a member of the Energy Industries Superannuation Scheme, all advice received from our team of qualified financial planners is at no additional cost and their remuneration is derived from salary; not from commissions of any sort.
Fund manager fees
Fund managers charge a fee for the work involved in managing your funds, usually a percentage of your total investment.
Remember that a big super fund, like Energy Industries Superannuation Scheme, which is part of a larger financial services group with assets of more than $7 billion under administration, is able to use its large buying power to negotiate lower fees from fund managers.
Stock broker fees
If you buy or sell shares on your own, don’t forget to cost in the brokerage that stock brokers charge. These can either be a flat fee or a percentage of the value of the shares traded. Fees vary, so it pays to shop around. Remember that if you want advice from the broker, the costs will be higher.
Wrap fees
Wrap accounts combine all your investments into one account and consolidate them in one statement, making it easier to manage your portfolio and to complete your tax returns. But it’s important to consider whether the convenience offered is worth the costs.
Give your home loan a “health check”
Mortgage rates have come off strongly since October last year when the Reserve Bank of Australia started slashing the official cash rate to lessen the impact of the economic downturn on home owners.
Whether we’ve seen the last of interest rate cuts is unknown, but some industry experts believe that fixed rates have reached their low point and will start to rise.
So what should you do if you are considering buying a new home or re-financing your mortgage?
Everyone’s situation is different, but with market conditions changing, perhaps now is the time to conduct a “health check” on your home loan and we can help you with this.
As one of our valued customers, you are able to secure one of the most competitive home loans in the market from Chifley Home Loans.
Chifley Home Loans offers you low interest rates, a choice of loans to suit your circumstances and a simple process that takes all the hard work out of getting and maintaining your home loan.
Remember that obtaining the best possible mortgage rate is vital to ensuring your long-term financial future. Every unnecessary cent paid on your home loan is money down the drain, which could have been better invested to help you boost your retirement nest egg.
So don’t delay! Give your home loan a “health check” by calling Chifley Home Loans on 1800 800 002 today.
Breakout: Some of our Home Loan features include:
- Application fee - $0
- Monthly account keeping fee - $0
- Split loan fee - $0
- Electronic redraw fee - $0
- Free redraw facility – yes
Conditions apply. Legal and government and other fees may apply. Fees, charges and all loan details will be disclosed in the loan contract. Some charges such as valuation fees and costs charged by the lender’s solicitors are payable. These charges may be non-refundable should they be incurred and the loan is not proceeded with. An early repayment fee may be payable. Chifley Financial Services Limited (ABN 75 053 704 706, AFSL 231148), trading as Chifley Home Loans, provides services through an agreement with Select Credit Union Ltd (ABN 20 058 538 140, AFSL 238257). Chifley Financial Services Limited does not guarantee the obligations of Select Credit Union Ltd.
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Come along to a seminar
Are you looking to set aside some money for a house, a holiday or perhaps for your children's education? Would you like to know more about investment options, risk and return and managed funds? Are you wondering whether you will have enough money to retire on?
You could get the answers to these questions, and more, by attending one of the free wealth creation or pre-retirement planning seminars at a venue close to you. To find out more, click here or contact Member Services on 1300 369 901.
Contact us
Energy Industries Superannuation Scheme
28 Margaret St
Sydney NSW 2000
Postal Address:
PO Box N835
Grosvenor Place
Sydney 1220
Futureplus Financial Services Pty Ltd
Ground Floor
28 Margaret Street
Sydney
Member Services
T: 1300 369 901
F: (02) 9279 4131
Financial Planning
T: 1300 883 788
This document was prepared for the exclusive use of members of the Energy Industries Superannuation Scheme. Please note that the information contained in this document is of a general nature only and does not constitute personal advice as it does not take into account your personal objectives, financial situation or needs. Any advice in this document is provided by FuturePlus Financial Services Pty Ltd (ABN 90 080 972 630) as an Australian Financial Services Licensee (AFSL 238445) on behalf of the Trustee of the Energy Industries Superannuation Scheme, Energy Industries Superannuation Scheme Pty Ltd (ABN 72 077 947 285). Energy Industries Superannuation Scheme Pty Ltd is an APRA Registrable Superannuation Entity Licensee (ABN Pool A - 22 277 243 559 and ABN Pool B - 64 322 090 181).
Members should not rely solely on this information and should consider their own personal objectives, financial situation and needs before acting on this information. Prior to making any investment decision you should obtain and consider the relevant Product Disclosure Statement (PDS) pertaining to your Scheme membership and seek professional investment advice.
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