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Welcome to the October 2009 edition of Your Financial Future.
In this issue, we provide an update on interest rates and advise you of a number of important changes we’ve made to our investment portfolio to improve the returns we earn for you. |
We also explain the difference between passive and active investment managers and highlight how you can grow your retirement nest egg by sacrificing a part of your salary to super.
In addition, we remind you that in the future, we will no longer automatically post our annual report out to you unless you request it. We also discuss the benefits of the 5 Star Chifley Home Loan which is available to you as a member of the Scheme.
As usual, we also include an offer from the Fair Go Member Benefits program, and update you on how the different asset classes and investment markets have performed in the past quarter.
Interest Rates – Where they are heading
One of the positive aspects of the global economic downturn has been the decline in interest rates. Floating mortgage rates have fallen from 9.6% at the peak to 5.8% in the space of 1 year, saving borrowers hundreds of dollars off their monthly repayments.
Investors in long-term Government bonds also got a benefit from the increase in value related to the fall in the market yield. Government bond yields fell by about 3% in the year to December 2008, and that produced a total return for the year of over 17% from Government bonds.
However interest rates won’t stay low forever and members should be prepared for a rise in interest rates and higher mortgage repayments.
What’s the Reserve Bank of Australia (RBA) doing?
The RBA has a duty to contribute to the economic prosperity of Australians. To achieve this, its primary aim is to keep inflation in a target range of 2 to 3%. The RBA uses monetary policy to influence economic activity and inflation. It can set short-term interest rates by changing the supply of funds to the financial system.
In the middle of last year the RBA started to worry about the global financial crisis and became less concerned about slowing inflation, even though the CPI inflation rate was well above the target range. After twelve gradual cash rate hikes from 2002, in September last year the RBA changed strategy and began aggressively reducing the cash rate. It was cut from 7.25% to 3% over a period of seven months.
The flexibility to lower interest rates, as well as Australia’s trade links with the strong China economy and a huge Government stimulus program, have allowed the Australian economy to weather the global slowdown surprisingly well. However, the RBA has already raised rates by 0.25% in October and recent comments from them are warning of higher interest rates in the future.
The outlook
The fact that the RBA is signalling that we may be facing higher interest rates in the future represents a mixed message for investors. On the one hand, it indicates that the outlook for the economy and job prospects is improving and members with cash in the bank can look forward to better interest payments. On the other, it will result in higher repayment costs for borrowers and it may lead to turbulence in bond markets which may translate to a challenging environment for bond investors for some time to come.
As part of our continual drive to improve the returns we earn for you and to maintain a flexible and efficient approach to investments, the Scheme is completely reviewing its investment portfolio. We have already made a number of changes.
Our basic objectives are to ensure we are getting the best advice, to simplify our portfolio to reduce costs and to ensure that our investment strategies satisfy your needs.
One of the steps we have taken has been to increase our use of “passive” investment managers (those that invest in shares based on the make-up of a particular market index).
This is a change from the past where we primarily relied on carefully selected “active” investment managers (those that actively trade securities in an attempt to produce above-index returns). In recent times, however, this approach has not achieved the returns that were expected.
Our increased use of “passive” managers means that we have reduced the overall number of managers we engage, simplified the management of our investment portfolio and cut the costs of its management fees.
Now, we are reviewing the asset class weightings within many of our investment strategies to ensure they have the best chance of meeting their investment objectives, both in current market conditions and in the long term. The results of that review should be communicated to members in the first half of 2010.
In addition, we have changed our fixed interest exposure so it is now solely invested in government guaranteed securities and we are now ensuring that “cash” means “cash”. Over the past three years, we invested a small portion of the Cash Plus’ option assets in global interest type assets. However, the extreme market volatility of recent times has led to lower than expected returns. In response to member feedback, we are moving back to a more pure cash allocation which will minimise the likelihood of short-term negative returns.
We are also reviewing our age-based default strategies to make sure they match the long-term retirement needs of our members.
We’ve also been listening to you. Members have been telling us that while they are happy with the current investment strategy options, they want the flexibility to place future contributions into a different strategy. We are pleased to advise that members of the Accumulation, Executive and Electrical Contractors Schemes now have this option (Multiple Investment Options) available. Full details about this can be found on our website at www.eisuper.com.au
In order to ensure that we get the best advice, we have appointed Mercer (Australia) as our new investment adviser following an extensive selection process. Mercer replaces Russell Investments Group, which had advised the Scheme since its inception in 1997.
For more information on the changes or if you are considering a major change to your super investments, please call our Member Services team on 1300 369 901.
In order to boost its returns to you and reduce our investment risks and costs, the Scheme’s Trustees recently decided to increase its use of “passive” managers when looking after your investments in shares.
In the past, we focused solely on choosing a complementary range of carefully monitored active managers. Active managers believe they have the skills and investment styles to "beat" the broad market as measured by a particular benchmark or index, such as the S&P/ASX 200 Index. This means they also have to beat most of the other managers who measure themselves against the same benchmark. To achieve this goal, they actively research and monitor a wide range of investment alternatives, which all adds to their operating costs and forces them to charge higher fees.
While good managers often beat the index, many struggle to consistently beat the index over a long period of time. All managers have their own investment styles and philosophies and these produce different results at varying stages of the market cycle. Indeed, their style may be in or out of favour with the market at any given time.
Even with the best skills and processes, managers can also make unwise choices which can dent your returns. What’s more, because an index can be likened to an average of share price performance, it stands to reason that when some managers are beating it, others will be underperforming against it.
In contrast, passive or indexed managers believe the broad market cannot be consistently beaten. Instead, they aim to match the performance of an index. To do this, they try to buy the same shares, in the same proportions, as the index. As a result, they don’t have to invest in making those hard decisions about which shares to buy and sell. They also do less buying and selling of shares altogether, which means they have lower transactional expenses. In short, they are able to operate at lower costs and charge much lower fees.
Overall, investing via passive managers helps the Scheme to access the overall gains (or losses) of the market at lower costs. It also reduces the risks of human error denting our returns and of us paying higher fees to a manager who may underperform the market.
The benefits of salary sacrificing
One of the best ways of growing your retirement savings is through salary sacrifice. This involves forgoing a portion of your gross salary and having your employer contribute it to your super account.
In addition to being an effective way of forcing you to save for your retirement, salary sacrificing has significant tax benefits. The amount you sacrifice is taxed at 15% and not at your usual tax rate which can be anywhere up to 45%*. In addition, any returns or interest earned on this money while invested in super is taxed also at 15% and not at your usual tax rate.
But while salary sacrificing can be a great wealth producing strategy, it’s important to remember that the amount of concessional (or pre-tax) contributions you can make to super has now been capped at $25,000 a year (or $50,000 if you are aged 50 or over, or turn 50 before the end of the 2011/12 financial year).
Also note that this cap amount includes the sum you have salary sacrificed as well as any Superannuation Guarantee contributions your employer makes on your behalf. Excess contributions are currently taxed at an additional 31.5%, so it’s important to be vigilant and check the total amounts contributed to your super by your employer.
For more information on salary sacrificing, phone Member Services on 1300 369 901.
* This excludes the Medicare levy.
Forgotten money
You may have money stashed away which you've forgotten about, or didn't know you had. You can search the Australian Securities & Investments Commission’s records of unclaimed money from bank accounts, company shares and life policies and see how to lodge a claim by clicking here.
Australians also have $12.9 billion in lost super sitting in 6.4 million inactive accounts. To check whether any of it belongs to you, you can phone the SuperSeeker self-help line on 13 28 65 or click here. You'll need to supply your name, date of birth and Tax File Number.
Annual report to be available online
Remember that in the 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 in the Scheme Documents section on our website at www.eisuper.com.au
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 by mail and will allow us to use the savings to provide better services for you. It also has considerable environmental benefits.
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.
If you are thinking of making the leap into the property market, upgrading your home or buying an investment property, why not take advantage of the 5 Star Chifley Home Loan?
Despite all the recent uncertainties in the financial markets, a Chifley Home Loan is still rated 5 Star by CANNEX, the independent financial services monitoring agency. This means our mortgage loan offers “superior value”, giving you the reassurance that you are making the best possible choice!
Products awarded 5 stars by CANNEX are the best 5% of similar products available in Australia. So when you consider that there are literally hundreds of similar products around, the awards give you the reassurance of knowing that with your Chifley Home Loan you are considering a competitive solution.
There are no mortgage application fees and no monthly account keeping fees. You can make extra and lump sum repayments without any restrictions which allows you to use any extra funds to reduce interest and pay out your loan faster*.
For more information on these or any of our competitive loans, either call us on 1800 800 002 or visit our website www.chifley.com
*Limitations apply to Fixed Rate products. Terms and conditions apply. The credit provider is Select Credit Union Ltd. 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 are 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) provides services through an agreement with Select Credit Union Ltd (ABN 20 058 538 140, AFSL 238257). Chifley Financial Services does not guarantee the obligations of Select Credit Union Ltd.
We can help you with more than just your super
- Looking for a low cost flexible home loan? We can help you.
- Would you like to build an investment portfolio? We can help you.
- Interested in gearing? We can help you.
- Need insurance? We can help you.
- Looking to create an estate plan i.e. a plan to protect your assets in the event of your death? We can help you.
Call 1300 883 788 for more information.
Fair Go
Fair Go Wine Club
The Fair Go Wine Club is provided by Wine Box Warehouse, Australia's premier online wine warehouse offering premium, labelled, Australian & New Zealand wines at up to 70% off RRP.
Fair Go Members receive a further $5 discount per dozen off the already massively reduced wines.
- Free delivery to your home or office Australia-wide.
- Up to 70% off RRP
- No cost or ongoing commitment
- Order what you want, when you want
- 100% money back quality guarantee
- Massive range of premium labelled wines & spirits
- Extensive tasting notes and all wines professionally rated
- Quality, Choice, Price and the right Advice!
All wines are carefully selected by an experienced in-house panel and they must be sound, well made and provide excellent value for money.
Proudly Australian owned.
Click here to register your Member Benefit discount and to browse and purchase wine. To view this month's Wine Special click here
Important: You must register to activate your Member Discount.
For phone orders/enquiries please call Wine Box Warehouse on 1300 553 716 and Quote FAIR GO or email corporate@wineboxwarehouse.com.au
Investment commentary
Click here for commentary on how investment markets performed over the September 2009 quarter.
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 we are running 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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