Tag Archives: Superannuation

Retirees, COVID-19, and options on the table during a market crash

By Robert Wright /April 14,2020/

The spread of coronavirus has been followed by some of the biggest plunges in share markets since the Global Financial Crisis (GFC), both here in Australia and around the world.

There’s nothing new about a market correction, but for those close to retirement it can be a nerve-wracking experience. If you’ve checked your superannuation balance over the last week, you may need a stiff drink.

For investors, or anyone with super, the general advice is to hold your nerve. Selling out at a low will lock in losses. Market corrections are quite normal and share market pullbacks provide opportunities for investors to buy cheaper stocks that will rise in value over time.

Yet “hold tight” may be easily said to younger or middle-aged Australians accumulating wealth in the super system; but what about our ever-increasing pool of retirees? Do they have the luxury or the option to weather corrections such as this?

For younger Australians currently making regular contributions to super, the impact of large sell off is minimised for two key reasons. Firstly, there is plenty of time to wait until markets recover, and secondly, they also may benefit from buying cheaper assets at the bottom of the cycle.

Yet for retirees there are no such luxuries. While markets are down, every dollar of income drawn on from super is crystallising the loss at a market low point, this is commonly referred to as ‘sequencing risk’ and is the reason why retirees need to be more careful than those in accumulation phase.

We as a species have evolved with embedded natural instincts to flight or fight in times of crisis. The tendency for retirees to watch their investments closer and have a greater care-factor for their investment outcomes makes a lot of sense – they are less capable of replacing these savings. However, as a result, there can be a flight to safety at the worst possible time. Known as ‘behavioural risk’ this is the observation that investors tend to switch out of risky assets near the lows of the market cycle.

The spread of coronavirus and the resulting fall in markets highlights the importance of investors understanding how much risk they are holding in their super or pension account. Australians in or approaching retirement, who have sat up and taken notice of the recent market plunge, may now be wondering, what is the right amount of risk to hold in their investments?

Our view is that the decision to reduce risk needs to be traded off with the impact of potentially lower long-term returns.

With record low interest rates and bond yields, the future return expectations on traditional safe-haven assets is lower than ever, strengthening the concept that if risk equals return, no risk equals no return! And with our life expectancy ever increasing with advances in medicine, science and technology, our retirement savings need to support our lifestyle longer.

Investors looking to reduce downside risk, but concerned about the impact on long term returns, could consider some of the following options:

• Diversifying into non-traditional income generating assets, such as infrastructure assets
• Remaining in equities, but adding protection
• Checking investments are being optimised for retirement tax treatment
• Remaining in growth assets but increase diversification into growth-alternatives
• Consider a strategy that dynamically adjusts the asset mix based on the environment

But most of all, with any of the above, our view is that right now is most likely not the right time to make a reactionary switch. Let the dust settle and move gradually over time.
Retirement is about enjoying life without the obligation to work. For your investments retirement is also about considering your own personal appetite and capacity for risk, the cost of suffering large portfolio losses, and the impact of not earning sufficient return.
It’s a balancing act, but with the right help, entirely achievable.

Source: AMP Capital

Can I go back to work if I’ve already accessed my super?

By Robert Wright /September 02,2019/

When you access your super at retirement your super fund may ask you to sign a declaration stating that you intend to never be employed again. But there may be compelling reasons why someone would subsequently return to work.

According to the Australian Bureau of Statistics (ABS) the most common reasons retirees return to full or part-time employment are financial necessity and boredom. Regardless of your reason for returning to work, there are certain rules you should be aware of.

What are the superannuation retirement rules?

You generally will only be able to access your super if you’ve reached your preservation age and retired, ceased an employment arrangement after age 60, or turned 65. If you’re thinking about returning to work after retirement, there are rules about super you may need to be aware of depending on your circumstances.

We look at some of the common situations below.

I have reached my preservation age but am less than age 60

If you’ve reached your preservation age and wish to access your super, you would usually be required to declare that you’re no longer in paid employment and have permanently retired.

If your personal circumstances have since changed, it is possible for you to return to the workforce, however your intention to retire must have been genuine at the time, which is why your super fund may have asked you to sign a declaration previously stating your intent.

I ceased an employment arrangement after age 60

From age 60, you can cease an employment arrangement and don’t have to make any declaration about your future employment intentions.

If you happen to be working more than one job, ceasing just one will meet the requirement and you can continue working in the other.  You can choose to access your super as a lump sum or in periodic payments (which you may receive via an account-based pension).

If you’re in this situation, you can return to work whenever you like as you wouldn’t have needed to declare permanent retirement before accessing your super.

I’m 65 or older

When you turn 65, you don’t have to be retired or satisfy any special conditions to get full access to your super savings. This means you can continue working or return to work if you have previously retired.

What happens to your super if you return to work?

Regardless of which of the groups above you fall into, if you have begun drawing a regular income stream from your super savings, you can continue to access your income stream payments whether you return to full or part-time employment.

If you haven’t actually accessed your super but have met one of the retirement conditions of release (and advised your fund of this) then your super will generally remain accessible if you return to work.

Meanwhile, it’s important to note that any subsequent super contributions made after you return to work will generally be ‘preserved’ until you meet another condition of release (unless you are aged 65 or over).

Can I access my super at 55 and still work?

In the past, Australians could access their super from as young as 55, but the preservation age is gradually increasing to age 60 and only people born before 1 July 1960 reached their preservation age at 55.

Regardless of your preservation age, you must meet certain criteria before you can access your super, as outlined above. However, if you’re age 60 or over, these criteria simply mean you need to end an arrangement under which you’re gainfully employed.

Rules around future super contributions

Your employer is broadly required to make super contributions to a fund on your behalf at the rate of 9.5% of your earnings, once you earn more than $450 in a calendar month.

This means you can continue to build your retirement savings via compulsory contributions paid by your employer and/or voluntary contributions you make yourself.

However, if you’re aged 65 or over, and intend on making voluntary contributions, you must first satisfy a work test requirement showing that you have worked for at least 40 hours within a 30-day period before you are eligible to make voluntary contributions in a financial year. Voluntary contributions can’t be made once you turn 75 and the last opportunity is 28 days after the end of the month where you turn age 75.

Effects of withdrawing super on your age pension

If you’re receiving a full or part age pension, you’d know that Centrelink applies an income test and an assets test to determine what you get paid. Your super or pension account will be included as part of your age pension eligibility assessment.

Any employment income will also be taken into account as part of this assessment, so make sure you’re aware of whether your earnings could impact your age pension entitlements.

For those eligible for the Work Bonus scheme, Centrelink will apply a discount to the amount of employment income otherwise assessed.

Source: AMP, 2019

The ups and downs of superannuation

By Robert Wright /September 02,2019/

Many of us like to keep an eye on our superannuation balance. It’s only natural, as we all want to retire in relative comfort, and for many people super is their second largest asset, after their family home.

If you’ve been checking your super over the last few months you might have noticed your balance going up and down. The first thing to know is this is quite normal. Share markets around the world naturally go through phases of volatility – where the value goes up and down. If your super is invested in growth assets, like Australian or international shares or property, there is going to be a bit more fluctuation in the short term than you would expect with defensive assets, like cash or bonds.  But there could also be the reward of higher returns in the medium to long term.

The amount of fluctuation you experience depends on where your super is invested. In fact, your balance changes daily. How it changes depends on all kinds of things, like which option you’re invested in and what asset classes the option invests in. Many things will impact your balance. The thing to keep in mind is that a dip in your superannuation balance is normal, as is a rise. You will also see the impact of your contributions going in and the fees for your fund coming out. It is not static!

What should I do?

Just remember your super is designed to be a long term investment – for when you retire. This means reacting over short term changes could see your retirement balance negatively impacted in the long term. Here’s some quick tips you can consider:

• Keep calm
• Do you know where your money is invested?
• Decide how you’ll invest in super
• How comfortable are you with risk?
• Have a plan
• Get help

Keep calm

Super balances go up and down. Well, it is a long term investment after all and there will be fluctuations from time to time. Reacting to short term market changes before speaking to a financial adviser or understanding how it could impact you, could mean missing out if it goes back up down the track. Trying to pick the time to make a change is hard for many investors.

Do you know where your money is invested?

Some options might be invested in riskier (more volatile) assets (such as shares and property) vs lower risk assets (such as cash and fixed interest). When you understand where your money is invested, you’ll better understand fluctuations.

Decide how you’ll invest your super

Don’t forget, you can take your super any direction you want. As our Head of Wealth, Cathy Duncan, suggests: “If you want to be a bit more hands on and are confident to make some of your own decisions, consider things like when you want to retire and your current financial situation, and ask your super fund about investing in things that mean something to you. Create your own portfolio but make sure you do your research first”. By doing this you could create diversity in your portfolio, which may help reduce your risk. If you are not confident with these matters, you should get financial advice before making any changes to your portfolio.

How comfortable are you with risk?

Generally speaking, the higher the risk, the greater the opportunity for high returns over time. If seeing your balance go up and down regularly concerns you, you may want to look at your investment options and your level of risk. Knowing this can help set your expectations. You also need to consider how long you are investing for – your retirement may be 25 or 30 years away so some short term ups and downs for a longer term reward might be something you can live with. You can also look to diversify your super investments further which may help reduce volatility.

Have a plan

As we mentioned earlier, super is a long term investment so having a plan about how much you want to retire with, and what steps you need to take to get there, helps you track your superannuation balance over the long term.

Source: ING, May 2019

What happens to my super when I die?

By Robert Wright /July 24,2019/

You may not be aware that how and in what proportions your super is distributed can’t be covered in your will unless you’ve made the necessary arrangements with your super fund beforehand.

Why can’t super be covered in my will?

Your super can’t typically be covered by your will because your will only covers assets you own personally (things like, your house, car, investments, savings and personal items).

Your super on the other hand is held for you in a trust by your super fund trustee and governed by superannuation law, which is why different rules apply and why your super fund must be kept up to date with your instructions.

Who can I leave my super money to?

In the event of your death, your super fund must pay a death benefit to one or more people in your life who are eligible.

Your eligible super beneficiaries might include:

• your spouse (including de facto and same sex partners), but not former spouses
• your children regardless of age
• anybody financially dependent on you when you die
• your estate or legal personal representative.

One reason you might nominate your estate or legal personal representative is you can then specify in your will how and to who you want to distribute your super money to, which can include eligible beneficiaries (mentioned above), as well as other people in your life.

It’s important however that you ensure the information stated in your will is up to date, so your legal personal representative pays out your super money as per your instructions.

How do I nominate my beneficiaries?

When it comes to specifying your beneficiaries, most super funds will give you several options.

These options are important to understand, particularly given that the type of nomination you choose could give you greater control over how your super benefits are distributed.

Binding nomination

If you make a binding death benefit nomination that satisfies all legal requirements, the trustee of the super fund must pay your super to the beneficiaries you have nominated, and in the proportions specified.

You should also know that there are lapsing and non-lapsing binding nominations. Lapsing nominations typically expire every three years unless you renew them, while non-lapsing nominations may never expire.

Non-binding nomination

If you make a non-binding nomination, the trustee of the fund will have the final say over which beneficiaries receive your super and in what proportions, but your nominations will be considered.

No nomination

Depending on the product, if you don’t make a nomination the trustee will pay your death benefit to your estate, or use its discretion to determine which eligible beneficiaries the money should go to.

Super in pension phase already?

If your super is already in pension phase, then all of the above plus additional options may be available and need to be considered.

Source: AMP, 29 April 2019