Day: May 28, 2019

Default options

Juggling act … fund members need to weigh up whether the default is the best choice.Most superannuation savings are held in ”default” funds – the funds selected by employers to receive the superannuation guarantee – and most employees are happy to go along with that decision.
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But is it the best choice when factors other than performance may be given greater consideration?

Fund members need to be aware that other considerations come into play when that selection is made.

For workplaces covered by industrial awards, which cover about 1.5 million workers, the default fund is usually named in the industrial award.

These are mostly not-for-profit industry funds, the boards of which have equal representation by the relevant unions and the larger employers in the industry.

However, if there is no award governing the super guarantee contributions, the employer is free to select any complying fund as the default provider.

Not-for-profit funds are happy to be judged on performance. They have outperformed the retail sector – funds provided by the banks, insurers and master trusts – over the long term. (Although the gap in performance is closing as the retail sector launches lower-fee funds.)

A report recently released by Industry Fund Network, the umbrella group representing industry funds, found during the past 15 years (1996-2011), retail funds underperformed not-for-profit funds by more than 2 percentage points a year.

The report said: ”Over the 15-year period, if retail funds had earned industry fund returns, Australian retirement savings would currently be $75 billion higher.”

In June, the Productivity Commission issued a draft report after the government had asked it to look at whether there should be changes in the way that default funds are selected. The commission said that opening up default funds to competition would benefit members.

The retail sector has long labelled award super as anti-competitive and has been itching to be able to compete with not-for-profit funds to become default providers. Large employers not covered by industrial awards tend to hire asset consultants to select who should be the employers’ default providers. But for other employers, especially smaller ones, the costs of running a tender are too expensive.

Smaller employers are inclined to give the management of their employees’ super to the super arm of the bank with which it does business.

A senior consultant at Rice Warner Actuaries, Bill Buttler, says in most case default funds are ”pretty good” funds. The bottom line is it is not enough for employees to trust that their employer’s default fund is the best for them.

Buttler advises they read the product disclosure statement and check the website.

Reforms will improve offerings

From October next year, the government will require balanced investment options to meet MySuper criteria before they can be selected as an employer’s default fund.

Fund members are always free to choose any complying super fund.

Fund members who do not exercise ”choice” will, from October, have their super guarantee contributions go to their employers’ MySuper-compliant investment option. And, from the middle of 2017, members who do not exercise choice will have their balance shifted to a MySuper investment option.

MySuper investment options will need to have a broadly diversified investment strategy and offer a minimum level of life insurance to all fund members.

MySuper will have lower costs because commissions and ongoing financial advice fees will be banned.

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Ask Noel

We have an investment property with a mortgage of $750,000. We earn $30,000 in rent a year but the outgoings are $55,000. We have the capacity to buy another investment property as our annual combined pre-tax income is $400,000, but we do not want to be financially constrained. Is it sensible to reduce the loan to a more manageable amount of $500,000 before embarking on the purchase of another investment property? We own our home and have no other debts.
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Your current shortfall is only $25,000, tax deductible, so it should not be too much of a financial burden to borrow for another property once the income from the new property and the tax advantages of negative gearing are taken into account. Of course, major factors to consider are the capital-gain potential of any property you buy and the strength and reliability of your present income.

My partner and I are both 52. My income is $86,000 a year and my partner’s is $75,000. At present, our combined super equals $404,000, we own our home and have no dependants. We have two investment properties, which, when sold, will give us at least another $360,000 after the capital gains tax has been paid. We want to retire at 55, or at least scale down to three days a week until we are 56, then down to full retirement if possible. We feel we could salary sacrifice the full $25,000 to both super funds next year and possibly again in our final work year (although that isn’t a certainty). Would retirement at this age be possible?

It’s impossible to give a definitive answer because how much you will need when you retire depends on a multitude of variables, including your spending habits, how long you will live and the rate of inflation. You have done very well to date but your top priority should be to sit down with a financial adviser and decide exactly how much you will need when you retire and what strategies you need to achieve your goals. I would certainly recommend salary sacrificing as much as you can until you retire.

We owe $398,000 on an interest-only loan over an investment property that’s valued at $350,000. Should we look at paying down the principal or just leave it as is and hope that in a few years, capital gains will take over? Is it worth setting up an offset account or is it better to continue maximising tax deductions?

The problem with paying down a tax-deductible loan is that the effective return on the money so invested is probably less than 4 per cent when tax is taken into account. If you don’t have a non-deductible home loan, I would opt for the offset account. Alternatively, make extra contributions to super, which can be withdrawn at some stage to pay off the debt.

I am 30 and earn $104,000 a year. I have $15,000 in savings but no other investments and have recently received a free house as part of my salary package. I have no debts or dependants. However, I need a new car and have the option to salary sacrifice. My goal is to save enough money to put a substantial deposit towards my first home in about four to five years. What would be your advice to help me achieve my goal?

If you don’t have concrete goals, it’s easy to fritter your hard-earned money away. My advice is to decide exactly how much you’ll need in four years for a home deposit and divide that by 48. Make sure that every month, that sum is deposited in a separate bank account. Do not touch this under any circumstances. You should also investigate the first-home saver account because that offers tax benefits for part of the deposit.

We have an investment property with a current market value of $720,000. We bought this property three years ago for $500,000. For the first two years, we lived at the property, which is currently rented out. We are now renting and bought land. We plan to start building soon. If we sell our city property and reuse the profits for our new home or another investment property, do we need to pay any tax on the profit?

Make sure you talk to your accountant before signing any contracts but based on the information you have given, you should be within the six-year capital gains tax exemption period, provided you lived in the house before you rented it out and have not claimed any other property as your principal residence since.

I’ve received a $65,000 inheritance. My husband and I are in our late 50s and have little super. Our mortgage is $180,000. What would you suggest is the best way for us to invest this amount?

At your stage in life, the best strategy is probably to pay it straight off the housing loan, as long as the interest on that loan is not tax deductible. You should then seek advice on the possibility of drastically reducing the amount you repay on your mortgage and substantially increasing the amount you salary sacrifice to super. This should be highly tax effective as salary-sacrificed contributions lose just 15 per cent in contributions tax.

I have two investment properties with a combined value of about $1.5 million and related investment mortgages totalling $950,000. In addition, I have a $130,000 blue-chip share portfolio invested in my unemployed wife’s name. Our family home is valued at about $500,000 and has a mortgage of $130,000. Is there a way of transferring the debt from the family home to either the investment property or against the share portfolio so the interest can be tax deductible?

The only way out is to sell investment assets and use the proceeds to eliminate the housing loan. Then you can borrow back against that house to buy other investment assets. As the purpose of the second loan is for investment, the whole of the interest on that loan would be tax deductible. Before you take any action, check out what transaction costs and capital-gains tax is involved. It is possible that the costs may outweigh the benefits.

Our mother lived in her house until her death 10 months ago. My brother and I are the beneficiaries. The house is worth about $850,000 and I understand that if we sell within two years, we will be excluded from capital gains tax. However, if I pay my brother $425,000 for his half, live in the house for 10 years and then sell, do I pay only half the CGT.

Assuming this house was your mother’s main residence, it was not being used for the purpose of producing an assessable income, and she bought it after September 19, 1985, your brother can sell it to you free of CGT within two years of your mother’s death. If you buy the property and use it only as your residence, you will be free of CGT when you sell it. If your mother bought the house before September 20, 1985, and it becomes your main residence for your entire ownership period, it will also be CGT exempt when you sell it.

I’m 32 and earn $105,000 a year. I have super worth $150,000 with employer contributions of 15.4 per cent and I add an extra 5 per cent. I’m currently renting. I have an investment property worth $270,000 with an interest-only loan. After rent, it costs me $500 a month. The property isn’t appreciating and I’ve been unable to sell it. I’m considering taking it off the market. I have a consolidated line-of-credit owing $38,000 separately to my home loan, with the ability to redraw $12,000. I also have $10,000 in credit-card debts. I have no savings (just $500 in shares) and have spent a lot on luxuries and travel. Would my voluntary super contribution at $200 a fortnight be better used reducing the debt on the cards or line-of-credit?

In view of your young age, I would certainly prefer you reduced your debts than contributed money to super, where it may be inaccessible until you are 60. However, your main priority should be getting your finances in order – if you don’t do this, you’ll spend the rest of your life on the debt treadmill. Remember, it is not how much you make – it is how you spend it.

Noel Whittaker is the author of Making Money Made Simple and numerous other books on personal finance. His advice is general in nature. Readers should seek their own professional advice. Email: [email protected]南京夜网.

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Minister rejects uni push to set own fees

Fred Hilmer: Fee deregulation, with fairness, vital for unis
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CLAIMS that universities are poorly funded and could slide into debt are ”alarmist and inaccurate”, Tertiary Education Minister Chris Evans says.

Mr Evans warned that increasing university fees would push higher education beyond the reach of students from poor backgrounds and those in regional Australia.

His comments come after the leader of an elite group of universities urged the government to allow institutes to set their own student fees. Group of Eight chairman Fred Hilmer said some universities could lose up to $100 million unless they received more funding.

But Mr Evans said student debt would balloon if universities set their own fees.

”What we know about deregulation of fees is that we see a vast increased cost to the student and we don’t see any real competition on price,” he said. ”We believe we are now funding universities adequately by increasing their income by 50 per cent since we came to office. That allows them a capacity to properly educate Australian students.”

He said it was crucial to Australia’s economic growth that 40 per cent of young people completed a degree. ”I don’t believe and the Labor Party doesn’t believe that making education prohibitively expensive … is the answer.”

The federal government caps university fees under the current system. But Professor Hilmer said the current model should be scrapped.

The Group of Eight includes Australia’s most prestigious institutes including Monash and Melbourne universities.

Professor Hilmer, who is the University of NSW’s vice-chancellor, has previously said universities should be free to determine fees. He said his university faced a $100 million deficit over the next three years if international student numbers and federal funding remained steady.

”It’s unlikely UNSW is alone in this situation given that all universities are funded broadly in the same way and are facing the same uncertainty around the revenue stream from international students,” he told The Age.

The National Union of Students has rejected his push. Union president Donherra Walmsley said students would pay more for education if universities set fees.

Universities Australia chief executive Belinda Robinson said the funding model needed to be examined after major changes to the sector, including declining revenue from international students. She said Canberra’s decision to remove caps on undergraduate enrolments from this year had also presented challenges.

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Private Media launches career women’s title

AT A time when much of the media is contracting, one outfit, Eric Beecher’s Private Media, is expanding. Its latest title, Women’s Agenda, will be launched today.
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Aimed at career-minded women who want to keep their finger on the workplace pulse, the free online magazine will be the seventh to emerge from the Private Media stable as it eyes audiences and communities that it says have been abandoned or ignored by mainstream media.

With a target of between 100,000 and 200,000 women readers a month, Women’s Agenda will be Private Media’s second-largest title after Crikey and help drive its overall footprint of readers closer to 1 million a month. Crikey, which Mr Beecher bought from Stephen Mayne, was the foundation of his business.

Another title is in the pipeline, Crikey is to be relaunched next month, and the group is exploring ways to charge readers for bolt-on services, said its chief executive, Amanda Gome.

Access to Private Media’s sites – with the exception of Crikey – will remain free, said Ms Gome, who views the erection of paywalls around some media sites with some scepticism.

She says readers are not prepared to pay for news that has been commoditised.

”If you look at the audience of the Herald Sun, the majority of them are not going to pay for news. You have to match the audience with the product,” she said.

She has much the same view of Fairfax Media’s chances when it puts paywalls around parts of its news websites next year.

”I think that the number of people who will be prepared to pay will be small and that is going to affect their overall numbers and their advertising proposition,” she said.

Private Media’s websites are tightly targeted at distinct audiences – the wealthiest 20 per cent of households in the country – and have a distinct role. SmartCompany is aimed at the small business market, Property Observer at the property investor and Women’s Agenda at the nation’s career women.

Its publisher, Marina Go, said there would be significant cross promotion to drive traffic.

She said the internet is going down the same path as magazines, which started with generalist, mass-market titles only to fragment into smaller, special-interest titles.

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Pressure mounts on reluctant Reserve Bank to rein in surging dollar

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PRESSURE is building on the Reserve Bank to follow the lead of the Swiss central bank and move to ease Australia’s soaring currency.

The dollar, which touched a four-month high yesterday, has been blamed for hobbling exports while crimping local producers as they compete in markets flooded with cheaper imports.

Central banks from Russia to Germany have been snapping up the Australian dollar, with the currency emerging as a haven in the face of Europe’s financial woes, particularly as Australia is one of just seven countries with a top AAA-credit rating and stable outlook.

The dollar traded as high as US106.03¢ after the RBA, as widely expected, opted to keep interest rates steady yesterday and said its settings for monetary policy were appropriate for now.

However, in a statement following its monthly monetary policy meeting, the central bank suggested it was taking closer scrutiny of the currency. It noted the dollar had “remained high” despite falling commodity prices and the weaker global outlook.

The Aussie rallied after the release of the RBA statement to its highest since March 20. Last night it was trading at US105.8.¢

The strength of the currency, up more than 70 per cent against the US dollar since the depth of the GFC, has been blamed for recession-like conditions in industries such as manufacturing and some retailers.

“The RBA has powers to intervene in markets if the currency is noticeably out of sync with the fundamentals,” said Australian Industry Group chief executive Innes Willox. ”In the current environment, one would expect that the bank has been considering the level of the currency and its options to influence its levels.”

Most of AIG’s members are manufacturers and engineering companies.

Meanwhile, Cochlear managing director Chris Roberts said yesterday that the rising dollar was partially to blame for the hearing implant maker posting a 68 per cent slump in profit. ”It’s a competitive, tough environment out there,” Dr Roberts said yesterday.

Morgan Stanley strategist Gerard Minack has calculated that Australia’s ”safe” status has added US10¢-15¢ to the dollar.

”Suggestions that the RBA intervene to cap the currency make sense, in our view, but we don’t think Reserve Bank action is imminent,” Mr Minack said.

Currency traders say the Russian Central Bank has been an active buyer of the currency in recent months – a move the cashed-up central bank foreshadowed earlier this year. Others including Germany’s Bundesbank and the Banque de France have also reportedly been adding to their holdings.

HSBC Australia chief economist Paul Bloxham said the RBA was likely to defer to monetary policy rather than dumping its holding of dollars, if it felt the high currency was straining the economy.

”The continued high level of the Australian dollar, despite recent falls in commodity prices, possibly provides further motivation for a further rate cut,” he said.

Still, National Australia Bank chief economist Alan Oster expects the dollar to remain high even if official cash rates are cut.

”You’ve got all these European central banks who might say that they’re going to stay with the euro, but they’re just doing a bit of insurance,” Mr Oster said.

The RBA is notoriously reluctant when it comes to currency intervention. Since a float in 1983, the bank has not targeted a level for the dollar.

Debate about possible intervention emerged in recent weeks after former RBA board member Warwick McKibbin reiterated his call for the central bank to do more to limit damage caused by the strong dollar.

In September last year, Switzerland vowed to peg the soaring Swiss franc against the euro in an attempt to protect its economy from the European debt crisis. The Swiss National Bank, in effect, devalued the franc, pledging to buy ”unlimited quantities” of foreign currencies to force down its value.

The RBA last stepped in to support the dollar when the collapse of Lehman Brothers in 2008 triggered a 40 per cent slide in the currency.

Following yesterday’s monetary policy statement, economists were tipping the RBA to push through a further 25 basis point rate cut by October. The central bank remains wary about Europe’s debt issues, a point repeated yesterday by RBA governor Glenn Stevens.

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Hopes for euro solution lift stocks

THE sharemarket hit a near-three-month high yesterday after Germany’s government said it would support the European Central Bank’s bond-buying program, and as investors hoped Spain would call on the European Union for a full bailout.
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It was enough to see riskier assets become more popular, with resource stocks making the biggest gains.

The dollar surged above US106¢ after the Reserve Bank kept the cash rate steady at 3.5 per cent.

The benchmark S&P/ASX 200 Index closed up 19 points, or 0.4 per cent, at 4291.6.

Economists had expected the RBA to keep the cash rate steady, with most tipping it would cut rates one more time by the end of the year.

But the RBA said economic growth was around trend and core inflation around the bottom of its target range, leading some to conclude that there would be no more cuts this calendar year.

“We’ve got one more rate cut in there, we’ve actually formally got it in September, but I don’t think it’s going in September now,” said NAB chief economist Alan Oster.

“I think it’ll probably be in a couple of months, and it’s not impossible that you won’t even get it. We may be very close to the bottom of the [rate cut] cycle.”

Banks had a good day after rates were kept steady, with Westpac climbing 23¢, or 1 per cent, to $23.68. Commonwealth followed close behind, rising 44¢, or 0.8 per cent, to $56.82.

Some of the first companies to report on last financial year posted results below market expectations.

Leighton Holdings was the first big company to release its full-year profit, disappointing the market, as did hearing device maker Cochlear and toll road operator Transurban.

Leighton shares dropped 25¢, or 1.5 per cent, to $16.48. Cochlear fell $3.40, or 5.1 per cent, to $63 and Transurban lost 9¢, or 1.5 per cent, to $5.94.

Equipment maker Bradken’s 49 per cent rise in net profit sent its shares up 58¢, or 11.2 per cent, to $5.74.

Resources were stronger, with BHP Billiton up 16¢ at $32.16, and Rio Tinto 72¢ higher at $54.85.

BlueScope Steel was the best performer among the market’s top 100 companies, up 1.5¢, or 5.7 per cent, at 28¢.

With Agencies

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Ansell keen to stretch reach with buy

Expanding: Ansell said France’s Comasec was a good fit for the company.CONDOM and glove maker Ansell said it is looking at further acquisitions across the globe after snapping up the French glove giant Comasec for €101.5 million ($119 million) in a deal that highlights Ansell’s optimism on Europe.
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Comasec, owner of the famous European glove brand Marigold, turned over €100 million last year. It has manufacturing operations in Portugal and Malaysia and more than 1200 staff.

Ansell, which will release its full year results next week, said the deal will add to its earnings per share this financial year. It is made more attractive by the fall in the euro against the US dollar, which is Ansell’s currency.

The chief executive of Ansell, Magnus Nicolin, told a teleconference yesterday: ”What we particularly like about the company are its products. They have a number of products that we don’t have, so they complement us in the utility space, in some of the food area.”

Shares in Ansell closed 44¢ higher at $13.54, valuing the company at $1.77 billion.

The Comasec transaction follows three bolt-on acquisitions since April last year worth $US45 million.

Mr Nicolin said Ansell was looking across Europe, North America, Latin America and Asia for opportunities. ”We have, as you know, a strong focus on emerging markets and obviously would welcome opportunities to look at companies in those kind of markets. But the fact is that there are fewer opportunities in the emerging market environment,” he said.

Mr Nicolin said that while no players operating in debt-laden Europe could completely shake off the continent’s economic woes, Comasec had been less affected than other companies in their marketplace.

And despite the well-documented challenges in Europe, it remains the ”biggest single marketplace for industrial hand protection and medical and sexual wellness [condoms.] So it’s a big market.

”So it’s obviously a bit of a mixed bag, and for that reason we feel that this is as good a time as any to make this investment. We also believe, I believe, that Europe will come through these difficulties and will be having a growing economy in all these markets again.”

The Comasec chief executive, Pascal Berend, whose father founded the business in 1948, said the company was pleased to join forces with Ansell. ”This combination will generate many opportunities to accelerate growth and innovation while continuing to provide quality products and services to our customers,” he said.

Ansell recently appointed John Bevan, the chief executive of Alumina, to its board and earlier made Glenn Barnes its deputy chairman. Fund manager Perpetual has increased its stake in the company to 11.2 per cent from 10 per cent.

Citi has tipped Ansell to be net cash positive this financial year in the absence of new share buybacks or acquisitions. An analyst, Alex Smith, said Citi liked Ansell on valuation grounds. The company’s shares are down 6.9 per cent for the year to date.

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