There has been plenty of discussion from a range of different sources on the optimum superannuation balance to setup a Self-Managed Super Fund (SMSF) – but much of it is up for debate and most SMSF providers have their own guidance on what they feel is a correct level of funds.

Perhaps you’ve thought about using a SMSF as a vehicle to fund your retirement, but you’ve heard different arguments about the amount you require to establish one. Much of this can be put down to a combination of different advice guidelines, the Australian Securities and Investments Commission (ASIC) suggested minimum superannuation balance and the trustee’s individual circumstances. Here at Anne Street Partners, we take a view that for a SMSF to operate properly and provide adequate returns to the fund, a minimum balance of $200,000 is required.

There will be some circumstances where less than $200,000 is acceptable, and others where it won’t be enough – just like most financial circumstances, it all depends on the individual scenario. Here’s why we feel $200,000 maybe a great starting point for a SMSF:

  • Greater certainty – running a SMSF can have more costs than operating an industry fund and having a minimum of $200,000 can help leverage investments and cover these costs. The costs can include:
    1.  Establishment costs – setting up and registering the fund
    2.  Administration fees – the costs of running the fund
    3.  Compliance fees – a yearly audit of the fund required by the ATO
    4.  Life Insurance costs – SMSF trustees are required to consider life insurance for the members of the fund
  • Investment strategy – you’re operating an SMSF to generate a return to help you fund a comfortable retirement. Because a SMSF affords you with the flexibility to determine your own investment preferences and control, the more investment resources you have available the more ability you may have to help generate a good investment rate of return.
  • Taxation – operating an SMSF can have some real tax advantages with a rate of tax of generally 15%. Maintaining a healthy balance allows you to take full advantage of these taxation benefits.
  • Structure – an SMSF can operate both pension and accumulation accounts within the fund which enables you to draw from the fund and contribute to it at the same time. Many other funds require these to be separate, so operating this with $200,000 helps to ensure the fund continues to provide adequate liquidity and returns.
  • The power of 4 – an SMSF has a compelling advantage with the ability to have up to four members in one SMSF. This can have additional benefits – including lowering overall operational costs by spreading these across all the members of the fund. Combining $50,000 per fund member to start an SMSF is an increasingly popular choice and one that can enable all members of the fund to benefit from a greater overall investment pool.
  • Time – maintaining an SMSF will take more time than a regular fund – this goes hand-in-hand with the additional levels of control and investment flexibility. However, developing this strategy can take more time and you may need to seek advice on the right investment structure. Having a good superannuation balance enables you to leverage investments and seek additional education about an investment where you may require it.

Overall, although there isn’t a hard-and-fast rule that specifies the superannuation balance required to establish an SMSF, leveraging a healthy balance of $200,000 or more can help to deliver more benefits from the fund as it’s going to give you more to start to invest from the outset.

The additional control you have with an SMSF also will require more time and attention dedicated to the fund, than say an industry fund, so bear this in mind as its only natural that you’ll expect the fund to return more.

In most cases and with a starting balance of $200,000, an SMSF is a solid foundation that can be used to create returns that help to fund your retirement objectives and goals. They won’t suit everyone, so if you’d like to explore whether an SMSF is right for you and your circumstances, talk to your Financial Adviser. They’re here to help understand your objectives and goals and develop a retirement strategy that suits your needs.

For information on how to secure the financial future for you and your family, please talk to your financial adviser. They are here to help.

General Advice Disclaimer

The information contained in this article is general in nature and does not constitute personal financial advice. It has been prepared without taking into consideration your personal objectives, financial situations and needs. Before acting on any information contained in this article you should consider the appropriateness of the information having regard to your objectives, financial situations and needs.

Read more

So far 2017 has proven to be a turbulent ride for home loan interest rates and all the signals are pointing towards higher rates on the horizon.

So why are rates starting to increase and what can you do to ensure your lending remains in line with your life? Jason Dunn, General Manager, Strategy & Distribution takes us through the detail.

Rate increases are dependent on a range of factors

At a macro level, home loans are subject to the same market forces as many other commodities. Competition between lenders, deposits and bank rules also play a huge part in how mortgage rates move, as well as Global bond rates, the Reserve Bank of Australia (RBA), monetary policy and volatility in markets.

The way your mortgage is structured and the type of loan you have also plays a large part. You may have a variable loan rate, which can move in line with a lenders parameters – up or down. The type of loan can also have an impact – if the purpose of the borrowing is for an investment, this can incur a higher interest rate which may reflect the overall risk level the lender feels is appropriate given the risk it may be exposed to.

Let’s examine some areas in more detail.

Bank funding

Banks generally obtain their funding globally. They spread the risks over the long-term, but these rates can move – especially when there is an increased level of market volatility or uncertainty. There’s more to this – including credit spreads (a difference in yield between two different bonds) which can help to reduce sudden spikes and soften the impacts, but the reality is banks need to refinance portions of their book regularly and this can lead to increased rates which are basically driven by increased funding costs.

Saving Deposits

Saving deposits play a huge part in funding for banks – about 60% of their books. Although this seems high, many other nations have levels which match or exceed their lending. In this case Australian banks generally turn to the wholesale market to cover any shortfall in lending needs. This and any increase in deposit rates can impact a banks funding costs which are generally passed on.

However, saving deposits aren’t really rising to any great degree. New rules require the banks to maintain a “stable funding ratio” (a banking reform which is designed to promote a more resilient banking sector) which sets a priority on retail deposits. This can impact the way a bank lends, as they are required to raise deposits to fund for any lending. In reality this may impact lending rates as banks increase the interest rates to attract more deposits.

Banks are under pressure

Banks are becoming increasingly pressured to generate high returns, largely driven by shareholders who expect good returns on investment. There is also additional pressure through increased regulatory requirements to shore up balance sheets to counteract any market changes – a bit like the Global Financial Crisis (GFC) experienced in 2008, and the rising costs of operations and funding costs. The take away here is that this has placed increased pressure on banks to maintain and increase profits which in turn has led to these costs being passed on.

Loan types

The type of loan that you take out can impact the cost of borrowing. Investor loans are slowly increasing in cost, mainly due to the regulators’ concerns about the continued ferocity of investment loan growth. This can be reflected in the investment market being a more volatile environment – as an investor who is under financial stress is more likely to offload an investment than an owner occupied home – maybe at a discount which could impact the ability to repay the loan. The regulator imposed various limits on investment loans which has driven the price of these loans up.

Owner occupied loans, designed for the home you own and live in, have had less restrictions imposed, which has rendered this area of the market more desirable and therefore still quite competitive. Whether you have a variable or fixed rate loan will obviously impact on the cost of borrowing too – simply put, this is usually a reflection of the banks wholesale funding costs – if they go up, so does the cost of your mortgage.

Competition – the more the merrier

It’s hard to imagine a more competitive loan environment – even though we’ve seen some interest rate increases recently. Competition certainly has played a part in helping to drive an increased level of competitive behaviour from banks and smaller lenders who have been keen to grow market share. Many new and smaller players, have been using very attractive rates to entice borrowers onto their books. Home loan brokers have also had a part to play as they scour the market for competitively priced home loans that reflect the borrower’s needs.

It could be argued that banks have been discounting to attract borrowers and this won’t continue for the long-term as they begin to fulfil their funding mixes of owner occupied and investment loans and lending to deposit ratios.

The Reserve Bank of Australia’s official cash rate has been left at a consistent 1.5% from August 2016, is enabling lenders to pass on highly competitive rates to borrowers. As the lucrative home loan market continues to grow as the population increases, it’s likely that competition is only going to remain strong and get stronger.

So what does 2017 have in store?

It’s hard to deny that the regulator’s desire to slow investment lending hasn’t impacted the home loan market. Slowly but surely banks are taking measures to balance their books and encourage deposits (usually by developing higher interest returning products) to shore up their balance sheets.

The recent scrutiny on the banking industry also looks like it’s impacted some banks’ policies as they increase their deposit rates and desire for capital. Sure, there is increased competition in the market which is keeping lenders competitive, but the impact of the regulator’s desire to slow the fast growing investment lending market seems to be taking hold. Some banks are placing increased restrictions on lending or reducing their appetite for investment lending overall. What this is starting to indicate is that rates will increase, maybe not severely, but its likely 2017 will be a more expensive year for borrowers than we’ve seen in 2016. What this means for borrowers is simple – if you haven’t reviewed your lending in the past 12 months, it’s worth doing it now.

General Advice Disclaimer

The information contained in this article is general in nature and does not constitute personal financial advice. It has been prepared without taking into consideration your personal objectives, financial situations and needs. Before acting on any information contained in this article you should consider the appropriateness of the information having regard to your objectives, financial situations and needs.

Read more

In 2010, Wendy was diagnosed with rheumatoid arthritis, an incurable and debilitating condition that changed her life overnight.

At the time of her diagnosis, Wendy, then 47, was loving life, enjoying peak career success working for a pharmaceutical company, and a newfound romance with David, whom she had met six months earlier. At first, Wendy was unable to comprehend the reality of what lay ahead. Just six weeks after her diagnosis, crippling pain meant Wendy could no longer perform her normal duties at work. When it became clear she would have to leave the job she prided herself on and which she loved, the mum of three was devastated.

Just six months prior to her diagnosis, Wendy had met with a financial adviser who suggested she take out income protection. Fortunately, Wendy listened and now, looking back, says it was one of the best decisions she had ever made. She often thinks about what her life would have been like had she not had the financial support income protection provided.

Rather than worrying about how she was going to pay her share of a new mortgage and meet her medical expenses, Wendy could focus on her treatment, and adjusting to a new life that was never part of the plan. It took three years to get her condition to a manageable level and this is where the income protection really assisted Wendy and her family.

Today Wendy is enjoying working part-time as a first aid teacher and keeps her RA symptoms under control through a strict vegan diet and plenty of exercise, especially swimming and cycling. Her health continues to have its ups and downs but her focus now is on staying well and managing her symptoms.

Hope for the best but plan for the worst

This case isn’t unique and instances like this can be found all across Australia, however Wendy was able to manage her financial situation through utilising her income protection insurance. It can make a significant difference by removing additional stress and allowing you to concentrate on recovery. Income protection is just one component that forms a comprehensive financial plan. It may be important to know which options could be available to try and help protect you and your family’s future, in the event of any unforeseen sickness or injury. If you’re unsure of your financial protection requirements, speak to your financial adviser today. They’re here to protect and build your wealth.

General Advice Disclaimer

The information contained in this article is general in nature and does not constitute personal financial advice. It has been prepared without taking into consideration your personal objectives, financial situations and needs. Before acting on any information contained in this article you should consider the appropriateness of the information having regard to your objectives, financial situations and needs.

Read more

Did you know the amount you can contribute to superannuation will decrease from 1 July 2017? Paying extra into your superannuation now may make a big impact later in retirement.

Making before-tax contributions

Right now the total amount you can contribute to your superannuation before tax, is capped at:

  • $35,000 per year if you are aged 50 or over.
  • $30,000 per year if you are aged under 50.

Your before-tax contributions include your Superannuation Guarantee contributions, any other employer super contributions, salary sacrificing (if you do this) and any contributions that you have claimed a tax deduction for.

The cap will reduce to $25,000 per financial year from 1 July 2017, regardless of age. There will be additional flexibility from 1 July 2018 if you have less than $500,000 in total superannuation which will allow you to carry forward your unused before-tax (concessional) contributions for up to five years.

Making after-tax contributions

Take advantage of the current higher after-tax contributions cap to boost your super before it changes. From 1 July 2017, the cap on after-tax contributions will reduce to $100,000 per financial year. It’s currently $180,000 for those under 65 years. From 1 July you will also only be able to make after-tax (non-concessional) contributions if your total super balance is less than $1.6 million. If you have spare cash on hand, whether an inheritance, dividend payments, a bonus or even just change after bills, you might consider contributing this to your superannuation sooner rather than later. And, if you are aged under 65, you can bring forward up to three years of after-tax contributions, allowing you to invest up to $540,000 in one go. This cap will change to $300,000 from 1 July this year.

Entering retirement

If you’re retired or about to retire, there are a few changes you should know about. From 1 July 2017, the maximum amount you can have invested in the retirement phase will be $1.6 million. If you’ve already retired and your balance exceeds this cap you will be required to either

  • Move the excess back to the accumulation phase or
  • Withdraw the amount as a lump sum by 1 July 2017 or have a tax penalty applied.

Note: This deadline is 31 December 2017 if the excess amount is $100,000 or less. If you’re currently invested in a Transition-to-Retirement (TTR) pension, from 1 July 2017, the earnings from this pension will be taxed at up to 15% pa (compared to its current tax-free status). Talk to your Financial Adviser to evaluate whether this style of pension is still right for you. To learn more about end of financial year strategies for your super, please don’t hesitate in contacting us.

General Advice Disclaimer

The information contained in this article is general in nature and does not constitute personal financial advice. It has been prepared without taking into consideration your personal objectives, financial situations and needs. Before acting on any information contained in this article you should consider the appropriateness of the information having regard to your objectives, financial situations and needs.

Read more

A reduction in concessional contribution caps, the lowering of the Division 293 tax threshold, capping tax-free assets in retirement and a non-concessional contributions cap of $100,000 p.a. starting 1 July 2017 are just some of the changes that were in the Budget announcements this year to impact superannuation. These changes may impact your SMSF and retirement planning and require you to reassess your existing strategies or contemplate new ones.

Understand the major changes to superannuation and how they may affect you with this snapshot and easy to digest superannuation changes information guide.

Read more