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Welcome
to this edition of Your Financial Future, which
reviews the June 2006 quarter. In this issue, we
discuss the recent volatility in share markets
and how you can respond to it. We also expose
the financial planning myth that you can time
the market, and explain what the recent Federal
Budget means for you. |
In addition, we introduce you to Dean Godbee, one of the financial planners on hand to assist you with your wealth creation needs, and we profile Boston Company Asset Management, which manages some of the Scheme's international equity investments.
There's also plenty of good news about the Scheme reported in this edition. It's been awarded the highest rating in Rainmaker's rating survey, won a communications award and been found by independent research to have very high levels of member satisfaction when compared to other super funds looking after workers in NSW. We've also opened a branch in Parramatta and we've got a number of new promotions for you as part of our Fair Go Members Benefits program.
AAA rating from Rainmaker
The Scheme was recently assessed by Rainmaker, which is one of the pre-eminent rating agencies in Australia. The agency is used by superannuation funds to independently assess their product offerings.
In providing its assessment, Rainmaker looks at more than 330 aspects including:
- Organisation
- Investments
- Communication and Education
- Insurance
- Ancillary Services
At the completion of the review, Rainmaker awarded the Accumulation and Retirement Schemes with a AAA rating, the highest rating available.
Investing can be a bumpy ride
After almost three years of very strong returns, share markets have been rather volatile in recent months. However, the advice from the experts is: "Don't panic!"
They caution that investment markets are cyclical. In other words, they go up and they go down. Fortunately, however, they've risen more than they've fallen, especially over the longer term.
So, what should you do given that the outlook for world share markets remains uncertain?
Firstly, it's important to remember why you selected your investment strategy in the first place. You might have chosen it for a number of reasons, such as:
- To meet your financial goals;
- Because of the number of years you have left until retirement;
- Because of your level of risk tolerance;
- To diversify your investments and spread your risks; or
- Because it's generally
the right strategy for your life stage.
If your reasons have changed, then maybe you should re-examine your portfolio mix. If your reasons haven't changed, perhaps it's best to sit tight even if the ride gets a bit bumpy.
Many advisers warn against
trying to pick the market cycles because most
investors rarely get the timing right (see
Myths of Financial Planning
below). Instead, they say that while there may be short-term dips in market returns, most carefully selected and age-appropriate strategies work well for investors over the long term.
However, if you feel uncomfortable with this approach, or believe that this is a good time to review your investment portfolio, please call Member Services on 1300 369 901 to speak to one of our planners at no additional cost.
The myths of financial planning
In these days of financial information overload, it's often difficult to discern fact from fiction. For this reason, we expose another Financial Planning myth in each issue of Your Financial Future to help guide you through the maze of information out there in the marketplace.
Myth: The secret
of successful investing is getting the timing
right .
Lately, the share market has been particularly volatile and you may be tempted to move your investments around into assets that you believe are about to perform better. Choosing the right time to switch your investments, however, requires as much luck as it does judgement - it's almost akin to gambling.
Markets move in cycles and conditions change. Last year's best performing asset class may become this year's biggest loser. And, unfortunately, share prices and markets don't always move for the most logical or easily predictable reasons. Unexpected events can send market prices up or down and unless you have a crystal ball which actually works, these events - and the markets' reaction to them - are almost impossible to predict.
They say a little bit of knowledge can be dangerous. But then again, even a lot of knowledge can be dangerous. The performance tables are full of cases where even the most highly skilled and experienced fund managers, whose job it is to watch markets all day, have got it wrong.
Studies have shown that time in the market is better than timing the market over the longer term. They show that as long as your portfolio is diversified and carefully developed to meet your investment objectives, it should perform soundly over the years, despite the markets' ups and downs.
Indeed, one of the best ways to counter these ups and downs is to diversify your portfolio so that when one type of asset is taking a beating, this can be countered by another which is enjoying better market conditions.
If you'd like to discuss your investment strategy without any obligation, please call Member Services on 1300 369 901.
What the 2006/07 Federal Budget means for you
Widely welcomed changes announced in the Government's 2006/07 Budget are set to overhaul the superannuation system. Several of these changes are likely to affect how you plan for your retirement and we recommend that you take this opportunity to discuss your personal situation with one of our financial planners. Please call Member Services on 1300 369 901 if you have any questions about how these changes may impact you.
In addition to simplifying the superannuation system, the Budget's changes provide more incentives to use superannuation as a way of saving for your retirement. You will also have greater flexibility as to how and when you can draw down your superannuation when you retire.
Most of the changes are proposed to take effect from 1 July 2007, but at this stage, they are merely proposals which still have to be passed into law. Transitional arrangements are also expected to be introduced to ensure that those who have put plans in place to retire within the next few years are not disadvantaged by the changes.
What the Budget means when planning your retirement
In the past, your super contributions have been taxed at three points: when you contribute to super, on the returns earned while your super is invested and finally, when you withdraw your end benefit on retirement.
The Budget proposals have now removed the last point of taxation: when you take your end benefit in a lump sum or as a pension on retirement, but only if you are aged 60 or over.
This means that Reasonable Benefit Limits (RBLs) will no longer apply - a move that will greatly reduce the complexity of retirement calculations. For this reason, it is advisable to review your strategies if RBLs have been a focus in your retirement planning. For example, strategies such as a non-commutable pension, or splitting your super contributions with your spouse to gain two tax-free thresholds and two RBLs, may no longer be your best options.
What the Budget means if you are planning to retire before age 60
Very little has changed for people planning to retire before age 60 as a result of the budget. Concessional tax treatment on Super continues to be available (as was the case prior to the budget) and will be simplified. For those with amounts close to current RBLs, it is an opportunity to review your position with a planner.
What the Budget means if you are contributing to super:
- The Budget abolishes aged based limits on employer superannuation contributions. In their place, it introduces an annual employer contribution limit of $50,000 on all deductible superannuation contributions, including those made by salary sacrifice. Any contributions made above this limit will be taxed at 45% (instead of 15%).
- The Budget also introduces a cap of $150,000 a year on superannuation contributions paid from your post-tax income. However, $450,000 can be contributed at one time providing no further un-deducted contributions are made for the next 3 years.
- Deductible superannuation contributions can now be made for employees aged 75 years or less.
An important warning about Eligible Termination Payments (ETPs)
The Budget has important implications for you if you are entitled to specific payments from your employer on termination of employment. From 1 July 2007, it will no longer be possible to roll these payments into superannuation, and in some cases, you could pay a lot more tax when you receive these. For some, it may be financially viable to retire before 1 July 2007 in order to receive these payments under the existing rules.
If you have a large employer termination payment available to you, it's best to speak to one of our planners to determine your best course of action. Contact Member Services and they will assist you with this.
Important reminder:
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Help is on hand!
Please contact our Member Services team for further information on
1300 369 901 or drop into any one of our
branches.
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While the Budget
announcements have been widely welcomed, they are
only proposals at this stage and still have to be
passed into law. Before changing your
superannuation arrangements, it is important to
remember that after consulting with the
superannuation industry in the next few months,
the Government could alter its proposals.
The home loan quandary
To fix or not to fix? That is the question you may be asking about your home loan, given that interest rates have risen recently and there's talk of more increases to come.
Unfortunately, there are no straight forward answers. Much will depend on your personal circumstances. There are a host of factors to consider, including:
- What types of deals are available at the time.
- How much it costs to switch. Charges vary widely but they can sometimes outweigh any savings on the rate.
- How flexible the fixed rate deals are. Some fixed loans have restrictions on extra repayments and early payouts which can prevent you from paying off your loan quickly.
- How important certainty - that is, knowing exactly what your repayments are going to be over the next couple of years - is to you.
- The risks of interest
rates falling again versus the risk of not
fixing if interest rates go even higher.
The bottom line is that trying to pick whether you will come out ahead on a fixed or variable rate is a gamble which needs careful consideration.
We can help! As part of our service, you can talk to Chifley Home Loans as it is part owned by the Scheme. One of our home loan consultants can help you assess whether you'd be better off fixing your loan or not. And, whether you decide to fix or not, you might find that Chifley Home Loans, which won bronze in Money magazine's Best of the Best 2006 awards, has a highly competitive, no-nonsense home loan that's perfect for you.
For more information on Chifley Home Loans click here
or call 1800 800 002.
Super Splitting
As a member of the Accumulation or Executive Schemes, you are now able to "split" any of your superannuation contributions made on or after 1 January 2006 with your spouse.
This is in line with new laws which allow spouses to transfer their superannuation contributions, including the compulsory nine per cent Superannuation Guarantee, to each others' super fund accounts*.
For more information on the new super splitting rules, please call Member Services on 1300 369 901.
* Normal withdrawal fee applies.
Financial Planner profile: meet Dean Godbee
Dean Godbee is a member of the FuturePlus Wealth Creation team, ready to help you with your financial planning needs.
Dean recently returned to financial planning after spending some time helping corporations structure their superannuation and insurance arrangements for staff. He's now eager to get back into individual financial planning and to build "lasting and trusting" relationships with clients.
"For me it's all about the human element and making a difference in my clients' lives. I spend time and effort in getting to know each person and what makes them tick. Only then can I give them the best advice," he says.
Dean says he just "fell" into financial planning after graduating from Uni with an economics degree and after accepting a job at a major financial services group. "One thing led to another. Ten years ago the financial planning industry was in its infancy and there was lots of potential," he says.
He hasn't looked back. He now has over nine years of experience in financial planning and is a Certified Financial Planner, having worked at various financial services groups and dealerships. However, he says he particularly enjoys the positive culture at FuturePlus Financial Services.
"Our focus here is on what benefits the member and this ensures that we provide quality advice to our clients without compromise".
When he's not busy growing his client's wealth, Dean can be found carefully trying to maintain his work/life balance by spending time with family and friends and keeping fit.
Meet your fund managers
One of the managers we've carefully selected to manage international equities on behalf of the Scheme is Boston Company Asset Management, which is part of Mellon Financial Corporation. It has over A$50 billion in assets under management, of which $6.2 billion was for Australian clients as at 31 December 2005.
The Boston Company has been selected as part of our multi-manager approach to investments. This approach is based on research which shows that using several carefully selected investment managers in one portfolio will produce a better result, more consistently and with lower volatility, than a single manager over any reasonable period.
Different managers use different styles of investment and some styles perform better at different times of the investment cycle. By combining these different managers, we are able to remove style bias from your portfolios.
The Boston Company is an active manager which uses both quantitative and qualitative techniques to get the best returns. It uses a bottom-up approach, focussing on individual stock selection rather than economic and industry trends. Its aim is to uncover high quality undervalued companies with strong balance sheets. Each share it chooses has to be attractive not only on its own but also in the context of the entire portfolio.
Want to know more?
To find out more about how we diversify your investments, contact Member Services on 1300 369 901.
Retirement Planning Booklet wins award
Your Scheme's Retirement Planning Booklet recently won a Silver communications award at the Conference of Major Super Funds. This industry award is in recognition of excellence in superannuation marketing communications.
Our members are highly satisfied
A recent study reveals our members are far more satisfied with the service they get from the Scheme than most NSW workers are with their super funds.
The study, conducted by independent company Woolcott Research, found that that 63% of members surveyed are "highly satisfied" with the Scheme's services, compared to 47% of NSW super fund members in general.
In addition, our members also have much more contact with their Scheme than do members of other funds in NSW. Over 60% of members surveyed had telephone contact with us in 2005 (compared to 16% at other funds) while 33% met with one of our financial planners (13% at other funds).
We also had far more member take up of our online services (29% vs 17%), worksite presentations (17% vs 4%) and seminars (17% vs 4%) than other funds with members in NSW in 2005.
Peter Lambert, Fund Secretary Local Government Superannuation Scheme, says: "We are delighted with these results. They show that members' satisfaction with the Scheme continues to rise and continues to be higher than that of members of rival funds. But we don't intend to rest on our laurels. As always, we will keep looking at adding products that better help our members create wealth and at new ways of enhancing our services."
Parramatta office opens for business
We've opened a branch in Parramatta to service and bring us closer to you.
The branch is located at 10 Smith Street and the staff are ready and able to help you with
your superannuation and other needs. You can contact the new office on
02 9354 1400 or fax them on 02 9354 1410.
The latest from Fair Go
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