Plato Investment Management Limited. Why one size does not fit all for Pension investors

Transcription

1 Plato Investment Management Limited Why one size does not fit all for Pension investors

2 Why tailor a strategy for pension investors*? Pension investments are taxed at 0% versus accumulation investments at 15% Pension investors require income to live off, whereas accumulation investors have no preference for income The Pension market is already very substantial Approximately $400B of the $1,500B superannuation pool in Australia is already in pension mode Pension phase super is expected to grow faster than accumulation over the next 2 decades *Charities have similar tax status and often have similar income requirements 2

3 Pension tax rates are different no CGT $1.43 $1.21 $1.00 $1.00 $1.00 $0.90 $0.85 $0.85 $0.76 $0.77 $0.54 $0.54 Pension (0%) Super (15%) Top Individual (46.5%) Fully Franked Dividend Long Term Capital Gain Short Term Capital Gain Unfranked Dividend *Source : ATO, Plato using 2011/12 tax rates ex flood levy but including Medicare levy (After tax value of $1 of pre-tax return)* It depends on your tax status! 3

4 ANZ or CFX - which do you prefer?* ANZ CFX (CFS Retail Property Trust Group) Total return before tax 10.2%pa 10.3%pa Average yield 5.5% 6.4% Franking 100% 0% Total return including franking (reinvested) 12.8%pa 10.3%pa *Over 10 years to December 2012 Source: Iress, Plato 4

5 Low hanging fruit: Off market buybacks BHP closed at $47.76 on 8 Apr 2011 Shares bought back at 14% discount on 11 Apr - $40.85 before tax investors receive $40.57 in dividends plus $0.28 in capital But dividend has a $17.39 franking credit attached Total value for a pension investor is $ % more than 8 Apr close! Plato was overweight BHP prior to the buyback announcement: Buy-back generated approximately 4% gross yield for the strategy 80bps outperformance Free kick to pension / super clients portfolios 5

6 Tax effectiveness depends on your tax rate Zero tax (pension/charity) Low tax (superannuation) High tax (individual) Franking Short term capital gains - Long term capital gains - Buybacks Benefits differ by tax status 6

7 Is the Cooper Review the harbinger of death for one size fits all managed funds and advice? Income on assets underpinning a pension under current tax attracts a zero tax rate. This gives retired super fund members a very strong interest in the generation of franking credits from Australian share investments (as these are credited to zero taxpaying investors in the form of additional returns), but much less interest in capital gains tax discounts which have no value to non taxable investors, unlike accumulation phase members who do benefit from CGT discounts. In other words, the pension phase creates quite distinct and conflicting tax considerations that, on one view, call for separate management altogether. Cooper Review, 2009, Chapter 3,5.2, 7

8 FOFA RG175 Safe harbour provisions for complying with the best interests duty The safe harbour requires an advice provider to:... Identify the objectives, financial situation and needs of the clients that would be reasonably be considered relevant to advice sought on that subject matter (client s relevant circumstances) RG (b) (ii) Advice on financial products with an investment component Where advice relates to financial product(s) with an investment component, we consider that depending on the subject matter of advice sought by the client the client s relevant circumstances may include the client s: a) need for regular income (e.g. Retirement income); b) need for capital growth; c) tolerance for the risk that the advice (if followed) will not produce the expected benefits. For example, in the context of retirement advice, this may include considering longevity risk, market risk and inflation risk; d) tax position, social security entitlements, family commitments, employment security and expected retirement age. RG (abridged) Is your pension client s share fund managed from a zero tax rate to provide high income with capital growth? 8

9 Even a million dollars can run out. Couple retire at 60 (life expectancy 88/86) $1m in super with $60k pa living requirements Safe option earns 1% real after fees, aggressive earns 4% real after fees Balance@1% real Balance@ 4% Real $1,200, $1,000, $800, $600, $400, $200, $ Source: Plato, Qsuper longevity calculator 9

10 Dividend yields are higher than bond/cash yields - market is paying you to take equity risk 18.0% 10 Year Bond Yield All Ords Yield (incl franking) 16.0% 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% Source: RBA, Iress, Plato Gap still historically high! 10

11 Plato Australian Equity Income strategy - summary Objective: Maximise after-tax income for zero taxpayers Avoid significant sector/style biases Achilles heel of other high yield strategies Dual targets: Generate 3% excess yield over S&P ASX 200 Index (including Franking Credits) AND Outperform the market by 3% p.a. total return 11

12 Plato Australian Shares Income Fund Delivers high income 12.0% 12 month realised yield 10.0% 8.0% Yield 6.0% 4.0% 2.0% 0.0% Cash Yield RBA Cash Rate Market S&P200 Plato Income Franking Yield

13 . Disclaimer This communication has been prepared by Plato Investment Management Limited ABN Authorised Representative No of Pinnacle Investment Management Limited AFSL Interests in the Plato Australian Shares Income Fund (ARSN ) are issued by WHTM Capital Management Limited, ABN , AFSL WHTM Capital Management Limited believes the information contained in this communication is reliable, however no warranty is given as to its accuracy and persons relying on this information do so at their own risk. Please read the Product Disclosure Statement available at in its entirety before making an investment decision. This communication was prepared for multiple distributions and does not take account of the specific investment objectives of individual recipients and it may not be appropriate in all circumstances. Persons relying on this information should do so in light of their specific investment objectives and financial situations. Any person considering action on the basis of this communication must seek individual advice relevant to their particular circumstances and investment objectives. Past performance is no guide to future performance. The Zenith Investment Partners ("Zenith") ABN rating (assigned in June 2013) referred to in this document is limited to "General Advice" (as defined by section 766B of Corporations Act 2001) and based solely on the assessment of the investment merits of the financial product on this basis. It is not a specific recommendation to purchase, sell or hold the relevant product(s), and Zenith advises that individual investors should seek their own independent financial advice before investing in this product. The rating is subject to change without notice and Zenith has no obligation to update this document following publication. Zenith usually receives a fee for rating the fund manager and product against accepted criteria considered comprehensive and objective. van Eyk Research Pty Ltd ABN , corporate authorised representative of van Eyk Financial Group Pty Ltd ABN , AFSL (authorised representative number ) (van Eyk) rates investment management capabilities rather than individual products.this rating is valid as at May 2013 but can change or cease at anytime and should not be relied upon without referring to the meaning of the ratings, as well as the full manager reports, available to subscribers at van Eyk has not directed the publication of Plato Investment Management s rating. Past performance information is given for illustrative purposes only and should not be relied upon as it is not an indication of future performance. The rating is not intended to influence you and your client's investment decision in relation to any products managed by Plato Investment Management and does not take into account your client s individual financial situation, needs or objectives. We recommend that you and your client do not rely on this rating in making an investment decision and instead you seek advice from an appropriate investment adviser and read the product disclosure statement before making such a decision. The Lonsec Research Pty Ltd ( Lonsec ) ABN rating assigned October 2012 presented in this document are a class service (as defined in the Financial Advisers Act 2008 (NZ)) or limited to General Advice and based solely on consideration of the investment merits of the financial products. They are not a recommendation to purchase, sell or hold the relevant products, and you should seek independent financial advice before investing in these products. The ratings are subject to change without notice and Lonsec assumes no obligation to update the relevant documents following publication. Lonsec receives a fee from the Fund Manager for researching the products using comprehensive and objective criteria. 13