The Flexible Benefits Super Fund

Transcription

1 The Flexible Benefits Super Fund Investing for Retirement Towers Watson 2014

2 Disclaimer The information in this presentation is general advice only. It is not personal advice. This presentation is not intended to and should not be taken as a recommendation of any investment options, and it does not take into account your particular objectives, financial circumstances or needs. Before making any investment decisions regarding this information, you should read the Fund's Product Disclosure Statement or member booklet for your category of membership, and also consider your objectives, financial situation and needs. You may also wish to consider obtaining professional advice before making your decision. Towers Watson Australia Pty Ltd ABN AFSL

3 Agenda Fund highlights for 2013/14 Legislative update Understanding investment options Economic factors that affect performance The Flexible Benefits Super Fund Questions 3

4 Fund highlights for 2013/14 The Fund has completed another successful year with all investment options delivering positive results. Final rate for the Active Balanced (MySuper) option is 13.2% which compares very favourably with other super funds The Fund received its MySuper authorisation from the government regulator, APRA. In doing so, the Fund satisfied all necessary requirements including investment, insurance and fee arrangements The Fund introduced life insurance in the Retained Benefits section for members who cease employment after 1 January

5 Legislative update The current marginal tax rates are: Taxable income ($) Tax Rate* * Plus applicable levies $0 $18,200 Nil $18,201 $37,000 19% $37,001 $80, % $80,001 $180,000 37% Over $180,000 45% Medicare Levy is 2% from 1 July 2014 A Temporary Budget Repair Levy applies at a rate of 2% on taxable income above $180,000 per annum from 1 July June

6 Legislative update Company tax rate will reduce to 28.5% from 1 July 2015 Will offset the 1.5% paid parental leave scheme levy from 1 July 2015 May affect the level of dividends/franking credits received by investors Fuel excise to be indexed by CPI from 1 August 2014 Government will not proceed with the proposed tax on earnings supporting retirement income streams above $100,000 per annum Superannuation Guarantee rate confirmed 2 September 2014: Year Superannuation Guarantee Rate 2014/ / % 2021/ % 2022/ % 2023/ % 2024/ % 2025/ % 6

7 Centrelink Age Pension Eligibility Men born before 1 July 1952 are eligible at 65 Women born before 1 July 1947 have reached qualifying age Women born between Eligible for age pension at 1 July 1947 and 31 December years 1 January 1949 and 30 June years For people born after 1 July 1952: Men and women born between Eligible for age pension at 1 July 1952 and 31 December years 1 January 1954 and 30 June years 1 July 1955 and 31 December years 1 January 1957 and 30 June years 1 July 1958 and 31 December years 1 January 1960 and 30 June years 1 July 1961 and 31 December years 1 January 1963 and 30 June years 1 July 1964 and 31 December years After 1 January years 7

8 Centrelink Age Pension Means tested Homeowners Lower Threshold Upper Threshold Single Asset Test $202,000 $771,750 Income Test (p.a.) $4,160 $48,584 Couples Asset Test $286,500 $1,145,500 Income Test (p.a.) $7,384 $74,360 Maximum Pension $22,212* $33,488* *Inclusive of Pension and Clean Energy Supplements at 20 September 2014 Excludes family home and superannuation assets prior to eligibility Above the lower threshold, pension entitlement reduces: Asset Test $1.50 per fortnight per $1,000 of assessable assets Income Test $0.50 per fortnight for a single and $0.25 for each member of a couple, for each $1.00 of assessable income Income test excludes up to $250 of employment income per fortnight ($6,500 per year). Unused exemption is accumulated throughout financial year 8

9 Centrelink Age Pension The income test currently applies a deeming rate to all financial assets (except superannuation pensions) regardless of the actual income derived: Status Threshold Deeming Rate Single Couple Up to $48, % Over $48, % Up to $79, % Over $79, % Proposal 1 January 2015: Account based pensions commenced on or after 1 January 2015 will be deemed under Centrelink s Income Test Account based pensions established before 1 January 2015 for existing Centrelink pensioners and allowees will be grandfathered indefinitely No change to lifetime pensions 9

10 Superannuation contributions 2014/15 concessional contribution cap < 50 years: $30,000 > 50 years: $35,000 Excess contributions taxed at your marginal rate plus relevant levies and ATO interest (less 15% tax already paid by the fund) Up to 85% of excess contributions may be withdrawn from super You may use superannuation to pay the excess tax assessment Excess contributions not withdrawn count towards non-concessional cap Pre-tax voluntary contributions and notional contributions count towards concessional cap 10

11 Notional taxed contributions (Defined Benefit members only) For members of a defined benefit fund like Flexible Benefits, the Fund s actuary is required to report a notional taxable contribution to the Australian Tax Office The notional amount counts towards your concessional contribution limit rather than the company s actual contributions Pre-tax compulsory contributions included in notional amount You received a letter in the last few months advising your notional taxable contribution for ATO reporting 11

12 Superannuation contributions 2014/15 non-concessional contribution cap Per year per individual $180,000 Bring forward provision (3 x $180,000) $540,000 From 1 July 2013 excess contributions may be withdrawn Excess non-concessional contributions that are not withdrawn are taxed at the top marginal tax rate plus applicable levies Count towards the tax-free component 12

13 Transition to Retirement Salary $125,000 (super contributions 9.5%) Pension purchase price = $400,000 (100% taxable) Current Transition to Retirement Pension Age 55 Age 60 Gross salary $125,000 $101,875 $101,875 Pension income $0 $16,000 $16,000 Employer super $11,875 $11,875 $11,875 Salary sacrifice $0 $23,125 $23,125 Total contributions $11,875 $35,000 $35,000 Total tax ($38,478) ($39,168) ($32,928) Net contributions $10,094 $29,750 $29,750 Net income $88,303 $83,957 $90,197 Total net position $98,397 $113,707 $119,947 Increased position $15,310 $21,550 Less pension payments - $16,000 - $16,000 Total net benefit of current position -$690 or -0.70% $5,550 or 5.64% 13

14 A successful investor Clearly defined objectives Doesn t react to short term volatility Understands risk/reward Diversifies investments in order to reduce risk Invests regularly for the long term Seeks tax effectiveness 14

15 Investment strategies Companies Company tax rate currently 30%, reducing to 28.5% from 1 July 2015 Gearing Negative, neutral & positive Superannuation Concessional tax rates Investment Strategies Debt reduction Deductible and non-deductible Personal Self, spouse or joint. Returns taxed at marginal rates Family trusts Flexibility to distribute income to different entities 15

16 Asset classes Risk versus return Different levels of income and growth Portfolio risk may be reduced by diversification A longer investment timeframe may allow greater risk to be taken, subject to individual risk profile International Shares Australian Shares Property Fixed Interest/Bonds Cash 16

17 Asset classes International shares Capital Growth Hedged vs Unhedged Currency Risk/Gains Geopolitical Risk Growth Australian shares Profit Share Capital Growth Franking Credits ASX Short/Medium Term Volatility Property Alternatives Direct & Listed Capital Growth & Rental Income Residential, Commercial & Industrial Relatively Illiquid Growth or Defensive Non-traditional Investments Private Equity / Commodities / Derivatives Defensive Fixed interest Hybrid Securities Regular Income Corporate & Government Bonds Interest Rate Risk Cash Interest Rate Risk Inflation Risk Liquidity Term Deposits Principal Guaranteed 17

18 Asset class returns Annual returns: 1 July June Annual Return % Australian Shares International Shares Australian Property Cash Australian Bonds Source: Vanguard 18

19 Asset class returns Asset class 1 July June 2014 Average Annual Return Lowest Annual Return Highest Annual Return Australian Shares 11.0% -29.0% 54.0% International Shares 10.4% -23.5% 72.7% Australian Property 10.5% -42.3% 41.3% Cash 8.7% 2.7% 18.5% Australian Bonds 9.8% -5.1% 25.6% $4, $4, Value of $100 invested $3, $3, Value $ $2, $2, $1, $1, $ $ Source: Vanguard Australian Shares International Shares Australian Property Cash Australian Bonds 19

20 Asset class returns Year to 30 June Australian shares International shares Australian property Cash Australian bonds Source: Vanguard 20

21 Australian shares Large and small cap varying levels of volatility Returns in the form of dividends (income) and capital growth Imputation (franking) credits Credit for tax paid at company level currently 30% Tax effective for low income earners and low tax entities (ie: pension funds) Franking credit = ($1 / (1 0.30)) - $1 Source: Colonial First State 21

22 Orica Limited share price Source: Yahoo Finance 22

23 Australian property Residential property is Australia s most valuable asset class; estimated value of $5.2 trillion in January % of all borrowing is for housing Multi-unit dwellings account for 43.9% of all new dwelling approvals Approximately 65.5% of Australians live in a capital city 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% Seasonally Adjusted Australian Home Values at 31 August % 15.0% 13.8% Annualised Quarter 11.5% 11.0% Annualised % 6.0% 4.8% 3.0% 2.0% 1.5% 0.3% January 2014 Adelaide Brisbane Melbourne Perth Sydney Houses Units Houses Units Houses Units Houses Units Houses Units Median price 415,000 $325,000 $480, ,000 $610,000 $480,000 $540,000 $439,000 $765,000 $550,000 1 year return 2.9% -1.8% 4.2% -0.1% 12.4% 7.8% 6.9% 7.6% 14.0% 10.8% 10 year return 4.3% 3.9% 3.6% 4.3% 6.1% 5.0% 7.8% 7.0% 2.9% 3.1% Gross rental yield 4.3% 4.8% 4.6% 5.5% 3.3% 4.2% 4.2% 4.8% 3.9% 4.7% Average hold period (years) Source: RP Data 23

24 International shares Generally considered higher risk Capital growth and foreign currency gains Valuations affected by exchange rates as well as performance of underlying stock Available directly via a foreign exchange, or indirectly via a fund manager, Exchange Traded Fund (ETF) or index Source: Reserve Bank of Australia 24

25 Hedged vs. unhedged Source: Vanguard 25

26 International shares Largest by market capitalisation

27 Alternatives Include hedge funds, managed futures, real estate, commodities and derivatives contracts Generally held by institutional investors due to complex nature and high minimum investment Returns typically have a low correlation with market indices Relative lack of liquidity Limited regulations Generally higher fees that may include performance fees 27

28 Fixed interest Provides regular income for a specified term with the expectation that the principal will be repaid at the end of the term (maturity date) Fixed interest investments are usually issued by corporations, government and semi-government bodies and financial institutions such as banks to raise funds Examples of fixed interest investments include: Corporate bonds Government and semi-government bonds Capital notes (hybrid securities) Debentures Income securities 28

29 Investment risk Credit risk Companies don t meet their debt obligations Legislative Risk Changes in current laws and regulations Liquidity risk Inability to access capital when required Currency risk $AUD fluctuations may affect value of international investments Investment risk Interest rate risk Fluctuations in the cash rate will affect cash/fixed interest investments Inflation risk The purchasing power of your money may not match inflation Geopolitical risk Including macroeconomic policy, political instability, civil unrest etc. Diversification risk Too much/little diversification of asset classes 29

30 Global economy US economy improving UK economy outperforming Europe softening again China has stabilised Japan suffering effects of consumption tax hike Some emerging markets lagging Geopolitical risk re-emerging Source: Reserve Bank of Australia 30

31 Australian economy Source: Reserve Bank of Australia 31

32 Are you on track? RISK PROFILE INVESTMENT TIMEFRAME ECONOMIC ENVIRONMENT DIVERSIFICATION TAX EFFICIENCY 32

33 Model portfolios Asset allocation based on individual risk profile Investment strategy typically categorised as: High Growth / Growth / Balanced / Conservative / Defensive Asset allocation for model portfolios can differ considerably The following are all examples of a Balanced portfolio: Balanced Portfolio 1 Balanced Portfolio 2 Balanced Portfolio 3 Australian shares 27.4% 15.0% 29.0% International shares 24.6% 21.0% 31.0% Property/Infrastructure 12.0% 12.0% 26.0% Fixed interest 25.0% 17.0% 7.0% Cash 5.0% 20.0% 3.0% Alternatives 6.0% 15.0% 4.0% 33

34 The Flexible Benefits Super Fund vs. AustralianSuper Fund FlexibleSuper Active Balanced Asset allocation as at: 30 June 2014 AustralianSuper Balanced Australian shares 36% 29% International shares 24% 31% Property 10% 12% Infrastructure 0% 14% Alternatives 73% growth vs. 90% growth Growth 3% 4% Defensive 7% 0% Fixed Interest 15% 7% Cash 5% 3% Performance as at: 30 June year 13.2% 13.88% 5 years 9.2% 10.04% Source: The Flexible Benefits Superannuation Fund, AustralianSuper 34

35 The Flexible Benefits Super Fund vs. AustralianSuper Fund 37% Active Balanced FlexibleSuper Source: Flexible Benefits Superannuation Fund, AustralianSuper 63% Assertive Plus AustralianSuper Balanced Growth assets 90% 90% Defensive assets 10% 10% Performance as at: 30 June year 15.28% 13.88% 3 years 10.16% 9.96% 5 years 9.91% 10.04% Comparison between super funds can be very difficult due to how the fund classifies its assets 35

36 The Flexible Benefits Super Fund The Flexible Benefits Super Fund The Orica Defined Benefit Super Fund FlexibleSuper (closed to new members) Accumulation section Spouse section Retained Benefits section Account-Based Pension section 36

37 Investment performance Period Ending 30 June 2014 (p.a.) Assertive Plus Assertive Active Balanced Conservative Defined Benefit 1 year 16.5% 14.6% 13.2% 7.7% 11.3% 3 years 10.7% 9.7% 9.3% 6.7% 8.7% 5 years 10.3% 9.6% 9.2% 6.8% 8.7% 10 years 7.1% 7.2% 6.6% 6.1% 6.8% Period Ending 30 June 2014 (p.a.) Australian Shares International Shares Diversified Fixed Interest Cash 1 year 17.8% 22.0% 6.3% 2.7% 3 years 10.5% 13.6% 6.4% 3.3% 5 years 11.3% 9.7% 6.9% 3.6% 10 years 8.9% 3.3% 5.9% 4.3% The above figures are annualised returns net of tax, investment and administration fees, indirect costs and, from 1 July 2013, an allowance for the build up of the Fund s Operational Risk Financial Requirement Reserve 37

38 Pension performance Period ending 30 June 2014 (pa) Assertive Plus Assertive Balanced Cautious Conservative Cash 1 year 19.5% 17.3% 15.7% 12.4% 9.2% 3.3% 3 years 13.0% 12.0% 11.2% 9.6% 7.9% 3.9% 5 years 10.9%* 10.0%* 11.1% 8.9%* 7.2%* 4.2% 10 years N/A N/A 7.0%** N/A N/A 4.5*** * The Assertive Plus, Assertive, Cautious and Conservative options for the Account-Based Pension section were introduced on 1 February 2010, so returns reflect the compound average net return from 1 February 2010 to 30 June ** The Balanced option for the Account-based Pension section was introduced on 1 December 2005, so returns reflect the compound average net return for the period since inception. *** The Cash option for the Account-Based Pension section was introduced on 1 December As no pensioners had invested in the Cash option prior to 1 July 2008, the return shown is the compound average net return per annum for the six year period since 1 July The above figures are annualised returns net of tax, investment and administration fees, indirect costs and from 1 July 2013 an allowance for the build up of the Fund s Operational Risk Financial Requirement Reserve 38

39 Are you on track? CONTRIBUTIONS INSURANCE INVESTMENT OPTIONS BENEFICIARY NOMINATION 39

40 Questions? Towers Watson Financial Planning Carol Doloughan on (03)

41 Defined Benefit section Employees who started with the Orica Group prior to 1 October 1999 Two main sections: Members who joined before 1 July 1992 (pre 92 members) Member who joined after 1 July 1992 (post 92 members) Benefits are affected by changes to a member s: Salary Part time hours Leave without pay Contribution rate 41

42 Defined Benefit section Members can elect to contribute to the Fund at the following rates: After-tax contribution rate Before-tax contribution rate (i.e. salary sacrifice) Accrual Rate 0% 0% 4.7% 1% 1.18% 7.7% 2% 2.35% 10.7% 3% 3.50% 13.7% 4% 4.71% 16.7% 5% (Maximum) 5.88% 19.7% 6%* 7.06%* 22.7% 7%* 8.24%* 25.7% * Available if you have not attained your maximum fund multiple Contribution rate can be changed at any time by completing the Defined Benefit Members Superannuation Contribution Change Form 42

43 Accumulation section Contributions Employer contributions are a minimum of 9.5% Before or after tax voluntary member contributions Leaving Service Benefit Equal to the member s FlexibleSuper account Death or Total and Permanent Disablement Leaving Service Benefit + insured benefit 43

44 Accumulation section Four pre-packaged investment options and four asset class specific options: Investment option Pre-packaged investment options Investment fee (p.a.) Assertive Plus 0.55% to 0.65% Assertive 0.55% to 0.65% Active Balanced (MySuper) 0.51% to 0.61% Conservative 0.45% to 0.51% Asset class options International shares 0.49% to 0.55% Australian shares 0.54% to 0.60% Diversified fixed interest 0.37% to 0.43% Cash 0.14% to 0.18% Options are available to Defined Benefit members for additional accounts only 44

45 Fees from 1 November 2014 No establishment or contribution fees Administration fee of 0.175% p.a. Exit fee of $67 when benefit is paid from fund, including rollovers One free investment switch per year, $67 per switch thereafter Binding nomination fee of $54 No buy-sell spread on investment switches below $200,000 For Accumulation members, insurance fees for group life and salary continuance (if applicable) insurance are deducted from your account balance Other fees (e.g. family law establishment or information request) 30 days notice will be given of any fee changes Transaction fees are indexed, generally effective 1 November each year 45

46 Retained Benefits section Upon leaving the Company, option to retain your benefit within the Fund Only benefits greater than $2,000 can be retained in the Fund Full access to member investment choice Ability to accept: After tax (non-concessional) contributions; and Rollovers Life insurance cover continues in the Retained Benefits section, equal to the amount of cover you had on your last day of employment. You can reduce or opt out of this cover at any time Insurance fees are deducted from your account balance The Fund s normal fees apply You may request the rollover, transfer or payment (laws permitting) of your benefit from the Retained Benefits section at any time 46

47 Lifetime Pension option (Defined Benefit members only) Upon retirement, the lifetime pension is equal to 10% of the lump sum defined benefit (excluding additional voluntary accounts, rollovers and surcharge account) Members who joined the Company before 1 July 1987 and the Fund before 1 October 1987 can take a deferred lifetime pension Ability to convert part of this pension benefit (up to 25%) back to a lump sum at commencement Upon death, if survived by your spouse they will generally receive a pension equal to 60% of the pension prior to death Minimum payment period of 5 years No indexation 47

48 Transition to Retirement Ability to access superannuation prior to full retirement Pension is non-commutable whilst working Minimum pension based on age/pension factors Maximum pension of 10% of July 1 account balance each year Available for Accumulation members of FlexibleSuper, but not Defined Benefit members (unless you elect to convert to Accumulation) If Defined Benefit members elect to convert to Accumulation: They will lose the Lifetime Pension option They will be subject to investment risk They cannot subsequently return to Defined Benefit membership 48

49 Account Based Pension Monthly payments are made from the account and investment returns (positive or negative) are added to the balance Payments continue until death or the account balance is exhausted Minimum initial account balance is $25,000 Six pre-packaged investment options: Investment option Investment fee (p.a.) Assertive Plus 0.68% to 0.78% Assertive 0.64% to 0.74% Balanced 0.58% to 0.68% Cautious 0.50% to 0.60% Conservative 0.46% to 0.52% Cash 0.17% to 0.21% 49

50 Adjusted taxable income Adjustable taxable income includes the following: Taxable income Concessional contributions Adjusted fringe benefit tax Total net investment loss Foreign income Tax-free pensions and benefits Less child support payments An additional 15% tax applies to concessional contributions for individuals with adjusted taxable income greater than $300,000 per annum 50

51 Defined Benefit Pre 92 Resignation, Redundancy, Early Retirement, Dismissal or Normal Retirement The benefit is the greater of: Accumulation Guarantee Benefit + Additional Accumulation Account Surcharge Account; and Accrued Retirement Multiple x Reduction Factor x Final Average Salary + Additional Accumulation Account Surcharge Account The Accumulation Guarantee Benefit is calculated as: Notional Company Contributions* + member contributions +/- investment earnings deductions The level of Notional Company Contributions depends on the member s contribution rate * Notional Company Contributions are different to Notional Taxable Contributions calculated by the Fund s Actuary for reporting to the ATO for concessional contribution limits 51

52 Defined Benefit Pre 92 Death or Total and Permanent Disablement If you are under age 62, the benefit is the greater of: (Accrued Retirement Multiple + Future Multiple to age 62) x Prospective Final Average Salary + Additional Accumulation Account Surcharge Account; and Accumulation Guarantee Benefit + Additional Accumulation Account Surcharge Account Part of the amount payable on death or disablement is covered by the Fund s insurance policy with MetLife If you are over the age of 62, the benefit is your Retirement Benefit (i.e. there is no insurance component) 52

53 Defined Benefit Post 92 Resignation, Redundancy or Dismissal Accrued Retirement Multiple x Reduction Factor x Final Average Salary + Additional Accumulation Account Surcharge Account Retirement after age 55 Accrued Retirement Multiple x Final Average Salary + Additional Accumulation Account Surcharge Account Death or Total and Permanent Disablement (Accrued Retirement Multiple + Future Multiple to age 62) x Prospective Final Average Salary + Additional Accumulation Account Surcharge Account Part of the amount payable on death or disablement is covered by the Fund s insurance policy with MetLife If you are over age 62, the benefit is your Retirement Benefit (i.e. there is no insurance component) 53

54 Insurance FlexibleSuper Life, Terminal Illness & Total and Permanent Disability Four levels of cover to choose from 5%, 10%, 15% (default) or 20% Calculated as: Cover = chosen % X years to age 65 X salary Insurance fees (premiums) deducted from FlexibleSuper account Fees vary depending on age If you choose the 20% level, able to purchase additional cover in $10,000 multiples subject providing health evidence to the Fund s insurer Income Protection Optional 90 day wait, 2 year benefit period, up to 75% of salary Premiums depend on age, health and gender Refer to the FlexibleSuper s Insurance Guide for more information 54

55 Super consolidation 55