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Welcome to this edition of Your Financial Future, which reviews the March 2006 quarter. In this issue we discuss how you may benefit from some of the tax benefits available as the end of the financial year fast approaches.
We also examine the workings of the new super splitting laws and expose the myth that you can save money by administering your own super.
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In addition, we introduce you to Daniel Corbett, one of the financial planners on hand to assist you with your wealth creation needs, and we profile Aberdeen Asset Management, which manages some of the Fund's Australian fixed interest investments.
We also offer you two great deals as part of the Fair Go Members Benefits program and examine how different asset classes have performed over the past quarter.
Strategies to reduce tax
One of the best ways to pay no tax is to earn no income at all! But, as this choice is not an option for most of us, here are some strategies that could help you maximise available tax benefits before the end of this financial year.
Prepay your interest
If you have borrowed - or plan to borrow - money to fund investments in this financial year, you could consider pre-paying your interest before 30 June 2006. This is because the Australian Tax Office allows a full deduction of this interest against income earned in the current tax year. But a word of caution! Before undertaking this strategy, you should be aware of your financial objectives and future cash flow requirements.
Spring clean your investment portfolio
Ahead of financial year end, it's always a good idea to spring clean your investment portfolio. If, for example, you sell off your loss making shares, you can lock in your losses and these can be used to offset your capital gains. But before you do this, it's important to asses if trading costs, such as brokerage, will be incurred as these costs may reduce the effectiveness of this strategy.
Salary Sacrifice
If you have additional cash flow or are anticipating a bonus before the end of this financial year, you could examine making a salary sacrifice contribution to your super (if your employer will allow it). This will reduce your taxable income and thus, the amount of tax you pay.
For more information on salary sacrifice, click here.
Co-contributions
If your spouse earns less than $58,000 per annum, you might consider making a contribution into his or her superannuation account so that they can benefit from the Government's Co-contribution scheme. The Government will match this contribution, but by how much depends on an individual's total income for the tax year. For low or zero income earners, the Government will match the contribution by one dollar fifty ($1.50) for every dollar ($1.00) contributed up to a maximum of $1,500 a year. This maximum starts reducing once the member's income reaches $28,000 (down to zero once their income reaches $58,000).
Salary sacrificing super
If your employer agrees, you may choose to pay a part of your gross salary into your superannuation account and enjoy a number of tax-effective benefits. Firstly, salary sacrificing some of your pay into superannuation reduces your taxable salary. As a result, you pay less PAYG tax.
Remember, superannuation Co-contributions are tax-free, both on the way into and on subsequent payment from the Fund and will not count towards members' Reasonable Benefit Limit (RBL).
For more information on Co-contributions,
click here.
Spouse super contributions
If you make a contribution of $3,000 into your spouse's superannuation account - and your spouse earns less than $10,800 a year - you will gain a tax offset or rebate of $540. You can contribute less than $3,000, but this reduces the amount of the tax offset. Further, this offset reduces as your spouse's income increases up to $13,800. Above this income level, there is no rebate.
Income protection for your spouse
You could also consider increasing your spouse's income protection insurance if he or she is underinsured. Remember: Premiums paid on income protection insurance are fully tax deductible!
Taking up private health cover
If you don't already have private health insurance and you earn over $100,000 a year between you and your spouse, it might be a good idea to sign up for cover. This is because once you have a combined income of over $100,000 a year, you will have to pay a 1% Medicare surcharge over and above the existing Medicare levy if you don't have private health cover. While health insurance could cost you more than the surcharge, it will be useful if someone in your family falls ill or you need medical expertise.
Don't forget that as a Fair Go member, you also save on health cover with Manchester Unity. This includes reduced rates, and no waiting on Extras (which usually requires two months membership). For more information on the Fair Go program click here or you can contact Manchester Unity on 1800 622 559. Remember to mention that you are a Fair Go member.
Caution: It is advisable to speak to your financial planner before implementing any of these strategies. Your Fund has a team of qualified advisers who can help you with wealth creation strategies for both your super and non-super investments. This service is available at no additional charge to you and without any obligation. For more information, call 1800 800 002.
This does not constitute personal advice and you should carefully consider your individual objectives and circumstances before you do anything.
Super Splitting
The Government recently passed new laws which allow couples, including de-facto partners, to "split" their superannuation contributions and through this, take advantage of some of the tax benefits available to them.
The Trustee has agreed to make this facility available to members of the Fund.
The new laws allow spouses to transfer their superannuation contributions, including the compulsory nine per cent Superannuation Guarantee, to each others' super fund accounts.
Couples that will benefit the most from the changes include those where one partner has large super savings, while the other has little or none. This is especially so where one spouse has super benefits that exceed the reasonable benefit limit (RBL) and the other doesn't. The lump sum RBL limit in 2005-06 is $648,946.
In addition, these couples will be able to access two post-June 1983 tax-free limits on any lump sum withdrawals, or take out two allocated pensions in retirement.
The new laws will be of particular benefit to low income or non-working spouses because they allow them to accrue super in their own right and to have their own income in retirement.
Couples will be able to split all super contributions made on or after 1 January 2006. Existing benefits, rollovers or transfers cannot be split, so careful planning is required from the outset.
Splitting, however, will occur in "arrears". This means that after the end of a financial year, spouses will be able to request that their contributions made during the past financial year be split with their spouse. Any split to apply for the previous financial year must be made no latter than 3 March in the year following.
For more information on the new super splitting rules, please call Member Services on 1800 067 059.
The Myths of Financial Planning
In this day 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: I can save money by administering my own super.
A personal financial plan is a complex, dynamic, evolving process. Even if your plan has only eight investments, it will generate 32 distributions each year, each with potential franking and Capital Gains Tax considerations.
That can add up to a lot of record keeping time and accounting fees. Plus you will need to research your various investments and keep up with the issues that affect them from time to time, including changing legislation and the tax consequences of your investments.
The experts believe that it's not cost effective to have a self-managed super fund if the balance of your super is below $200,000. In addition to having to pay brokerage charges and fees to fund managers you might hire, you also have to pay accounting and legal fees. There are also onerous compliance requirements and if you get them wrong, the Australian Tax Office can impose penalties ranging from fines and a loss of tax concessions to imprisonment.
However, a wrap product might be an easier and more cost-effective option for those with lower balances or those wanting greater flexibility and control over their investments than is offered in a typical super fund. Wrap accounts - such as the FuturePlus Premium Wrap which is available to you as a customer of Chifley - bundle all your investments into a single easy to manage portfolio. Their many benefits include greater investment flexibility, enhanced reporting and reduced headaches at tax time. Everything, from buying and selling assets to the reporting and maintenance of your investments, takes place under one roof, using the latest technology. You will receive updates showing you the value of your assets and you can also view this online at any time that suits you.
When you consider that you can have all the above benefits as part of a service that can often cost little more than doing it yourself, its hard to imagine a better way of investing.
To discuss your investments with a financial planner, at no additional cost to you, and without obligation, call
1800 800 002.
About your fund managers
One of the managers carefully selected to manage some fixed interest investments is Aberdeen Asset Management.
It is part of Aberdeen Asset Management PLC, an international investment group, which had assets under management at AUD$30 billion at the end of 2005, AUD$14 of which was in fixed interest. The Australian operation, based in Sydney, manages over $5 billion.
However, Aberdeen wasn't chosen to manage your money because of its size or solely because of its solid track record in fixed interest. It was also selected because of the way it blends with our other fixed interest managers in our portfolio, such as Macquarie Funds Management and State Street Global Advisors Australia.
This is because the Fund adheres to the guiding principle that a number of carefully selected investment managers will, over any reasonable period, produce a better result, more consistently and with lower volatility, than a single manager.
Aberdeen is an active manager of fixed interest products. Its main aim is to add value by exploiting market inefficiencies in areas like relative value, credit, interest rate and currency management. Its investment approach places a strong emphasis on proprietary research and it has little regard for benchmarks.
Aberdeen's style differs, for example, to Macquarie Funds Management, another of the Fund's fixed interest managers. Macquarie manages a passive Australian fixed income portfolio that matches the performance and characteristics of a benchmark - the UBSA Composite Bond Index.
Want to know more?
To find out more about how we diversify your investments, contact Member Services on 1800 067 059.
Financial Planner profile: meet Daniel Corbett
For Daniel Corbett, one of the fully qualified financial planners on hand to help you grow your wealth, life is a merry-go-round of fitness and finance.
Before becoming a financial planner, Daniel, a sports science graduate, managed fitness centres for a living. But while fitness centres may appear to be galaxies apart from the world of high finance, Daniel sees many similarities between the two.
"Both involve getting people to improve their lives and enjoy a better future. Both help people to apply discipline to what they do and to get stronger and fitter, be it financially or physically," he says.
Daniel has been a financial planner since 1999, and worked at two of the major banks and a boutique planning operation before joining our wealth creation division in September last year.
He says he joined the company because we are focused on providing objective advice instead of being "commissions and target focused".
"I've always wanted to do what's best for the client. What's offered by the business is the same for everyone. We have good products and these are offered as cheaply as they possibly can be."
For Daniel, it's important not to take short cuts when drawing up a financial plan. "Everyone should be aware of all the scenarios available to them," he says. "Some planners will pick out one or two options and not tell their clients about the other four or five options. I believe that my clients should be able to explore all the choices available to them."
Asked about his philosophy towards financial planning, he says: "I try to treat every client as if they were a family member, like a grandparent or cousin. And I am not afraid to openly discuss differences of opinions with my clients."
When he's not at work, Daniel can be found training for ultra distance triathlons or training other triathletes. "In any given week, I spend about 20 hours training. I probably cycle about 300 km, run around 50 km and swim 6 km a week," he says.
Is it time for a review of your financial plan?
If you saw a financial planner a while ago, it's important to ensure that the investment strategy you originally decided on is still relevant to your current situation. As you know, investment trends and your circumstances can change over time.
Perhaps it's time for a review of your plan.
The aim of the review is to assess whether there's anything better you can be doing with your investments at this stage. In other words, it will help you to ensure that your financial plan remains appropriate to your goals.
A review will also give you the opportunity to ask questions on issues you don't understand or would like more information on. But most importantly, it gives you the chance to ensure that you are doing the very best you can to maximise your retirement savings!
What topics are covered in a review?
- Your investments options
- Their current performance
- Changes to your personal circumstances
- Your opportunities to maximise Centrelink benefits
How much will it cost?
The actual consultation will cost you absolutely nothing and there's no obligation to make any changes to your investments. But remember, as in the past, fees and charges may be levied on your investments.
To book an appointment to review your plan, please call 1800 800 002.
Home loans
Property prices have soared in recent years making it increasingly harder for most people to afford their own homes. This has resulted in mortgage payments gobbling up more of our earnings than they ever did, but there are ways to keep this in check.
Many Australians are paying higher mortgage rates to their high profile brand banks, which in turn, are looking to produce the maximum profits to their shareholders. But they don't need to do this!
As a member of this Fund, you are able to secure one of the most competitive home loans in the market. The loans are offered by Chifley Financial Services, which is part of our group of companies set up to provide home loans that represent true value to members.
We've even made it easy to compare
how our home loans stack up:
Application Fee - $0
Monthly Account Keeping Fee - $0
Split Loan Fee - $0
Electronic Redraw Fee - $0
Redraw facility - Yes
No hidden or extra fees
Maximum Term - 30 years
Maximum Loan - up to 97% of
property value
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Lately, Chifley has been picking up many accolades for its competitive products. It recently won a Bronze award in Money magazine's Best of the Best 2006 Awards in the Best Five-year Fixed Interest Loan category and last year, its Money Plus Loan, which offers a revolving line of credit facility, was rated second in the Money section of the Sydney Morning Herald.
With Chifley's loans, there's no application or monthly account keeping fees and we offer a low interest rate.
For more information contact 1800 800 002 or click here
Life's better on holidays
If you haven't had the chance to take a break recently, then why not book a relaxing stay at a Stella Resort.
The Stella Resorts Group now have over 80 resorts, retreats, hotels and apartments in all your favourite holiday destinations throughout Australia and New Zealand and offer great savings of up to 60% on selected properties for all Departure Lounge members.
Choose from:
Pay & Stay Deals - for short breaks. You pay for some nights and Stella Resorts will give you some for free.
Spot Specials - special inclusions, room upgrades and discounted package rates.
Super Cheap Stays - get in early for great savings on 3 and 5 night stays.
 Log onto the Stella Resorts Group Departure Lounge website click here and type in your access code "memberbenefits" to view other great Departure Lounge packages available.
Over 100 properties will be available through the Stella Resorts Group in 2006, including some brand new resorts opening in the Whitsundays, Port Hinchinbrook, Lakes Entrance and Hobart. Keep and eye out for some opening specials at these resorts.
FAIR GO WINE OFFER
This selection from Wine Box Warehouse is all about the quality. These delicious, ultra-premium wines will have you re-ordering if any stock remains!
Special Offer $139/Premium Dozen (RRP $255)
SAVING $116
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2 x 2002 Kingston Estate Cabernet Sauvignon - South Eastern Australia
2 x 2001 McPherson 'Reserve' Chardonnay - Victoria
2 x 2000 Alexander Park Shiraz - Victoria
2 x 2004 Vinus Sauvignon Blanc Semillon - Victoria
2 x 2004 Stony Peak Cabernet Shiraz - Great Western Victoria
2 x 2001 Due South Semillon Sauvignon Blanc - Western Australia
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Phone through your order to Wine Box Warehouse on 1300 859 877 (credit card only) and quote MBFAIRGO or complete the order form.
FREE DELIVERY AUSTRALIA-WIDE
(Please allow 2 - 5 business working days)
Disclaimer: Offer valid until 31 May 2006.
*Conditions apply. All rights reserved. Wine Box Warehouse reserves the rights to substitute out of stock items with equal to value stock.
Warning - Under the liquor control reform Act 1998 it is an offence: To supply alcohol to a person under the age of 18 years (Penalty exceeds $6,000) For a person under the age of 18 years to purchase or receive liquor (Penalty exceeds $500).
Wine Box Warehouse P/L Liquor Licence Number is # 36079586
Please refer to our website (www.chifley.com) for further terms and conditions on our Fair Go offering.
Parramatta office to open
As part of our continual drive to provide both employers and members with better service, we will be opening a new branch in Parramatta at 10 Smith Street in mid-May. Please feel free to pop in and have a chat with the new team of financial planners or office staff.
Free seminars
Are you looking to set aside some money for a house, a holiday or perhaps for your children's education? Would you like to know more about investment options, risk and return and managed funds? Are you wondering whether you will have enough money to retire on?
You could get the answers to these questions, and more, by attending one of the free wealth creation or pre-retirement planning seminars we are running at a venue close to you. To find out more, click here, or contact Member Services on 1800 067 059.
Investment and market commentary
In March, Australian shares hit record highs and have been a significant driver of recent investment returns.
The global economy is enjoying its strongest growth phase since the 1960s and Australian companies are reaping the benefits. Australia's commodities are in hot demand, but there are fears of a more volatile year ahead for the resource sector as the supply of raw materials starts to match demand.
That said, earnings and economic growth look likely to continue, and interest rates look to stay on hold locally while inflation remains in check.
Australian equities
In March, Australian equities performed strongly on the back of buoyant corporate activity, earnings upgrades, strong resource prices and solid economic conditions. The S&P ASX 200 ended the quarter 9.0% higher. Despite its strong finish, the quarter was not without some volatility, with the market dipping in February as investors became anxious about resource stocks.
The quarter also saw a rush of merger and acquisition activity and slightly better than expected results from 'Corporate Australia' during the half year reporting season.
International equities
International equity markets also enjoyed a strong first quarter of 2006 on the back of commodity price strength, with Europe and emerging markets the strongest performers. However, while still up, the US and Japan markets lagged behind.
Australian Property
Despite a bumpy quarter, Listed Property gained 1.7%. The sector outperformed in February as share investors shifted into more defensive assets when the broader equities market dipped. January and March were weak months as investors moved out of the sector into shares.
The sector has enjoyed a rebound in the office property market, which after some weakness, appears to be improving, thanks to declining vacancies and signs of rental growth.
International fixed interest
International bond markets were heavily influenced by steps taken by the US Federal Reserve (Fed), which raised rates twice during the quarter, ending at 4.75%. This had a downward influence on this sector, particularly later in the quarter, as share markets rose. With signs that the world economy is picking up, some market players are anticipating further rate hikes in Europe and the US, so bond prices could fall further.
Australian fixed interest
Australian bonds took their cue from the US bond market during the March quarter. With likely increases in interest rates internationally and the impact that will have on international bond prices, some local players are already starting to price this into local bonds.
Cash and currencies
The Reserve Bank of Australia has kept its official cash rate unchanged at 5.5% for more than a year.
The Australian dollar bounced around throughout the March 2006 quarter. It firmed through most of January and February then fell sharply in March, hitting an 18-month low when it bought USD$0.7016. It also fell against the Yen and Euro. The main reason for this is that interest rates have remained unchanged in Australia but have risen in other countries, making it less attractive for foreigners to invest here.
Towards the end of the quarter, the AUD was also affected by negative sentiment towards the New Zealand dollar, which has fallen because of concerns that the New Zealand economy is slowing sharply.
Chifley Financial Services Limited
Ground Floor
28 Margaret Street
Sydney, NSW 2000
Member Services
T: 1800 067 059
F: (02) 9273 0033
Financial Planning
T: 1800 800 002
This document was prepared for the exclusive use of members of FuturePlus Super by Chifley Financial Services Limited (ABN 75 053 704 06) as the Approved Trustee of FuturePlus Super and an Australian Financial Services Licensee (AFSL 231148).
Please note that the information contained herein is of a general nature only. It has not been prepared taking into account your particular investment objectives, financial situation and particular needs. You should assess whether the advice is appropriate to your individual investment objectives, financial situation and particular needs. Before making an investment decision, you should seek the assistance of a professional adviser.
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