The Electric Wire
It's important to us to communicate with you in the best ways possible about your super.
Our blog is a great place to keep up-to-date with the latest news from the Scheme.
Simply click on any of the below headings to read the thoughts of the Scheme's Executive Officer,
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How good an investment is super anyway?
Monday 22 August 2011
Declaration of a conflict of interest: I work for a super fund. But I promise to be as objective as I can.
Is super a good investment? Why would anybody put their money into a scheme that locks it up so that you have to retire or die to get it?
Let's get the negatives out of the way first.
- It's inflexible.
You put your money in, you wait 40 years or so, and then you get it to live on at the end. No argument here. But that's what it's for. Super is for your retirement, not your kids' education or a house deposit or a new boat.
- The returns are rubbish.
There's no doubt that they are all over the place. In the last 10 years, the EISS Balanced Growth option has had four negative years (2002, 2003, 2008 and 2009). We've also had five years of positive returns over 10%.
But if you were a real person, who started in the EISS Division 5 in 2001, you would have earned 5.06% pa on your contributions, after paying tax, fees and insurance. This sounds really bad, but it's better than you would have got in the bank. Over the last 10 years, the term deposit rates may have got up to 7% briefly, but you pay 30% tax on that and all of a sudden it's down to 4.9%.
If you kept your money in a transaction account, 4% or 5% might be the best you hope for, which again gets eaten by tax at 30%.
Could you have done better buying an investment property? Perhaps. But I've never understood an investment where you deliberately make a loss every year in the hope that the capital value goes up.
Funnily enough, if you'd started two years later, in 2003, your return would be 10% pa over 8 years. This is compared to inflation of around 3%. But timing things isn't as easy as it sounds.
- You have to pay fees.
Yes. (Unfortunately, we can't find people to work for us for nothing.)
- The government forces my employer to put 9% in for me.
That's right, and being forced into something really sucks. But before the Superannuation Guarantee came in, very few people in Australia had super. Usually they worked for the public service, or the big banks, or other really big companies. Now everybody has super (except sub-contractors, and there's nothing stopping them except themselves).
This forced saving is now a pool of assets of $1.3 trillion (that's $1,300,000,000,000) that gets invested all over the place. Super funds own Electranet, and Adelaide Airport, and Flinders Ports (which runs South Australian ports). EISS owns a small chunk of Marion and West Lakes Shopping Centres, as well as countless investments overseas (to balance the overseas investments that are held here). As far as the country goes, this is a positive.
So what's a few positives?
- There's very little tax.
You can salary sacrifice money into super and pay 15% tax on it. This compares to generally 30% tax for most EISS members. The government also charges a headline rate of 15% tax on investments in super, but with capital gains discounts and franking credits, our investment tax rate is usually more like 7%. Again, if you stick it in the bank, you'll be looking at 30%. Is that worth having it stuck away for a while until you retire?
- You can decide what your investment strategy is.
Yes the sharemarket is up and down, but so what? There are two ways to stop worrying about this. One, if you're young, think that over the period until you retire, the current fluctuations will be just another blip in history. Who remembers the 1991 recession, or the tech crash, or the Asian debt crisis? All big issues at the time, but we move on, and we will again.
Two, move to a more conservative investment option. EISS has four investment options, ranging from Cash (which pays the rate that banks pay on their borrowings, currently around 4-5%) to High Growth (which is heavily in shares and property and isn't a pretty number at the moment). Other funds have even more options. If you don't like the one you're in, get some advice (we give it over the phone) and switch. But do it for the right reasons.
- You can avoid “living” on the pension.
The old age pension for a couple is currently at most $750 a fortnight, or $19,500 a year. And it's subject to tax.
Even without the kids and the mortgage, living on that doesn't sound like much fun. By saving through super, you get to avoid that.
- You get insurance pretty cheaply.
Super is recognised as one of the best and cheapest ways of getting death and disability insurance. It's certainly cheaper than a lot of the ads you see on TV. Division 5 members even have a choice of the amount of insurance they get.
So is super unequivocally a great investment? No. Is it a bad one? No. Like all things, it has its pros and cons. But a few market fluctuations doesn't make it bad, just as a few good years doesn't make it great. There is a big range of funds out there. Have a look at a few, and find one that works for you. As a plug for us to finish off, just remember you can always ring us up and talk about things. We won't sell you anything because that's not our job. But we will answer any question you might have.
p: (08) 8100 9972
How are you sleeping?
Wednesday 10 August 2011
If you are losing sleep over your investments, take a breath, and have a think about a couple of things.
Suppose you are a 60 year old Division 2 member who's planning on retiring in a few months. Is now the time to move your super to the Cash option?
Two things to think about:
- Unless you are planningon blowing all your super on the day you retire, then your investments need to last you a while. You have time for markets to recover.
- At least some of your benefit is calculated by a formula based on your salary. You're not carrying the investment risk, your employer is. So when markets go down, the formula part of the benefit stays the same.
This example applies to all members to different degrees. It's only Division 5 members who are fully exposed to investment market movements.
As we have learnt over the last few years, investment markets go up and down. But as we have learnt over the last one hundred years, eventually they go up again.Is this timeany different to:
- the Great Depression (when 30% of the workforce were unemployed)
- the 1970s oil shock (when oil reached $111 a barrel in current prices compared to about$80 now)
- the “recession we had to have” (when Westpac nearly went broke)
Sure, we have Greece about to default, and Spain and Italy on the brink. China may have inflationary issues, the US consumer is on strike and government debt in a lot of the western world is at record levels. There are no doubt a lot of risks in the current investment markets, but there are also a lot of well run solid companies with stable earnings that are trading at record low levels.
So keep in mind the following:
- if you are in Divisions 2, 3 and 4, your employer is more affected by investment risk than you are
- if you are not about to retire, then don't make short term decisions. If you are about to retire, ask yourself when you plan to spend your retirement savings by.
If you're still having trouble sleeping, then give us a call on 1300 307 844, and we'll try to answer any questions you might have. Or speak to your financial adviser (it's what you pay them for). If you don't have a financial adviser, we can refer you to one.
p: (08) 8100 9972
Time flies when you're having fun
Thursday 14 July 2011
Seven years ago on July 15, a fresh faced (relatively) young(ish) man, who we'll call Jon for lack of something better, joined the EISS as its Executive Officer. He was actually the second person to fill this role, as Justine, who was first, discovered after a couple of months that it wasn't a part time job looking after this fund, and wanted to spend more time with her kids.
This young(ish) man actually joined the EISS on a two year contract, as the Board were unsure at that time what the future held, and whether the EISS would be around for very much longer. Jon's job was twofold:
- work out what the future of EISS was
- sort out the numerous things that the members were unhappy about.
This was an interesting time. The EISS wasn't doing a good job and the members were quite right to be unhappy.
Vicky joined a couple of months later, and work then started on get a handle on where the EISS was, where it should be, and how the members could best be looked after.
There was a lot of travelling in the early days. Site visits were made to speak to members from Streaky Bay to Barmera and from Mt Gambier to Leigh Creek. Lots of robust feedback was given on the failings of the EISS, of Mercer, of the tax offset, of the employers and anything else that people wanted to talk about. This was all good stuff, and gave us a lot to work with.
Mark then joined us in 2006 when we started looking after the insurance claims in-house, and then Vicky retired and Lyndall came along to keep us in line and tell us what to do.
Along the way, the Board figured that as we were going to hang around for a while, they might as well make the two year contract permanent.
Anyway, it has been, and continues to be fun. We have a nice team here at EISS (soon to expand by 33% up to a massive four people), a nice Board that keep us on our toes, nice members to deal with, interesting issues to spend our time on, and the chance to get out and tour power stations and coal mines and to act like we understand something about electricity. So, here's to seven more years.
p: (08) 8100 9972
What's an SMSF and should you have one?
Tuesday 14 June 2011
800,000 people are members of SMSFs, and there is about $450m worth of assets in them. But what are they?
SMSFs are Self Managed Super Funds. They are small funds, for up to 5 members, where the funds are run by the people who are in them. You may start one with your wife and children, for example. All of you are trustees of the fund, and all of you are responsible for managing it. The day to day administration may be done by somebody else (eg an accountant or specialised SMSF company), but the fund is run by you.
So if you're in charge, you can do what you want, right? Well, yes and no. You can set the investment strategy exactly how you want, you can buy and sell BHP shares exactly when you want, and you can contribute exactly when you want to. This is ok, as long as everything is according to the law that governs SMSFs and the Tax Office (which oversees them) is happy.
The downside is that this takes work. There are a lot of SMSFs out there that spend time with their money in the bank because the members don't have time away from the rest of their lives to invest the money properly. Sure, you may not pay fees to investment managers, but the work has to be done by somebody, and that somebody is you.
Alternatively, an SMSF may pass the money over to an investment manager, who will charge quite handsomely for the privilege of managing your money.
There are also a number of people who have got in trouble with the Tax Office because they didn't understand the rules. They take the fund cheque book, and write out a cheque to pay for a new car, forgetting that they can't take money out until they retire after their preservation age. Breaking these rules is a quick way to pay a lot more tax.
An SMSF will also need you to find another way to get insurance for death and disability. A big fund like EISS will generally give you fairly cheap insurance. It can be expensive getting it via the retail market.
SMSFs can make sense for people, especially self-employed with a fair amount in super. By all means, look into one if you think it is for you. But make sure you know what you are paying, and what you are getting for it.
p: (08) 8100 9972
Need help - Who ya gonna call?
Monday 2 May 2011
There are several ways you can contact the Scheme, depending on what you need.
- are having trouble logging into the website, or
- want to check your beneficiaries, or
- find out where your benefit payment is, or
- talk to a financial adviser
Please ring 1300 307 844. The lovely people in the call centre will help you very quickly to sort that out.
But if you want to:
- find out how to maximize your benefits, or
- get somebody to visit your workplace, or
- find out what happens when you retire, or
- tell us how good, or bad, the Scheme is,
Ring Lyndall, Mark or Jon in the Trustee Office on 08 8100 9971 or email at email@example.com. Emails are preferable as we aren't guaranteed to be at our desks (there are only three of us, and it doesn't take much for us all to be somewhere else).
p: (08) 8100 9972
One in two retirees wished they saved more in super or saved earlier in their working life, a survey found
Friday 8 April 2011
One in two retirees wished they saved more in super or saved earlier in their working life, particularly after belatedly discovering that not everyone can get a full or part pension when in financial strife, a survey found.
See here for the rest of the story http://www.financialstandard.com.au/news/view/8438690/
As always, contact us if you have any questions.
p: (08) 8100 9972
Upcoming changes in super
Friday 1 April 2011
You may have seen talk in the news about some upcoming changes to super. So what is happening?
The Government got a report early last year that thought about ways to make super more efficient, ie give members more for the same fees, or the same for less fees. The view was that super funds were too expensive.
There are a number of things to come out of that report that will make super more efficient. Two of the more important ones are:
- letting funds use your Tax File Number to identify your account.
At the moment, if you have super in a couple of funds, each fund will have a different member number for you. They might also have a slightly different spelling for your name (eg John instead of Jon) and different spelling for your address (eg Flag Staff Hill). This makes it hard to match up members.
Letting funds use your TFN will make it possible to bring your accounts together without having you having to do it. Once we can use TFN, we can find out where you have super, and then ask you if you want them all combined, and which fund you want to use. This saves you fees. If you have more than one fund on purpose (like I do), then you can say so and no combining will be done.
- making transactions more efficient
The superannuation funds are probably the largest user of cheques in the country. For the big industry funds, it is not uncommon for them to receive contributions as a cheque, with the amounts for each employee written on the back of a menu (or something similar). Small businesses (like restaurants) don't want to spend time and money doing employee super, so they do it on the cheap and leave the fund to clean up the mess.
Luckily we don't have that problem as we get electronic data from all of our employers, but letting funds receive contributions and data electronically will make administration a lot cheaper and simpler.
My Super (which you may have heard about) is a bright idea for a standard low cost product that will be offered by a lot of funds for members who don't want to think about super. It is supposed to have low fees, but not many features either. Nobody is quite sure how it is going to work, and it won't be offered for 3 or more years yet, so while there is a lot of noise, all of the action is in the background. We'll let you know when things heat up.
As always, contact us if you have any questions.
p: (08) 8100 9972
The sky is falling in!
Monday 21 March 2011
Well, actually, no it's not.
The non-stop parade of bad news about floods, earthquakes, tsunamis, nuclear power stations and revolutions could make it seem like the world is about to end, at least from an investment point of view and for the poor souls caught up in everything.
While all of our thoughts go out to everybody who's lives have been turned upside down by the events of the last few months, the long term impact of most of these issues on investment markets is likely to be either marginal, or short, or both.
Markets tend to overreact to bad news. A few share traders (who are all it takes to affect the market) see it as safer to sell out when bad news happens, and then work out what the impact is, than take a more considered view and be left holding a bad share. But what the market news doesn't show you is how many shareholders didn't sell. The news also rarely talk about the people who buy the shares from those who are running away. So just as many people see a disaster as an opportunity to pick up shares on the cheap.
History has shown that a lot of events that had a big impact on markets at the time are now just distant memories. The 1987 crash, the recession of the 1990's, 9/11 and the subsequent US invasion of Iraq, Three Mile Island and Chernobyl, the list goes on. Perhaps the only one that we are still feeling effects from is the GFC, and that is because the US is still not completely out of the recession that was a follow up to the GFC.
A few other things to remember in times like this:
1) not all of your super is invested in shares. For example, some of our money is in corporate debt, ie loans to companies. That investment has had a great return over the last couple of years, and the good returns aren't finished yet. Other money is invested in retail property, and Westfield are still collecting great rents.
2) Unless you want all of your money in the next year or so, there is time for temporary blips in the market to recover.
3) For those members fortunate enough to be in the defined benefit divisions, at least part of your benefit is linked to your salary. This means that market fluctuations on that part of your benefit are our problem (and your employer's, as they have to pay for it) and not yours.
As always, contact us if you have any questions.
p: (08) 8100 9972
Security of funding
Friday 28 January 2011
A letter was recently sent to all pre-privatisation members with some good news.
The Board of the EISS spends a lot of time making sure that the Scheme has enough money to pay out members' benefits. But that money is invested in shares and other investments whose value can go down as well as up. Sometimes this can lead the Scheme to temporarily have less assets than the value of members' benefits. In these times, we ask the employers to contribute extra to make up the difference. The employers have always agreed to the Board's requests.
However, to provide extra security, the state government has agreed to guarantee to payment of members' benefits in the very unlikely event that the Scheme is short of money and the employers can't make up the difference. This should be a great comfort to members. Naturally if you have any questions then please contact us on 1300 307 844.
An example of the letter that was sent to members can be found here.
p: (08) 8100 9972
Friday 10 December 2010
I heard from a member today that there is a rumour going around that an employer of EISS members had missed a contribution to the Scheme.
This is completely false.
During the last two years, all the employers have paid every contribution that we have asked them to pay on time. We have not had to chase them for contributions, and the EISS is now at a point of being almost fully funded. This means that we have almost recovered from the GFC.
We can now concentrate on building a buffer in our finances, so that we aren't as badly affected by poor investment markets in the future.
If anybody has any concerns on this or any other matter, give me a ring. My direct number and email address are below. Feel free to give me a call if you are concerned about something.
Disclaimer: If you're having trouble logging into the website, or want to check your beneficiaries, or where your benefit payment is, or something like that, ring 1300 307 844. The lovely people in the call centre will help you far faster than I can.
But if you want to find out how your benefits are paid for, or give some feedback on some part of the Scheme, let me know. Emails will probably be answered faster, as I don't often sit at my desk.
p: (08) 8100 9972
Who or what is Mercer?
Monday 1 November 2010
A lot of members think the EISS is controlled by a company called Mercer. This is wrong.
The EISS is a South Australian super fund run by a Board, made up of union representatives, people appointed by the employers, and some member elected representatives. The Scheme office, made up of Jon, Mark and Lyndall, work for the Board. Our job is to make sure that things that the Board ask for get done.
Mercer is a company with offices around Australia that work for the Scheme (and lots of other super funds). They do the administration, which means they pay the benefits, keep the records, run the website, and run the call centre. The Scheme office oversees Mercer, to make sure they are doing the right thing. We have at least one meeting every week with at least one part of Mercer to find out about progress on some part of the work, or to review the policies or processes that make it all tick over.
So Mercer works for the Scheme, in just the same way that our lawyers work for us, or our investment managers, or the accountants, and the list goes on. It isn't much different than if we did all the work in-house, and just had an administration department.
Tuesday 19 October 2010
All members should have received their statements by now. We know at least some people have, because there have been a few questions. Naturally give us a ring if you have any questions of your own.
The annual report is up on the website as well. I think it's worth a read (but then, I wrote a lot of it). You may find out something you didn't know about the EISS. For example, do you know:
- who is in charge of looking after your money? (Do you care?)
- what changed in superannuation last year that may have affected you?
- what's the investment philosophy of the Board for your money?
What's coming up?
Mark is about to do a visit to Leigh Creek and Port Augusta with Glenn Sterrey, one of the financial planners we refer members to. They'll be running seminars for both Alinta and SA POWER NETWORKS members. Invitations to members will be going out in the next day or so.
We are also looking at more visits to worksites around the state, plus evening seminars in the metro area.
We are going to start a 12 month attempt at phoning every member of the EISS aged over 50. This comes to about three calls a day over a year (in amongst our other work). The aim is to find out whether members are starting to think about retirement, and whether they need help with information and planning. We would like to help members maximize their benefits and to feel prepared for retirement. While retirement might still be quite some time away at age 50, we have found that this is the age when people often start thinking about it.
On the more boring side, we are reviewing all the policies that the Scheme has to make sure they are still relevant and up to date. There are only 46 of them, that we either have or should have, so going through all of them will no doubt cure any sleeping disorders we may have. Flippancy aside, it is important to have the policies up-to-date so that the Board acts in a consistent way and in line with the rules.
That should do us for a little while. We will also answer some questions, pay out some disability benefits, keep the investment managers on their toes, sort the occasional administration issue (which are quite rare these days), and make sure that the Board know what are going on.
Lessons from the GFC
Monday 20 September 2010
Article from Mark Carnegie of Apostle Asset Management, who manage some money for the Scheme:
As markets around the world fret about the risk of a double-dip recession, I worry more that we seem to have lost sight of the root cause of the global financial crisis.
That cause, put simply, was the fact that millions of investors fell for the illusion, marketed by both governments and the finance industry, that people could take more wealth out of the system than the system could generate. Endlessly rising asset prices created a pool of wealth which, for a time, could be drawn on at will to fund the purchase of whatever buyers wanted. The endless availability, consequent rapid growth in debt and a suspension of disbelief meant we could all feel that investment markets made magic happen. The magic seemed both boundless and eternal until the day of reckoning brought us all back to earth with a sickening thud.
The best outcome from the GFC would have been a return to reality that included understanding the fundamental truths of economics and investing. That didn't happen.
Now we need to relearn the central lesson that national productivity growth is ultimately what delivers investment returns, not some spiv adviser putting you into the latest high-fee investment product that they claim can deliver a 15 per cent rate of return with no risk.
Click here for more.
Monday 23 August 2010
At time of writing (Monday am after the election) it is a bit early to work out what, if any, impact a hung parliament and a minority government will have on superannuation. While SA went through a minority government 8 years ago, and survived quite happily due to the deals done, it's a bit different for the Federal Parliament.
A number of the changes recommended by the Cooper and Ripoll reviews into super and financial services will happen regardless of which party forms government. Making super more efficient is happening all the time (but would be quicker with a bit of legislation behind it). Most reputable financial planners are moving away from commissions already. Neither party seems particularly keen on the Henry review into tax, though my personal view was that it was a good basis for change.
Anyway, we will see. In the meantime, life goes on. We are working on getting the annual statements out in September, and we are still on track. We are also advanced in plans on doing some seminars in the metro area and some country areas.
As always, contact us if you have any questions.
ABC news story from Wednesday night
Monday 9 August 2010
You may have seen or heard a story on ABC news or PM on Wednesday night about the returns from super over the last 10 years not keeping up with the interest from a bank account. Much was said about how the superannuation industry was earning high fees at the expense of members balances.
The industry association for super funds (known as ASFA) checked into this, and the reporter provided a copy of the spreadsheet that he used for his calculations. The spreadsheet had a few errors. It seems that he calculated net earnings of superannuation funds by starting with assets at the beginning of a financial year plus net contributions, and then comparing that to total assets at the end of the year.
The problem with this is that it assumes that every amount paid by a superannuation fund should be taken off investment earnings. More specifically, the approach includes as investment expenses:
- the contributions tax paid by superannuation funds on employer contributions received by funds
- insurance premiums paid by superannuation funds.
Contributions tax is 15% of each contribution, and goes to the government. Funds don't pay it because they feel like reducing members' balances.
Insurance premiums pay for death and disability insurance, which provides a very real benefit to members. Anybody who has received a payment from their fund while they have been unable to work due to illness or injury knows how valuable this is.
Neither of these amounts benefit the superannuation funds or investment managers.
There is no doubt that overall fees for many super funds could be reduced. A lot of the reduction could come from reduced complexity on the part of the law that the government requires that we comply with. However, we are always looking for ways to do things cheaper.
EISS members are fortunate in one way. Not only are the EISS fees low in comparison to many funds, but the employers pay nearly all of the administration fees. Investment management fees are deducted from the interest that is added to your accounts, but even those fees are lower than many other (and larger) funds.
Let us know if you have any questions.
What are we up to?
Monday 2 August 2010
Being the start of a new financial year normally means a few jobs on the go.
Work on the 30 June statements is underway. The plan is that these will be out in late September, a bit earlier than previous years. We are trying to squeeze the efficiencies as much as we can, but we're don't think getting them out any earlier is possible. That is, not if we want them based on your 30 June salaries, and properly checked.
The Board has also just signed off on the Scheme budget for the year. It costs us about $2m pa to run the Scheme. That is all administration costs, and includes the office, the salaries for Mark, Lyndall and me, the fees for our administrator, lawyer, tax agent, etc, plus the cost of newsletters and all the other communication material that we send out.
There are quite a few queries and insurance claims around. The Board approved four disability and death claims today, which provides a great benefit to members.
We are also looking at our plans for this year. Communication and member seminars are the big topic. We are currently planning a series of seminars to put ourselves and a financial planner in front of the members, in order to help people better prepare for retirement. We are also starting a review of our internal operations to make sure that we are doing everything we should be doing, and doing it properly.
As always, we are happy to hear from anybody who has a query about EISS.
How safe is your super?
Tuesday 20 July 2010
I've been hearing that members near retirement are worried that their super may be affected by financial problems at their employer. Employees of Alinta Energy are particularly worried, but we have also heard of concerns from employees of other companies.
While I don't know much more about the employers' financial state other than what I read in the paper, let me try to explain how the EISS is set up.
After privatisation, the EISS was set up in a way that created assets to back up your super that were separate to the employers. That way, if the employer went bust (and I have no information that suggests one will), members super would still be able to be paid. The Board of the EISS is required to keep the EISS fully funded, ie with enough assets to be able to pay members' benefits.
This position was hurt by the GFC. Investment markets were hit hard, and the EISS assets are invested in those markets. Even with the conservative approach that the Board takes to investments, we had negative returns in 2008 and 2009. This meant that the EISS was no longer fully funded. The shortfall in funding was different for different employers, ranging from 0% to 10% at 30 June 2009. Investment markets have since recovered at least some of the losses.
Because of these negative returns, the Board asked the employers to pay more money to the EISS to make up the shortfalls. All contributions are being paid regularly, though we continue to keep an eye on things. The extra contributions were designed to bring the EISS back to full funding in 3 years. In the meantime the shortfall is continuing to shrink.
We are also in discussions with the Government about how to ensure that members' super is protected, as a promise was made at privatisation that members' benefits would be protected. We will let you know when we manage to get a result on that.
I would ask that if you have any questions on this, or any other superannuation matter, to not just talk about it amongst yourselves. Give us a ring. We are always happy to try to explain how we look after your money.
Government review into Super
Wednesday 14 July 2010
You may have noticed a bit in the paper on the Cooper review, which is the Federal Government review into superannuation.
This has come out with a number of recommendations to try to make super simpler and cheaper. Overall the report has been well received, with the normal whinging from some people who are going to have to adjust the way they do business.
Naturally, the recommendations don't mean anything until the Government actually does something by turning them into law.
What recommendations may affect the EISS?
1) A new simple product with no choice (and presumably lower fees) called MySuper must be used for people who don't want to choose a super fund. A MySuper account can be offered by any super fund, but it must be really simple. The EISS Accumulation Scheme is close to being a MySuper account, especially given that members pay no administration fees.
2) New standards for Trustees covering duties, powers and skills. The EISS already puts a lot of emphasis on training for Board members, but we will have to see what is actually in law before we can say we strictly comply or not.
3) Standards for reporting investment risk and return, which means we might have to change how we report these to members.
4) Greater use of electronic means to pay contributions and provide information from employers to funds. EISS employers already use EFT and such like to pay the majority of contributions, but we are keen to make the effort to ensure 100% so that we get the information more quickly and efficiently.
Other than that, there is not much that we are not already doing. However, we will be watching with interest any government proposals.
Thursday 8 July 2010
Do you want to contribute as much as you can to super, but not go over the contribution limits? Why pay more tax than you have to?
There is a limit on how much you can contribute each year in employer and salary sacrifice contributions. The limit is $25,000 if you are under 50, or $50,000 if you are 50 and over. If you go over this limit, you are hit with extra tax on the contributions over the limit.
Don't rely on your payslip, because what your employer takes out of your pay may not be the same as what the Scheme reports to the tax office. Confused? Let us explain.
The Scheme reports contributions to the tax office using a formula that the tax office tell us to use. This formula is not related to what your employer is actually paying.
For members of Divisions 2, 3 and 4, these will generally give a lower answer than the contributions that may appear on your payslip. This is a good thing and should not be argued with.
For members of Division 5, it usually isn't much different.
But if you want to keep close to the limit, you need to use the Scheme information. You can keep track of how you are going against the caps on the Scheme website. Just log on to the member area, and in the Contributions menu is Annual Contribution Caps. This shows what contributions you have made this year that count towards the caps. For members of Divisions 2, 3 and 4, this includes your employer contributions.
Let's look at an example. This is for a real Division 3 member and is taken from the website.
For this financial year, the member has $32,802.57 in contributions that count towards the cap (the first number under the date). He is over 50, so his cap is $50,000 and he is well under it.
The next two numbers make up the total.
- $23,839.34 is what he has contributed as salary sacrifice contributions
- $8,963.23 is what the Scheme tells the tax office is the cost of his defined benefit (based on their formula)
If you need any more information, give us a ring on 1300 307 844 or email firstname.lastname@example.org.
Happy new year
Monday 5 July 2010
A new financial year, yippee.
Ok, so it's not that exciting. Or is it? You have to do your tax return, but you also got a tax cut. It's also a great time to do some other financial stuff, like:
Make a budget
Start out with what you earn, then take out:
1. what you want to save
2. the compulsory spending like the house, insurance, car, food (maybe)
3. what you have left over (if any) is what you have discretion over
How much do you save? Depends on what you want to do with it. You could put it in your super towards your retirement, or you could put it in the bank for a trip later in the year. Either is fine, but don't put your retirement off, else you'll find out it sneaks up on you and you're trying to live on $700 a fortnight (single person) or $1,057 a fortnight for a couple. Sound like enough?
There is a budget planner on our website. Go to the menu, click on Information, and it's under Planning Tools.
Increase your super contributions
Doesn't have to be much. $10 a week will add up over 40 years to around $40,000 (allowing for inflation). Plus, if you are eligible, the government will give you $1,000 in your super if you contribute $1,000. Can't ask better than that.
Ring us up on 1300 307 844 if you want more info on this (ask about the “co-contribution”, as that's the jargon).
Think about your insurance
You're probably under insured. Most people are.
Now's the time to fix it. If you are a new member to EISS, you can increase your insurance up to 50% of salary for every year to age 60. So if you are 40, with a young family, you could be insuring yourself for 10 times your salary. This could be useful if that bus with your name on comes along.
Again, ring us and ask.
Also, think about who you want your super to go to if you do get hit by the bus (or ride your motorbike into an emu, but that's another story). It's called “Nominating your Beneficiaries” (don't you just love superannuation lingo). There's a form on the website, or give us a call.
Relax. Take time to smell the roses. Give your kids a hug (even the teenage ones, just for the look on their face) or your friends. Things'll work out, they usually do.
Are we all ruined?
Wednesday 26 May 2010
The sharemarket is down, the $A is down, so as far as super goes, isn't this the time we close up shop and head to the pub to drown our sorrows.
Well, that might be a slight overreaction.
Let's look at the Australian sharemarket. In price terms, it's at about the same level it was 5 years ago. Except that doesn't allow for dividends. If you reinvested the dividends over the last 5 years, then the return on shares is 50%, or around 9% pa. It's a similar story over the last 10 years.
The global sharemarket isn't quite as promising. Over 5 years the whole world sharemarket, including dividends, has returned about 4% pa (with some ups and downs on the way). However, the moves in the $A means that in local terms, it's about broken even. But that's hardly doomsday.
And the $A? Well if you look at the last 2 months compared to the $US, it looks like this:
But even at the current levels, the $A is still a bit higher than it was 5 years ago. Much of the recent fall in relative value is more to do with the $US being seen as a good place to be compared to Europe, than any problem with Australia.
The point I'm trying to make is to please take a long term view. Even if you are planning to retire next week, markets rise and fall frequently, often with little reason at all.
Get some financial advice. Ring the Scheme if you are not sure who to ask or what to do. We'll try to help you out.
New mining tax a storm in a teacup?
Government's response to the Henry review
Monday 3 May 2010
My take on the report on the Henry report is that it is quite a considered document that tried to put a structure around the tax system to manage expected changes in the economy.
However, the government has taken a couple of recommendations, added an increase in the minimum superannuation contribution (that doesn't start for 3 years), and left the rest. Unfortunately it's an election year, so that's probably all we will get for now. Hopefully this will go the way of previous tax reviews and the good bits will be implemented eventually.
The increase in the minimum superannuation contribution will not make any difference to the members of Divisions 2, 3 and 4 (whose super is already worth more than the minimum). A lot of members of Division 5 already get more than 9% as well, so there will be no increase there either for quite a while. Lower paid members will benefit from the government rebate on employer contributions, that we are assuming will be paid to the fund.
Very much a case of watch this space. Other issues may be released in the budget next week, or as part of the election campaign.
Reporting on the Cooper Review has not been great
Tuesday 27 April 2010
You may have read something in the papers about the Cooper review. This is a Federal Government review into superannuation that has been going on for a little while now, and is due to report later in the year.
There has been a lot in the media recently, some of it inaccurate, over the latest release from the review. Essentially the review is recommending that any default super fund must have a low cost no frills option that does not pay commissions.
This does not appear to be an issue for the Scheme, as Division 5 members don't pay accumulation fees (though they do pay investment fees). However, it is not an issue for any scheme until the Government accepts and legislates for the changes.
Return comparisons in the media
Friday 26 March 2010
You may have seen some stuff in the papers or elsewhere that compared returns from super funds. This is some statistics issued by APRA, which is the federal government body that regulates most super funds. The latest set of stats had MTAA at the bottom with -23 percent for the year to 30 June 2009, and Newcastle Permanent Super Fund on top with 3.1% for the year.
This is misleading, to say the least, in two ways.
Firstly, a fund may have 147 investment options, all invested different ways in different assets, and APRA produce one return number. No member of the fund will get that return, because they will be invested in one of the options. For example, a cash option may return 3%, and the growth option may return -15%, and APRA come up with a single average return.
Secondly, the media concentrates on the one year number (as usual) and ignores the fact that the numbers are a lot different over the longer term. Super is a long term investment.
(EISS, by the way, was somewhere in the middle with -11.8% for the year to 30 June. We didn't appear in the stats because we aren't one of the 200 biggest funds in the country, and because we aren't regulated by APRA. We've earned over 10% since 30 June, so we are coming good again.)
What have we been up to?
Monday 22 February 2010
The Scheme office has been keeping its head down in recent months, apart from a trip up north late last year. However, this isn't due to a sudden onset of agoraphobia.
We have been spending our time considering the big picture direction of the Scheme, which led to a day long meeting of the Board where everything to do with the Scheme was up for discussion. The Board was very careful (as always) to make sure that any suggested changes were in the interests of members.
After a lot of discussion, the direction of the next 5 years can be summarised as:
- the Scheme will continue in much its present form, with no big changes to its structure planned. This is in line with the Board's view of what members were told at privatisation, that their super would continue.
- Division 5 will continue as a fairly basic accumulation fund with enough investment options, and good insurance, with the employers paying the administration fees
- Communication to all members will be overhauled to ensure that members are aware of their options and ways in which they can maximise their benefits. This will include written communication, the website, phone and face-to-face meetings. A big part of this will be making explanations as simple as possible.
- Financial planning will be reviewed, especially for the 600 pre-privatisation members who are over 50 and are approaching retirement in the next 10 years
- Doing our best to improve (from an already high level) the security of funding for all members, especially for pensioners who may be receiving a benefit from the Scheme for decades
Obviously there is a lot more to it than these five points, and the discussion ranged over all sorts of issues including the best way to manage the Scheme, how super funds are changing, the history of the Scheme, the aging of the membership and the population, and much more. The plan is that many of the changes will be rolled out in the first half of the year, so watch this space.