spacer
spacer
 eWombat Search

Subscribe to our newsletter

* indicates required
spacer
   Get ASX price
spacer
  Accounting Services Home   Financial Planning Home   Lending Services Home
  Latest Financial Planning News
SMSFs: Our 'hardest' jobs
ASIC issues alert over big gaps in SMSF trustee knowledge
Super savings gap for women stuck at 30%
Statistics for all Australians
Super set to play bigger retirement role
Why SMSFs want estate-planning advice
The power of financial role models
Assess your retirement financial resources
Cryptocurrency audits tipped to increase this EOFY
Time to check your risk exposure?
Some general interest stats on SMSFs
Survey reveals strong opposition to retirement system changes
Check trust deed to protect super in estate planning
Australia by numbers – Update
Federal Budget 2018 – Overview
Your Budget
4 components of our 2018 Federal Budget
Tools to help you manage your financial position are available on our site.
New rules capture SMSFs trading big with cryptocurrency
Common EOFY slip-ups flagged for SMSFs
Beware residency rules if moving overseas
99 pct of SMSFs missing global opportunities
How to plan for a better retirement
Australia by numbers - Update
Determine your retirement goals
ATO issues update on cryptocurrency compliance traps
How likely is a global trade war?
Gig economy spike prompts calls for super policy changes
Australia's vital statistics
What your age should say about your super
Downsizing requires holistic tax planning
Millions of multiple super accounts erode savings
Why your retirement intentions are critical
Plans for study into elder abuse
Our website is really our digital office.
Dissecting the downsizer contribution
The Goldilocks effect - Economic and market update 4Q 17
Rates, inflation and yield - five graphs to help make sense of it all
Australia. All you need to know to be the expert.
Potential pension minefields
Confusion lingers over post-death insurance
Non-lodgement numbers slashed, 30,000 funds still in ATO’s sights
Business confidence hits 5-month high: NAB
New Year resolutions, New Year strategies
How will downsizer contributions work for SMSFs?
Where Australia is at. Our leading indicators.
‘Read the tea leaves,’ brace for cryptocurrency regulation, advisers told
Power of retiree super dollars
Beyond share prices
Financial advice is the leading trigger to review insurance inside Super
Opinion – 2018 to be the year of the machine
Rising risks to the status quo
UPDATE: Australia's vital statistics
As share prices rise, the risk-return trade-off gets tricky
Technical expert flags top 3 traps with CGT relief
Become a better investor through your holiday reading
Australia's vital statistics
Made in Albania? How globalisation is creating challenges for Chinese policymakers
Our Advent calendar for 2017
For the young it a question of engagement
Address Under-insurance at Personal Finance Level - Global study
Realism vs reality - working part-time as retirees
SMSFs warned on ‘ticking time bomb’ with outdated deeds
Statutory wills are underutilised in estate planning
Resources on our site to help you, your family and your friends.
Calls to Review ASIC's Definition of Lapse Insurance
Paperwork bungles lead to $38k in payments
Self-employed? Don't miss out on super
Australian Dietary Guidelines and healthy eating chart (PDF)
Big concessions looking likely for transfer balance limit: ATO
Raft of superannuation measures enter Parliament
US Fed policy: Normalisation begins
What the gig economy may mean for your super
Powerful Budgeting, cash flow and Super Tools available on our site.
Australia's leading causes of death - ABS
Government introduces first home scheme laws
Are young investors wasting their youth?
ATO granted super enforcement powers
The great Australian (retiree) dream
ATO to release further guidance on reserves
A real-world benchmark for SMSF performance
How is your super going, ready for retirement?
Our 'hardest' SMSF tasks
Lack of literacy promotes unrealistic goals
Young investors: Time is on your side
Is your SMSF retirement-ready?
Key Economic Indicators, 2017 - updated
Investors acting their age
ATO locks in details, addresses panic on real-time reporting
Government ‘undermines’ tax system in new moves on property expenses
Multiple super accounts in a 'gig' society
Why Australian retirees aren't happy and what we can do about it
Doing a budget is a good idea but ....
Technical expert flags estate planning strategies for 2017-18
Government to shut down salary sacrifice loophole
Items that heat up your depreciation deductions
‘Tens of thousands’ of SMSFs at risk with ECPI
Do’s and don’ts of estate planning
LISTO to help boost women’s super
Smart ways to stretch retirement money
Low economic growth likely for years
Recorded Crime - Offenders, 2015-16
Adequacy of savings still a concern among Australians
‘Bank-like heists’ make way for new wave of cyber crime
Give your children a saving and investing edge - for life
Women still in the dark about finances
Lessons learnt - often the hard way
Australian population figures
ATO poised to ramp up focus on key compliance area
Benefit payments rise dramatically ahead of July 1 super changes
There's no magic pudding when it comes to super
ATO guidance provides clarity on death benefit confusion
Beyond super: Our other personal investment market
The three core pillars of this year's budget
Federal Budget - 2017-18 - Overview
Federal Budget - 2017-18 - Budget documents
Global economy synchronised and thriving
Life's financial turning points: good and not-so-good
2011 Census - what was the make up of your area?
ATO set to release guidance targeted for SMSF clients
More withdrawals from 'the bank of mum and dad'
Tax headache relief: Here’s more help with pension assets changes
Most Aussies shun super advice
Australia in a nutshell
ATO finalises guidance on transfer balance cap
Fit for purpose? The super story so far...
SMSFs urged to review segregation clauses in trust deed
Big insto addresses CGT misconceptions
Dollar-cost averaging for millennial investors
Calls for calm over pending CGT amendments
Almost the world's best for retirees
ATO reports on top contravention areas for SMSFs
What recent retirees can teach pre-retirees
Deloitte points to ‘red flag’ SMSF patterns
Save early, save often
Government pushes forward with multinational tax measures
Jump-start your retirement savings
Government urged to rectify ‘legislative shortcoming’ with CGT relief
Some financial terms explained
Areas of key focus for SMSFs in 2017.
Powerful Superannuation modelling tools available on our site.
Your New Year reading: beyond John Grisham
What a long-term view of the market can teach investors
CGT confusion seeing unnecessary sell-offs
‘Devastating’ property investments hitting SMSFs
Asset valuation crackdown imminent for SMSFs
New Year (investment) resolutions
Trump stimulus to boost global markets
Female advice customers on the rise
Retirement costs outpace rise in CPI
ATO set to scrutinise CGT relief claims
Investor habits: The good, the bad and the ugly
Keeping finances in the family
The inter-generational financial squeeze
Merry Christmas for 2016, a Happy New Year and a prosperous 2017.
ATO set to clamp down on range of super issues
SME retirement plans in jeopardy, research finds
SMSFs show restraint in hot residential market
Investment's building blocks - always worth reinforcing
Warnings issued on traps with CGT transitional rules
Meet SMSFs' early and late arrivals
Beware, the ATO is on the hunt for lifestyle assets
'Brexit means Brexit' means what?
SMSFs tipped to be hardest hit by pension changes
SMSF assets hit record, but funds still hoarding cash
Markets caution advised as economic bubbles loom
Stretching retirement income
Some financial terms explained
Market Update – September 2016
Checking in on our 2016 economic outlook - and looking ahead
Making a fairer and more sustainable Superannuation System
Going undercover
‘Winners and Losers’ from new super proposals
The gymnastics of keeping your portfolio balanced
Market Update – August 2016
Stop!! Don't do a paper Budget, use our online budgeting tools instead.
Advisers the key to retirement stability, research shows
The toughest tasks for self-managed super
Lawyer warns on ‘adverse’ death taxes with insurance
Don't get distracted by super changes
A savings mirage?
Market Update - July 2016
The three biggest economic issues likely to affect markets in 2016
SMSFs warned on looming property ‘tough times’
Diversification counts when uncertainty beckons
Strong economic data stablises markets
Starting a super pension in 2016-17?
Market Update - June 2016
ATO extends looming SuperStream deadline
ATO's deadline for review non-arm's length LRBAs extended
A paradoxical relationship: The self-employed and super
Fresh SMSF documentation warnings surface
Making investing a family affair
Super and divorce: a personal finance issue
Market Update - May 2016
ASIC flags SMSF investors in scam risk
Older, greyer and still working
Working and contributing to super past 65
The pitfalls of part-year pensions
Replenishing SMSF memberships
Budget will hit 15% of SMSFs
The insidious side of low interest rates
Market Update - April 2016
Budget 2016-17
Do investment principles stand test of time?
Estate Planning - early inheritance
US economy will bend, not break
A detailed look at the ATO’s new LRBA guidance
Defying life's blueprint
ATO continuing lodgement crackdown
Another twist on the gender savings gap
Market Update – March 2016
Going solo
Use our online budgeting tools to help plan your future.
Age Pension means-test prevents rational decision-making
Changing times for super collectables
Preservation Age Rule
Why investing for retirement isn't just about super
Possible tax benefits through early inheritance
Market Update - 29th February 2016
Mortgages, personal debt and retirement
Cost of retirement continues to climb
Personal finance goes 'viral'
ATO warns on poor asset records causing SMSF breaches
When is an unallocated contribution account a reserve?
Market Update – 31st January 2016
Australians still need better retirement planning
What to expect from investment markets in 2016 and beyond
‘Irrational fear’ impacting SMSF longevity risk: CSIRO
Tax scam reaps hundreds of thousands
Morrison signals direction of super tax changes
Market Update – 31st December 2015
Should we expect stormy skies or sunshine in 2016?
Merry Christmas and Happy New Year 2015
There's no one-size-fits-all retirement income
Market Update – 30th November 2015
Diversifying and cutting costs with ETFs
Why the ATO’s new powers make SMSF compliance more important than ever
'Unretiring' retirees
The detrimental impact of poor SMSF record-keeping
Counting the cost of 'grey' divorce
Combining total-return investing with realistic investment expectations
Market Update – 31st October 2015
Another telling reminder for SMSF trustees
The demand for global infrastructure
Death in paradise – or your SMSF
Elderly exploited for assets
Intergenerational challenges for retirement saving
Help achieve your investment goals with dynamic asset allocation
Death benefits – navigating the minefield
The Power of Budgeting
Strategy over structure
Market Update – 3oth September 2015
Jump retirement hurdles with a coach
Preparing for the time of your life
SMSF and limited resource borrowing – a warning
External partnerships and the in-house asset rules
Take a closer look at SMSF age demographics
Avoiding tax consequences with the related-party rules
Focusing on after-tax returns
Market Update – 31st August 2015
The gender gap in retirement
Why popularity of ETFs is surging among SMSFs
Clearing up confusion about accessing super.
Good (investor) behaviour
Five reasons the RBA will likely cut rates again
Market Update – 31st July 2015
What the ATO is keeping an eye on
Through life and death
Why astute investors are a little like astute kayakers.
Your first SMSF portfolio
Market Update - June 2015
Money-smart ageing
A new (financial) year’s resolution for your SMSF
What’s ahead for US interest rates?
Super: Looking to June 30 and beyond
End of year tips for SMSFs
Reminders and Tax Strategies for SMSFs pre-year end
Market Update – May 2015
A Super Loan for all reasons
SMSF trustee penalties going up
Contraventions rife among non-advised SMSF trustees
Dealing with investor uncertainty
Reserve bank gives the economy a lift
Retirement planning: the gap between intention and reality
Market Update – April 2015
Making a smooth transition
Australian Government - Budget 2015
Budget 2015 - some professional opinions
Australian Government - Budget 2015
Budget 2015 - some professional opinions
What does the ATO want from you?
Achieving a comfortable retirement
Making sense of the new excess contribution rules
Greying, working and contributing
Simple-yet-smart investment housekeeping
Market Update – March 2015
Is off-the-plan on the money?
Should I take my super as a lump sum or not?
Do you have a key person in your business?
Tips for success in a competitive job market
All you need to know about buying at auction
To sell or not to sell?
Saving in a material world
Some financial terms explained

 

The six terms described below are Allocated Pension, Transition to Retirement Pension, Pension Phase, Hybrid securities, Price/Earnings Ratio and Dividend imputation.


Allocated Pension


What does it mean?


An allocated pension is a product purchased by retirees to convert their super savings into a regular income. Retirees use allocated pensions to pay themselves an income over a time period roughly equivalent to their life expectancy. Pension payments can be made monthly, quarterly, half yearly and yearly and are deposited directly into a retiree's bank account.


Defined..

Allocated pensions are by far the most popular product around for retirees looking to live off their super savings in retirement.


So why are allocated pensions so popular? Why don't retirees just withdraw their funds out of super and dump the lot into a term deposit or savings account, or even use their super to buy other investments such as an investment property or shares?


The major reason here is tax. Allocated pensions save you tax compared to most other strategies in retirement. That's because any investment earnings in an allocated pension - interest, dividends, capital gains - are tax free (age 60 and above). In comparison, interest made on a term deposit or rent received on an investment property held outside the super environment are subject to tax at the retiree's marginal tax rate.


When a retiree buys an allocated pension to house their super savings they don't have to say goodbye to the money forever. At any time, you can opt to withdraw all, or part, of your money from an allocated pension by simply filling in a couple of forms (check to see if there are any restrictions on the number of lump sum withdrawals allowed each year). You may use the money to buy a business or property, or to go on an overseas trip. Some retirees assist their children to buy a house. The allocated pension offers this needed flexibility.


So how much does an allocated pension pay? Well, that depends on how much you have to start with, and how old you are. The Government sets minimum limits, which are calculated when the pension is established and recalculated at the beginning of each financial year.


You can change the amount and frequency of your pension payments whenever you need to, but you can't turn an allocated pension on or off like a tap. Once started, you must receive at least the minimum payment each year. The pension ceases when the account balance hits zero.


Allocated pensions aren't just cash accounts. Retirees have a raft of investment choices at their fingertips including Aussie and international shares, managed funds, listed property, fixed interest and cash. The aim of an allocated pension is to not simply eat into your capital, but to actually make money in retirement as well. Retirees drawdown a combination of capital and investment earnings to live on. Clearly, the more money you make on your investments, the longer your retirement money will last - and the more holidays you can enjoy.


Allocated pensions are not just popular with retirees (those who are permanently retired and have reached preservation age). Pre-retirees, over age 55, looking to boost their super before retiring completely often buy allocated pensions in order to undertake the transition to retirement strategy. You can read more about this popular strategy below.


Transition to Retirement Pension


What does it mean?


A transition to retirement pension is a flexible way to move from work to retirement. On reaching your preservation age (generally 55, but is increasing over time and may be 60 if you were born after 30 June 1964), you can start accessing super (including the preserved portion) via a super pension while maintaining or reducing work hours.


Defined ...


Many individuals nearing retirement are looking for ways to boost their super savings. With the introduction of government’s simpler super reforms in July 2006, it is now possible to do exactly this by making the most of transition to retirement (TTR) rules.


You can take advantage of the transition to retirement rules by salary sacrificing part or all of your employment income into super, while at the same time beginning an allocated pension from your existing super funds. The pension provides an income while you continue working, and is tax free for individuals over 60, and carries a 15% tax rebate if you're aged between 55 and 60.


At the same time you're getting considerable tax benefits from salary sacrificing your income into super, paying only 15% contributions tax, as opposed to PAYE income tax rates of up to 45%.


So at what age is this strategy of most benefit? Most advisers agree that it best suits someone aged 60 or more, or at the very least age 55. Between now and 30 June 2012 an individual can take a pension income stream tax-free and make contributions (both salary sacrifice and employer contributions) up to $100,000 per annum.


To begin a TTR strategy, you must have reached ‘preservation age’, in order to access super benefits. This is age 55 if you were born before 1 July 1960, phasing to age 60 for those born after 30 June 1964.


Due to the reduced cash flow, anyone thinking about the TTR strategy should have no debt.


Not all super fund providers offer TTR arrangements.


The fees of setting up a TTR arrangement should be minimal – and if you are able to set up the scheme yourself, no costs should be incurred at all. Once you reach retirement age, the commutation of the TTR pension back to accumulation phase is also allowed and should be at a minimal cost.


Before deciding on whether to set up at TTR strategy, you firstly have to find out what your pension is worth, then check the numbers on your living costs and see if the after-tax income of the pension will cover your needs. Then you need to make an application to the super fund for the pension to commence, and notify your payroll office of your decision to salary sacrifice to superannuation.


The TTR strategy has the Australian Taxation Office stamp of approval, which has stated that it will not apply anti-avoidance provisions where this strategy is employed. The ATO notes: "We would only be concerned where accessing the pension or undertaking the salary sacrifice may be artificial or contrived."


his information is of a general nature only and doesn't constitute personal investment advice.


 


Pension Phase


What does it mean?


Many retirees convert their retirement savings to a pension upon retirement due to the considerable tax benefits available in the pension phase.


Defined..


Once retired, you have the choice of retaining your funds in super (in the accumulation phase) or converting your funds to a pension, such as an allocated pension.


Taxation payments will be higher if you leave your assets in a super fund compared to a pension. In the accumulation phase, earnings on a super funds are taxed at up to 15 per cent. But once a fund converts to paying a pension, there is no tax payable on the earnings. Additionally, if you are aged over 60, any pension drawdowns are also tax free.


Let's say that your account balance is $500,00 and generates 8 per cent ($40,000) assessable earnings. Assuming half of this is income, and the other half realised capital gains, then the tax payable would be around $5,000. If the account had been converted to the pension phase, then the tax would be nil.


One possible downside of commencing a pension is that you may not need the minimum level of income that you must draw down. For instance, you may have income from other sources, such as investments in your names or employment income.


And once a pension is commenced, it is no longer possible to add extra contributions.


The costs charged by the product provider when making the switch from accumulation to pension phase will vary, but are impossible to avoid once you've decided to cash in your super assets. But it is vital that you shop around when looking for a retirement income product, as fees and charges can range enormously.


 


Hybrid securities


What does it mean?

Hybrids are products that combine the characteristics of shares and fixed interest products..


Comment


Hybrid securities are “higher yielding” investments, generally paying regular income to investors a couple of basis points above the bank bill rate. Such investments are popular with retirees seeking higher yields than they’d normally receive from a cash account.


As with most investments, riskier hybrids pay a higher interest payment (otherwise called a coupon or preferred dividend) to compensate investors for the added risk.


When buying a hybrid security you are typically lending money to a bank, insurance company or large corporation, known as the issuer. In return for the loan, the issuer pays a given interest rate (called the coupon) for the life of the security, repaying the principal at maturity (more on this later).


As the name suggests, hybrid securities are a mix between a debt and equity instrument. Before changes to the International Accounting Standards, most hybrid securities issued were reset preference shares (RPS).


RPSs act like traditional bonds to begin with – paying investors a fixed or floating interest rate (often franked) – but at maturity, or the reset date, can be converted to ordinary shares, cashed in, or rolled over into a new security.


This means that investors in hybrids get it both ways; they receive regular coupons for a set period (usually five years), but also receive the equity twist. In the event of bankruptcy, investors in hybrids rank after bondholders but before shareholders in the carve-up of the company’s assets.


All things considered, perpetual step-ups are not as attractive as the old reset preference share. Investors in the new step-ups no longer retain the right to convert their securities to shares, or redeem them for cash. Instead, this right will lie at the feet of the issuer. Basically, the step-up clause means that, in the event that the securities are not converted or redeemed for cash, interest payments are increased (stepped-up) after a specific date. Steps-ups are regarded as marginally inferior to the old reset preference shares since investors are no longer guaranteed the right to cash out at maturity in order to receive their money back.


 


Price/Earnings Ratio


What does it mean?


The Price/Earnings ratio is how much money you are paying for $1 of the company's earnings. So if a company is reporting a profit of $2 per share, and the stock is selling for $20 per share, the P/E is 10. In other words you are paying ten-times earnings.
P/E Ratio = Price Per Share / Annual Earnings per Share


Comment:


A favourite tool of the contrarian is the price/earnings ratio (P/E), which is calculated by dividing the current share price in cents by the company’s earnings per share, or EPS. Thankfully, the historic P/E on stocks is readily available, so you don't have to manually do this calculation yourself.


The P/E ratio is rather useless on its own, but is a handy comparison tool. You can use it to compare one company against its peers, to the overall market, or sector, as well as to track historic performance.


Let's say that one company (Company A) has a P/E of 12 and another company in the same industry (Company B) sports a P/E of 20. For every $1 of current earnings, the investor is effectively paying $12 a share for Company A and $20 a share for Company B.


It's clear that Company A is cheaper than Company B because for every $1 of earnings, you're paying $12 a share instead of $20.


Contrarian investors use this as a guide for finding stocks that are going cheap. They particularly like stocks that are trading on a low P/E relative to their peers and the overall market.


But does that mean that Company A is a better buy than Company B?


As we all know, earnings are the basic ingredients of share price growth, and the best stocks to buy are those exhibiting a trend of increasing earnings (we like to see earnings growth for five years or longer).


Remember, earnings refer to “net profits” and not revenue.


When investors spot a company with a trend of increasing earnings, they get excited and buy shares. As more shares are purchased, the share price is bid up, and so is the P/E ratio (since the current share price is the numerator in the ratio). The more popular the stock, the higher its P/E.


So Company B could in fact be a better buy than Company A if its earnings are growing at a faster pace.


There are times however when markets get out of wack. External shocks such as the recent financial crisis send share prices into a spin, and stocks that were once expensive (on a P/E) basis can be suddenly looking pretty darn cheap.


It's times like these that contrarian or value investors come to the fore. With their toolkit in hand, bargain hunters set to work.


A bargain means that you are getting something that should cost $10, for $5. You buy a leather couch on special for $2,000 that a week prior was holding a price tag of $4,000. This is what most of us call a true bargain without thinking too much about it.


But just because the coach was priced at $4,000 the week prior, doesn’t necessarily mean that it's a bargain at $2,000. (It could be old stock, its design could be going out of fashion).


Likewise, just because your favourite stock was trading at a P/E of 10 many months ago, doesn't necessarily mean that it's a steal at 6 today. Basically you have to consider whether the fundamentals have changed.


For example, as consumers tighten their purse strings, will the company struggle to sell its goods and services? If the company has a lot of debt on its books, will it battle to get funding? If it's an importing company, will the fall in the AUD/USD impact its sales?


Sometimes a fall in the P/E can be justified, sometimes not. And getting this right is the true test of whether a contrarian investor spots a bargain or not. 


 


Dividend imputation


What does it mean?


Dividend imputation is a company tax term in which some or all of the tax paid by a company may be attributed  to shareholders in the form of a tax credit to reduce income tax payable on the income distribution (dividend).  


Comment


Before 1 July 1987 corporate profits were subject to two lots of tax. Firstly, companies paid company tax on their earnings. Only the "after tax" earnings were then available for dividend declarations. Secondly, individual shareholders paid personal income tax on any dividends received by them, despite the fact that the companies paying them had already paid tax on the underlying profits. This unfair approach has now been replaced.


Under the current system, which is called "dividend imputation", companies still pay tax on their earnings and then declare dividends, if they wish, out of their "after tax" incomes. However, these transactions no longer involve double taxation.


Such dividends are known as "franked" dividends. The company tax which was paid by the company on the portion of the gross profit relating to the dividend is called the "imputation credit".


With a company tax rate of 30 per cent each $100 gross profit becomes $30 tax and $70 net profit. Each dollar of net profit thus has associated with it 30/70 dollars of imputation credits.


Individuals receiving a franked dividend are then treated, for tax purposes, as having received as assessable income both the dividend and the associated imputation credit, and as having already pre-paid as tax a sum equal to the imputation credit.


Individuals on marginal tax rates which are less than the company rate of tax thus become entitled to a refund of the amount overpaid. If not required as an offset to tax this refund is now available in the form of cash.


Some dividends are unfranked - for example, when the relevant company profits were earned overseas and did not result in tax payments to the Australian government.


Some dividends are only partly franked. The franked portion divided by the whole is known as the "franking ratio".



Source:  www.thebull.com.au


Site by PlannerWeb

227 Hutt Street, Adelaide SA 5000 | PHONE:(08) 8272 6833 | FAX:(08) 8227 2608

GWM Adviser Services Limited is only responsible for advice provided by EFC Financial Services Pty Ltd under the terms of Authorisation (Authorised Representative) of the Licensee.

  I have read & agree to the terms described above