Matt Lawler

AMP Advice has partnered with leading fintech Yodal to provide financial planning practices with access to a comprehensive Estate Planning Service.

Practices in AMP’s network can now elect to incorporate the service, including Yodal’s practice-branded workflow solution, as part of their tailored package of professional services for their clients.

The innovative, end-to-end service comprises initial and ongoing training, together with an advice toolkit, practice marketing, re-use of Xplan data as well as access to the Yodal solution.

Launched at Advice LIVE, the Estate Planning Service forms a core part of AMP Advice’s client solutions value proposition in assisting more advice practices to grow their business, increase their revenue and respond to burgeoning client demand for estate planning.

Preparing for Australia’s great intergenerational wealth transfer

According to research by The Demographics Group, Australia is one of the richest nations in both absolute and GDP per-capita terms, having grown its GDP per capita from $17,000 to more than $63,000 in the space of 30 years.

Changing attitudes towards wealth means Australian wealth is no longer solely tied up in the family home, with the proportion of dwellings owned or mortgaged in Australia declining from 73% to 63% over the last 60 years.

The annual value of intergenerational wealth transfer has more than doubled since 2002 and could rise four-fold in real terms between now and 2050, as household wealth grows and the population ages.

However, two out of three​ Australian adults still do not have a valid or current will and an estimated 70%​ of household wealth is forecast to be lost in the next generation due to a lack of adequate estate planning and advice​.

Streamlining the estate planning service

By partnering with Yodal, AMP is equipping practices with a market-leading solution that helps practices manage intergenerational wealth transfers with ease and plan for client succession.

The service also provides practices with an ability to get dedicated legal support, ensuring they are prepared, confident, and can provide the best service to their clients when facilitating estate planning.​

The introduction of the Estate Planning Service is part of AMP Advice’s strategic initiative to provide comprehensive and value-added services, enhancing the capabilities of its financial advice network.

Matt Lawler, Group Executive, Advice, AMP said: “We are excited to introduce estate planning as a key component of our services offering for the Advice network, helping more of our advisers nurture and grow their business.

“Estate planning is a top priority for our practices and we are focused on helping our advisers realising their growth ambitions and enriching the services they provide.

“By aligning with the evolving priorities of advisers and clients, AMP continues to drive innovation and growth in its Advice business.

“With nine million Australians heading into retirement over the next forty years, our partnership with Yodal will allow us to empower more advisers with the tools and resources needed to navigate this complex landscape efficiently.

“This initiative aligns seamlessly with our overarching vision to solidify our position as Australia’s leading professional services provider by delivering unparalleled value to our practices and their clients.”

Bernard Salt, Executive Director, The Demographics Group, said: “Often described as the ‘lucky country’, Australians are bound together by a culture of aspiration, by access to opportunity, and by the relentless pursuit of a good quality of life.

“The last 100 years have seen significant changes in our attitudes to wealth.  The current generation of retirees represents the greatest demographic aggregation of Australians in the non-work stage of the lifecycle.

“The scale of these demographic factors today let alone in the decade ahead will shape the way we manage the transfer of wealth from the older to the younger generations.

“Managing wealth later in life requires thoughtful application as well as expertise, prompting the need for a focus on estate planning by retirees (and others) across Australia.”

Brandon Thompson, Chief Executive Officer, Yodal said: “Estate planning represents a significant commercial and client servicing opportunity for financial services professionals.

“We’re delighted to be partnering with AMP and helping more practices ensure that their clients’ wealth is transferred in accordance with their wishes, and their legacy and loved ones are protected.

“With an unwavering commitment to supporting our partners and their customers, Yodal leverages simple, secure, market-leading technology to deliver a full end-to-end estate planning solution including mandatory legal review by your chosen or preferred lawyer on every matter.”

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Bernard Salt

New research shows attitudes to wealth no longer singularly defined by the ‘great Australian dream’ of home ownership

A new report by AMP and leading demographer Bernard Salt shows that more Australians now define wealthy as having the financial freedom to pursue passions and support those we care about, in a shift from the singular pursuit of home ownership sought by previous generations.

New research, which for the first time examines home ownership census data back to 1911, shows that ownership rates in Australia peaked at 73 per cent in 1966, with a steady decline to around 63 per cent today.

The report finds that while homes are still clearly the key wealth asset for many Australians, more people now view ‘wealthy’ as having the financial freedom to live the lifestyle they want and may seek to achieve this through more liquid forms of wealth, including savings, equities and other managed investments.

The report draws on a range of demographic data and analyses key societal developments over the past 50+ years, to explore what it means to be wealthy in Australia today, and how and why our attitudes have changed.

Marrying and having children later, higher rates of divorce, and increased life expectancy, have culminated in more ‘alone time’ for many Australians, leading to a more individualised view of how we think about wealth.

Increasing life expectancy, greater workforce participation by women, the superannuation guarantee, the rise of apartment living, globalisation delivering greater prosperity and, more recently, the COVID-19 pandemic, have also contributed to our changing views of what it means to be wealthy.

Bernard Salt, commented: “Our singular focus on home ownership in the middle of the 20th century delivered a sense of security to returning diggers whose childhood was spent navigating the travails of the Great Depression. Getting married, having kids, buying a house, holding a steady job were values that shaped the times.

“Whereas current day Australians have a range of objectives which includes home ownership, it also includes the pursuit of options like how and where we work, in how and when we form relationships and in how we choose to live our lives. Many of these things have changed dramatically since the 1960s.

“What has not changed is the value of health, of personal relationships, of family, of the ideal of provisioning for children, of helping grandchildren. These things are eternal. They are human. This is the reason why we pursue security through wealth and why we have pursued these things in the past.

“Wealth however grand or modest enables us to live the lives we want to live, to benefit those we love, to support those we care about, both now and into the future.  That is what it means to be ‘wealthy’.”

Alexis George, AMP’s Chief Executive Officer, commented: “The report shines new light on our nation’s attitudes to wealth, what we value and how we manage our finances, which has shifted significantly over the past 50 years.

“No longer anchored just to home ownership, the concept of wealthy is now defined by a financial ability to pursue unique passions and goals, which often includes helping those close to us.

“Modern day wealth requires us to consider what our goals are and to put a financial plan in place. The earlier we do this, the more likely we are to achieve those goals.

“The challenge is that despite Australia having one of the world’s highest GDPs, a resilient economy and a strong education system, we know that financial literacy is poor, and financial advice remains out of reach for many.

“Improving financial literacy, offering greater access to financial advice, retirement and other investment solutions are key ways financial services organisations like AMP can help Australians engage more with their finances, so that they can achieve the wealthy they want.”

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It’s vital advisers understand the importance of funding, housing and wellbeing to ensuring older clients meet their retirement objectives.

For so many, retirement seems to be an end goal. However, what should advisers do when their clients reach retirement? This article, proudly sponsored by Russell Investments, examines those early days of retirement and the importance of sound planning for funding, housing and wellbeing.

Most Australians have a positive vision of retirement, viewed through the rosy lens of retirement advertising. A golden time of precious moments with family and friends. A time of exploration, whether as a ‘grey nomad’ exploring Australia’s vast territory or heading overseas to tick off items from the bucket list.

Demographer Bernard Salt believes 2021-2027 will represent the peak years of the Australian baby boom retirement surge, a cohort of nearly five million. This will, he says, translate into an elevation of retirement issues: concerns about health care, aged care and access to various aged-based financial concessions^[1].

“The driving force behind the next generation of retirees will be a desire to reset the agenda, to extract value out of every minute of every day: to live life to its fullest.” Bernard Salt, August 2021

The now retiring cohort of baby boomers have a strong memory of their parents in retirement. After all, they have been helping their parents navigate different parts of the system – Centrelink, support services, aged care services. Baby boomers are generally more tech savvy than previous generations and are arguably more educated and sophisticated; they are also the first generation to retire with some superannuation savings.

The average life expectancy of Australians has shot up by nearly a decade in the last 20 years. While on one hand, this is great news – more years to fulfil those retirement dreams. For others, the halcyon retirement vision fades as fear of outliving retirement savings becomes a reality.

How can advisers ensure their clients are well prepared for retirement? Not just financially, but more holistically? The three main drivers for wellbeing in retirement uncovered by research^[2] – income, community and control – are aspirations that can underpin the transformative impact of advice for retirees.

This research found retirees are more satisfied if they feel financially secure. Secondly, retirees who remain a part of their established community and are embedded with family and friends received a better wellbeing score than those who chose to relocate. The feeling of control, inextricably linked to financial security, reinforces the value of financial advice. Finally, home ownership is important. Those retirees who own their own home have a much better retirement experience than those who don’t; in fact, owning a home was found to be the clearest driver of satisfaction and happiness in retirement.

While no two retirements are the same, there are issues that when resolved, can lead to positive outcomes. By working with clients to set goals and implement strategies to meet them, advisers are in a unique position…one that can help retired Australians improve their income, feel safe and comfortable and experience wellbeing. In other words, you’re in a strong position to ensure your clients can have the best possible retirement.

Retirement funding

Although baby boomers are the early beneficiaries of the compulsory superannuation system, for many, this enforced retirement savings was introduced too late in their working lives to fund 25 or so years of retirement. The 2020 Retirement Income Review was the first major inquiry into Australia’s retirement savings system and focused on how to improve retirement income. It identified three pillars of retirement funding: superannuation, the Age Pension and voluntary savings, including home equity.

Although its been in play since the 2014 Financial System Inquiry, the retirement income covenant (RIC) formally passed through parliament on 10 February 2022 and comes into effect on 1 July 2022. The RIC requires super trustees to develop a retirement income strategy for their members; the aim, to improve the financial outcomes for Australian retirees. While the RIC does not place obligations on financial advisers – or on SMSF trustees – you will need to understand the retirement income strategy offered by the super fund for each of your clients.

Establishing financial goals for retirement can, and where possible, should start before retirement. Whether it’s a trigger event such as we’ve seen during the Covid-19 pandemic, a planned exit from the workforce or a gradual wind-down, advisers can help their clients make the transition. As detailed in an earlier article a Transition to Retirement (TTR) strategy can be useful for pre-retirement clients, specifically those aged 58 or over, who have reached their preservation age and are still working. A TTR enables clients to access their super as an income stream while they are still working and can be used to achieve different objectives.

Once retired, sources of each client’s retirement funding need to be assessed (figure one). Retirees need income to meet their lifestyle needs. They also need access to capital: for home modifications or repairs, a new car, travel or medical expenses.

Retirement is characterised by change, both expected and unexpected. Changing family structure can change both the conversation and the retirement outlook for individuals. For example, 40 percent of separated, divorced or widowed Australians are forced into retirement by health issues^[3]. This cohort also demonstrates less financial resilience.

Change can also come from external forces, such as a market correction that impacts financial assets or changes to interest rates. Or, as we’re currently experiencing, cost of living pressures. Such change will have a much bigger impact on the future decision making for retirees on a fixed income.

There’s significant wealth built up and transferring into this space and, at the same time, there’s plenty of complexity. The latter only grows with the government consistently changing rules around super, tax and Centrelink entitlements. There are also opportunities such as the government’s downsizer contribution to consider, and the RIC will no doubt deliver new financial products to explore.

Retirement housing

Australians have long regarded their home as their castle. For many retired Australians, home is also a safe haven, reinforced by the Covid-19 pandemic. However, the desire to age in place, at home, is not new. Research stemming back to 2013^[4] shows a strong propensity for retired Australians to remain in the family home for as long as practicable.

For your clients, staying in one’s own home, retaining independence and autonomy as they get older and as their health needs change may be important to their health and wellbeing. A familiar home improves perceptions of security, helps to maintain social connections within community, provides access to services and proximity to family and friends. It may also be the largest financial asset your client has ever owned! However, there are advantages and disadvantages (figure two).

Retirement housing also provides an opportunity to provide retirement funding in two key ways: through downsizing and releasing equity in the home, or through using an equity release scheme to access home equity funding.

Downsizing

While there are numerous reasons for downsizing, they generally fall into three categories: financial, practical and lifestyle.

From a financial perspective, downsizing enables retirees to move to a less expensive home. It’s a simple calculation – sell the family home, buy something cheaper and use the change to fund retirement. The effectiveness of this strategy this will vary and is largely dependent on the availability of cheaper housing in your client’s chosen location. It also presents an opportunity to top up super using the downsizer contribution.

From a practical perspective, downsizing might provide your client with better accessibility and easier maintenance. It might be a new home without stairs, with a more manageable garden or one doesn’t need modification to make it safe and comfortable for retirement.

From a lifestyle perspective, downsizing might see your client move into a retirement ‘lifestyle village’, tree change or sea change, or from outer to inner suburbs to make the most of their chosen city.

The downsizer contribution

Introduced on 1 July 2018, the federal government’s downsizer contribution allows older Australians to top up their super with some of the proceeds of selling their family home.

Clients aged 65 years upward can contribute up to $300,000 (for singles) or $600,000 (for couples) of the proceeds of selling your family home, regardless of caps and restrictions that otherwise apply to topping up their super. From 1 July 2022, the age requirement drops to include those aged 60 plus.

No work test or upper age limits apply to downsizer contributions; usually, clients aged 67 to 74 need to satisfy a work test to make voluntary super contributions. People aged 75 and over are generally ineligible to make any voluntary contributions to their super.

To make a downsizer contribution, your client needs to be able to answer yes to each of the following:

• you are 65 years old or older at the time you make a downsizer contribution (60 years old from 1 July 2022)
• the amount you are contributing is from the proceeds of selling your home where the contract of sale exchanged on or after 1 July 2018
• your home was owned by you or your spouse for 10 years or more prior to the sale
• your home is in Australia and is not a caravan, houseboat or other mobile home
• the proceeds (capital gain or loss) from the sale of the home are either exempt or partially exempt from capital gains tax (CGT) under the main residence exemption, or would be entitled to such an exemption if the home was a CGT rather than a pre-CGT (acquired before 20 September 1985) asset
• you have provided your super fund with the ‘downsizer contribution into super’ form either before or at the time of making your downsizer contribution
• you make your downsizer contribution within 90 days of receiving the proceeds of sale, which is usually at the date of settlement
• you have not previously made a downsizer contribution to your super from the sale of another home.^[5]

Home Equity Access Scheme

The federal government has also broadened accessibility to its Home Equity Access Scheme (HEAS), formerly known as the Pensions Loans Scheme. Since 2020, all Australian homeowners of Age Pension age have been able to use the scheme to access home equity, including self-funded retirees.

Administered by the Department of Human Services, the scheme allows retirees to borrow up to 1.5 times of the maximum Age Pension, paid in fortnightly instalments. From 1 July 2022, some capital payments will also be accessible. The loan and all costs and accrued interest must be repaid to the Commonwealth. Repayments can be made at any time.

There are other commercial reverse mortgage schemes that can draw on home equity to provide income and/or capital to retirees.

Wellbeing in retirement

As people age, their expense profiles change. While retirees in the early stage of retirement may spend more on travel and lifestyle, those in the latter stages are likely to spend more on medical and care expenses.

Planning early can help ease the transition for retirement clients…and not just in a financial sense.  To stay healthy and happy in retirement, people need a sense of purpose, to remain a part of their existing community and support network. Personal and lifestyle objectives are supported by financial objectives. Being able to look forward with confidence is the greatest contribution an adviser can make to a retired client’s lifestyle.

By engaging with clients pre-retirement, you can have the conversations that best position the client for a successful retirement, and for those clients already retired, there’s an opportunity to continue the conversation. How is their retirement tracking and does it meet expectations? Have their retirement goals changed and how can you work together to ensure they’re met?

As baby boomers reach retirement age there’s an unprecedented opportunity for advisers to work with this cohort to optimise their retirement. Financial security underpins a comfortable and happy retirement and helps clients achieve their retirement goals. The feeling of control, inextricably linked to financial security will reinforce the value of your financial advice, while providing your clients with agency and a sense of wellbeing.

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References:
[1] Best possible retirement research, Core Data, March 2020
[2] The desire to age in place among older Australians, Australian Institute of Health & Welfare, April 2013
[3] https://www.firstlinks.com.au/turning-point-2020s-baby-boom-retirement-surge
[4] Best possible retirement research, Core Data, March 2020
[5] Source: Australian Taxation Office

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