Matt Walsh

With superannuation reforms announced in the Federal Government’s 2016-17 Budget being realised, it is imperative that people consider ways to achieve a tax effective retirement income outside the superannuation system, says Matt Walsh, general manager of Life and Super at Australian Unity.

The superannuation reform package of bills has now been passed by the House of Representatives, and two out of the three bills passed by the Senate have received royal assent.

“The bills make a number of significant changes to the taxation and regulation of superannuation, and will result in many more people reaching caps on their super contributions than ever before—the caps are not very high,” says Mr Walsh.

“The reforms reduce the concessional contribution cap and introduce a new non-concessional contributions cap.

“While superannuation remains an attractive way to plan for retirement, these new caps mean more people will now need to explore options outside of superannuation, and sooner than they thought

“But there are well-established and successful options available to those people who are concerned about reaching these caps and who are looking for a tax effective way to save more for their retirement years.

“For example, investment bonds have been used for many years by higher income investors who have capped out their superannuation limits, but they aren’t just for the very wealthy.

“They also offer a number of advantages for investors seeking a tax-effective way to save for their retirement outside of the superannuation regime,” said Mr Walsh.

Some of the advantages of investment bonds include:

• Earnings tax is paid at a maximum of 30 per cent and there is no tax liability while funds remain invested within the investment bond
• There are no restrictions on withdrawals prior to preservation age
• They don’t have contribution limits
• There is a wide range of investment choices within the bond
• Withdrawals carry no personal tax liability when held for 10 years or more, and taxable withdrawals before 10 years receive a 30 percent tax rebate as earnings are tax paid by the investment bond issuer
• Leave funds to a beneficiary which will bypass probate and avoid delays and challenges
• Invest for children without tax implications
• Just like super, they offer a range of investment options which are managed by professional investment managers.

Mr Walsh said that a good way for investors to think about investment bonds is as a structure that has tax rates somewhere between super and high marginal tax rates but without all the complexity and constraints around super.

“Investment bonds are a particularly attractive option for those who aim to retire prior to reaching preservation age, or who aim to decrease their working hours while keeping a steady income flow available. In effect, it creates a true transition to retirement strategy outside of superannuation.

“They can be drawn on with a “deductible amount” plus a tax offset in accordance with the individual’s marginal tax rate. Such withdrawals can be as large or small as required, and the withdrawal comprises both a capital and earnings component. The capital component is not subject to tax.

“For this reason many investors who had reached the previous super caps have already been using investment bonds as a means to transition into retirement without increasing their tax burden,” Mr Walsh said.

Matt Walsh

The Lifeplan Investment Bond (formerly Lifeplan NextGen Investments) has been upgraded from “recommended” to “highly recommended” by Zenith Investment Partners in its latest review.

In its report, Zenith said it views the Bond’s investment menu as robust, providing a well diversified suite of investment managers, asset classes and investment styles.

“There are many different applications for the Bond due to its legal and tax structure. In Zenith’s view, this is one of the key strengths of the product.

“We also believe Lifeplan’s management personnel are highly experienced and capable, providing us with a high level of conviction in the product.”

Zenith also commented on the bond’s Wealth Preserver (WP) feature. This feature, unique to the Lifeplan offering, is a nominated beneficiary feature that enables strategies usually only available through a trust structure.  It allows the bond owner to control the timing, distribution and frequency of benefits to nominated beneficiaries after their death, outside the Will structure so it is not affected by any challenges or issues with the Will.

Zenith said that it “sees the WP as an innovative addition to an Investment Bonds already comprehensive structural benefits and view the feature as an impressive intergenerational wealth transfer tool”.

Matt Walsh, general manager of life and super at Australian Unity, said the Zenith rating comes on the back of a solid year for the bond.

“This include upgrades to our digital tools for investors and advisers, improvement to rebates for high net worth investors, an expanded menu, increased team to service advisers and increasing support from the market as evidenced by our continued increase in market share.

“Enhancements to the Lifeplan Investment Bond are part of an ongoing strategy of improving our products and services for advisers and investors,” he said.
Zenith has also given the Lifeplan Education Bond a ‘recommended’ rating in its first review.

It said: “In Zenith’s opinion, the Fund provides a compelling option for those seeking a tax-efficient savings solution for educational requirements.

“Zenith believes that the key attraction is the high level of flexibility around the types of education which are eligible for the specific tax treatment of Scholarship Plans and the non-proscriptive nature of student eligibility. We also believe Lifeplan’s management personnel are highly experienced and capable, providing us with a high level of conviction in the product.”

Mr Walsh said the Lifeplan Education Bond is a hidden gem in the wealth management industry.

“It is a competitive and contemporary product that gives families access to important tax benefits.   It’s also a great way for advisers to demonstrate the value of advice to younger clients, who want help achieving their medium term goals and meeting cost of living challenges.

“There remains a lot of mythology about scholarship fund style products.  Our education bond is a consumer-first product with a compelling tax advantage.

“We’ve democratised access to a very valuable tax benefit which the Federal Government allows for parents and grandparents saving for a child’s education – and what can be more important than that?

“On top of this, we have provided investment choice, flexibility and no penalties. This product is a true myth buster.”

Matt Walsh

The bi-annual Lifeplan ICFS Financial Advice Satisfaction index has revealed that while wealthier investors aged over 60 are worried about the future of their investments, new investors are engaging more with financial advisers and benefitting from the recent positive results from the capital markets.

Australian Unity undertakes the ICFS Financial Advice Satisfaction index survey every six months with the University of Adelaide. It measures investors’ attitudes to financial advisers including perceptions of trust and reliability, technical ability, and investment performance.

Matt Walsh, general manager of life and super at Australian Unity Wealth, said that these findings foreshadowed the need for advisers to remain vigilant in communicating with investors with varying needs and expectations while ensuring their different concerns are addressed.

“The financial advice industry needs to consider how to reassure older investors and how their portfolios may need to be adjusted, to ensure these investors are prepared for future market conditions,” Mr Walsh said.

“Newer investors, meanwhile, who have recently started taking investment advice, have positive perceptions regarding their investments a result that we believe in part reflects the advantage of taking professional financial advice, and in part the recent positive results from the capital markets.

“Domestic and international markets have performed well over the past six months since the April 2016 survey, with a rebound in resources helping the domestic investors.

“However, the downside risk of equity and bond markets is now higher as they brace for headwinds due to planned interest rate increase by the US Federal Reserve and the uncertainty arising from the US election result,” Mr Walsh said.

The index showed a year-on-year increase of 0.83 percent—rising to 73.2 over the October 2015 index levels, however it did record a slight decrease (0.27 percent) when compared to the April 2016 index levels.

Two of the three drivers of satisfaction increased since the previous survey—performance and trust and reliability—while perception of technical abilities decreased.

“In contrast to baby-boomers, middle-age investors are more likely to take risks and have longer investment horizons. This group has been positively impacted by recent capital markets movements and has shown an increase in its perceptions across the three drivers,” Mr Walsh said.

As with previous survey results, perceptions between the genders varied significantly.

“Perception of trust and reliability, technical abilities and performance between the genders remained statistically higher for female investors, though it was only the perception of performance that increased for the female investors,” Mr Walsh said.

“While age and duration of advice were not a differentiating factor between the genders, the female investors did perceive their advisers to have higher levels of financial literacy.

“Also as with previous survey results, the perceptions of the three drivers are positively related with duration of advice.

“This survey shows that as the duration of advice with current adviser increases, the perception of technical abilities also increase, though there is no change in the perceptions of performance.”

The October 2016 survey was conducted in the first week of October of 410 respondents.

Matt Walsh

The popularity of investment bonds has surged since the start of the year, with Australian Unity’s investment bond business, Lifeplan, passing through the $2 billion in funds under management (FUM), advice and administration mark.

“The on-going uncertainty surrounding superannuation, particularly since the May Federal Budget, has contributed to a boost in the popularity of investment bonds and they are increasingly seen as a tax effective superannuation alternative,” said Mr. Matt Walsh, General Manager Life and Super for Australian Unity, and head of Australian Unity’s investment bond business, Lifeplan.

“Along with the implementation of major technology upgrades, including multiplatform functionality, a new direct investor portal and website, and XPlan and adviser portal upgrades, Lifeplan has also implemented a number of product enhancements. This includes an expanded investment menu which includes eight new options, based on adviser feedback, which has proven popular.”

Mr Walsh added that the relevance of investment bonds has become more obvious to financial planners and investors who are suspicious of the constant tinkering of the superannuation system and who are looking for a tax effective compliment to their existing super products.”

“Investors are realising that investment bonds are similar to superannuation funds in that earnings are internally taxed within the fund – in this case 30 percent – and also that theyoffer the same asset class diversification as managed funds, but with the added benefit of a tax advantaged structure that managed funds can’t match.

“Investment bond earnings are tax paid at a maximum of 30 percent, and investors do not have any tax liability while their money remains invested in the investment bond.”

“When held for 10 years or more withdrawals from the investment bond are tax free and taxable withdrawals before the tenth year carry a 30 percent tax rebate.”

“As is the case with managed funds, investments held within an investment bond receive full franking credits, which are reflected in the effective rate of tax paid by the investment bond – and thus in the unit price – rather than being redistributed.”

Mr Walsh said investment bonds are more relevant today than perhaps in any other time since their development.

“Investors have been drawn to investment bonds as they have the additional advantage over superannuation. Unlike superannuation, contributions are not capped within the investment bond structure, which creates opportunity when considering long-term savings goals, and they do not carry restrictions on withdrawals nor any concept such as preservation age.

“For investors looking for a tax effective, long term investment option, with investment in a wide range of asset classes available, without the worries of legislative change or limitations of future access to funds, investment bonds fit the bill.”

Matt Walsh

Australian investors must recognise that political risk is currently a significant consideration in wealth creation and management, Matt Walsh, head of Lifeplan, has warned.

“Managing political risk clearly involves the diversification of assets and asset classes but what is not so widely understood is that it should involve the diversification of how investments are held.

“Indeed, while Australian investors may be aware of the term “political risk” they would usually relate it to foreign countries with unstable governments.

“Recent global events should remind us that every country has a degree of political risk, and Australian investors should now appreciate the impact on markets our own uncertain political outlook can have.

“Couple this with ongoing leadership concerns in the UK, the unknown impact of Brexit, and the Trump factor in the US, and political risk is currently a major influence for Australian investors.”

Mr Walsh said that professional money managers, with a well-diversified quality portfolio, would have already taken political risk into account through diversification of assets.

“However, the political risk in the choice of investment vehicles also needs to be considered.

“This is especially true of superannuation – which is where most Australians have a large portion of their wealth.

“We are reminded time and again that politicians cannot stop themselves from tinkering with super – especially the tax aspects that are what make superannuation so attractive as an investment vehicle.

“Investors need to consider other ways of holding assets, not necessarily instead of super, but to complement it and diversify.”

Mr Walsh said that other than investing in one’s own name, or that of a partner, there are four main vehicles that investors can use when holding assets:

• Via family trusts (taxed at marginal rate) or family companies
• Superannuation (taxed at 15 percent; or 0 percent in pension phase)
• Investment bonds (taxed at 30 percent or less with imputation system)
  Companies (at 30 percent tax rate)

“To reduce the impact of political risk on long term savings, investors should ideally spread their wealth across these three types of vehicle.

“Investment bonds are a particularly good vehicle to complement super and diversify as a way to minimise the impact of political risk.

“In recent months, during all the comment on tax and superannuation, any possible changes to investment bonds were not raised. Indeed, there have been only a few material changes to investment bonds in the past 20 years.

“There are also a number of other features to investment bonds which make them an ideal companion to super, including estate planning, intergeneration wealth transfer.”

Matt Walsh

Following growing interest in investment bonds, Lifeplan has updated its leading investment bond offering, NextGen Investments, with eight new investment options and an additional rebate tier.

Matt Walsh, head of Lifeplan, said the proposed changes to superannuation in May’s federal budget have triggered a surge of interest in the NextGen investment bond.

“Investment bonds are a natural alternative to superannuation, offering a tax-effective, stable investment option.

“Since the Coalition government proposed lifetime caps on superannuation, as well as additional tax imposts, we have seen the market for investment bonds strengthen significantly.

“In response to adviser demand, NextGen Investments now includes more options on the investment menu with 42 options now available.”

The new investment options are:

• Vanguard® Balanced Index Fund
• Vanguard® Growth Index Fund
• PIMCO Australian Bond Fund
• PIMCO Global Bond Fund
• Fidelity Australian Equities Fund
• Vanguard® International Shares Index Fund (Hedged) AUD
• Magellan Global Fund
• Vanguard® Australian Property Securities Index Fund

“NextGen is now very sharply priced across all tiers, and very competitive for the higher net worth investor, with a 0.3 percent per annum rebate cutting in at $500,000” Mr Walsh said.

“Another rebate tier has also been added, offering a 0.60 percent rebate for investment amounts of $10 million or more.”

Enhancements to NextGen Investments are part of an ongoing strategy of improving Lifeplan’s products and services for advisers and investors.

“It follows the upgrade to our adviser website, the launch of a new portal for investors, and the expansion of our adviser support team over the last 12 months,” Mr Walsh said.

“We will continue to keep investing in our offering to ensure we deliver market leading investment bond products and services in Australia.

“While the current political uncertainty may alter the final form of super changes, there is clear support from both sides of politics to constrain tax benefits of super, so attractive viable alternatives such as investment bonds will continue to see growing interest,” Mr Walsh said.

Lifeplan is a specialist business of Australian Unity Investments.

Matt Walsh

Lifeplan has entrenched its digital presence in the market with the launch of an online investor portal enabling investors to monitor and transact online. The development and launch of the Investor Portal follows the successful launch of the Adviser Portal in November 2014.

The launch follows Lifeplan’s extensive consultation with advisers and investors, in order to design an online portal around their specific needs.

“The Lifeplan investor portal has been developed in response to adviser and investor demand for the ability to self-service online,” said Matt Walsh, head of Lifeplan.

“The secure online portal provides a user optimised digital experience with functionality designed around what advisers and investors have said they want.

“It has been built with a responsive design and will allow investors to easily view policy information and change contact details via their mobile or desktop.”
As with all of Lifeplan and Australian Unity’s digital tools, Mr Walsh said the portal has been built with a ‘mobile first’ design philosophy.

“Increasingly Australians are conducting their financial affairs over their mobile phones, and it is paramount that any online initiative adopt this ‘mobile first’ design philosophy.

“With the increasing proliferation of technology – even among older investors – today’s tech savvy generation of investors is looking for a convenient and secure digital experience when purchasing new products and maintaining online accounts.

“The new Lifeplan portal provides this with easy and secure access to account balances, transaction history, tax portion statements, useful forms, and answers to frequently asked questions.”

Matt Walsh

While the changes to superannuation in last week’s Federal Budget caught many by surprise, there are well-established options to help people achieve a tax effective retirement income, says Matt Walsh, head of Lifeplan.

“The government-mandated superannuation system means that many people had stopped considering alternatives other than super for saving for their retirement. The changes in the Federal Budget will reverse this situation for many.

“Aside from those few people who had already reached their superannuation caps, most people simply had no need to look at alternative strategies – super was everything.

“Last week’s changes mean that more people will now need to explore options outside of superannuation, and sooner than they thought, but this shouldn’t be a cause for panic and confusion.

“A well-trodden path for higher net worth and higher income investors in the past who had capped out their superannuation limits is investment bonds, but these aren’t the exclusive domain of the very wealthy – they are easily accessible to everyone,” he said.

Mr Walsh said that investment bonds are a particularly good tax-advantaged alternative to superannuation, with earnings tax paid at a maximum of 30 per cent.

Other advantages include:

• they do not carry the restriction on withdrawals prior to preservation age
• they don’t have contribution limits
• as earnings are tax paid at a maximum of 30 per cent, investors do not have a tax liability while the funds remain invested inside the investment bond
• several providers offer a wide range of investment choice and very contemporary features
• when held for the long term – 10 years or more – withdrawals from the investment bond carry nil personal tax liability, and taxable withdrawals prior to the 10th year receive a 30 per cent tax rebate as earnings are tax paid by the investment bond issuer
• once the investment bond policy has reached its 10 year anniversary, withdrawals are non-assessable for income tax purposes – there is no preservation age or condition of release

Mr Walsh said that in many ways, investment bonds can be thought of as just like super, with tax rates somewhere between super and high marginal tax rates, but without all the complexity and constraints around super.

“Investment bonds are a particularly attractive option for those who aim to retire prior to reaching preservation age, or who aim to decrease their working hours while keeping a steady income flow available. In effect, it creates a true Transition to Retirement strategy outside of superannuation.
“In this situation an investment bond can be drawn on with a “deductible amount” plus a tax offset in accordance with the individual’s marginal tax rate.

“This means if an investor chose to work 20 hours less a week, they could substitute the lost income by drawing on an investment bond. Such withdrawals can be as large or small as the investor requires, and the withdrawal comprises of both a capital and earnings component. The capital component is not subject to tax.

“For this reason many investors who had reached the previous super caps have already been using investment bonds as a means to transition into retirement without increasing their tax burden.  Where the bond is held in excess of 10 years, any withdrawal amount will not be subject to further personal tax, a strategy that may allow an investor to retire early and maintain an income without affecting their taxation liability.

“Financial advisers are likely to receive many questions from clients worried about how to best save for their retirement if they aren’t able to put enough into superannuation, and investment bonds are a useful approach to discuss with them,” Mr Walsh said.

Matt Walsh

Australian families should brace themselves for more ‘user pays’ in our education system. Regardless of whether the current Federal Government achieves its stated education reforms, costs will inevitably rise in the future, according to Matt Walsh, head of Lifeplan.

“There’s an old saying that ‘nothing can be said to be certain, except death and taxes’ but in my view, this could be extended to include the certainty of increasing education costs,” Mr Walsh said.

“Education costs have grown by an average of 5.32 percent annually over the past 10 years, whereas CPI has averaged 2.67 percent, and this trend shows no sign of abating.[1]

“In addition, the Government announced in the recent Federal Budget that from 2018, total school funding would be indexed to the Consumer Price Index.  This points to an increasing shortfall in funding in future years.

“Inevitably, parents will be expected to make up this shortfall by paying for more and more of the cost of their child’s education, whether they are privately or publicly educated.

“Likewise, the Government’s proposed university fee deregulation reforms would mean that the cost of tertiary education will almost certainly increase significantly for Australian families in the future.

“While these reforms are currently being stalled by the Senate, it seems likely that at some point in the future there will be significant changes to the way the education system works.  It is possible that Australian families could to find themselves in a similar situation to that of the United States, where student loans are the biggest form of consumer debt after a mortgage, having surpassed credit card debt in 2012,” Mr Walsh said.[2]

Recent data from the Federal Reserve Bank of New York shows not only is student debt the biggest form of consumer debt after home mortgages, but it’s also the worst performing.  Arrears levels for student loans are rising, a particularly concerning trend.

“The US experience teaches us a sobering lesson on how paying for education can become a serious burden for families.  Saving for a college education has long been standard practice in the US, and increasingly Australian families will need to consider doing the same for university,” Mr Walsh said.

“Such savings shouldn’t just be limited to tertiary education.  Having a savings plan to offset the costs of primary and high school can also make a big difference to families.

“It means that at the start of a school year, large expenses such as uniforms, sports or musical equipment, text books, laptop computers and other stationery don’t have to be met out of the day-to-day budget – something that can be especially challenging just after Christmas.

“Instead, a dedicated savings fund can be built up to cover these costs, and other family members such as grandparents encouraged to contribute during the year, rather than buy toys or clothes that will be quickly outgrown.”

An education savings plan with a friendly society such as the Lifeplan Education Investment Fund has the added benefit of favourable tax treatment. This means that when earnings are withdrawn to pay for an education expense, the proportionate tax that has been paid by the manager is refunded.

“A good education is a more valuable present to give children, and finding ways to make this easier will benefit all Australian families,” Mr Walsh said.
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[1] http://www.abs.gov.au/ausstats/abs@.nsf/mf/6401.0 March 2015

<[2] http://www.forbes.com/sites/specialfeatures/2013/08/07/how-the-college-debt-is-crippling-students-parents-and-the-economy/

Matt Walsh

In previous surveys, an investor’s age was positively correlated to the three drivers of advocacy: performance, trust and reliability, and technical ability of their financial adviser – i.e. the older the investor, the more likely they were to be satisfied with their adviser. However, over the past two surveys, the youngest cohort of investors has displayed rapid increase in their perceptions regarding their advisers.

This group now sits second to the over-60s age group in terms of their perceptions for all three drivers of advocacy. As in previous surveys, older investors have significantly higher levels of perceptions regarding their advisers, although this survey saw their perceptions regarding their adviser’s technical abilities decrease.

Higher wealth levels have also been correlated with more positive perceptions across the three drivers of advocacy in previous surveys; however this survey shows that investors with the highest net wealth record a decrease in perceptions for Technical Abilities and Trust and Reliability.

Investors with lower net wealth seem to show an increase in their perceptions across the three drivers and investors with less than $50,000 seem to be most positive regarding their advisers.

“This survey sees a very strong increase in the levels of advocacy by the lowest net worth and younger investors. This result may indicate that financial advisers are doing a good job of taking care of entry level investors,” said Mr Matt Walsh, head of Lifeplan.

Market factors may also explain the high levels of advocacy among investors in this survey. Notably, the equity market index ASX 200 showed gains for much of the period since the last survey. During this time investors have seen high returns on their equity and real estate investments although the lower interest rates have impacted the fixed income markets severely.

“In light of favourable capital market conditions for equities and property over the past six months, investors with a bias towards risk have benefited and this may help explain an increase in the perception regarding performance,” Mr Walsh said.

“On the other hand, as yields decrease term deposits and other annuities are impacted negatively.  Perhaps as a result of this, perceptions of investors in the 60-plus age group showed a drop in their advocacy of their advisers.

“As global equity markets rise and yields decrease, advisers need to be cautious about future changes in the capital markets. If the domestic economy slows down, advisers will need to be careful regarding how portfolios may need to be adjusted. If the equity market, real estate and fixed income securities start providing low or negative returns, investors will become more critical of their advisers.

“In particular, it is concerning that investors in the 45-60 age-group seem most dissatisfied with their adviser, as this is the group we believe most advisers are concentrating on as a way of growing their business.  Our view is that more needs to be done to keep them happy,” Mr Walsh said.

Although young investors and those with less than $50,000 showed the biggest satisfaction increase, across the board this survey showed an increase in the satisfaction all investors have with their financial advisers. All three drivers of advocacy are now at their highest levels since the index commenced.

The index increased to 75.12 and has achieved the highest level of satisfaction since its inception. Year on year, the April 2015 survey saw an increase of 0.8 percent over the April 2014 index levels.

The largest increase amongst the three drivers of advocacy was for the perception of Performance that increased by almost 1.24 percent over the last survey six months ago, while the other drivers – the perception of Trust and Reliability increased by 0.81 percent while the perception of Technical Abilities of the advisers increased by 0.17 percent over the last six months.

“It is clear that generations Y and generations X will increasingly account for a larger part of a financial adviser’s client base. These survey results underline the importance of ensuring advisers meet the needs of all their clients, and not just the about-to-retire and newly-retired baby boomer generation.

“Gen X and Gen Y will eventually be the recipients of huge levels of intergenerational wealth transfer, so ensuring advisers provide these investors with good advice now, will stand them in good stead when these younger clients have even larger amounts to invest.

“The increased satisfaction levels of younger investors, and of those with smaller amounts to invest, would suggest that this is the case,” Mr Walsh concluded.