Superannuation was a major driver of these falls with the average worker’s total superannuation contributions falling to the lowest level since the Index began in 2006 – at 12.3% of salary compared to 12.6% as at 31 December 2006, mainly due to a fall in voluntary contribution rates. 

The AMP Retirement Adequacy Index used data for the six months from June 2011 to December 2011 from more than 280,000 AMP corporate superannuation customers to predict retirement adequacy based on 65% of an individual’s pre-retirement income.  

The data factors in the increase in the superannuation guarantee from 9% to 12%. 

AMP Financial Services Managing Director Craig Meller said the drop in voluntary contributions, market volatility and ongoing subdued investor sentiment is impacting overall retirement adequacy and has the potential to adversely affect the future retirement lifestyles of Australians.  

“The Index shows salary sacrifice contributions have fallen across most age groups, particularly for older Australians who traditionally put more into their superannuation as they approach retirement, but are now restricted by caps on voluntary super contributions or worried about global markets.” 

“Consumer caution is also continuing to impact investment behaviour, post GFC, according to the Index so it’s important our industry continues to focus on educating customers about the benefits of super as a long-term savings strategy – offering individuals a wide range of investment options, including cash, and tax effective long term returns,” Mr Meller said.

 Key points from the AMP Retirement Adequacy Index: 

• Overall retirement adequacy took a hit in the last six months of 2011, falling from 71% to 69.4%
• The average worker today can expect to retire on just under $49,000 per year which is largely unchanged from the corresponding projection in June 2011
• Overall, the projected super benefits for an average retiree fell by 7% to $492,000.  This drop, as a result of lower contribution rates, was enough to eliminate the projected gains expected from the introduction of the 12% super guarantee
• Average contribution rates fell by 0.2% in the second half of 2011. Contributions from older workers fell over the period, although encouragingly younger age groups, in general, increased their overall voluntary contributions
• Average balances for females fell less than that of males over the period, causing the gap between genders to narrow.  This may reflect different attitudes towards investment risk.

Deloitte Access Economics Partner Chris Richardson said the research shows the impact on future Governments that the combination of an ageing population and a drop in overall superannuation contributions may have. 

“An increasing proportion of older Australians, coupled with the drop in overall superannuation contributions, could put considerable strain on future governments and taxpayers as we see more people relying on the age pension to fund their retirement,” Mr Richardson said. 

Economic forecaster, Deloitte Access Economics, used this data to measure the implications of the current super activity on future retirement incomes.

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Mrs Slattery says: “All the evidence suggests that the ATO does an excellent job regulating this sector, and calls for SMSFs to come under the umbrella of the Australian Prudential Regulation Authority (APRA) are both mischievous and illogical. 

“The claim is that SMSF sector is under-regulated; nothing could be further from the truth.” 

The ATO has always regulated the taxation of SMSFs and APRA-regulated funds, and has regulated the administration and operation of SMSFs since 1999. 

Under the Labor Government a few years ago, the ATO was handed prudential powers by APRA to regulate the auditors, actuaries and trustees of SMSFs. The ATO’s powers also include regulating fraud and theft, which, as APRA noted in the Trio inquiry, it doesn’t have regulatory powers over. 

Mrs Slattery says: “The fact remains that APRA does not have the resources to oversee nearly 500,000 SMSFs, with its audit program simply not structured to handle small funds. By contrast, the ATO has been able to build the resources and the expertise which is why SMSFs were transferred from APRA to the ATO in 1999.” 

Mrs Slattery says the ATO’s preparedness to engage and consult with the SMSF sector has been excellent and there has never been any evidence to show that the ATO was failing in its role, “so we at SPAA cannot understand why there is continuing sniping at the ATO. 

“There are never any facts or figures to demonstrate the ATO is falling down on the job. Just the claim that SMSFs are ‘lightly regulated’ and that APRA would be a more appropriate regulator. 

“The criticism ignores the fact that each fund has to be independently audited each year which means the performance of the trustees is constantly being reviewed and scrutinised. It really shows that the criticism is generally due to a lack of knowledge and understanding of the SMSF sector and the actual regulatory role that the ATO has.”

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APRA’s proposed reporting requirements implement the transparency and accountability recommendations from the Government’s Stronger Super reforms, and the proposals APRA previously consulted on in 2009. The proposed new requirements also support the implementation of prudential standards, MySuper products and SuperStream. These proposed revisions will be the first changes to the reporting requirements for superannuation since 2004.

The main proposed changes to reporting requirements include: information about each trustee, fund, sub-fund, MySuper product and select choice investment options. This replaces the focus at fund level in the current data collection and responds to previous industry commentary on the limitations of APRA’s fund-level superannuation reporting; information about investment returns for each MySuper product and select choice investment options.

This will allow greater comparability across the industry, particularly between MySuper products; and the collection of expanded information about investments, including looking through investment structures to identify and understand ultimate investment asset allocation and costs.

APRA Deputy Chairman Ross Jones said APRA is proposing material changes to the superannuation data collection. ‘Overall, APRA expects that this new data collection will be of significant benefit to all industry stakeholders by providing greater transparency of investments and costs.’

‘As with the introduction of prudential standards for superannuation, these proposals are raising the bar to bring the superannuation data collection to a level that is consistent with the other industries APRA regulates,’ he said.

This consultation package outlines a substantially larger data collection than is currently in place for the superannuation industry. APRA acknowledges the extensive scope of the proposals and encourages industry to provide feedback as to how the proposed data collection would best support objectives of transparency and comparability across the industry, as well as APRA’s prudential supervision.

Consultation on the draft reporting requirements closes on 16 November 2012 and the final superannuation reporting standards are expected to be determined and released in the first half of 2013. The requirements in the final reporting standards are expected to take effect from 1 July 2013 with the first publication using the new data in late 2013.

The discussion paper and the 31 draft reporting forms and instructions can be found on the APRA website.

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The workshops, targeted at financial planning professionals, will be led by industry leaders presenting sessions on:

• Integrating trust into your advice process presented by The Tax Institute
• Building your Aged Care value proposition presented by Aged Care Steps
• Planning for death in SMSFs presented by Cavendish

Each session is focused on providing financial planners with tools to help give good advice.

The workshops are designed to commemorate the FPA’s historical two decade milestone and will replace the signature National Conference for 2012 only.

Taking place in Capital City locations around the country during November and December this year, these workshops intend to reflect a new structure the FPA has implemented which ensures attendees achieve maximum educational benefits. The workshops attract 6 FPA CPD points, and as a reflection of their advanced technical standard and a first for FPA CPD content, also attract 6 SPAA CPD points.

The FPA has received strong and positive feedback from members, encouraging a revitalised approach and the success it has delivered to date. The FPA exclusive Shadow Shopper workshop initiative held throughout May with ASIC and FOS representatives received an outstanding response from members with over 700 attending with 90% satisfaction rating.

Mark Rantall, CEO of the FPA said:

“The FPA is delighted to announce another number of education workshops to assist financial planners provide better financial advice to their clients. Continuous education is vital for all financial planners to progress in their careers and provide clients with up to date professional and trusted advice. These workshops are about improving technical expertise; these workshops are about ensuring attendees achieve maximum benefit; these workshops are not about selling products.

“We are responding to the needs of our members with an increased schedule of regional events that reaches our members where they are and restructuring our workshops to ensure all attendees get maximum benefit and are educated on topics and issues that are not covered elsewhere in the profession. Our efforts are all about improving the quality of advice consumers receive from financial planners.”

Following the education workshops, attendees will be invited to join the FPA celebrate 20 years of raising the bar for the profession with the FPA Best Practice Awards presentation and complimentary Champagne Reception.

To register for the workshops, please email events@fpa.asn.au

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The source and control tests for Centrelink attribution of a trust’s capital and income pose challenges for the operation of testamentary trusts.

In its Guide to Social Security Law, the Government makes the following statements:

Testamentary trusts activated after 31 March 2001
If a testamentary trust is activated by the death of the testator after 31 March 2001, the surviving partner will be attributed with the assets and income of the trust if:

• the surviving partner has control of the trust (irrespective of whether the surviving partner is a beneficiary), or
• an associate of the surviving partner has control of the trust, and the surviving partner is a potential beneficiary.

Explanation: If the surviving partner directly controls the trust, they can simply appoint themselves as a beneficiary or alternatively exert their powers to obtain benefit informally.

If an associate has control and the surviving partner is a potential beneficiary, a reasonable assessment of the situation is that the surviving partner will enjoy the benefits of the trust.

If the surviving partner (or an associate of the surviving partner) does not control the trust, attribution may be made, via the basic attribution rules, to the person(s) or members of a couple (1.1.M.120), whether of the same sex or a different sex, who have control of the trust.

Testamentary trusts with a commercial trustee
Some testamentary trusts will be established with a commercial trustee as the controller of the trust. In these cases the terms of the will need to be examined carefully to determine who the testator intended to benefit under the terms of the will.

Where the surviving partner is not a beneficiary of such a trust, attribution should be made to those who are specifically nominated as beneficiaries of the trust.

Generally such trusts are established to benefit specifically named individuals, with the direction in the will that the needs of a particular beneficiary or beneficiaries be considered.

It is not possible to attribute to a corporate trustee. In these types of cases it should be considered that the corporate trustee is administering the trust on behalf of the beneficiaries of the trust. Attribution will be made to those beneficiaries on whose behalf the trust is being administered.

In the case where neither the will maker nor the testamentary trustee is a Centrelink administered benefit recipient, it is most likely that the trust will be assessed on the basis of its pattern of distribution to beneficiaries or capital entitlement of beneficiaries.

Consideration for trust drafting
A trust where a primary beneficiary is the appointer or controller of the fund will be attributed to the beneficiary.
A trust where beneficiaries are not named but rather described (for example, ‘my children or grandchildren’) will most likely be assessed in accordance with who is in the class as the time the will maker dies.

A trust where there is discretion in the recognition of beneficiaries and their entitlements will mean that the trustee’s decisions rather than the will maker’s will drive the Centrelink consequences.

Centrelink will look for where beneficial interest lies in the administration of the trust. Where default capital rights lie with people other than Centrelink benefit recipients, expect detailed negotiation will be needed with Centrelink to agree the capital attribution pattern they will make on the trust.

Impacts on investment strategies for testamentary trustees
Capital attribution to a beneficiary will need to be assessed as the default capital that will be used to produce an investment return. Investment returns need to be considered in the light of the deemed income attributed to the beneficiary.

The collateral benefit loss a beneficiary may suffer needs to be considered when formulating a benefit attribution strategy. Recent experience has indicated some $70,000 per annum is needed to fully compensate someone who aged 55 is formerly fully dependent on public welfare, but through operation of her mother’s will, is forced out of that system.

Consider how s. 14A – D of the Trustee Act 1925 (NSW) affects the operation of the trust.

Some questions to consider asking the client and potential beneficiaries

• Is capital expected to be used to support beneficiaries?
• How large is the beneficiary pool? (In a recent matter 3 generations of a family were all alive and in the beneficiary pool. This brought up issues with Centrelink about on whose behalf capital of the trust was to be administered.)
• How long is the trust intended to operate?
• How is succession of the control of the trust to be handled?
• How is the trustee to inform themselves of the situation needs and objectives of the beneficiaries?
• Do the criteria in s.14C of the Trustee Act 1925 (NSW) (and its counterparts in other states) apply to the administration of the trust?
• What is the impact of the distribution on the overall benefit levels received including health costs?
• Is any Centrelink registered beneficiary in receipt of a non means tested benefit?

Some problems to avoid

• Do not use testamentary trust precedents that have optional operation at the election of the beneficiary.
• Do not appoint beneficiaries as appointers of any trust.
• Do not erode the independence of trustee operations with beneficiary accountability if Centrelink attribution is intended to be constrained by the trust’s operation.

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The current penalty system for some breaches is cumbersome and out of step with the severity of the breach. The proposals, now in the public arena for consultation and due to take effect on 1 July 2013, have their origins in the Cooper Review that found that the ATO’s options were limited when it came to sanctioning SMSF trustees who failed to comply with the Act.

The SMSF Professionals’ Association of Australia (SPAA) CEO Andrea Slattery has welcomed the proposed legislative changes. “Under the current regime, the ATO has basically three options: the draconian move of making a fund non-compliant for tax purposes, applying to a court to impose civil penalties, or largely turning a blind eye.

“Clearly this situation was unsatisfactory. Making a fund non-compliant could have had the effect of halving the value of the assets – a harsh penalty in most instances – while applying to a court can be time-consuming with no guarantee about the outcome. At the same time trustees should not be able to think they can be non-compliant with impunity.”

Mrs Slattery says the proposed changes have the benefit of giving the ATO greater flexibility so that any penalty imposed is more in tune with the breach of the Act.

“Under the proposed legislation a trustee could face penalties of up to $6,600 for contravening certain aspects of the Act or regulations. “Another option open to the ATO is to require trustees to attend an SMSF educational course about their responsibilities, as well as directing trustees to undertake specified action to rectify a breach of the legislation.”

She says the decision to give the ATO the power to force trustees to attend an educational course was a “positive initiative”.

“It suggests to SPAA that many breaches of the Act are more by accident than design and that by giving trustees additional knowledge about how to comply with the Act is a sensible approach.

“The proposed changes also highlight the need for trustees to get professional advice as the ATO is unlikely to be as forgiving of breaches of the Act in a more flexible compliance regime; ignorance of the law will be no excuse.”

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“While all available research shows that investors have been focused on cash as the best safe haven to protect capital, falling interest rates are making such a strategy increasingly unsound. 

“Having some investment in cash products such as term deposits may be sensible for some investors, but it should always be as part of a balanced diversification strategy. 

“Falling interest rates and inflation combine to reduce both the value of capital and income – exactly what investors seeking a ‘safe haven’ are trying to avoid,” he said. 

Mr Bryant said that an urgent rethink is needed by many investors to redefine what a ‘safe haven’ means to them and what the cost might be of the various options, as well as the opportunities other asset classes offer. 

“Now is not a good time to be over-invested in cash products.  They might offer surety of capital being repaid on a due date but the cost can be considerable, and this together with other factors shouldn’t be ignored by investors. 

“Ease of access, income stability, inflation protection, capital growth as well as security, can all be important to investors depending on their circumstances and financial needs,” he said. 

Mr Bryant says that investors need to understand circumstances change and at the moment an over-cautious approach – such as having all their savings in term deposits – now comes with a major opportunity cost. 

“For example, fixed interest funds have performed better than term deposits in the last four years (since the flight to cash started in earnest) and equities have given better yields than term deposits over the same period, particularly for investors on higher tax rates. 

“Indeed, an investor who put some of their wealth in bank shares in June 2008 rather than depositing all their money in interest-bearing term accounts, would have received excellent yield as well as capital growth. 

“For example, if an investor had deposited $10,000 in a one-year term deposit in June 2008, and reinvested maturity proceeds along the way, this would have increased in value to $12,519 by June 2012. However, if an investor bought $10,000 of CBA shares in June 2008 it would be worth $18,819 including franking credits, in June 2012 – and we have seen even more increases in sharemarket value in the last couple of months.” 

Mr Bryant added that diversification is always the best approach no matter what the economic situation is. 

“There is currently a notable degree of optimism in the main growth asset classes that investors should factor into any portfolio rebalancing. 

“While there is still volatility in equity markets, and although markets are still experiencing frequent falls, there appears to be the beginning of an underlying trend upwards,” he said. 

“In addition, property markets appear to be shaking off the stagnancy of recent years as an inability to satisfy future demand is becoming apparent in some sectors, for example office, healthcare and retirement living. 

“Investors who have remained in cash over the last several years now need to reassess their priorities as they face falling returns coupled with an erosion of capital value. 

“Moving to a more diversified investment approach at the moment is likely to provide the access, income stability, protection and capital growth that have become the priorities for many investors,” Mr Bryant said.

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Total estimated assets, which includes the assets of self-managed superannuation funds and the balance of life office statutory funds, rose by $49.6 billion (3.7 per cent) to $1.40 trillion over the 12 months to 30 June 2012, taking into account an increase of $3.8 billion (0.3 per cent) in total assets over the June quarter.

Over the June quarter, the total estimated assets of public sector funds’ assets increased by 1.9 per cent ($4.1 billion) to $222.2 billion, industry funds increased by 0.6 per cent ($1.5 billion) to $266.0 billion, retail funds’ assets decreased by 1.3 per cent ($4.7 billion) to $372.1 billion and corporate funds’ assets decreased by 2.0 per cent ($1.1 billion) to $55.8 billion.

Contributions to funds with at least $50 million in assets over the June quarter were $29.9 billion, with employers contributing $24.2 billion and members contributing $5.6 billion. Other contributions, including spouse contributions and government co-contributions, totalled $141 million.

During the June quarter, public sector funds received 38.2 per cent ($11.4 billion) of total contributions, retail funds 30.9 per cent ($9.2 billion), industry funds 27.5 per cent ($8.2 billion) and corporate funds 3.4 per cent ($1.0 billion).

Outward rollovers exceeded inward rollovers in the June quarter. Industry funds received $151 million of net rollovers. Corporate, public sector and retail funds had negative net rollovers of $477 million, $728 million and $762 million, respectively.

The annual industry-wide Rate of Return (ROR) for quarterly reporting funds for the year ending 30 June 2012 was 0.4 per cent. The quarterly industry-wide ROR for the June 2012 quarter was -1.4 per cent. The quarterly RORs for each fund type as a whole for the June 2012 quarter were -0.9 per cent for public sector funds, -1.2 per cent for industry funds, -1.5 per cent for corporate funds and -1.8 per cent for retail funds.

A copy of the publication is available on APRA’s website  – click here.

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The brochure is available on the FPA’s new consumer website, fpadifference.com.au. The site was launched this week as part of Financial Planning Week, an annual initiative held by the FPA to raise consumer awareness about the positive difference sound financial advice can make. 

Mark Rantall, FPA CEO, said the brochure speaks to the FPA’s fundamental commitment to supporting ordinary people’s quest for financial security. 

“The FPA has always been an advocate for consumers receiving sound financial advice from qualified, professional financial planners. Ensuring Australians understand what the financial planning process entails by providing clear and simple information such as that contained in this brochure is one way the FPA is reaching out to consumers to make sure they’re well informed,” said Mr Rantall. 

The brochure, which both consumers and FPA members can order to be sent to them free of charge, includes a range of helpful jargon-free information, such as:

•  ‘Things to consider when choosing a financial planner’ – highlights the importance of using a qualified financial planner
• ‘Why would I need a financial planner’ – outlines the benefits of seeking sound financial advice and addresses the different needs of consumers at different stages in life
• ‘How the financial planning process works’ – a step-by-step guide of what to expect when seeing a financial planner.

In addition to the brochure, the FPA has also created the first easy-to-understand guide on the Future of Financial Advice (FoFA) reforms for consumers, which is also available on the website. 

Mr Rantall added, “The FoFA reforms have been a major focus for the entire financial planning industry over the past year or more. Whilst these reforms were designed for the benefit of consumers there’s a much lower level of awareness among consumers about their practical effect. Our guide to the FoFA reforms will hopefully increase this level of awareness among consumers.” 

Mr Rantall went on to highlight another important feature of the FPA’s consumer awareness initiatives: choosing a qualified professional, who is a member of the FPA and preferably, who enjoys the CERTIFIED FINANCIAL PLANNER® (CFP) designation. He welcomed research findings that reported increased acceptance and understanding, among consumers, that CFPs must meet high levels of professional training and competence. 

Initial recent research findings, from Investment Trends[1], into the public perception of CFPs reveal, for example, that:

• If they were looking for a new (or additional) financial adviser today, a CFP designation was the most commonly cited qualification desired in a financial adviser (35%)
• 87% of those who currently use a financial planner as their main source of advice say their adviser made a positive or significantly positive difference to their life
• Among those who currently use a financial planner as their main source of advice, 89% said their most recent discussion with their financial planner was valuable or very valuable.

“Ensuring Australians are aware of what professional standards to look out for when choosing a financial planner and providing them with clear, simple information about financial planning are two important prerequisites to improving public trust and confidence in our profession.  In the end, we hope our initiatives will empower and encourage Australians make informed and therefore better financial decisions,” said Mr Rantall.

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Wealthtrac Managing Director and CEO, Matthew Johnson, said the new pricing model was designed to give advisers greater flexibility and was better suited to fee for service models. 

“We understand the pressures advisers and clients are under in the current environment. Platform services such as ours, should be about assisting advisers to do what they do best – and that is, implementing excellent advice strategies for their clients.” 

“The value of many Australian’s super accounts have fallen substantially in the past few years and this puts enormous pressure on advisers and their clients.  We think it’s important to respond to this new environment by lowering fees and keeping our platform accessible.” 

Previously administration fees were capped for accounts in excess of $500,000 or $2,770 maximum for superannuation. Wealthtrac has lowered this to $350,000 capped with a new maximum of $2,460 and $2,385 per annum for IDPS.  

“We believe this makes Wealthtrac the lowest capped traditional platform in themarketplace,” Mr Johnson said. 

The new PDS also includes revised ASF, which provides advisers and members with the flexibility to charge for advice.   Advisers can now charge a one off ASF as either a flat dollar or a percentage. Advisers also have the option to charge an ongoing ASF as either a fixed percentage or a tiered percentage based on the administration fee tiers and the ability to charge an ongoing ASF as a combination of a flat dollar and percentage (fixed or tiered). 

“Under the new PDS, advisers will have greater flexibility to negotiate fees that suittheir business and their clients.  We have enhanced functionality in relation to ASF. Importantly, we have also reduced administration fees, which we think is always well received by new members.”

Minimum fees on amounts less than $75,000 apply.  Existing members will remain on their current administration fees, however they are able to utilise the new ASF functionality via the Management Alteration form. 

Mr Johnson said the new structures were made possible following the revision of Wealthtrac’s service level agreement with OnePath.  

“The Wealthtrac platform has been performing strongly and our funds under administration has recently passed $750m for the first time.  Under our new SLA with OnePath, we have far greater flexibility to modify our offering to suit ouradviser members.”

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