Ross Higgins

Austock Life announces the expansion of its Imputation Bond’s popular Vanguard Indexed range by adding three new investment menu options. Investors now have a comprehensive range of seven menu portfolios that invest into Vanguard underlying funds.

“The menu’s expanded indexed range is in response to increased interest and uptake in the passive manager, lower-cost funds space.”

“It also recognises the high compatibility between using diversified Indexed funds for ‘set-and-forget’ investing matched to long-term insurance bond strategies. This is particularly so for our very popular ChildBuilder Bonds, which are often set with 20 year plus terms to meet objectives like education and home ownership funding.”

“Austock Life has longstanding commitment to Vanguard as our appointed manager for the Bond menu’s indexed category. Just over $90 million is currently invested across this Vanguard range.”

“Until now, the indexed range on the Bond’s menu has comprised a basic suite of single sector options, covering fixed interest, property, Australian shares and international shares,” said Ross Higgins, MD of AUSTOCK Life.

The two new Diversified Indexed Options added are:

• Vanguard Diversified Conservative Index. Here the underlying Vanguard fund invests into a range of sector funds to gain broad diversification across multiple asset classes biased towards income assets. It targets a 70% allocation to income asset classes and a 30% allocation to growth asset classes.
• Vanguard Diversified Growth Index. This Portfolio’s underlying Vanguard fund also invests into a range of sector funds, however its asset class diversification is biased towards growth assets. It targets a 30% allocation to income asset classes and a 70% allocation to growth assets classes.

At Austock Life’s Investment Portfolio level, the new diversified Indexed options will operate on a reduced 0.65% p.a. Management Cost basis, translating to total fee load (inclusive of Vanguard’s underlying fund wholesale fees) of 0.98% p.a. for Conservative Indexed and 1.01% for Growth Indexed.

Also a new Unhedged International Shares Indexed Option has been added. This is the Vanguard International Shares (Unhedged) Index. This new Portfolio is the unhedged currency version of the menu’s existing Vanguard International Shares (Hedged) Index.

Austock Life currently has over $623 million invested across the Imputation Bond’s (including ChildBuilder) menu of 33 options with both passive and active managers,” said Mr Higgins.

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Ross Higgins

The 2016 Budget and whatever the outcome of July’s 2016 Federal Election inevitably points to a major redesign of super concessions aimed at lessening their attraction to higher income and wealthier clients.

The Government and Opposition seem on parallel policy paths to peel back the superannuation system to fit so proffered new policy objectives of super. These objectives draw heavily on last year’s Financial System Inquiry (Murray) Report and at their core have the notion that New Super is for building only a moderate, and not necessarily comfortable, retirement nest-egg.

Personal wealth accumulation vehicles outside super

The tenor of the Budget, now followed up in the Government’s stated election policy is that savings outside of super will be encouraged as the Third Pillar of Australia’s retirement incomes system.

“We believe that Insurance Bonds are the next best, and indeed only alternative tax-effective investment framework to superannuation. Importantly, Insurance Bonds will be at the forefront of the alternatives (or supplements) because they offer:

• Completely uncapped contribution limits for lump sum investments, and without constraints on their growth (whether by income or capital);
• Attractive and progressively increasing contribution caps for ongoing additional contributions under the 125% Rule;
• Unrestricted access at any age and for any purpose; and
• Versatile tools for estate planning and making intergenerational wealth transfers – these can be flexibly structured as Estate and/or “protected” Non-Estate arrangements.

“As well, Insurance Bonds are another approach to ‘life-events’ financial planning,” said Ross Higgins, Managing Director, Austock Life.

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Ross Higgins

An investment-linked insurance bond could be the salvation for students or their families that want to avoid the potentially crippling impact of student debt.

Annually, Australia’s Higher Education Loan Payment (HELP) program makes student loans totalling more than $6 billion[1]. Eligible students under the 2015 FEE-HELPlimits can borrow from the Federal Government up to $122,162 for medicine, dentistry and veterinary science students and take on debt to $97,728 for all other students.[2]

Even for students in Commonwealth supported places, Undergraduate Bachelor Degrees cost $15,000 to $33,000 while higher value courses like veterinary and medical are even more expensive.

“The situation is worse for post-graduate qualifications where the full brunt of the user pays and new deregulating model hits hardest. Some masters and doctorate programscost in excess of $50,000,” said Ross Higgins, Managing Director of Austock Life, a leading specialist issuer of insurance bonds.

Concern about the escalating cost of education has intensified in recent years since the nation’s universities and vocational educational training system began significantderegulation of course fees.

These changes increased the financial burden, both for domestic and especially for foreign students.

So unless students (or often their parents or grandparents) can afford to pay their course fees upfront, they face the reality of having little or no choice, but to take onpotentially considerable levels of student debt.

“Alleviating student debt can be invaluable to their early adult life opening the way to the important things of bygone times, such as buying a home, starting a family, overseastravel or even starting a business,” advised Mr Higgins.

One option is the ChildBuilder insurance bond which forward thinking parents and grandparents can use to build financial provisioning earmarked to reduce or payout thegrowing student debt burden on their children and grandchildren.

Of course, if the insurance bond is not used (or fully exhausted) for paying course fees directly or discharging student loans, it can be used by a child or grandchild over itsvested stage for other worthwhile purposes.

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[1] Andrew Norton, 2014Doubtful debt: the rising cost of student loans, Grattan Institute (April 2014)
[2] Australian Government – Department of Education, Thinking about studying: A postgraduate degree? (FEE-HELP 2015)

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Ross Higgins

Many things can go wrong when preparing wills and setting out clear instructions for dispersing an estate. Ross Higgins from Austock Life highlights some of the big mistakes that he see in his work with lawyers and financial planners.

1. Not achieving intergenerational wealth transfer objectives
2. Leaving your Will open to legal challenge
3. Not simplifying complex wills and estates
4. Dedicated purposes in estate planning – clear direction of your intent

“So what big mistakes are people making with their wills?

“What can upset the wishes of people when they die and lead to their wills being disputed?

“Is this a growing problem with blended families?

“I believe that contested wills and estate planning bungles are a big problem that some plain thinking and sensible planning can avoid,” said Ross Higgins, MD of Austock Life.

1. Not achieving intergenerational wealth transfer objectives

Testamentary trusts are a common vehicle to pass on wealth and can also establish a level of control beyond one’s death. These are not straightforward structures and are usually created under a person’s will. A testamentary trust not only requires establishing the trust under your will and finding ‘willing’ trustees, but can be impracticable for smaller dollar bequests. As a form of trust they also require annual administration and tax reporting costs and can be inflexible and costly to unwind.

As an alternative, parents (and especially grandparents) can use modern insurance bonds to plan ahead with “peace-of-mind” about how, when and to whom their estate’s wealth (or part of it) will be distributed to the next generation.

Some modern imputation bonds have special design features for passing money cleanly to children and grandchildren – and with the following advantages:

• allow for multiple beneficiaries with different entitlements;
• be tailored for meeting small and large bequests;
• are low cost; and
• operate in a low maintenance “set and forget” and tax-effective environment.

2. Leaving your Will open to legal challenge

Legal challenges can arise due to disgruntled beneficiaries and others left out of the Will, or someone just being unhappy and wanting to overturn elements, such as a charitable bequest. This can cause costly, lengthy (and unhappy) legal disputation.

There is a simple and tested solution though:

“It is better to place the money out of reach of the Will and put it beyond challenge. Modern insurance bonds are increasingly being used for making protected bequests and can even be done as ‘secret/confidential bequests’.  They can also be established for ‘set purposes’, which can be particularly useful to create inheritances for children and grandchildren.

“Because Insurance Bond Nominations can be set up as “excluded assets” from legal estates – therefore bequests made in this fashion can be put beyond Will disputes” said Mr Higgins.

“The other upshot of using Insurance Bond Nominations for non-estate bequests is that these can be made in secret because these types of inheritances are not subject to Probate procedures (and costs) and hence not brought within the public domain.”

3. Not simplifying complex Wills and estates

An Insurance Bond Nomination being outside the deceased’s Will and legal estate (and possibly made in secret) opens strategies to use a Nomination in conjunction with a Will, or as an alternative estate planning arrangement.

For instance you can use a standard Will for certain beneficiaries, but separately establish Insurance Bond Nominations to provide for other beneficiaries.  The Nomination could:

• provide for children of previous marriages or a new spouse’s children;
• solve potential conflicts and inequities between children and grandchildren that might be difficult to handle just under a Will; and
• privately (secretly) meet moral obligations to someone such as a good friend or trusted employee.

4. Dedicated purposes in estate planning – clear direction of your intent

“We are now seeing a significant proportion of our new business (just over 40%) invested into ChildBuilder bonds – and many of these are established with a “stated intended purpose” for the child’s or grandchild’s expected use of the investment’s proceeds.

ChildBuilder’s most common ‘intended purposes’ that Austock Life is seeing include:

• first home deposits and funding the move out of home
• education funding and job qualifications
• or simply starting a family

“A special innovation with ChildBuilder is an extensive menu of ‘intended purposes’ that parents (or grandparents) can choose from when establishing a ChildBuilder Bond” said Mr Higgins.

Specifying an intended purpose for ChildBuilder works in much the same manner as someone expressing non-binding instructions in their Will for the particular use of a bequest.

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What are non-estate assets?

• Jointly owned assets, such as the family home that automatically passes to a surviving spouse as joint owner
• Assets held through a family trust
• Life insurance policies – where a nomination of beneficiary is made
• Superannuation nomination benefits are also normally a non-estate asset

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Private school fees set to increase again.

Private high school fees are set to rise at least 6 per cent next month, prompting parents and grandparents to invest in a unique Australian innovation which is tax-paid and an easily manageable “targeted purpose”  investment. This has been the average level of private school fee growth over a long period in Australia.

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