NetActuary

QROPS Changes and Challenges in 2015

With all the pension changes happening in the UK, Australian advisors on transfers to Australian QROPS are going to have a number of new aspects to address.  This is a bit of a round-up of those matters.

UK Data Protection Act 1998 Increasingly UK funds will not release information to an Australian financial planner – even if they have an authority from the client to do so.  This is not a major problem as the client can simply forward copies of the information.

Public Service Unfunded Defined Benefits December 2014 saw the Pension Scheme Bill complete its “Commons” stages.  This has a restriction on a member of an unfunded public service defined benefit scheme like NHS Pension from transferring out to an accumulation arrangement.  It is going to be important to be able to structure Australian clients’ affairs tax efficiently with this constraint i.e. more UK pension payments than previously.

Non Advisors DB Transfers The new bill requires trustees of funds to check that defined benefit members have received independent advice – presumably from a UK registered, independent financial adviser.  There is a small possibility that an overseas adviser may be acceptable – Steve Webb (the Minister of State for Work and Pensions) said that the Financial Conduct Authority would clarify this in due course.  This will be an additional hurdle for Australians wishing to consolidate their retirement funds to Australia.

Increase Benefit Flexibility From 6^th April 2015 members of a QROPS who have reached their minimum retirement age (usually 55) will be able to take a 100% lump sum withdrawal. Currently a QROPS holder is required to use 70% of the funds in their scheme to provide an income for life.  This will apply to past QROPS monies.

Previously Exempt Amounts Monies moved from one overseas super fund to another overseas super fund are – since 1^st July, 2004 – exempt until they are eventually transferred to Australia.  These records are not being maintained diligently by many expats, and needs to be fixed.

Deductible Amounts If more people are going to be forced to receive some overseas entitlements in assessable pension format, ensuring that the appropriate deductible amount is claimed becomes important.

Value of UK State Pension Voluntary Contributions With the changes to UK State Pension conditions, the value of making voluntary contributions needs to be re-evaluated.

I predict it is going to be at least six months before the rather confused current environment has more clarity.

The NetActuary Team

 

 

More Than the Murray Report

There are many aspects of the Murray Report that could affect a retirement plan.  Some of these could be direct (such as prohibition of property loans in an SMSF) or indirect with (for example) less growth in bank dividends because of new capital requirements.  However, I think we need to go way beyond the future of the financial sector changes, but be proactive on what might blow up in the client’s face in the next 10 years.  It’s currently a time of uncertainty – all the way from an individual to a global level.

We need to know where the investment returns are going to come from to help provide that sustainable retirement income.  The level of interest rates is unusual and extreme.  Ignoring the short term, these rates will (at some stage) return to more normal levels.  If the defensive component is in managed structures and not directly held, the outcome could be ugly.  Clients still remember the GFC.  The MYEFO Statement due shortly is not going to be pretty.  Tax receipts will be down.  The numbers will be bad.  The client will want you to provide a solution.

They might be tempted to consider property.  House prices in Sydney are crazy.  A lot of these residential investments are interest only.  We have gotten used to demand outstripping supply due to Australia’s population growth being one of the highest in the developed world.  Some 155,000 new houses and apartments are required each year currently.  Next year, some 195,000 are planned for construction.  So – for the first time in a very long time – there will be an oversupply.

One is not talking about an immediate problem, but what is becoming clear is that in the next 10 years or so there are huge potential dangers.

What is the solution?  The more you look at these risks the more evident it becomes that the need is to have retirement income covered by secure investments like fixed term annuities to have the capability to sit out troubles.

Comcare scheme reform

A lot has been said over the years about the harmonisation of workers’ compensation in Australia. Unfortunately, very little has been achieved and we have many schemes in Australia that each have unique processes and regulations for underwriting, premium methodology, claims management and general administration of each scheme.  Now that the Comcare scheme could potentially be open to a large number of multi-state employers, is this a first step towards a truly harmonised scheme?

You may be aware that in December last year, the Federal Government finally lifted the existing moratorium that was introduced by the previous Labor government in 2007. This moratorium prohibited non-Commonwealth organisations from obtaining a self-insurance licence under Comcare.  This was a most unfair position for large organisations as they were effectively being denied the right to provide employees with the same workers’ compensation benefits across the whole country and therefore the right to treat all employees, no matter location, equally and equitably.

I strongly support equal opportunity employment rights.  While there are significant barriers to true harmonisation of the Australian workers’ compensation system, I believe that all multi-state employers should have access to a more harmonised system than what they currently have access to and as a minimum all employers needs access to a scheme that has the same benefits and OH&S rules and all under the control of a single regulator.    

I applaud the current Federal government for finally introducing into Federal Parliament the SRC Bill 2014, on 19^th March of this year, as a small part of an overall greater reform package to repeal over 10,000 unnecessary and counter-productive pieces of legislation and regulations, in a bid to reduce red tape across the economy and improve Australia’s competitiveness.  This is a very important Bill and the most important aspect of this Bill is that, when passed, it will ensure that all licence-holders under the Comcare scheme operate under an integrated workers’ compensation and work, health and safety regime.  This harmonisation of OH&S will be an historic achievement in the history of compensation schemes in Australia and one which will make life so much easier for a multi-state employer.  In addition to this, there are various other aspects that will improve the long-term viability of this scheme and simplify the administrative process of applying for a licence and simplify the overall administration of the scheme.  Also, the current “competition test” will be replaced by a “national employer test”, thereby providing opportunities for a large number of organisations to consider the Comcare scheme and the many advantages that it offers as an alternative to its current arrangements.

Once this Bill is passed, Comcare will be an excellent option for any employer to consider that currently has operations in more than one state in Australia.   Contrary to some media reports I believe that the benefits in Comcare are both extremely comprehensive and very affordable.  Furthermore, any changes that may occur in the future are likely to further increase the affordability of the scheme relative to state schemes.  When the Bill is passed we will have a scheme with the same benefits, same OH&S rules and under the control of a single regulator.  This will be an historic first step towards the harmonisation of workers’ compensation in Australia.

There may be potential financial and administrative savings to be made by moving to the Comcare scheme.  Also, the greater control that self-insurance provides an employer makes it worthwhile for most organisations to at least consider whether self-insurance and Comcare self-insurance in particular is the most appropriate way to provide workers’ compensation benefits to injured workers.  We are happy to worth through your individual case and discuss any particular questions you may have regarding the Comcare scheme, state schemes and self-insurance in general.  For this or any other self-insurance related query, please contact Ezio Lo Castro on 0427 716 995.

Ezio Lo Castro

 

 

Retirement Income Financial Health Check

It’s time for a new scaled advice special! 

The examination of grandfathering – or new Centrelink income test impact – is now too close to 1^st January, 2015 for further reports.  So, until 30^th June, 2015 our retirement income financial health check report is available for $253 including GST instead of the usual $385 fee.

The report has been updated and revised.  A sample report will be uploaded to the website shortly.  The report examines: 

• What are anticipated payment durations both on a best estimate and 70% adequate basis?  For a couple, this would look at “both alive” and “at least one alive” expected durations as these are needed for Age Pension entitlement projections.
• What private assets are required for the desired retirement income after allowing for Age Pension entitlements on both an anticipated and conservative investment return basis?
• What is the anticipated accumulation at the desired retirement date from SG contributions with and without utilising a transition to retirement strategy?
• What are the optimal TTR strategy settings?
• If there is a shortfall, how can this be eliminated by extra contributions or a delay in the retirement date?

This report is for individuals with some years available to the desired retirement date.  If the person (through redundancy or ill health) is facing an imminent retirement, NetActuary has an alternative report available.

The report can be supplied as a standalone SOA or in MSWord format to be cut and pasted into your SOA.  There is a data-form on the NetActuary website to action one of these reports at the $253 special price.  If there are special features on any particular case – such as legacy pensions – do call Brian on (03) 6223 2320 for assistance.  If you can describe it, we can model it!

The NetActuary Team