Speaker 1: Hello, and welcome to The Australian's Money Puzzled podcast. I'm
Speaker 1: James Kirby. Welcome aboard everybody. We have a lot going
Speaker 1: on all of a sudden. First of all, we have
Speaker 1: a budget now you might say unexpectedly, that is, the
Speaker 1: government flip flopped on this, but has finally settled on
Speaker 1: a date which is March twenty five, not far away.
Speaker 1: Keep that in mind, folks. And we have an election,
Speaker 1: of course, which will come up soon after that in May,
Speaker 1: and they have already, of course, both sides of Parliament
Speaker 1: have started handing out the goodies here in terms of election,
Speaker 1: and there are some really important distinguishing features between the
Speaker 1: two parties here. In fact, it's in this area of
Speaker 1: investment and housing, student loans etc. That some of the
Speaker 1: real distinction in party policy is emerging. So I think
Speaker 1: it's going to be very important in the weeks ahead,
Speaker 1: as in we need to always pay attention to budgets
Speaker 1: because we can get things, we can get things taken away. Similarly,
Speaker 1: the same goes for elections, and any investor should be
Speaker 1: across what's going on to get across what's going on.
Speaker 1: My guest today is James Gerard from Financial Advisor dot
Speaker 1: com dot you awai, James.
Speaker 2: I'm doing great. Thanks for having me on today, James.
Speaker 1: I'm delighted to hear this is a budget. But then
Speaker 1: I'm one of those sort of strange people who enjoys budgets.
Speaker 1: I really do. It's a bit like going for a
Speaker 1: long run. Don't necessarily enjoy it while you're doing it,
Speaker 1: but afterwards you say that was good. Now I'm really
Speaker 1: across everything, and for me at least, it's like a
Speaker 1: reset for the year. I'm just looking at. First of all,
Speaker 1: the twenty fifth is the date, and that, of course,
Speaker 1: by nature will be a pre election budget. It gives
Speaker 1: the incumbents the ALP chance to show the wide republic
Speaker 1: where public finances are at and I mean there's raw
Speaker 1: record of that all the time, but it gives them
Speaker 1: a chance to actually a moment, if you like, in
Speaker 1: front of the spotlight, to put their case as to
Speaker 1: the standings of the broader big picture. But then there's
Speaker 1: also measures, which is what we are always interested in.
Speaker 1: What might they do, what might they aspart to do,
Speaker 1: what might they promise going into the future. And there's
Speaker 1: a lot going on. One of the things I want
Speaker 1: to talk to you. First of all, was about that
Speaker 1: distinction on terms of what parties are offering. One big
Speaker 1: distinction is about super, really simple. The Coalition will let
Speaker 1: you use your SUPER to buy a home. The ALP
Speaker 1: will not let you do so that's a major distinction
Speaker 1: between the two parties. I don't want to get too
Speaker 1: political in this. It's hard to cover an election without
Speaker 1: being political, but I don't want to get party political
Speaker 1: on this. I want to look at it from an
Speaker 1: investor's point of view. How powerful do you think that
Speaker 1: tapping super, allowing people to tap super might be, James.
Speaker 2: It's really powerful, particularly for people in Sydney, Melbourne, Brisbane
Speaker 2: where property prices have gone up substantially over the past
Speaker 2: five years or ten year period, and it's really tough
Speaker 2: for these younger people in their twenties, thirties, even forties
Speaker 2: to get into the property market where it's over ten
Speaker 2: years of the average income to buy the average property,
Speaker 2: and statistics show that you need to save at least
Speaker 2: ten years work for savings to be able to get
Speaker 2: that first property. So being able to fast track that
Speaker 2: by fifty thousand dollars per person, So if you're a
Speaker 2: couple that's one hundred thousand dollars that you can grab
Speaker 2: from your super account towards a deposit. It'll go a
Speaker 2: long way. But then there's the well, what does that
Speaker 2: mean on the other end, where we're missing out on
Speaker 2: between fifty to one hundred thousand dollars of capital there
Speaker 2: that could have been compound in a way earning eight
Speaker 2: percent nine percent return over thirty forty years until retirement.
Speaker 2: That means that there'll be less money there for retirement.
Speaker 2: But then I guess the argument that the way that
Speaker 2: I would think about it is that it helps you
Speaker 2: achieve this goal to get into the property market sooner.
Speaker 2: You pay down your mortgage sooner because you're off the
Speaker 2: rental ladder sooner, and then when you're in that sort
Speaker 2: of five to ten year period before retirement, that's when
Speaker 2: you can put back extra money because you don't have
Speaker 2: the mortgage anymore, and that's where you can replenish the
Speaker 2: fifty thousand plus the returns that you would have had
Speaker 2: along the way.
Speaker 1: I mean, I have to say I'm a reluctant supporter
Speaker 1: of it for the simple reason that I know a
Speaker 1: policy wise, it's not a great idea housing should fix
Speaker 1: housing super should fix SUPER. However, I'm pragmatic. Here's the thing.
Speaker 1: All the tax breaks in the system for the individual
Speaker 1: hinge on owing your own home capital gains tax exemption,
Speaker 1: which is a big CGT exemption for homeowners. You don't
Speaker 1: get to benefit from that if you don't buy your house.
Speaker 1: It goes through all your life right through too. When
Speaker 1: you retire, you can get the family home is effectively
Speaker 1: excluded from assessment of access to the pension. So the
Speaker 1: point I make is that it's not just about buying
Speaker 1: a house. It's about including yourself and the benefits of
Speaker 1: the tax system. And I don't think the tax system
Speaker 1: is going to change, So yes, I think there will
Speaker 1: be more support than people realize. Important point which I
Speaker 1: don't see very often covered. If you go in and
Speaker 1: look at the actual policy. Yes, you can take fifty
Speaker 1: thousand dollar of your SUPER towards the home, assuming you
Speaker 1: have fifty thousand in there. The second thing is you've
Speaker 1: got to put it back when you sell the house,
Speaker 1: assuming you sell the house. But that's a proviso in
Speaker 1: there which hasn't had a lot of attention. So from
Speaker 1: a policy perspective, it's not quite open the doors and
Speaker 1: let all the superflow out. It has to be the
Speaker 1: amount taken out has to be returned in the fullness
Speaker 1: of time when you sell the home. We might get
Speaker 1: some more detail on that in the election. On the
Speaker 1: other side, then, James, I think the outstanding budget election
Speaker 1: carrot from the ALP, I think at least is the
Speaker 1: HEX deal. It's so simple. You just say to someone,
Speaker 1: if you vote a LP, if you return the government,
Speaker 1: you get twenty percent off your HEX. I mean, it
Speaker 1: is just so simple and so clearly a budget giveaway.
Speaker 1: It's outrageous almost in its simplicity. But I think for
Speaker 1: that portion of the population, which by the way is
Speaker 1: the big portion, right, so the gen X and the
Speaker 1: millenniums combined are now bigger than boomers for the first
Speaker 1: time ever, So I think that one may really work
Speaker 1: as well. Do you think the HEX one will cut through?
Speaker 2: I think it will. I'm making an assumption here. I
Speaker 2: feel that the younger generation will swing political parties. They're
Speaker 2: less set in their ways election to election, so something
Speaker 2: like this, which on average will save them about five
Speaker 2: thousand dollars with that twenty percent of their HEX debt
Speaker 2: wiped away, is really appealing and Also, the Labor Party
Speaker 2: have another proposal around that, and that's where they're increased
Speaker 2: or they're proposing to increase the threshold of mandatory hex repayment.
Speaker 2: So currently, if you earn less than fifty four thousand
Speaker 2: dollars per year, you don't have to pay anything back
Speaker 2: of your HEX debt. But the Labor Party are proposing
Speaker 2: to increase that to sixty seven thousand dollars per year.
Speaker 2: So that means that someone on seventy thousand dollars per
Speaker 2: year will will save about thirteen hundred per year in
Speaker 2: mandatory hex repayment. So that also helps I guess from
Speaker 2: the cost of living side of things, where people won't
Speaker 2: be compelled to have to pay this hex stet, that
Speaker 2: they can earn more money and still have that hexit
Speaker 2: there accumulate at a low indexation rate every year.
Speaker 1: This is one of the things that might happen is
Speaker 1: that they'll copy each other. I mean there's a lot
Speaker 1: of that going on. One party announces something and the
Speaker 1: other party says, yes, we'll do that too, which is
Speaker 1: a strange sort of mechanism which pushes the parties into
Speaker 1: the center. But there are some things they can't copy,
Speaker 1: so in theory, at least with the HEX at least
Speaker 1: the Coalition might be able to respond on that, but
Speaker 1: the ALP is probably never going to be able to
Speaker 1: respond on allowing you to tap your super for a
Speaker 1: home deposit because of the importance of the entire supersystem
Speaker 1: to them, the SGC to them, the industry funds to
Speaker 1: them as well, and that is a political point. But folks,
Speaker 1: I thought it was really important to get up to
Speaker 1: speed on what was going on around budget and election
Speaker 1: that we know so far, and we'll take a break
Speaker 1: and then we look at what also might happen back
Speaker 1: in a moment. Hello, Welcome back to The Australian's Money
Speaker 1: Puzzle podcast. I'm James Kirby talking to James Girard of
Speaker 1: Financial Advisor dot com dot a regular guest on the show,
Speaker 1: contributor of course to The Australian's Wealth Section. So what
Speaker 1: else might we expect anything else going around in your
Speaker 1: wonderful world of financial planning? Three million dollars tax for super.
Speaker 1: If they get back in, they're going to bring that
Speaker 1: back in again, aren't they. They're going to have a
Speaker 1: second crack at that.
Speaker 2: Ye, that's right. That legislation the Division two ninety six
Speaker 2: legislation has gone through the lower House successfully and it's
Speaker 2: in the Senate at the moment, and there's a lot
Speaker 2: of debate. So the Coalition don't really like it. The
Speaker 2: crossbenches have questions about it, and it hasn't been scheduled
Speaker 2: for a vote before the election, and it looks unlikely
Speaker 2: that will go through to a vote before the election.
Speaker 2: With the AOP win, that push it to have that
Speaker 2: go through, which is that extra tax above three million dollars.
Speaker 2: But if the Coalition win, I'm pretty sure they're going
Speaker 2: to scrap it because they've been quite vocal in saying
Speaker 2: that we don't think this is fair, particularly taxing people
Speaker 2: on unrealized gains in their super account.
Speaker 1: Yeah, I need the ALP win. They'll do some sort
Speaker 1: of deal with they'll hand pick a couple of senators
Speaker 1: and they'll just make an offer the account refuse. They'll
Speaker 1: strap it onto something else six basketball courts in your
Speaker 1: constituency or something like that and make it very attractive.
Speaker 1: So that's one that there's three million super tax, or
Speaker 1: to put it more generally, folks, you know our wealth
Speaker 1: on super is obviously on the agenda. If aop returns
Speaker 1: and not on the agenda. Certainly not any shape or
Speaker 1: form like the one that's proposed with the taxing unrealized
Speaker 1: gains if the Coalition get back. I saw some other
Speaker 1: issues around tax relief. It's funny, you know, normally, James,
Speaker 1: when you have a budget, you've got people putting out
Speaker 1: pre budget submissions and weeks. But because the government didn't
Speaker 1: make it clear whether they were or they weren't going
Speaker 1: to have a budget, I was looking, there's only a
Speaker 1: handful of submissions around and you know they're pretty marginal. Really,
Speaker 1: there isn't this sort of flood of pre budget submissions
Speaker 1: because people didn't do the work understandably because they didn't
Speaker 1: know there was going to be a budget. So why
Speaker 1: would you put a policy team working on a budget
Speaker 1: if you didn't know what was going to happen. And
Speaker 1: when they finally announced it, which was this week, the
Speaker 1: week of Monday, the tenth of March, only eleven days
Speaker 1: out from the budget, which is unfair I think in
Speaker 1: many ways. But there you go. Tax really financial advice
Speaker 1: put simply, when you go into a financial advisor for
Speaker 1: the first time, you can't deduct that bill. But if
Speaker 1: you go in for the tenth time in a row,
Speaker 1: you can could you explain to people how it works
Speaker 1: on what could change?
Speaker 2: Yes, it's similar to earning an investment property. When you
Speaker 2: buy an investment property, you cannot deduct the cost of
Speaker 2: the conveyan to for example. That forms part of what
Speaker 2: we call the capital base. So when you sell the property,
Speaker 2: you get to add that back and reduce capital gains tax.
Speaker 2: With financial planning in the financial advisory fhees pay up
Speaker 2: front are largely similar to that where we give you
Speaker 2: advice to invest into something using a certain structure that
Speaker 2: generally has not been tax deductible in your and your
Speaker 2: tax return. But if you invest and then you make
Speaker 2: capital gains you can then claim the cost of that
Speaker 2: advice down the track. Well, the changes are that this
Speaker 2: happened from an ATO tax ruling in around October last
Speaker 2: year from memory, where the tax officers clarified things and
Speaker 2: said that, well, we nowadays recognize financial advisors as a
Speaker 2: creditor to give some tax advice. So if the financial
Speaker 2: plans cover tax advice, this could be something like salary
Speaker 2: sacrificing in debt recycling these type of strategies, that portion
Speaker 2: of the financial plan is tax deductible.
Speaker 1: Oh that's just so ridiculous. That is just daft. How
Speaker 1: on earth are you going to apply that, James? What
Speaker 1: are you going to do? Take yourself for something and
Speaker 1: send it into the ETO, and says, for six minutes
Speaker 1: we talked about tax, and for eight minutes we talked
Speaker 1: about didn't talk about tax.
Speaker 2: Oh yeah, well get this. If I recommend income protection insurance,
Speaker 2: the part of that plan is tax deductible. But where
Speaker 2: I talk about life insurance and critical illness insurance, that
Speaker 2: part is not tax deductible in the tax return.
Speaker 1: Oh, this is so stupid. It's so stupid. I don't
Speaker 1: want to talk about it anymore. Okay, folks, Just so
Speaker 1: you know, right in principle, first of all, when you
Speaker 1: go into the initial financial advisor, which is when it
Speaker 1: costs you the most, and which is where most people
Speaker 1: have their hurdle of going in for the first time
Speaker 1: because it's going to cost a lot the first time,
Speaker 1: that's not tax deductible. On an ongoing basis, what shall
Speaker 1: we say? Bits of it are more bits are than
Speaker 1: there used to be, but still not all. Is that broadly? O?
Speaker 2: God, that's fair to say? Yeah? Rule of thumb, you'd
Speaker 2: be able to claim the vast majority of ongoing financial
Speaker 2: advice fees. So that's not so much of a concern.
Speaker 2: It's more the upfront. There's this big calculation that needs
Speaker 2: to be done around what minutes, what paragraphs deductible not deductible.
Speaker 1: What if I walk into you and say, hey, I
Speaker 1: don't want to talk about anything except tax, and you say, okay,
Speaker 1: is that one hundred percent tax deductible?
Speaker 2: Then it is. Yeah, it is. As long as you
Speaker 2: go to a financial advisor who's a credited to give
Speaker 2: you tax advice, which most of them are these days,
Speaker 2: well then yeah, your whole upfront bill can be tax deductible.
Speaker 1: That would seem to be useful piece of information. We
Speaker 1: don't give advice, but that would seem to be useful information, folks. Okay,
Speaker 1: in terms of what I've seen around that, we will
Speaker 1: know a lot more very soon, folks. But because the
Speaker 1: budget has just been called, because this is only an
Speaker 1: eleven day run up to it, that's all we can
Speaker 1: tell you seriously just now. And we have such good
Speaker 1: questions I want to jump straight chew them from Phil
Speaker 1: and Evelyn and Lucas and Andrew back in a moment. Hello,
Speaker 1: Welcome back to the Australians Money Puzzle podcast. James Kirby
Speaker 1: here with James Gerard. For the first question. We'll do
Speaker 1: with promptly because it's from Phil and he says, is
Speaker 1: the twenty percent reduction on student loans and other empty promise.
Speaker 1: I have not heard any update on this promise. No, Phil,
Speaker 1: no update, but doesn't need to be. They said, basically,
Speaker 1: in very broad terms, if they're re elected, because it
Speaker 1: doesn't kick into the next June, they'll take twenty percent
Speaker 1: off your HEX and they'll also push the threshold at
Speaker 1: which you must pay hex of what was it, James,
Speaker 1: From low fifties to high sixties something like that.
Speaker 2: Yeah, that's right. From fifty four to sixty seven thousand
Speaker 2: is the proposed threshold.
Speaker 1: Yeah, so Phil, it stands, but it hinges on the
Speaker 1: government being re elected. Okay. Evelyn says, my husband and
Speaker 1: I are in our forties and we finally in a
Speaker 1: financial position to buy our dream home. We would like
Speaker 1: to pay this home completely in fifteen years. However, in
Speaker 1: the event we can't do that, can we apply a
Speaker 1: reverse mortgage on the home after retirement? Okay? Reverse mortgages
Speaker 1: always an interesting area. This is not advice evivent, but
Speaker 1: information only suddenly really starting to steam. I think reverse mortgages.
Speaker 1: I haven't seen the new numbers, but I've seen the
Speaker 1: action on the corporate side of the reverse mortgage providers
Speaker 1: if you like, really starting expand and raise capital and
Speaker 1: as takeovers going on. There lots happening. But on the
Speaker 1: simple question about applying a reverse mortgage on your home
Speaker 1: after you retire, first of all, I'm sure there's nothing
Speaker 1: blocking you, is there? Legally?
Speaker 2: No, there isn't.
Speaker 1: Is it a useful strategy for some people?
Speaker 2: Some people it has its place, But of course there's
Speaker 2: a cost, and a very large cost. When it comes
Speaker 2: to reverse mortgages for starters. The interest rate is higher
Speaker 2: than what a normal home loan would be. So where
Speaker 2: a normal home loan is say six six and a
Speaker 2: half percent, today, reverse mortgages add two percent or more
Speaker 2: on top of that. And the other thing is that
Speaker 2: the interests capitalized. So although you're not making a repayment
Speaker 2: on that reverse mortgage, which may seem great down the track,
Speaker 2: if you ever need to sell the house to go
Speaker 2: into an age care facility and pay a bond, or
Speaker 2: you want to leave something to your family. There may
Speaker 2: be a rude shock there because there's a very large
Speaker 2: bill that will need to be settled if you sell
Speaker 2: your house down the track. If you have a reverse.
Speaker 1: Mortgage, and you by definition, we'll be selling your house
Speaker 1: down the track. If you have a reverse mortgage.
Speaker 2: That's right. Well, some of the providers say that we're
Speaker 2: not going to force you to sell this in your lifetime,
Speaker 2: and that's probably why there's only a limited number of
Speaker 2: reverse mortgages providers because they need to wait a long
Speaker 2: time before they get their money back on paper. They're
Speaker 2: accumulating all this interest against you or your house. But
Speaker 2: they say, we're not going to force you to sell.
Speaker 2: We can wait for you to move to an age
Speaker 2: care facility or pass away and then we'll settle out
Speaker 2: our debt. Then when we force you to sell the property.
Speaker 1: Or alternatively, it's either as you say, in effect, and
Speaker 1: this is really pragmatic, folks. If not a touch prosaic
Speaker 1: means the amount you have in retirement for edge care shrinks,
Speaker 1: or should you be so lucky as to never go
Speaker 1: through that particular phase, the amount you're going to give
Speaker 1: as an inheritance, it's going to shrink because the reverse
Speaker 1: mortgage provider has to get their money back. And as
Speaker 1: you say, James, the really crucial thing, isn't it in
Speaker 1: reverse mortgage is exact. The interest is being capitalized all
Speaker 1: the time, and that can really rack up as years
Speaker 1: go by. So someone said, oh, you know the house
Speaker 1: is worth whatever. The house is worth half a million,
Speaker 1: the house is worth a million, and you know the
Speaker 1: loan is only X. But that loan is building all
Speaker 1: the time as they capitalize the interest. And that's what
Speaker 1: you're saying. Shocks people when they find out after ten
Speaker 1: years that what the percentage of the home proceeds that
Speaker 1: they won't get gets bigger and bigger.
Speaker 2: Touching on another part of Evelyn's question with regards to
Speaker 2: is it better to pay off the mortgage completely when
Speaker 2: they retire. Over the years, I've advised a few people
Speaker 2: where they've maintained their home loan into retirement, so to
Speaker 2: be clear that they've stopped working, but they still have
Speaker 2: a residual mortgage, you know, say two hundred three hundred
Speaker 2: thousand dollars. They do have sufficient funds, usually in superinuation,
Speaker 2: to pull that out and pay down the mortgage. But
Speaker 2: then it's an ongoing question to say, well, what's the
Speaker 2: interest rate on my home loan versus what's the tax
Speaker 2: free return that I'm getting inside of my superfund? And
Speaker 2: is it better for me to keep more capital in
Speaker 2: my superfund which might be generating seven or eight percent return,
Speaker 2: and use some of that interest to pay down my mortgage,
Speaker 2: which depending on the time, at the moment, it's more
Speaker 2: beneficial to take money out of super to pay down
Speaker 2: the mortgage because interest rates are so high. But cast
Speaker 2: your mind back three or four years ago when Homeland
Speaker 2: interest rates were two percent.
Speaker 1: I remember people on the show seeing the complete opposite, James.
Speaker 1: So there are periods where it makes sense and those
Speaker 1: periods for it doesn't make sense.
Speaker 2: Correct.
Speaker 1: Yeah, And at the moment, rits are so relatively high.
Speaker 1: Keep that in mind. Thank you very much for that.
Speaker 1: Even I hoped that was useful to you. But for
Speaker 1: simple answer, yes, you can apply a reverse mortgage on
Speaker 1: the whole after retirement. And is it better to pay
Speaker 1: off the mortgage completely. It depends on your particular case
Speaker 1: and stage. We're with rates, and at the moment we've
Speaker 1: got pretty high rates. Okay, Lucas.
Speaker 2: Lucas says my wife started a sole trader speech pathology
Speaker 2: business eight months ago and we're now looking to transition
Speaker 2: to a proprietary limited company. What should we consider when
Speaker 2: deciding if we should be both directors or beneficial owners?
Speaker 2: Are their tax advantages to having it solely in her
Speaker 2: name versus both of us?
Speaker 1: Very particular question, more of business tax question. But if
Speaker 1: you could, perhaps to all the Lucases in the world
Speaker 1: give abroad commentary on that.
Speaker 2: I can, so the general comments I would make there
Speaker 2: is that if you're in a relationship to partners who
Speaker 2: are married, consider one person being the quote unquote risky person.
Speaker 2: That person should be the one that if the worst
Speaker 2: case happens and bankruptcy was to occur, that's limited to
Speaker 2: one spouse. So obviously that spouse you don't want it
Speaker 2: to have all the assets. So then you have the
Speaker 2: other spouse, who we call the assets spouse. So you
Speaker 2: have one that wears the hat of being the director
Speaker 2: of the business or the businesses. And then you have
Speaker 2: the other spouse who sits as the trustee of the
Speaker 2: family trust, who owns the family home in their name.
Speaker 2: And this isn't rocket science. This is what builders have
Speaker 2: done for the past fifu and.
Speaker 1: The one who's allowed go bankropt is obviously not the
Speaker 1: one that is the trustee of the superint blah blah blah.
Speaker 1: I mean, yeah, very obvious stuff there, but hey, not
Speaker 1: everyone knows it, not everyone is familiar with it. But
Speaker 1: there is always that guiding principle. Obviously. That's because there
Speaker 1: is usefulness in a duel, and you can stack certain
Speaker 1: things towards one side of the jewel when you need to,
Speaker 1: so you get the broad drift there, Lucas, I'm sure, okay.
Speaker 1: Question from Sandy, could you deal with annuities on the show?
Speaker 1: On the face of it, they appear to just give
Speaker 1: your money back to you. Well, not quite unless you
Speaker 1: can access more old age pension. They are worthless, Sandy. Oh,
Speaker 1: let's rewind the tape there. Annuities not very common, however,
Speaker 1: in principle terribly attractive. Who would not like to be
Speaker 1: able to buy a product which would give you a
Speaker 1: guaranteed return for the rest of your life if that
Speaker 1: product was really good? In principle, who wouldn't In practice,
Speaker 1: All sorts of issues around annuities traditionally but continually revisited
Speaker 1: by the market because people want them to work, and
Speaker 1: there's also some specific advantages of having annuities in the
Speaker 1: age pension system Centralink. Could you talk to Sandy a
Speaker 1: little about that one, James.
Speaker 2: Yeah, I've advised someone in the past twelve months with
Speaker 2: regards to taking Now it's an annuity and it's not
Speaker 2: something which I would go to as my first preference.
Speaker 2: I'd rather people put into a high interest.
Speaker 1: Why is it your default position not to go to them?
Speaker 2: Because you're involving a company that you're giving your money
Speaker 2: to on the hope that they're going to keep paying
Speaker 2: you a monthly return on that.
Speaker 1: But it's a promise, isn't it. It's a problem hop.
Speaker 2: Yeah, it's a promise, but if that company faces financial
Speaker 2: difficulties and ensure We're in a highly regulated society in
Speaker 2: Australia with the financial services system, but there is a
Speaker 2: very small chance that annuity provider evaporates and so does
Speaker 2: your your capital if that's the case. And the other
Speaker 2: reason is that when I break down annuities and look
Speaker 2: at the underlying rates of return, so how can they
Speaker 2: pay you this monthly benefit? What interest are they effectively
Speaker 2: paying you on the capital that you give them? It's
Speaker 2: always and I say always less than term deposit rates
Speaker 2: because there's a company involved. They're there to make a profit,
Speaker 2: they have overheads, So you're complicating the way that you're
Speaker 2: managing you're your money when you use an annuity. So
Speaker 2: that's why my default position is just keep it simple,
Speaker 2: keep it in a high interest bank account, keep it
Speaker 2: in a term deposit. You'll end up with more interest
Speaker 2: with less risk. However, they do have their place, and
Speaker 2: that's usually where you're on the fringe of eligibility for
Speaker 2: the age pension, where you have little level of assets
Speaker 2: that means that you're not going to get a pension,
Speaker 2: or you want to increase your part pension and you
Speaker 2: hit it on the head. There's an asset test benefit
Speaker 2: there where not the whole value of the annuity, only
Speaker 2: part of it gets counted towards the asset test. So
Speaker 2: it can be better in those situations if center link
Speaker 2: is important to you to on one hand take a
Speaker 2: lower return from the anuities, but then on the other hand,
Speaker 2: get a higher age pension benefit.
Speaker 1: So the annuities have some place in terms of pension access,
Speaker 1: don't they they're exempted, are they to some degree?
Speaker 2: Is that they used to be exempted, but then it's changed,
Speaker 2: so depending on age and circumstances, it's roughly fifty to
Speaker 2: three quarters of it can be exempt from the age
Speaker 2: pension there, so yeah, it can help those people who
Speaker 2: are just outside of the eligibility threshold for the age
Speaker 2: pension due to their level of assets.
Speaker 1: Due to their high level of assets.
Speaker 2: High level of assets.
Speaker 1: Yeah, okay, we won't try and put a number on that,
Speaker 1: but very broadly it would be something what four hundred thousand,
Speaker 1: six hundred thousand that range.
Speaker 2: Yeah, it's a bit of a four hundred thousand for
Speaker 2: there's all these different situations. If you're a couple, a homeowner,
Speaker 2: if you want the full pension, it was a circle
Speaker 2: for I think it's actually a bit high now for
Speaker 2: the indexation, maybe four hundred and eighty thousand from memory.
Speaker 2: So if you have more than that and you want
Speaker 2: to get the full pension, you don't want to keep
Speaker 2: the part pension, well then have it a look at
Speaker 2: an annuity. But you just need to break it down
Speaker 2: and understand what you're getting when you put your money
Speaker 2: into an annuity.
Speaker 1: Because the pension is so valuable. It's just so valuable
Speaker 1: if you think about it, Let's say there was no pensions,
Speaker 1: but you wanted to get twenty nine thousand a year
Speaker 1: as a single individual, Then how much would you have
Speaker 1: to have in savings or investments to get that. That's
Speaker 1: the way to look at it. You know, it's at
Speaker 1: least half a million. That is fine. Pension or access
Speaker 1: to it is so precious and it's such a serious
Speaker 1: part of your design of your own retirement plans, folks,
Speaker 1: it really is. And if you're lucky enough that it
Speaker 1: doesn't matter to you, that's all fine, and we might
Speaker 1: have all aspire to that, But many people, the majority
Speaker 1: of people, actually will have access to some level of pension,
Speaker 1: and you can manage that opera down depending on how
Speaker 1: cleverly and astrutely you manage your own affairs and annuities
Speaker 1: could be part of that. Now, final question from Andrew.
Speaker 1: Perhaps it was you that was talking about in species transfers.
Speaker 1: I can't remember.
Speaker 2: Potentially I can't recall either, but Andrew asked the idea
Speaker 2: of in specie transfers was briefly mentioned on The Money
Speaker 2: Puzzle a few times over the past few years. It'd
Speaker 2: be good to know more about it on the show
Speaker 2: with the right guests. You're the right guest, Jen, I'm
Speaker 2: the right guest. Here we go. In particular, I'm curious
Speaker 2: if there's any age restrictions around it. Could someone in
Speaker 2: their forties transfer of basket of CBA shares into Super
Speaker 2: slash self managed Super or are their trigger points at
Speaker 2: sixty sixty five or sixty seven years of age?
Speaker 1: This a great question, you know, it's a really good question, Andrew,
Speaker 1: thank you very much for that. So in special transfer,
Speaker 1: as folks, just to remember you have something outside Super. Right,
Speaker 1: you've got one hundred grands worth of come Work Bank
Speaker 1: shares because you were really lucky because you've bought them
Speaker 1: for very little many years ago, but you didn't have
Speaker 1: them in Super. You want to put them in Super.
Speaker 1: You can move them in, but you have to do
Speaker 1: it at the market rate. And when you do it
Speaker 1: at the market rate across, then that's coded in specie transfer.
Speaker 1: Is that broadly correct? Is there anything? Is your age
Speaker 1: in any way relevant to this exercise? Ever?
Speaker 2: It is the reason is that when you do in
Speaker 2: specie transfers, they are a relatively simple exercise. You just
Speaker 2: pick up the ownership of your shares, your CBA shares
Speaker 2: and your personal name and then you drop them into
Speaker 2: your super fund. And the way that you do that
Speaker 2: is an off market transfer form and it takes a
Speaker 2: couple of weeks to process it. There's minimal fees involved
Speaker 2: with that. It's really just dealing with the share registry
Speaker 2: to process that change.
Speaker 1: And the inspecie part is that you transfer at the
Speaker 1: price on the day or at the market price.
Speaker 2: Correct. Yeah, yeah, from memory there might be a little
Speaker 2: bit of flexibility, so I feel like there's a window there.
Speaker 2: So from memory it is maybe like twenty or twenty
Speaker 2: eight days where you could choose the price that you
Speaker 2: pick it up, but somewhere between on the day or
Speaker 2: days around it that you get to pick the price,
Speaker 2: but you basically pick it up, you move it into
Speaker 2: the super fund. Now age comes into it because when
Speaker 2: you move that investment from your personal name into the superfund,
Speaker 2: that's a contribution to your superfund. And so we need
Speaker 2: to take into account the concessional contribution cap, the non
Speaker 2: concessional contribution cap, and of course these things are dictated
Speaker 2: by age. But in short, as long as you're under
Speaker 2: age seventy five, it's relatively straightforward to be able to
Speaker 2: pick up assets and put that into SUPER if that
Speaker 2: amount is less than three hundred and sixty thousand, because
Speaker 2: the annual cap that you can put into SUPER with
Speaker 2: your after tax money which includes these in specie transfers,
Speaker 2: is one hundred and twenty thousand. And you can use
Speaker 2: these things called the bring forward provision while you're under
Speaker 2: the age of seventy five to then two future years
Speaker 2: in which is three hundred and sixty thousand.
Speaker 1: Just to make it really complicated, are the concessional rules
Speaker 1: irrelevant here?
Speaker 2: They're not irrelevant. If you wanted to put in a
Speaker 2: bit more than three hundred and sixty thousand, well, then
Speaker 2: you could also put part of or you could classify
Speaker 2: part of that in specie transfer as a concessional.
Speaker 1: Could you classify a certain section of it as concessional
Speaker 1: and the next section is non concessional?
Speaker 2: Absolutely? Yeah, So if you wanted to maximize your thirty
Speaker 2: thousand concessional contribution cap, you could definitely do that, and
Speaker 2: then the rest you could do as non concessional. So
Speaker 2: usually people be working with their tax accountant or their
Speaker 2: financial advisor to firstly identify what assets to transfer, why
Speaker 2: is that a good idea? And then the next part
Speaker 2: is how do we account for that with regards to
Speaker 2: the contribution into the superfund with that in specie transfer,
Speaker 2: will it be concessional or non concessional or mix of both.
Speaker 1: Okay, so there you are. I think Andrew that would
Speaker 1: answer it for you. And the course then eventually with
Speaker 1: James's alluding to, is that there's a point which you're
Speaker 1: limited in what you can contribute because you might be retired.
Speaker 1: But it was seemed to me that it wasn't an
Speaker 1: issue for you. The main age restriction is to make
Speaker 1: sure you have the time to get their money in.
Speaker 1: And if the amount you want to put in is
Speaker 1: more than you're allowed in a single year, then what
Speaker 1: you would do is you would start to string them together,
Speaker 1: and you're allowed to put three years worth together. That's
Speaker 1: called the carry forward provisions. Thank you my pleasure, James.
Speaker 1: And look, one thing when you're speaking about the budget
Speaker 1: earlier I forgot to raise was you told me a
Speaker 1: little while ago. Remember you used to go every single
Speaker 1: year to Canberra and there used to be like lockdown facility, lockdown,
Speaker 1: lock up, lock up facility.
Speaker 2: I think the listen will be interested to hear that
Speaker 2: that process and whether that still happens now unfortunately.
Speaker 1: I mean, some people think it's great that it doesn't happen,
Speaker 1: but after COVID. In COVID, of course, sadly they realize
Speaker 1: you don't have to fly everybody up to Canberra, and
Speaker 1: you don't have to put them all up in hotels,
Speaker 1: and you don't have to allow them all to meet
Speaker 1: after the budget and have a big night out in
Speaker 1: Canberra where you have the busiest Tuesday night in Canberra
Speaker 1: of the year. And consequently, what happened in COVID was
Speaker 1: they started to do lock ups in the cities. You
Speaker 1: could do it in Melbourne, you could do it in Canberra, Brisbane,
Speaker 1: wherever you want. But more recently than really only the
Speaker 1: mostly just the Canberra bureaus and maybe TV or whatever
Speaker 1: go to Canberra. But it's no longer necessary for everyone
Speaker 1: to go to Canberra, and unfortunately we all have our
Speaker 1: own individual lockups now, which are interesting, but not quite
Speaker 1: as interesting as it used to be when you had
Speaker 1: hundredths of financial journalists all in Canberra who rarely met
Speaker 1: each other. So it was a great, great social occasion
Speaker 1: in its day, not quite as social now as it
Speaker 1: used to be. So there you are Okay, hey, thanks
Speaker 1: for all your questions and thanks for getting James to
Speaker 1: bring me up to speed on all that. With the
Speaker 1: lock up. Our guys in it, I imagine Will be
Speaker 1: told probably told you yesterday hey, by the way, there's
Speaker 1: a lockup in in eleven days and probably gulped because
Speaker 1: they've got to get a huge facility ready and it
Speaker 1: has to be you know, closed off, you can't call
Speaker 1: a friend, etc. Has to be secure. Treasury officials have
Speaker 1: to come in and they pace up and down just
Speaker 1: like your examiner. Have you ever had an old fashioned
Speaker 1: exam where the examiner walked up and down. The treasure
Speaker 1: officials walk up and down. Just in case you're up
Speaker 1: to anything that's most unusual set up in the budget,
Speaker 1: but there you are. It is what it is, and
Speaker 1: they were happy to report it to you. And we'll
Speaker 1: have a budget special also. Of course I do the
Speaker 1: budget every year with Will Hamilton and I will do
Speaker 1: with this year with him too. That's coming up. Okay.
Speaker 1: Thank you for your emails, Keep them rolling the Money
Speaker 1: Puzzle at the Australian dot com dot au. Thanks to
Speaker 1: Leah Sam mcglue for producing the show, and thanks most
Speaker 1: of all to James Gerard Financial advisor dot com dot au.
Speaker 1: Talk to you again, James.
Speaker 2: Thank you, see you next time. The Charter of FOM