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Retirement

More Australians intend to retire later

The proportion of Australians intending to retire beyond age 65 is increasing rapidly.

According to a research note just released by the Australian Bureau of Statistics (ABS), a survey conducted in 2015 showed 71% of people said they intended to retire at the age of 65 years over, up from 66% in the previous corresponding survey conducted in 2013 which in turn was up from 48% in 2005.

The proportion of people who intend working up to age 70 is up four-fold.

“The survey found that 23% of people aged 45 years and over are intending to retire at the age of 70 years or over compared with only 8% in 2004-05” said Jennifer Humphrys from the ABS.

The average intended retirement age is 65 years; 66 years for men and 65 years for women notes the ABS.

The majority of Australians intend to retire between 65-69 years, but the results show that now over a quarter of males 45 years and over plan to work past 70 years.

The survey commenced a few months after the government last year announced changes to the current qualification age for the Age Pension, said the ABS.

For those in the labour force who intended to retire, the most common factors influencing their decision were ‘financial security’ (40% for men and 35% for women) and ‘personal  health or physical abilities’ (23% for both men and women).

In encouraging news for the superannuation sector, just over half (53%) reported their main expected source of personal income at retirement as ‘superannuation/annuity/allocated pension’.

“While 47% of people aged 45 years and over who had retired reported a ‘government pension or allowance’ as their main source of income at retirement, only 27% of people aged 45 years and over who were intending to retire indicated that this would be their main expected source of income at retirement”

The survey also highlighted the importance of partner’s income as one of the main expected source of funds for meeting living costs at retirement.

[via the Financial Standard]

ING Direct FPA

ING DIRECT inks deal with FPA

ING DIRECT has signed a referral deal with one of Australia’s top financial planning associations that will benefit customers of its Living Super product.

Professional practices which are certified by the Financial Planning Association (FPA) will provide comprehensive financial advice to ING DIRECT Living Super members who ask for it, under a nine month pilot that starts next month.

“We see professional, independent, face-to-face financial advice as increasingly important to our customers in preparing for retirement,” ING DIRECT national partnership manager of residential and wealth, Tim Hewson said.

“In recent years we’ve seen an uptick in super consolidation and switching and increased demand for transparency and control. Australians want to get ahead with their super, which aligns with our proposition about helping our customers to get ahead through value, fairness and transparency.”

FPA chief executive Mark Rantall said that the partnership has been modeled on the one that the association recently signed with Cbus.

“It will help the FPA open more pathways to connect Australians to quality financial advice,” Rantall said.

The deal “strengthens our ties with the superannuation sector and brings us one step closer to achieving the FPA’s vision that through our members, we stand with Australians for a better financial future.”

The first FPA adviser consultation will be at no cost for Living Super customers and only a limited number of places for FPA Professional Practices will be available in the pilot stage.

Initial participation in the pilot referral program will be limited, based on geographic requirements.

via [Financial Standard]

Aussie consumers

Advice beats direct insurance for Aussie consumers

The majority of Australian consumers prefer to purchase insurance policies through financial advisers rather than directly.

This is the conclusion of Asteron Life’s Attitude to Life Adviser Insights report, which surveyed 1,515 Australians across every state. It found that 90% of respondents found life insurance too complex to navigate on their own, and consequently 65% were purchasing policies through financial advisers.

The report also showed that generation Y consumers are a high growth area for insurance advice; while only 21% in that category said they regularly saw an adviser, the report argued this presented a major opportunity as these consumers grow older and their financial risks increase accordingly.

“As more Australians move online to research and match their needs, there is, and will continue to be a need for personalised and professional advice,” said Asteron Life executive manager Mark Vilo.

“It’s essential for advisers to have an online presence and be seen where your clients are researching. By factoring this into your business strategy and the way you provide your service, you can use the power of the internet to help grow your business.”

He added, “As advice practices wind down for the holiday season there’s an opportunity for a period of reflection and some time to work on the business plan for the year ahead. Many Australians also use this time to reflect on their lives from both a personal and business perspective.

“Understanding the generational needs of your clients will facilitate meaningful conversations around their individual needs. It’s a good idea to segment your client base according to a combination of risk, income, generation and life stage and build this into discussions.”

via [Financial Standard]

Women in super

Women own less than 40% of super assets: ASFA

The share of superannuation assets held by women has plateaued over the past four years according to Australian Bureau of Statistics (ABS) data exclusively compiled for the Association of Superannuation Funds of Australia (ASFA).

Women now hold 36.4% of Australia’s superannuation assets but this number has remained steady in the four years to financial year 2013/2014. Women have also experienced a lesser percentage increase than men in average balance at the time of retirement, with the average balance for men increasing by 48.5% over the two years to 2013/14 compared to 31.6% for women.

ASFA chief executive Pauline Vamos said this reflected the different work patterns and earnings levels of men and women in their pre-retirement years.

“Even though account balances are increasing overall for women, the statistics still show that men are more likely to have superannuation than women, and also that men on average have a higher account balance. In many cases, broken work patterns and lower average wages still impede on women’s ability to save for retirement,” Vamos said.

Average superannuation balances have increased for both men and women according to the ABS data.

The average balances in 2013/2014 for all persons aged 15 and over were $98,535 for men and $54,916 for women. This is about a 20% increase from two years’ prior where average balances were $82,615 and $44,866 for men and women respectively.

Average superannuation balances at the time of retirement have also increased, to $292,500 for men and $138,150 for women in 2013/2014 from $197,000 and $105,000 respectively in 2011/2012.

Vamos said gender disparity in superannuation balances is now on the agenda, and the next step is for government, employers and individuals to take action.

“ASFA has proposed a number of options for improving the economic security of women in retirement, including raising and broadening the Superannuation Guarantee, retaining the Low Income Superannuation Contribution Scheme and amending annual contribution caps to enable people with broken working patterns to ‘catch up’ their superannuation contributions,” Vamos said.

For individuals in their early 30s, average balances rose to $36,400 for men and $25,550 for women in 2013/2014, almost two times the average balances of $20,000 for men and $14,000 for women two years earlier.

According to the ASFA Retirement Standard, a single person will need a minimum of $545,000 in superannuation at retirement to live a comfortable lifestyle. This is assuming that they will draw down all of their capital over the duration of retirement, and that they will receive a part Age Pension.

Australians reluctant to seek Professional Advice

Australians more reluctant to seek professional advice

A global survey shows that Australians are twice as likely to turn to family and friends for financial information as they are to seek advice from a professional.

The survey was conducted by global research firm GfK on behalf of the Financial Planning Standards Board (FPSB) and in conjunction with the Financial Planning Association (FPA).

It found that Australians rely less on planners and websites for financial information, compared to people in other countries.

A total of 70% of Australians did not know who to trust when it came to arranging their financial matters, compared to 66% globally.

While consumers are interested in financial planning services, 41% rely on friends and family, 30% rely on websites for financial information and 23% turn to a financial planner, compared to 31% globally.

When asked about the most helpful services that a financial planner can provide, Australians answered budgeting and debt management first (37%) and retirement planning second (35%).

Globally, retirement planning ranks highest at 50%, while investment planning ranks second, at 38%. Budgeting and debt management rank third at 36%.

Knowing who to trust is the biggest barrier with Australians willing to work with a financial planner. As many as 64% say that trustworthiness is a very important consideration, while 70% say they don’t know who to trust, compared to 66% globally.

FPA chief executive Mark Rantall said: “The survey reaffirms our own findings and validates our strategy of lifting education and professional standards of professional financial planners to help earn the trust of more Australians.”

Overall, 19,092 consumers who were either primary or shared household financial decision-makers participated in 19 territories around the world.

Australian equity market

Local equities down but so are the others

The Australian equity market suffered its worst third quarter this year since the same quarter in 2011.

The All Ordinaries index dropped by 7.2% in the September quarter, taking its overall performance down 6.1% in the first nine months of 2015. Below-trend growth in the domestic economy or more worryingly, predictions of a recession — and its nasty consequences for corporate profits — has soured investor appetite for the local bourse.

“[The risk of recession] currently stands at the greatest probability since the global financial crisis”, the Sydney Morning Herald printed on 11 September quoting GS chief economist Tim Toohey.

This was quickly followed by Kima Capital’s warning that, “Australia is destined for a difficult recession at worst or a prolonged period of well-below-trend growth at best” again printed in the SMH less than three weeks later.

With such dire predictions, the Australian equity market’s negative return so far this year is hardly surprising.

However, the local bourse is caught in the same headwinds that are buffeting all other quity markets worldwide. THe All Ord’s minus 6.1% return is less than a percent lower than the negative 5.4% from developed market equities and better than the negative 9% return from emerging market equities over the same period.

To be sure, this would not prevent the Australian economy from succumbing to a recession but recent economic data and survey updates indicate it’s improving. — resilient, at worst — despite the on-going slow growth in the global economy and slowdown in emerging economies.

For instance, the latest NAB business survey shows confidence reviving to a plus 5 reading in September from plus 1 in the previous month. While the change in leadership from Abbott to Turnbull could have boosted confidence, remember that September was not a particularly good month due to heightened financial market volatility that culminated in the worst September quarter for equities since the third quarter of 2011.

This gives credence to NAB’s assessment that, “Overall, the business survey suggests a good degree of resilience in what appears to be a building non-mining sector recovery.” More so given the business conditions index remains elevated at a plus 9 reading, unchanged from August but up from the plus 6 reading in July.

Consumer confidence has also recovered. The Westpac/Melbourne Institute index of consumer sentiment rose by 4.2% to 97.8 in October from 93.9 in September. While still below 100 (optimists outnumber pessimists), the components of the index showed sharp improvements: Economic conditions expectations soared by 20% over the month, unemployment expectations dropped by 16.3% and expectations for family finances increased by 3.5%.

[via Financial Standard]

Interest Rates

Interest rates, the yield curve and investing

On the face of it yield curves tell us what interest rates are. They merely represent, after all, the term structure of yields at a given moment of time. But look behind the curtain and they tell a dramatic story of huge forces at work, all the while shaping the investment landscape in new and unusual ways.

With all the media focus on daily moves in sharemarkets or whether reserve banks are about to raise or lower cash rates it is easy to lose sight of the things that speak loudest and clearest. Understanding interest rates and the yield curve is crucial to creating logical and effective investment strategies, yet they remain one of the most misunderstood of investment concepts.

By taking snapshots of the Australian yield curve at different points in time over the past six years we illustrate the different investment environments we have been through and anticipate those to come.

Yield is the income earned for a given price. It is the same concept whether the asset is cash, a fixed coupon bond, equities or property. The yield is meant to compensate the investor for the risk of holding the asset. Therefore, the more risky the asset, the higher the yield should be. The yield curve is the line that plots the interest rates at a point in time of bonds having equal credit quality but different maturity dates. Normally, they are upwards sloping, with cash having the lowest yield and long dated bonds the highest. Cash returns the least because there is no risk of capital loss (although there is a risk of real capital loss, once inflation is taken into account) and it is the definition of liquidity.

Cash is also directly set by the central bank in the service of its economic objectives, such as price stability or economic growth. Longer dated bonds are more risky because their price is more volatile. They may pay a regular guaranteed coupon but the longer they have to go before maturity the more risk there is that things can go wrong. Interest rates generally might rise, meaning that the capital value of the bond will fall. The longer dated it is, the more it would fall. If interest rates fall, the price of the bond will rise. Investors want to be compensated for this uncertainty.

But yield curves in the real world are not all upwards sloping. They come in all shapes and sizes, and they tell a fascinating story. In this story we look at three Australian yield curves, three years apart and see what they tell us about the investment landscape at the time, and of the future.

The following chart shows an upwards sloping yield curve from September 2009. It signals that things are good economically and expectations for the future are high. The cash rate was 3%. The Reserve Bank had been cutting rates from a peak of 7.25% one year before. The stock market was in the midst of a bull run that had just seen it rise 46% int he previous seven months and still had a long way to go. The economy was robust and commodity prices were high. Oil was US$65 a barrel and iron ore was US$80 a metric tonne, up from US$38 five years previously, and the Australian dollar was on the rise, buying US$0.88 at the time.

Australian government bond yield curves

Fast forward three years to 2012 and the yield curve looks completely different. So does the world. In the intervening period the Reserve Bank has increased cash rates to as high as 4.75% in an effort to slow growth and then started reducing rates to 3.5%. The yield on a 15 year government bond has dropped more than two percentage points from 5.5% to 3.3% indicating growth for the future looks subdued. The yield curve is now inverted and negative. The fact that cash rate is higher than longer term government bonds is extremely worrying and clearly signals that the Reserve Bank will continue to cut short term interest rates.

Meanwhile the Australian Dollar has already reached its peak against the US Dollar of US$1.10 but is still worth US$1.04, 18% higher than three years previously. Crude oil has risen 70% in three years and is worth US$112 a barrel. Iron ore, meanwhile, is US$100 a tonne, down around one third in four short months but still massively higher than the long run average.

The Australian sharemarket had risen 10% in four months, and as interest rates are lowered, is about to go on a tear and add about 24% in the next 12 months.

Fast forward again to the end of September 2015. Economic prospects for the country are much more subdued, the sharemarket is down around 13% from its 2015 peak — nearly all of this in the previous two savage months. The cash rate is sitting at 2%, as it has done for five previous months, and doesn’t look like going anywhere except down for the foreseeable future. There doesn’t appear to be much risk of recession, but not a lot of economic growth in the medium future either. The iron ore price has collapsed to US$57 a metric tonne, but remains volatile. The Australian Dollar is now buying US$0.70. The yield curve has had a huge parallel shift down. It’s flat for five years and then slightly positive from 10 to 15 years. The one and three year rates are lower than cash, indicating that expectations for economic growth are very low.

[via Financial Standard]

MySuper by AMP

MySuper fees force super fund to exit high return strategy

MySuper by AMP

The requirement to charge low fees under MySuper has forced one superannuation fund to exit a Principal Global Investments (PGI) strategy that had returned 13% over five years.

PGI chief executive in Australia Grant Foster said that the super fund pulled some of the money out of a real assets capability despite being “very happy investors.”

“They have said that because of the MySuper fee pressure they have to reduce their exposure to this real asset class, which for me is nonsense,” Foster said.

“The focus on fees here continues to press on,” he said, and added that “from our perspective it will be very interesting to see how these products perform, particularly if markets get really difficult the next couple of years. MySuper will find it a bit difficult [to deliver good performance].”

Foster said: “There’s one direct example we can point to where we know this is the cause. But we are also talking to many super funds about being in the real asset space, in the property or emerging market space.

“I don’t want to suggest that this is ramping. But as MySuper products evolve and get ready for 2017 they’re moving to passive -they’re doing it right now- and moving out of these more active options, and that’s going to continue.”

Also speaking to the media, Create Research chief executive Professor Amin Rajan warned that “there is the idea that index funds are cheap and less risky. But they are not less risky. You don’t really know what’s really moving prices there other than the psychological sentiment of investors.

“There is a health warning associated with index funds,” he said.

[via Financial Standard]

SMSF direct property investment

SMSF direct property investment jumps 60%

The value of self-managed super fund (SMSF) investment in residential real estate has jumped 60% in the last four years, according to figures from the Australian Securities and Investments Commission (ASIC).

In its submission to the Parliamentary Inquiry into Home Ownership, the primary financial markets regulator revealed that as of March 2015, the value of residential real property investments through SMSFs was $21.78 billion, or 3.7% of total Australian and overseas assets.

This is up from $19.49 billion, or 3.6% of total Australian and overseas assets, in March 2014.

Albeit from a relatively low base, there has been an increase in the value of investment in residential real property through SMSFs of 11.78% in the 12 months to March 2015, and an increase of 58.69% since March 2011.

While it is feared that SMSFs ability to borrow money to buy residential property via limited recourse borrowing arrangements (LRBAs) is helping to fuel the housing bubble, SMSF Association technical and professional standards director Graeme Colley said it is misleading to use these figures to conclude that SMSF investment in residential property is rapidly expanding.

“I’d be interested to see the whether there’s been much of an increase in the actual numbers of properties that have been bought. The rise in market value of residential property is likely to account for most of the increase,” Mr Colley said.

Colley also accused ASIC of stepping outside of its remit in drawing attention to the numbers.

“ASIC’s responsibility is to look at the provision of advice for SMSFs rather than these sorts of figures. I’m surprised to see them commenting”

The Financial System Inquiry (FSI) has recommended banning LRBAs, a move which was drawn criticism from industry quarters.

The Association of Financial Advisers dubbed a potential ban “draconian” at the SMSF Association Annual Conference back in February.

At the same conference, AMP SMSF head of policy Peter Burgess said: “So few funds use LRBAs, the effect is immaterial. Any problems should be addressed with legislation, and the effects measured before we scrap them off hand.”

[via Financial Standard]