For example, in the May 2009 Federal Budget, the cap on concessional contributions (CCs) was cut from $50,000 to $25,000 per annum for those aged under 50, and from $100,000 to $50,000 for those aged greater than 50 years. The decision had a significant impact on members, particularly those close to retirement. There is a growing need for superannuation providers to inform members about legislative changes and how members are affected. 4. Market fluctuations The GFC has highlighted the benefits of diversification in investment portfolios – and not just diversification of assets, but also of investment risks. Superannuation providers need to better manage investment risk and to tailor portfolios to member circumstances and risk appetites. Many super funds, for example, saw members switch to the apparent safety of cash during 2009 when financial markets were in turmoil. Members who stuck to their long-term strategy and refrained from poorly-timed, emotionally-driven switches have benefited from the strong recovery in markets. 5. Liquidity Superannuation members also need to manage personal liquidity. Liquidity decisions include holding the appropriate proportion of funds in liquid assets to meet short-term funding needs, such as purchases, education, and emergency funding needs. A professional financial adviser will address these needs as part of a client’s tailored advice.
Adding value There are a number of areas where professional financial advisers can add value to the superannuation member experience. 1. Transition to retirement In 2005, the Howard Government introduced the transition to retirement (TTR) legislation. It allowed those who had reached preservation age to reduce their working hours – but not suffer a fall in income – by substituting lost income with an income stream from superannuation savings. TTR is becoming an increasingly important tool in dealing with a wider skills shortage in society. Many businesses are facing the retirement of highly skilled, senior people who leave the industry, thus withdrawing their skill base. There is a growing trend, however, for a number of them to seek re-entry into the workforce on a part-time basis using TTR funding to supplement their income requirements. As the Australian Taxation Office (ATO) outlines, those looking at TTR “must be aware of the impact this can have on you and your circumstances. Some parts of this measure are complex to understand, set up and maintain”. (Note 2.) The ATO recommends seeing a financial adviser, accountant or tax agent to decide if the option is right.
2. Co-contributions Co-contribution to superannuation is an initiative to help boost the retirement savings of low to middle income earners. The Federal Government contributes up to $1000 for eligible members who make personal after-tax contributions to their superannuation. A professional financial adviser can be consulted to ensure eligible members take full advantage of this initiative. 3. Salary sacrifice Under salary sacrifice, employees can forgo part of their future salary or wages in return for employers providing benefits of a similar value. Superannuation can be used as a key part of this strategy to maximise tax effectiveness. Employees draw a lower salary, with the difference made up through superannuation contributions. As the superannuation contribution payments are made from pre-tax dollars, the annual assessable income is less. 4. Insurance Within most superannuation funds there are insurance options for income protection and life cover. Many members sign up to the default option. However, there is also the option to increase cover to suit individual needs. A professional financial adviser can be used to identify and execute the appropriate tailored insurance strategy within the framework of a broader superannuation retirement plan.
Access to advice Professional financial advice is often needed when a superannuation saver encounters a trigger event in his/her life – a milestone such as a change of job, increased salary, a divorce, or the loss of a job through redundancy. However, lack of knowledge about the benefits of financial advice and the common psychological blocks often hinder the hiring of a professional. Many superannuation funds are choosing to increase their members’ use of financial advice and to educate them about the most appropriate time to seek it. When a trigger event occurs in the member’s life, this education ensures they not only have the awareness to act, but also the means, via the superannuation provider’s financial advisers.
The pyramid approach Some superannuation providers have structured their financial education and advice as a three-tiered pyramid to reflect the differing scale of complexity of advice required by members. The different levels are outlined below. 1. Member education The bottom of the pyramid is a detailed member education program, which includes seminars and workplace visits. GESB, for example, holds around 80 seminars each month. The goal of the education process is to provide basic information on issues regarding superannuation and retirement, depending on the audience. It also seeks to communicate the need for more detailed advice when members confront specific issues or decide they need to reach certain key goals as part of their retirement strategy. Members are also provided with access to simple advice, which covers issues such as superannuation.
