Who gets your super?

Who decides what happens to your superannuation savings when you die?

You may think that you do, but that isn’t always the case. The ultimate decision may be made by someone you don’t even know – the trustee of your superannuation fund. Let’s look at how you can have greater control.

Binding death benefit nominations

The most certain way to direct payment of your superannuation death benefit is by making a binding death benefit nomination. The nominated beneficiaries must be ’dependants’ – a spouse, de facto spouse, child or financial dependant – or a legal personal representative (ie. the executor or administrator of a deceased estate.)

If the nomination has been properly signed and witnessed, and is still current at the date of death, then the trustees of the superannuation fund must pay the death benefit to the nominated beneficiaries.

Unlike wills, valid binding superannuation nominations are unlikely to be overturned by a court, so they provide great certainty. It is up to the trustees of each superannuation fund to decide whether or not to allow binding nominations, so they aren’t available to everyone.

Although some funds offer non-lapsing binding death benefit nominations, most are only valid for three years, so it’s important to check yours and ensure it remains up-to-date.

Trustee’s discretion

The trustee is under a legal obligation to pay a death benefit to the member’s dependants, and in most cases benefits will be paid in a way that is consistent with the wishes of the deceased member. However, it is possible the trustee may recognise a wider range of dependants than the member would have liked – including a separated spouse, for example.

In some cases, the member’s preferred beneficiary may not meet the legal definition of a dependant. This may apply to parents, for example. In the absence of any dependants and a legal personal representative, the trustee may exercise their discretion, and pay the benefit to a non-dependant.

Superannuation pensions

The situation is a little different if the member has already retired and is drawing a superannuation pension. With pensions, it is common to nominate a surviving spouse as a reversionary beneficiary. This means the pension payments will continue to be paid to the nominee, either until their death, or until the funds run out. If the reversionary beneficiary dies, any remaining balance is then paid out as a lump sum death benefit according to the type of nomination they have made.

Good advice required

Increasing levels of wealth being held via superannuation and the nomination of beneficiaries should be made in the context of a comprehensive estate plan. This includes taking into account the way superannuation death benefits are taxed when paid to different types of beneficiary. Your financial adviser can help you make the right decision.

Working from home – is it better for your lifestyle?

The increase in home-based businesses has been monumental in the past decade with now almost one million Australians earning an income from home.

The types of businesses that can be operated from home are only limited by imagination, just as the reasons for this growing trend are varied. Some people whose jobs are made redundant will be tempted to take the plunge into self-employment; others find it appropriate when children arrive; and there are those who do it to improve their lifestyle.

But can running a legitimate business from home really be a smart lifestyle choice?

If you spend hours commuting to and from your job every day, the chance to be your own boss and work from home might seem like Nirvana. Freedom to choose your hours, have more privacy, and being able to work by your own rules, are the obvious benefits.

Before trading in the designer pinstripe for a new set of shorts and sneakers, there are a few things to consider carefully.

  • Working from home alone can be a lonely existence. Swapping emails and tweets is not really suitable daily communication and even phone calls can’t replace face-to-face relationships. It may not suit people who thrive on the social contact that comes from physically working with others.

  • Self-motivation is also critical to success – however it works both ways. If the temptation to rise late and knock off early is too strong, or your attraction to the golf course too powerful, the discipline of an “outside” job may serve you best.

On the other hand, unless you locate your workspace away from your living area – and with a door that closes – you might find yourself working longer hours than necessary. While sitting down to dinner or playing with your child, how would you respond each time you hear a chime signalling the arrival of a new email? Will you have the discipline to work to set hours and totally disconnect from “the office” if it’s only a few steps from your bedroom?

  • When you work for someone else they provide the support structure to help you work effectively – such as IT support and bookkeeping. Now you are on your own you have to do it yourself or pay someone else to do it for you. How would you survive if your computer crashed or your internet access stopped at a vital time? Working from home means being multi-skilled – how would that affect your lifestyle?

Our final tip is to talk to people who have made a success of working from home. Find out what it’s really like and how it complements their lifestyles. If the concept still ticks all your boxes, then the next thing you need to decide on is what type of business to start!

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Offset account vs redraw facility – the tax difference

Most modern mortgages come with a redraw facility and a mortgage offset account.

With a redraw facility you can make additional payments to reduce the outstanding balance of your mortgage, which in turn reduces the amount of interest you pay. However, those additional repayments are not locked away – you can redraw on them at some point in the future. This increases the loan balance, so you’ll pay more interest.

An offset account works more like your day-to-day bank account. However the balance of the offset account is subtracted from the outstanding balance of your mortgage, and you only pay interest on this difference.

So which is the better way to manage your mortgage and minimise interest payments: redraw or offset?


For many homeowners it won’t make much difference. The offset account is a bit more convenient as all your cash is working to reduce the outstanding loan amount on which interest is calculated. The redraw facility may require a bit more active decision making regarding how much to pay off or redraw and when. Some banks also set minimum redraw amounts or may charge fees on each withdrawal. On the plus side, the extra effort involved with a redraw facility can provide an element of discipline for people tempted to dip a bit too readily into the available funds in the offset account.


If you are borrowing to invest, however, choosing between redraw and offset can have a significant impact on your tax bill.

Imagine you buy an investment property and have a loan of $500,000. The interest on this loan is tax deductible. You then receive a windfall that allows you to pay off $100,000, leaving a loan balance of $400,000. Soon afterwards you redraw $50,000 to splurge on an overseas holiday. The loan jumps to $450,000, but as the redraw is for personal use the loan amount attributable to the investment property remains at $400,000. You won’t be able to claim a tax deduction for the interest on the $50,000 redraw. What you will likely end up with is a headache from trying to manage the personal and investment components of the loan as future repayments or redraws are made.

Now imagine that you deposited your extra $100,000 into your offset account. The bank subtracts this from your loan balance of $500,000 and only charges you interest on the $400,000 difference. The crucial difference is the loan amount is still $500,000 and all attributable to the investment property. The withdrawal of $50,000 from your offset account is unrelated to the investment arrangement. Yes, you’ll pay interest on the full loan amount of $450,000, but it will remain fully tax-deductible.

Even if you are not a current investor but there’s a chance your existing home may turn into a future investment property, the same principle applies. This is where it could get very tricky.

Provided you have the discipline to manage your offset account, it can provide more flexibility than the redraw facility and could save you costly tax issues. To be certain about what suits you best, always seek professional advice.

What we mean by “investment styles”

Just when you thought investing was easy to understand – you put your money into shares, property, fixed interest, cash, etc. – out comes the question of “investment styles”!

In essence, what that means is how fund managers choose the underlying investments of their funds.

There are two traditional ways of choosing stocks that active fund managers use – growth and value.

  • Growth managers choose shares or companies for which they expect capital gain through improved company earnings. They tend to look in areas of the economy that they anticipate to do better than the market average and companies within those areas with the most growth potential.

  • Value managers look for stocks with undervalued assets that they believe are trading at less than their intrinsic value. They analyse the company’s finances thoroughly to work out a ‘fair value’ for the stock by looking for low price to earnings (P/E) ratios, low price to book ratios, high dividend yields, and other key indicators of a company’s value.

And then there is GARP or “Growth at a Reasonable Price” and Style-Neutral. 

  • GARP is a mix of the growth and value styles. Here the focus is on stocks that have a stronger growth outlook than the market but which are cheaper than the average stock bought by a growth manager.

  • Style-Neutral management uses intensive fundamental analysis of companies to determine their long-term worth. As the name implies, this manager does this without a specific style bias.


Passive investing

In addition to active fund management, there is also index, or passive, fund management. The latter aims to reflect a specific index like the S&P/ASX 200 in the stocks that the fund holds. Generally these funds will perform in line with the market. 

Smart investing is not as easy as it sounds. That’s why we are here to do all the hard work for you.


Working with the new super rules

As a large majority of working and retired Australians already know, in late 2016 a raft of changes to the superannuation rules

were passed as law. Most come into effect from 1 July 2017. The greatest impact will be on high-income earners and individuals with large superannuation balances. If this is you, read on.

Let’s begin with the key modifications:

  • A new cap of $1.6 million on the amount that can be transferred into tax-free pensions.
  • The income threshold, including concessional (pre-tax) superannuation contributions, at which contributions are taxed at 30% will reduce from $300,000 to $250,000 per annum.
  • The non-concessional (post-tax) contributions limit falls from $180,000 to $100,000 per annum, or $300,000 within three years.
  • The cap on concessional contributions reduces from $30,000 (or $35,000 for over-50s) to $25,000 per annum.

These changes further restrict the amount of money that can be built up within the low-tax superannuation environment, spurring the search for alternative, tax-advantaged investment structures. So, what are the options?

Don’t dismiss super

While continuous changes make it natural to be wary about super, it’s still worth utilising its concessional tax rates up to the limits allowed. For example, if you have an existing tax-free pension with a balance of more than $1.6 million on 1 July 2017, the surplus will need to be rolled back into the accumulation phase or withdrawn from super. While earnings in the accumulation phase are taxed at 15% (10% for capital gains on assets held for over 12 months), that’s substantially lower than the tax rates that apply to alternative investment vehicles, and depending on other income, may be below your marginal tax rate.

As for the additional 15% tax on contributions for those earning $250,000 pa or more, remember that the subsequent earnings on those contributions are only taxed at 15%. That means it may still be worthwhile to maximise concessional contributions within permitted limits.

What about insurance bonds?

Once you’ve hit the limits for concessional and non-concessional super contributions you might take a look at insurance bonds. These are managed investments that are taxed within the product at the company tax rate, currently 30%. That’s a 19% saving off the top marginal tax rate of 49% (including Medicare and Budget Repair levies), or a 9% saving for taxpayers with a taxable income between $80,000 and $180,000 pa.

To get the full tax benefit of an insurance bond it must be held for at least 10 years. However, regular contributions can be made to the bond without resetting the start date. After 10 years no additional tax is payable on earnings, with some tax concessions available after 8 years. As tax is handled internally within the bond, provided no withdrawals are made, the earnings do not need to be declared from year to year.

Upgrade the family home

Many would argue the family home is not an investment. Nonetheless, while it’s not an income-producer, a principle residence could still generate attractive, tax-free capital gains. Whether it’s through extensions and renovations or upsizing to a new home, investing in the roof over your head can sometimes be a financially viable strategy.

Trusts and companies

Family trusts and private companies can provide opportunities to:

  • Split income with family members on a lower marginal tax rate.

  • Allow funds to accumulate in a lower tax environment.

  • Defer some tax, possibly until beneficiaries or members are on a lower marginal tax rate (e.g. after retirement).

Whether trusts or companies are suited to a particular investor depends very much on personal circumstances and on whether the benefits outweigh the complexities and associated costs.

Advice is essential

The latest changes do nothing to simplify the superannuation system while introducing additional pitfalls for the unwary. Expert advice and forward planning is essential, so don’t delay in talking to your financial adviser about how best to respond to the new rules.

Not ready to retire? This might be another option.

The word “retirement” conjures up many images. While most baby boomers might be dreaming of more time on the golf course or booking a cruise, you might be thinking about buying a business. Crazy? Maybe not.

If you’re close to reaching your preservation age you will soon have access to your superannuation. An increasing number of people at this stage are taking control of their finances and buying themselves a new later-life career in the form of an established business.

Perhaps you’ve been retrenched and finding it difficult to land a new job. Or maybe, after a short period of retirement, you’re re-invigorated and ready to start afresh.

Seniors bring life experience and skills as well as a wide network of contacts to a commercial venture. But running a business doesn’t always go to plan. Small businesses are risky by nature, often have voracious appetites for capital and are usually vulnerable to irregular cash-flow. .

Assuming you satisfy superannuation conditions of release, consider these questions before leaping in with both feet:

  • How much capital will you need? Will you be using your savings or relying totally on super? If using super, consider the risks associated with putting all your eggs in one basket. Do the sums and work out an appropriate balance.

  • Will you buy a start-up or an existing business? Starting from scratch means starting small usually with a lot of unknowns ahead.

    Existing businesses come with customers, structures and processes.

    Regardless, your decision must be guided by how much you’re ready and able to put into building and maintaining your new venture.

  • Have you sought professional advice? No really – you still need to think about retirement planning, tax, insurance, etc. Important any time, they’re fundamental when you’re self-employed.

  • Are you compliant with super regulations? Self-managed Super Funds (SMSFs) exist to protect the future benefits of members. Therefore, all SMSF investments must meet Related Party regulations, meaning that you cannot use SMSF money to buy a business if you, or another fund member, intends working and deriving an income from it. There could be other options available and this is where you need to seek specific advice first.

    Retail or industry funds sometimes restrict lump-sum withdrawals. Access to and the tax applied to a lump sum withdrawal will depend on your age and the taxable components of your super. Your super fund can tell you how much in your account is taxable or tax-free.

    Even though a lump sum withdrawal may be tax-free, if you use that money to earn income, that income will be taxed at your marginal tax rate.

If your business pays you an income, it’s imperative that you speak with your financial adviser about super as significant restrictions apply to concessional contributions. These include age and contributions caps, currently:

  • $30,000 if you’re under 49;

  • $35,000 if you’re over 49

Be mindful that the federal government is currently looking at reducing these caps considerably, which will impact on how much you can re-contribute to replace the amount you’ve withdrawn.

Access to super below age 55 is subject to strict withdrawal conditions. The desire to purchase a business is not one of them.

  • Will you know when it’s time to give up? You probably don’t want to think about this, but Australian Bureau of Statistics (ABS) figures indicate that 60% of small businesses fail in their first three years.

    This is why conducting due diligence before purchasing an ongoing business is crucial. If things don’t turn out as planned, throwing good money after bad won’t help. Will you know when to quit? Do you have an exit plan?

  • What about your succession plan? What will you do with the business when you finally retire? Sell? Pass it on to family? Plan for this final stage at the beginning.

Thanks to improved health and medical technology, Australians are living longer, which is why a sound strategy for such a big leap later in life is more important than ever. After all, if 60 is the new 40, then the story is not even close to finished!


Will next year be "same, same" or a new adventure?

Another year has swiftly vanished into history. How were the past 12 months for you? Did you make the changes you’d planned or did you resolve for something different this year peter out by February? Don’t worry, there’s another 12 months ready and waiting for you!

If you’re not happy with the way your life is playing out, here are a few steps to help you take a whole new direction.

Step 1.

Decide on the three most important things in your life. List them quickly without too much thought – often your first reaction will be what’s really important.

The list below provides some thought starters.


Choose 3

Career enhancement


Contribution to society


Creativity and hobbies


Health and fitness




Financial independence


Purposeful work and activity




Spiritual growth


Social connections





Step 2.

Decide what you will do in the coming months to make changes in these areas. Take time to write down a series of actions that will make a difference. 

Step 3.

Tell people around you what you plan to do. This will reinforce your commitment and enable you to manage the expectations of others.

Step 4.

Check your progress. Every month, take time to look over your action list and note any changes—even what seem to be small ones.

For example, if you chose ‘Career enhancement’ a first step might be deciding to read one book every month for ‘x’ many months to improve your knowledge on the area in which you want to work. It could be totally unrelated to what you are doing now. This extra knowledge might then be the catalyst for embarking on formal studies to launch you on the career of your dreams.

Small actions like this can make a big change in how you feel about your life. 

What are you waiting for?

If procrastination is your enemy, make a decision to overcome it and do something different RIGHT NOW. One small step could mean huge progress towards improving the most important aspects of your life.

Happy New Year!


Purchasing a property later in life

Home ownership continues to be our Great Dream, yet according to Domain.com.au, many of us are investing in bricks and mortar much later in life. So, what does it take to bring this dream to life with retirement looming?

There are many reasons you might purchase a home later in life: perhaps you’re starting fresh post-divorce, or you own a home and have decided to buy a second property to help out your kidults.

Regardless, it comes down to the same thing: knowing what you’re getting into and being ready.

Buying later presents opportunities that younger house-hunters overlook as proximity to schools and playgrounds isn’t so important.

On the flipside, if later-life home-ownership figures in your future, you should be working with your financial adviser now – and here’s why.


Our population is living and working longer. We can save more towards a home with longer to pay it off. But really, do you want to be stuck with mortgage repayments chewing through your income – after retirement?

What if you purchase just before retirement? Servicing a loan is relatively easy while gainfully employed, particularly with record low interest rates. Bad news is they won’t stay low forever. Rising interest combined with reducing income can quickly turn the dream into a financial nightmare.

Job security

According to the Australian Institute of Health and Welfare (AIHW), in the period 1984 – 2014, labour force participation of Australians aged 55 – 64 grew from 41% to 64%. Good news. The Australian Bureau of Statistics (ABS) for the period 2002 – 2010, reports “declining levels of full-time employment” among the same age group indicating greater numbers of older Australians working fewer hours. Not so good.

With fewer full-time job opportunities for those aged over 55, if you’re still considering a pre-retirement mortgage, consider:


If your retirement goals include travel, hobbies or even a weekly round of golf, servicing a mortgage may overburden your budget, forcing you to cut back your spending and lifestyle.

Regardless of home ownership, the Australian Centre for Financial Studies (ACFI) reports that 20% of retirees’ average household expenditure exceeded income, leaving no alternative but to draw on savings or liquidate assets just to live.

Now, throw a mortgage into the mix …

Ongoing maintenance

Be realistic about your budget and your shopping list. Consider what mod-cons you genuinely need. And size does count! If, down the track, you can’t physically maintain your home, could you afford gardeners, cleaners, etc, while repaying a mortgage?


Ah, that warm glow lighting our path to retirement. You could use your super to buy a house but what will you live on? The age pension? Will that fund your desired lifestyle?

To quote the ABS, “… key factors will be people’s plans as they get older, including when and how they intend to retire and what factors will influence their decisions.”

We don’t always agree with government reports, but in this it’s spot-on.

Our longer life expectancy means retirement planning is more important than ever. Talking with your financial adviser as early as possible will help you set up a strategy for living – to retirement and beyond!


Meet SMSFs' early and late arrivals

You probably wouldn’t be surprised to learn that more than 90 per cent of the investors who established SMSFs in the June quarter are aged between 25 and 64, as shown in the tax office’s latest Self-managed super fund statistical report.

It’s logical that fund members are most likely to switch from a large fund to an SMSF when their incomes increase, their assets accumulate and they begin to concentrate more intensely on saving for retirement.

And many fund members within a decade or so of their planned retirement make a decision about how to hold their super for the rest of their working lives and into retirement. This decision may involve changing to an SMSF – particularly if their super assets have significantly grown.

The five peak age groups for new SMSF members in the June quarter were: ages 25-34 (11.2 per cent of new members), ages 35-44 (29.5 per cent), ages 45-49 (16.9 per cent), ages 50-54 (15.3 per cent) and ages 55-59 (12.5 per cent). And almost 8 per cent of new SMSF members were aged 60-64 in the June quarter.

What is particularly interesting are the new members who could be termed SMSFs’ outliers in terms of age. These are the individuals who establish their own funds when very young or past traditional retirement ages – sometimes well past.

For instance, 1.5 per cent of new members were under 25 while on the other end of the age scale, 5.2 per cent were over 65 – and of that older group, 0.3 per cent were aged 75-84.

A look at these bare statistics suggest that a small percentage of new SMSF members believe in starting as early as possible in saving for retirement that may be at least 40 years away. Just consider that their super could be compounding in an SMSF for 70 years or so.

And at the other end of the SMSF age range, most of us know retirees who gain considerable satisfaction and enjoyment from guiding the strategies and investments of their SMSFs – often with the help of professional advisers.

Given markedly increasing life expectancies, looking after an SMSF seems to be an increasingly popular retirement pursuit in itself – while perhaps not yet ranking up there with gardening and travel in terms of popularity.



Written by Robin Bowerman, Head of Market Strategy and Communications at Vanguard.

Reproduced with permission of Vanguard Investments Australia Ltd

Vanguard Investments Australia Ltd (ABN 72 072 881 086 / AFS Licence 227263) is the product issuer. We have not taken yours and your clients’ circumstances into account when preparing this material so it may not be applicable to the particular situation you are considering. You should consider your circumstances and our Product Disclosure Statement (PDS) or Prospectus before making any investment decision. You can access our PDS or Prospectus online or by calling us. This material was prepared in good faith and we accept no liability for any errors or omissions. Past performance is not an indication of future performance.

© 2016 Vanguard Investments Australia Ltd. All rights reserved. 


Any information provided by the author detailed above is separate and external to our business and our Licensee. Neither our business, nor our Licensee take any responsibility for their action or any service they provide.

Giving the gift of compound interest

The first lesson most children learn about money is what they can spend it on – games, the latest toy, their own iPad – but it’s a parent’s obligation to also teach them about managing their money. And the earlier we can teach them about the power of compounding, the more they will appreciate us.


The magic of compounding

Compounding can be the road to riches and anyone can do it. All you need is perseverance to stay on the savings path and the intelligence to understand what is happening. Compounding is earning interest on your interest. The more money you accumulate the larger the return each year.

There are two catches. First, it involves sacrifice. You can’t spend it and still save it. And second, it sounds boring. At least it is until the balance starts growing and then it becomes downright fascinating! 

Let’s look at an example.

Brent started a savings program at age 17 and starting with a $100 deposit he put away $1,500 each year for 13 years into a fund that earned 7% a year. From age 30 he didn’t add any more to his savings fund. By that time the balance of his fund was $30,450.

Brent’s twin sister Charlotte was having too much fun at 17 spending every dollar she earned so she delayed her savings program until she reached age 30 – just when Brent stopped. Starting with $100 Charlotte deposited $1,500 per year and maintained that amount every year until she reached age 65. Her fund also averaged 7% p.a. and Charlotte ended up with $208,423. Amazingly through the power of compounding, Brent, who hadn’t added anything to his fund for the last 35 years has $325,123 in his account – over $116,000 more! The 13 years that Brent saved were worth more than all of the 35 years that Charlotte saved. 

You’re probably asking, “Where would someone under 20 find $1,500?” We have a suggestion. If your adult child is working – even for a small wage – they will probably qualify for the federal government’s co-contribution scheme. As well as teaching your children about compounding, you could gift them a $1,000 superannuation contribution and the government would add up to another $500 to their fund account.

This suggestion applies to superannuation which they won’t be able to access until later in life. However, the principle is the same if the money is invested outside super where they can use it to buy or invest in something much earlier.

There are some aggressive investment strategies available for young people who are not as risk-conscious.