A fundamental weakness in Australia's superannuation system is the glaring gap between the super savings of men and women.

The recently released ABS Survey of Income and Housing shows that the average super balance for men was $71,645 in 2009-10 against $40,475 for women. And the average balance at retirement was $198,000 for men against $112,600 for women.



However, the gender gap is somewhat narrower than a few years ago. ABS figures indicate that the average balance for men in 2003-04 was $56,400 compared with $23,900 for women.



The reasons for the difference in retirement savings are only too clear.



Women have lower average salaries than men, often interrupt their careers to raise children, and their finances can be particularly hard hit by marriage breakdown. And on average, women retire at a younger age than men - yet have longer life expectancies.



Indeed, a powerful argument can be mounted for why women need more super savings than men - not much less.



It is crucial to keep reinforcing the message that women should take every opportunity to maximise their retirement savings. For instance, ASIC's personal finance site MoneySmart is currently urging women to become more informed about superannuation.



MoneySmart focuses on such basics as making salary-sacrificed contributions, making after-tax or non-concessional contributions (with eligible low-income earners receiving Government co-contributions) and simply tracking down lost super.



Some financial planners suggest that women intending to take a break from the workforce try to increase their salary-sacrificed contributions in order to build up extra savings before leaving their jobs. And some working spouses make spouse contributions into their wives' super accounts to help boost the balances during any time out of the workforce.

By Robin Bowerman

Smart Investing

Principal & Head of Retail, Vanguard Investments Australia

10th October 2011

Multiple Goverment agencies are offering assistance to those affected by flooding and other natural disasters. FirstTech have a summary of Government Assistance for the 2010/2011 floods which covers Centrelink, the Australian Tax Office and several state-based agencies such as the Victorian Department of Human Resources.

This is summary information and we would advise that you involve your accountant to work out which are most applicable to your situation and to complete any necessary paperwork.

The FirstTech team have also put together a paper on Flood, financial difficulty and access to super. Again, seek proper assistance from someone such as MGR Financial Services as early access to superannuation may also have tax consequences that you need to be aware of.

Our monthly updates have changed to two PDFs that contain far more information than we'd supplied in the past.  We've made this enhancement due in part to give more detail on the markets and the economy but also to provide you with more help in understanding these tough times.

• Click here for a Market Report  - 31st May 2010
• Click here for an Economic Report - June 2010

In the lead up to 30 June 2010, individuals should consider topping up their superannuation by making either tax deductible (concessional contributions) and/or after-tax contributions (non-concessional contributions).

Concessional contributions

The concessional superannuation caps for the 2009/10 year are as follows:

Person aged below 50 years of age at 30 June 2010:	$25,000
Person aged 50 and over at 30 June 2010:	$50,000

Note that employer super guarantee contributions are included in these thresholds. Where a concessional contribution is made which exceeds these amounts, the excess is taxed to the fund member’s account at an effective rate of 46.5%.

The above contribution caps apply equally to self-employed taxpayers who can claim a 100% deduction where they satisfy the 10% test.

There is an age and work test that needs to be satisfied before a concessional contribution can be made. Where the individual is under the age of 65 at the time the contribution is made, this work test does not apply.

If the individual is aged 65 to 74 the work test needs to be satisfied every year before the contribution can be made. This requires that the individual be gainfully employed on at least a part time basis during the financial year and must work for at least 40 hours during a consecutive 30 day period in that financial year (before the contributions is made). To be gainfully employed, the person must receive some form of remuneration for personal services.

Note that employer and self-employed superannuation contributions need to be made before the person reaches the age of 75.

In order to obtain a deduction in the 2010 financial year, the contribution must to be received by the superannuation fund by 30 June 2010.

Non-concessional contributions

Individuals who are under the age of 75 are entitled to contribute up to $150,000 per annum in non-concessional or after-tax contributions for the 2009/10 year.

There is also a 3 year averaging rule which allows individuals under the age of 65 at any time during the financial year to make an undeducted contribution of up to $450,000 by 30 June. In other words, they can utilise the $150,000 cap for the current year and the next two financial years.

In these circumstances, the individual cannot make any further non-concessional contributions in the 2010/11 and 2011/12 financial years.

Where the individual is age 65 to 74, the above work test also applies before a non-concessional contribution can be made.

Super co-contributions

Individuals, including self employed business owners, who make an undeducted contribution of up to $1,000 are eligible to receive a co-contribution payment from the Government of up to $1,000 for the 2009/10 year.

However all of the following conditions need to be satisfied in order to be eligible for the co-contribution this financial year:

• the contribution is made by 30 June 2010 to a complying superannuation fund or retirement savings account;
• a tax deduction is not claimed for the contribution;
• The person’s total income is below the income threshold for the 2009/10 year of $61,920. Total income is worked out by adding assessable income, plus reportable fringe benefits and reportable employer super contributions minus “business” deductions. This means that self-employed taxpayers with high turnovers/low margins may still receive a co-contribution payment;
• 10% or more of the person’s total income is from running a business, eligible employment or a combination of both. Note that business deductions are not included in the 10% test;
• the person must lodge a tax return for the income year; and
• the person is less than 71 years old at the end of the income year.

To receive the maximum co-contribution of $1,000 for the 2009/10 year, the taxpayer’s assessable income (including reportable fringe benefits and reportable employer super contributions), must be less than $31,920 and a contribution of $1,000 needs to be made. The co-contribution of $1000 reduces by five cents for every $1 of assessable income over $31,920 and cuts out at $61,920.

In-specie contributions

An in-specie contribution is where an asset, rather than cash, is contributed to a self managed super fund (SMSF). The contribution can be made by an individual or the individual’s employer.

It is important to note that a SMSF is generally prohibited from acquiring assets from related parties such as members and relatives. However the following exceptions apply when the asset is contributed at market value and the asset is either:

• Listed Securities; or
• Widely held unit trust investments; or
• Business real property, or
• An in-house asset which would not result in the level of in-house assets exceeding 5% of the fund’s total asset value.

The transfer of an asset in-specie changes the legal ownership of the asset from the contributor to the SMSF. Therefore there may be stamp duty and capital gains tax implications.

In-specie contributions are included in the concessional and non-concessional caps.

Tax offset for spouse contributions

A resident individual can make a contribution on behalf of their resident spouse (legal or de facto, or same-sex and the spouse is not living permanently apart) and claim a tax offset of up to $540 where:

• the spouse is aged under 65, or
• the spouse is over the age of 65 and under the age of 70 and was gainfully employed for at least 40 hours in a period of not more than 30 consecutive days in that income year (before the contribution is made).
• the sum of the spouse's assessable income, (which includes reportable fringe benefits and reportable employer super contributions) for the financial year was less than $13,800.

The contributions are treated as Personal Contributions (and therefore not subject to 15% contribution tax) and are preserved to the spouse’s preservation age.

An 18% tax offset is claimable when amounts up to $3,000 are contributed, reducing for every dollar that your spouse earns over $10,800. Therefore to receive the maximum tax offset of $540 (18% of $3,000), the spouse’s assessable income needs to be under $10,800.

If spouse assessable income exceeds $10,800 then the maximum $540 tax offset will reduce by 18 cents in the dollar until spouse income exceeds $13,800 at which point the tax offset no longer applies.

One of the first practical lessons in investing is that a well-constructed portfolio means one that is appropriately diversified. The standard form of diversification is through combining asset classes - such as bonds and property funds - with equities. However, this is not necessarily enough to reduce or optimize portfolio volatility. Diversification by management style is often the missing link in getting the right mix.

What exactly is investment style?

In this investment context, a style can be defined as the method that managers use to buy stocks or other assets. Newcomers to the investment business are often surprised at the very considerable variation and latitude in style and its powerful impact on performance at a given time and over a period of time.

According to Shawn Menard, writing in the Canadian Investment Review ("Risk Management: A Dynamic Process", 2000), this remains an underrated but extremely useful means of spreading risk. The deliberate use of variations in investment style as a means of reducing volatility is gaining considerable acceptance in the investment world; many believe that a symbiotic blending of management styles is an important part of the diversification process.

So-called "style rotation" has arguably become even more important in the new millennium, as the conventional equity-bond split has lost effectiveness through global capital market integration. Stylistic differences between money managers lead to a low correlation between or within asset classes that are managed with varied approaches. This is extremely valuable at a time when globalization tends to iron out differences between asset classes and many international markets are increasingly moving in tandem.

Offers and Guarantees of Style Diversification

Several investment advisory firms from around the world have developed plans to diversify their clients' portfolios across asset classes, within asset classes and across investment management styles. In the same way that different asset classes perform better and worse at different times, so too do varying approaches to management within these asset classes.

Some funds specify diversification in terms of style and guarantee to hire a certain number of managers with varying styles. Some, for instance, might promise a minimum of five separate managers, providing different and complementary strategies of equity investing.

The Main Styles

Value and Growth

The two classic stock-picking styles are those of value and growth. The value style entails buying stocks that are regarded as cheap, whereas growth stocks are expected to grow faster than the rest of the market. These two basic methods are quite different and, by having funds with both styles, investors are able to enjoy the best of both worlds. Particularly over the longer term, investors are likely to find that volatility can be reduced by mixing investment styles.

Momentum

Apart from these two classics of value and growth, there are several other fundamentally different approaches to the market. The momentum strategy is one. The idea behind this approach is that investments that have been doing well in the past and have gathered "momentum" are likely to continue doing well. Of course, it is necessary to figure out when the momentum will slow down or come to a halt.

Market Capitalization

Another form of style is the relative emphasis on market capitalization - small-, medium- or large-cap stocks. By shifting the allocation toward one size of company and away from another, very different results and performance can be obtained. In the extreme, small caps may be doing really well as a whole, while their big brothers take a loss. This is what diversification is all about.

Top-Down and Bottom-Up

Another important stylistic differentiation is between top-down and bottom-up approaches. The former entails looking at the "big picture", or the broader economic and financial scenarios, both locally and internationally, and only then moving "down" to consider specific sectors and, finally, the stocks of specific companies. Bottom-up is the opposite approach, where the focus is first and foremost on individual stocks. The basic assumption here is that good companies and their equities will thrive, even if market conditions are not particularly favorable.

Quantitative Approach

The quantitative approach is another possibility, and it relies heavily on computers for mathematical and statistical modeling. The idea is to remove all emotions from the process and have a computer check through enormous amounts of data to discover unrealized asset potential. This is, therefore, a purely technology-based means of stock picking or of asset selection. There is no shortage of such methods, but in the emotion-laden markets, which still depend heavily on people and their perceptions, computers have their limitations.

Keeping an Eye on Styles

As is the case with other assets classes and sectors, rebalancing between investment styles also makes a lot of sense. It is important to monitor and evaluate whether your style mix is performing optimally and to change it where appropriate. In other words, style should be treated like any other asset that evolves over time.

It is not uncommon for managers to not always remain true to their styles. For this reason, it is also necessary to monitor how closely managers adhere to their stated styles.

Conclusion

There are many way of diversifying a portfolio. One of these is through combining funds that operate according to fundamentally different investment styles. Although most people think of diversification as combining asset classes, similar or better results can be achieved though a sensible mix of value and growth stocks, bottom-down and top-up approaches, and so on.

The object of diversification is to achieve a good rate of return at an acceptable level of risk. Precisely this can be achieved by accepting and operating on the fundamental reality that asset management in the broadest sense, and not just the choice of assets, is critical.

Furthermore, whatever approach is favored, it is important to note that different styles may work better at different times, within different market structures and with different managers. Portfolios can be optimized through exploiting these differences through actively monitoring and mixing styles according to the prevailing situation in the various investment markets open to you.

By Robin Bowerman
Smart Investing
6th May 2010
Principal & Head of Retail, Vanguard Investments Australia

Unfortunately, many people who need simple financial planning advice at different stages of their lives do not obtain that advice. Yet such professional guidance may make a significant difference to their financial well-being.

Superannuation consultants and actuaries Rice Warner, however, have just published a new report, The Transformation of the Financial Planning Industry, forecasting a sizeable growth in the demand for such advice.

And this demand would be driven, in part, by the advice being much more readily available.

“Our projections show that the demand for full (holistic) advice is likely to be broadly stable while the demand for simple advice will increase substantially,” says Rice Warner.

Indeed, the point would be reached where one in seven employed people obtain financial regulated financial planning advice each year.

Industry Super Network had commissioned the report after the federal Government announced its proposal to bar advisers from charging commissions to retail investors. The report’s findings are based on the assumption that the proposal is passed into law.

Rice Warner believes the needs for simple financial planning advice facing “average Australians” would include obtaining answers to these straightforward questions:

• How much should I contribute to super to have an acceptable lifestyle in retirement? 
• How much insurance cover should I obtain to look after my family and other dependants? 
• How do I obtain Government assistance such as Government co-contributions to super?

Just think of different stages in your lifecycle when you could have greatly benefited from at very least a little financial planning advice. Such stages may include when you started your first job, when you first married, when you began to seriously invest, and when you were preparing for retirement. And then there are the different periods in your retirement.  The list seems almost endless.

Rice Warner emphasises that there are many people with “complex financial and family affairs” who would certainly benefit from holistic financial planning advice. These may include those with small-medium businesses, family trusts, significant wealth, and senior executive positions with little time to look after their personal finances. “Their circumstances require analysis [by a financial planner] before advice can be provided.”

The point should ideally be reached where knowing where and when to obtain quality financial planning advice becomes second nature to much of the population.

By Investopedia.com | 17.05.2010
CompareShares.com.au  / www.thebull.com.au

While there has been a great deal of attention paid over the last few months to the nascent recovery in the United States, the ongoing Greek sovereign debt crisis in Europe is a reminder that there are often long-tail effects to recessions and global economic shake-ups.

How Did This Happen?

What has happened is the result of a long series of bad decisions. The establishment of the euro effectively gave Greece access to a huge amount of relatively cheap debt, but Greek officials did not put the proceeds of this debt to good use. Since the euro came into existence, Greece's ratio of debt to GDP has stayed above 100% and the country ran persistent deficits in excess of 10% of GDP. Ultimately, when investors (and, belatedly, the ratings agencies) realized that the emperor had no clothes, rates on Greek debt began to creep up, and matters culminated in the S&P downgrade of Greek debt to "junk" status on April 27 of 2010.

What will happen next will not be pretty. A bailout package will give Greece up to 110 billion euros in total. That is intended to buy Greece time to get their house in order, but that means a tremendous austerity program - including major cuts in public wages and pensions and a host of new taxes.

Can Countries Go Bankrupt?

Sovereign nations like Greece cannot go bankrupt. What happens instead is a process called sovereign default whereby a nation renegotiates the terms of the debt (including the interest rate, the length of the loan, the schedule of repayments, etc.) and/or replaces it with new debt. This process generally leaves the original creditors with about 25-50% of the amount they originally loaned.

Greece is not the first country to contemplate default; there were a breathtaking number of sovereign defaults across the world in the 1980s. More recently, we saw Russia default on its internal debt (GKOs) in 1998 and Argentina default on its external debt in 2002. In most cases, the causes were similar - too much debt relative to GDP, debt spent on nonproductive assets (or outright stolen through corruption) and persistently high deficits as a percentage of GDP.

What Does This Mean?

For Greece, this crisis is going to mean a major change in the standard of living over the next few years, with wages and economic activity likely to be down for a number of years. Ultimately, the hope is that Greece can reduce its deficits and debts to a more sustainable level and rejoin the public financial markets. In plain(er) English, Greece is basically going to be in a severe recession (if not depression) for several years.

Europe is clearly going to see the biggest short-term effects from this Greek meltdown, as roughly 70% of Greece's sovereign debt is held outside the country - much of that in France and Germany. That, in turn, is going to significant hurt those banks holding the debt and could force them to raise capital and curtail lending to rebuild their solvency. As that happens, there will be less money to loan to companies and individuals. The bottom line? Less growth across the continent.

On a more positive, if cynical, note, the bailout being offered to Greece should help protect the banks. In effect, the governments of Europe are choosing to have all of their taxpayers chip in to keep its banks and large financial institutions on firmer footing. So, while this is called a "Greek bailout", it is in effect just as much about bailing out the foolish lenders in France and Germany.

There is also a very real risk of follow-on effects. Spain, Portugal, Ireland and Italy also have high debt burdens and deficits. Unlike Greece, which is about 2% of the Eurozone economy, Spain, Portugal and Ireland make up a far larger component, and many of these nations have banks with significant international lending operations. If Spain falls into crisis, the entire credit system in Europe could grind to a halt and that would send tremors throughout the world's financial system.

What About The US?

In the U.S., the direct effect of the Greek crisis is not likely to be all that large, as American banks have not loaned that much to Greece and American institutions do not hold large amounts of Greek debt. That said, if the troubles in Greece lead to a slowdown across Europe, it could choke off our economic recovery as Europe as a whole is a major trading partner.

The Worst Case

For the Greeks, the worst case could be even worse, and may include ongoing unrest and government instability. Also part of the worst case scenario is a messy collapse of the euro and a Europe-wide credit freeze. Should that happen, growth in Europe would almost certainly drop and there would be instability across the system. Given that professional investors hate instability more than anything, it would be fair to assume that equity markets would plunge, rates would increase, and gold would probably shine.

What Should Investors Do?

Unfortunately, there is little for the average investor to do about any of this. Owning some gold could offer a hedge to a truly dire scenario.

Clearly, this crisis serves as another reminder about the benefits of diversification. If you own a Greek bond, you are in trouble. But if you own a diversified portfolio of bonds (through an ETF or mutual fund), then the impact is not so severe. Speaking even more broadly, there is little to do but continue to make sound investing decisions - diversify your portfolio, buy quality assets, and make sure that no one mistake would be devastating.

By www.compareshares.com.au – for more articles like this click here.
CompareShares.com.au is Australia’s pre-eminent news and investing site for investors and traders, covering shares, superannuation, property, financial planning strategies and more.

Our monthly updates have changed to two PDFs that contain far more information than we'd supplied in the past.  We've made this enhancement due in part to give more detail on the markets and the economy but also to provide you with more help in understanding these tough times.

• Click here for a Market Report  - 30th April 2010
• Click here for an Economic Report - May 2010

By Robin Bowerman
Smart Investing
Principal & Head of Retail, Vanguard Investments Australia
7th May 2010

This is one of the questions that the National Centre for Social and Economic Modelling (NATSEM) at the University of Canberra set out to answer in its recently released report Saving Tomorrow.

Some of its answers are likely to surprise you. And the answers should provide many wakeup calls – including for those winding down their careers in the final years before retirement.

As a broad comment, NATSEM notes that Australians on average – as with the experience in the United States, for instance – no longer spend more than they earn. (The modelling is based on statistics to December 2009.)

The propensity of Australians to save has somewhat improved the sting of the GFC. But as NATSEM comments: “Whether it is a permanent change or just a fad remains to be seen.”

We have hardly become champion savers. The median amount saved by those 15 and over is less than $300 a year.

And sadly, even the savings figure of under $300 a year can give a misleading impression given the wide disparity in saving patterns.

“One-quarter of Australians saved more than $12,360 a year over a four-year period and another quarter of Australians reduced their savings, or probably went further into debt, by $9,810 a year,” the researchers found.

Consider these particular findings by NATSEM:

• In geographic terms, Australia’s best savers live in the Northern Territory – saving $4,970 a year or 16 times the national median amount. 
• Young people and those in retirement typically spend $100 per year more than they earn. 
• By age, Australia’s best savers are 45-54, saving more than $2,260 a year. “A somewhat surprising observation,” says NATSEM, “is that those approaching retirement (age 55-64) are saving less than those age 45-54.” Yet generally, their children would have left home and their finances should be in the best shape of their lives. 
• Predictably, men are much better savers than women, having twice the median savings. Women, of course, have lower average incomes, often interrupt their careers to raise children and do more part-time work because of family responsibilities.

Finally, one of the report’s shock findings is that a quarter of Australians classified by researchers as high-income earners – with mean after-tax incomes of $86,800 a year – were Australia’s worst savers by far in dollar terms.

The lower quartile of the high-income group overspent their annual incomes by a breathtaking $25,710 a year.

Another savings wakeup call has been loudly sounded.

By Robin Bowerman
Smart Investing
Principal & Head of Retail, Vanguard Investments Australia
21st April 2010

Retirement savings plans often make for interesting dinner party conversations.

Recovering markets have, thankfully, improved the tenor of discussions around superannuation accounts as both portfolio balances and confidence have been repaired.

But it is sometimes surprising to hear how individuals are thinking about their retirement savings – or rather the lack of it.

Consider the case of a single, professional woman successfully running her own consulting business which means she often works overseas for extended periods.

She cheerfully explained that her super account balance was “pitifully” low. Her success in the business world has not – as yet anyway – translated into a successful approach to retirement savings. Sadly she is typical of an endemic problem within our superannuation system – women have dramatically lower account balances than men.

Research by ASFA in 2007 put the median super balance at $31,250 for men and only $18,500 for women. There is nothing to suggest that that imbalance has shifted significantly in the past three years.

There are a variety of reasons to explain it – interrupted working lives and lower average salaries being two of the main ones.

But there is also the issue of engagement and understanding of superannuation. Our case study had not entirely ignored her need to finance her lifestyle after work. She had bought an investment property – to her way of thinking that was her super back up plan.

Residential property has performed strongly in recent years and there are tax advantages courtesy of the negative gearing deductions – although it will be interesting to see if Ken Henry’s review of our tax system recommends any changes to that.

But the rental income from one property is probably not going to be enough to fund a comfortable retirement lifestyle. Property proponents may say that is an argument for a portfolio of houses but the challenge with that is paying down the debt at the time of retirement.

It also raises other issues – a critical one being that the new caps on contributions make it difficult, if not impossible, to get large amounts of money into super to take advantages of its tax concessional status in the run up to retirement. So the idea of selling an investment property and then contributing the proceeds into super just prior to retirement is problematic.

A more fundamental problem with property assets when drawing down retirement income is the illiquid and lumpy nature of property. Rental income is great but if that is insufficient and you want to draw down a lump sum for a new car for example you cannot just sell off a bathroom or bedroom to raise the money.

That is where the liquidity of a super fund provides a much more flexible retirement income solution.

The key issue here is not about super versus direct property as the best way to save for retirement. Increasingly – given the contribution caps - it is about having money both inside and outside super. All of which argues the case for a holistic financial plan that sets the strategy to achieve a comfortable retirement.

When it comes to women and their low super balances that is a public policy issue in need of more debate. The Super System Review that is being chaired by Jeremy Cooper is due to hand down its findings in June this year and that may well provide the catalyst and framework to begin to correct the imbalance.