Depending on the fund that you select, the initial investment can be as low as $500 because the investment managers are pooling your funds with other investors’ funds to allow you to access markets that may normally be out of your grasp. Generally, when you make a smaller initial investment, there is a requirement for you to make regular contributions on a monthly basis via a direct debit facility.

Our fact sheet, 'Four steps to understanding managed funds', gives a great summary of what these funds are and how to invest regularly. 

With any investment, it's important to seek personal financial advice to ensure that the fund you're selecting is appropriate for you and your changing circumstances.  It's also important to manage your debt wisely and remember that investments in managed funds may rise and fall in value from time to time.

To speak with a Mercer financial adviser, simply telephone
1800 633 403 or register to have a Mercer financial adviser call you. There is no fee for an initial discussion with a Mercer financial adviser.

Stephen Mehrton is an authorised representative #297473 of MINL. To read more about Stephen, click here.

1. Cash it out

Cash it out of the superannuation environment (no tax is payable) and invest the proceeds elsewhere (where you may have to pay tax on the earnings and possibly be subject to Capital Gains Tax).

2. Leave it in a superannuation fund

Depending on your employer super fund, you may be able to leave your superannuation within your existing fund and make withdrawals as required. If you can’t leave it in your employer super fund you can roll over to another super fund of your choice. While your money remains in super and you're under Age Pension or Service Pension age, it isn't counted as an asset for Centrelink purposes (which may be beneficial if you apply for benefits).

3. Rollover your superannuation into an Allocated Pension fund

An Allocated Pension fund will pay you a regular income of the amount you choose (subject to a minimum). However, it will only last as long as your balance is adequate to sustain your income payments. As you are over 60, there is no tax payable at all on the income you receive and you can access your funds at any time if you need to make a withdrawal or want to invest the money elsewhere.

The best thing you could do at this stage is to call the Helpline and speak to them – they will put you in contact with a financial adviser so that you understand the options available to you if you need more comprehensive advice. Mercer financial advisers provide an initial, obligation-free consultation at no cost – just call our Helpline on 1800 633 403.

Richard Carey is an authorised representative #290608 of MINL. To read more about Richard, click here.

You could also consider making a contribution to super for your spouse. If you contribute at least $3,000 and her ‘total income’ is less than $10,800 you can get a $540 tax offset.

Gearing (or borrowing to invest) is still a strategy that can be used to accumulate wealth (and it may provide some tax benefits). You can borrow to invest in any income producing investment such as property and/or shares, either directly or via a managed fund. This is a strategy that is not suitable for everyone, so you should seek personal financial advice to determine if such a strategy is suitable for you. Our Mercer financial advisers can assist you in this regard.

You could also review who should own the investments you hold - should it be yourself, your wife, jointly held or some other arrangement? Income tax and capital gains tax implications can vary depending on who owns the asset. For example, if your spouse isn’t earning any wages then investment earnings may be taxed at a lesser rate if she owned the investment. However, reducing your tax liability should not be your primary investment goal and quality, personal financial advice that is tailored for your situation can help you build wealth using structured, sound investment principles rather than just gaining tax benefits.

To speak with a Mercer financial adviser about your retirement strategy, call
1800 633 403.

Tony Doyle is an authorised representative #304138 of MINL. To read more about Tony, click here.

Different arrangements may apply for 'defined benefit' superannuation funds, depending on the benefit design – again you should call your super fund to determine whether your super will be available to you at age 65.

You should keep in mind that should you continue to work (even after accessing part/all of your superannuation savings,) you may still be able to continue contributing to superannuation up until age 74.

To speak with a Mercer financial adviser about your retirement strategy, call 1800 633 403.

Jade Khao is an authorised representative #316316 of MINL. To read more about Jade, click here.

Generally, if a person retires at or after the age of 60, their superannuation benefits are paid to them tax free (if paid from a taxed super fund).  This is the case whether you take your superannuation benefit as a lump sum or as a pension.

For example, a person retires at age 60 with a superannuation benefit of $230,000.  Their super fund allows them to take their superannuation benefit as a lump sum, a pension or a combination of these two options.  So, they decide to take $50,000 as a lump sum and use the funds to buy a car, fix up some things around the home and take a holiday.  They then use the remaining amount of $180,000 to commence a pension that pays a regular income of $12,000 per annum or $1,000 per month.

If your superannuation fund offers you the option of commencing an account based pension with some or all of your superannuation savings, then you will be required to take a minimum amount of income each year – the percentages are listed below.  (Some funds may offer other types of pension which have different rules, but account based pensions are the most common, at least in the private sector):

So, in the example above for the 2009/10 financial year, the person would have to take at least 2% of $180,000 ($3,600) of income each year – but they can take as much as they like, there is no limit.  Of course, the higher the amounts taken, the shorter the period in which payments can be made.

As to the second part of your question, there isn’t a different tax rate if you retire at 60 or 65 – the same tax rules apply to persons who are 60 and older.  Therefore, you may need to consider other issues when trying to determine when you should retire, such as:

• Will you have enough savings to retire comfortably?
• Men can’t get the age pension until they turn 65, women can’t get the age pension until they are somewhere between 63.5 and 65 (depending on their date of birth) – so will you have enough income to live on if you aren’t getting any income from employment or the age pension from Centrelink?
• What will you do with your time?
• What is your health like – can you continue working?
• If you have a partner, what is your partner’s working situation?
• More time in the workforce means more savings - this may provide for a better income when you finally retire.

To help you consider these issues you should speak to a licensed or appropriately authorised financial adviser. If you would like to speak with a Mercer financial adviser about your retirement strategy, please call us on 1800 633 403.

Richard Carey is an authorised representative #290608 of MINL. To read more about Richard, click here.

Non-concessional contributions include:

• personal contributions for which a tax deduction is not claimed;
• spouse contributions (in respect of the receiving spouse);
• the tax free part of an amount transferred from a foreign super fund;
• contributions in excess of the concessional contributions cap.

Non-concessional contributions do not include:

• Government super co-contribution;
• certain contributions arising from structured settlements, orders for personal injuries, or workers compensation payments taken as a lump sum;
• certain contributions relating to CGT small business concessions;
• rollovers or transfers between complying super funds (not including amounts transferred from foreign super funds).
• directed termination payments

To accommodate larger contributions, people under the age of 65 (at the start of the financial year) may bring forward two financial years’ of non-concessional contributions – thus being allowed to make up to $450,000 of non-concessional contributions at one time.

Essentially, the way this works is that if you make a non-concessional contribution in excess of $150,000 in a financial year, any non-concessional contributions you make in the next two financial years should be restricted so that the total non-concessional contributions in the 3 (financial) year period doesn't exceed $450,000 as otherwise heavy tax penalties apply.
 

The tax penalty on non-concessional contributions in excess of the cap is a tax of 46.5% on the 'excess contributions' - that is on any contributions in excess of $450,000 over the three year period.
 
The individual will be personally assessed for this tax.  The individual must nominate a super fund to release monies to pay the liability if the member still has a superannuation fund that provides accumulation benefits for the member.  Defined benefits cannot be drawn on for this purpose.

The remaining amount of the excess non-concessional contribution (after paying the tax) remains in the super fund.
 

Concessional contributions

Further, a cap of $25,000 applies to concessional contributions. This cap is applicable for 2009/10 and is indexed from 1 July each year to Average Weekly Ordinary Time Earnings (AWOTE) in increments of $5,000.

Concessional contributions include:

• employer contributions (including Superannuation Guarantee and salary sacrifice);
• notional taxed contributions for defined benefit members;
• personal contributions which are claimed as a tax deduction;
• taxable amounts over $1M of a ‘directed termination payment’;
• amounts transferred from a foreign super fund that exceeds the member’s vested benefit
• certain allocations from reserves.

Concessional contributions do not include:

• roll over super benefits;
• amounts up to $1M of ‘directed termination payments’;
• the taxable amount of a super benefit transferred from a foreign super fund where the member has elected to transfer the tax liability to the fund;
• contributions to a constitutionally protected super fund.

Superannuation funds will continue to apply a 15% tax on concessional contributions; however, an additional tax of 31.5% will apply to concessional contributions in excess of $25,000 per financial year.  The total tax will therefore be 46.5% on these excess concessional contributions.
 
The ATO will identify if a person has exceeded their $25,000 threshold.  The additional 31.5% tax on excess concessional contributions will be levied on the individual (not on the super fund), though the individual will be allowed to elect that their super fund release monies to pay the tax (only possible if the individual has an accumulation style superannuation benefit).

Further, where an individual has made more than $25,000 of concessional contributions the amount in excess will count towards their non-concessional contributions cap.
 

Transitional provisions for concessional contributions

A transitional period applies that provides for a $50,000 concessional contributions cap for an individual who is at least 50 years old at the end of the financial year in which the contribution is made.  This transitional period lasts to the 2011/12 financial year. This transitional amount is not indexed.

From 1 July 2012, the cap for those aged 50 and over will revert to the lower $25,000 cap (or the indexed amount at that time).

Diane Haggett is an authorised representative #264940 of MINL. To read more about Diane, click here.

This includes release on:

1. Compassionate grounds, or
2. Under 'severe financial hardship' provisions.

The Mercer Super Trust can allow early release of super on compassionate grounds or under severe financial hardship.

A person who doesn’t satisfy the ‘financial hardship’ conditions (see below) may still be able to access their super by applying under compassionate grounds as set out in the law. Applications in these circumstances should be made to the Australian Prudential Regulation Authority (APRA).  For full details of what might constitute 'compassionate grounds', please see the 'Early Release of Super' article on this website.

To access your super savings under the financial hardship rules you must:

• be in receipt of a Commonwealth income support payment (such as Newstart, Disability Support Pension etc), and have been so, continuously, for the last 26 weeks. You need to provide the trustee with a letter from Centrelink (or Department of Veterans’ Affairs) confirming that you have been receiving an income support payment, and 
• satisfy the trustee of your super fund that you are unable to meet reasonable and immediate family living expenses.

If you satisfy both of the above tests you may receive a one-off lump sum payment of between $1,000 and $10,000 from your super (tax may be required to be paid on the withdrawal).  No other withdrawals of this type would be allowed in the following 12 months.

Lynda is an authorised representative #264429 of MINL. To read more about Lynda, click here.

1. Salary sacrifice arrangements can be limited because of an Award, EBA or employer rules. 

So, speak to your employer about what you can and cannot do.  Remember too, that the Tax Office has strict rules in place – you need to have a salary sacrifice agreement in place with your employer before you earn the income.

2. Caps now apply to the amount of super contributions that are concessionally taxed. 

From 1 July 2009 concessional contributions (which include employer, SG and salary sacrifice) are limited to $25,000 per financial year – regardless of your age.  In addition to the normal 15% tax that applies to these contributions, an additional tax of 31.5% will apply to concessional contributions in excess of $25,000 per financial year. The total tax will therefore be 46.5% on these excess concessional contributions.

A transitional period applies that allows an individual who is aged 50 or over to make $50,000 of concessional contributions through to 2011/12 financial year.  A person who turns 50 during this period will also be able to take advantage of this transitional arrangement. From 1 July 2012, the cap for those aged 50 and over will revert to the lower $25,000 cap (or the indexed amount at that time).

Therefore, you need to know how much your employer is contributing to super as well as how much you wish to salary sacrifice. If you are already salary sacrificing you may wish to review your arrangements as exceeding the concessional contribution caps can be costly if you end up paying the 46.5% tax.

3. Whether or not you can convert your superannuation benefit to a pension depends on your age

You must be over your preservation age to start a ‘Transition to Retirement Pension’ (TRP).  Also, it depends on the super fund you are in - not all will offer a TRP – especially if you are in a Defined Benefit Fund.  You may have to move to another fund in order to commence a TRP.

It is important to note that TRPs have a requirement of a minimum income and a maximum income.  You cannot generally withdraw lump sum amounts from a TRP.  The minimum is based on your age, and the maximum is 10%. 

You need to consider not only the positives of a Transition to Retirement Pension - you also need to identify the negatives.  Will you pay additional fees, will the preservation of the salary sacrifice amounts be important to you, do you have enough money to live on, have you lost any entitlement by moving from super to pensions phase; for example insurance, annual and long service leave, SGC?  

4. Super benefits paid from a taxed source either as a lump sum or pension will be tax free when paid to people age 60 and over.

This applies only to Australian complying superannuation funds.  An individual who receives a pension from an untaxed fund or a foreign superannuation scheme will still be subject to tax. Many individuals have pension schemes overseas – it may be possible to transfer these to an Australian super fund.  However transfers for an overseas fund may result in other taxes applying so getting appropriate advice is important.

Individuals over the age of 60 who are fully retired can cash in as much or as little of their superannuation benefits as they please.  However, this should not be an encouragement to spend your money as it may affect your living standards in retirement.

Any pension income or lump sum withdrawals that an individual receives on or after age 60 from a taxed super scheme does not form part of their assessable income and therefore may have the effect of lowering taxable income and the tax paid on other income.  Further benefits may arise where a capital gain is realised or franked dividends are received.

The above are only a selection of the issues that should be analysed if you are considering salary sacrificing and supplementing your income with a pension from your superannuation fund.

If considering this strategy it is highly recommended that you obtain advice from a financial adviser as they can analyse the positives and negatives of this strategy by taking into account your particular short, medium and long term financial goals and your lifestyle needs. Further, they can help you understand the effect this strategy may have on your other entitlements.

Janis Marsh is an authorised representative #276364 of MINL. To read more about Janis, click here.

However, there are a few things you need to consider before making any decisions about what you do with your super.  

Firstly, you need to consider your investment objective.  Has it changed?  If not, then changing your investment strategy now may actually increase the risk that you miss that objective in the long run.

Secondly, once you get to age 60, your superannuation becomes tax free.  I would think very carefully about removing money from the superannuation system (and paying tax to do so), when you are less than two years away from being able to access this money without paying tax. 

Thirdly, whilst investment markets are at such a low point, any change you make to your investment strategy will only crystallise your loss.  History tells us that markets can recover and the best way to recover your loss may be to stay invested in order to be in a position to recover the benefits when markets rebound. However it is important to be aware that past performance should not be relied on as in indicator of future performance.

I know it can be difficult to stick to your investment strategy when the media is forecasting doom and gloom for the economy, but you need to remember that share markets are generally forward looking and may start to recover before the economy does.

Remember that you should consult a licensed or authorised financial adviser before making any decisions concerning your super.

We also encourage you to read our questions and answers page for members Super: the long and the short of it, which looks at how super has been impacted by the downturn of the sharemarket since 2008.

Richard Carey is an authorised representative #290608 of MINL. To read more about Richard, click here.

When you make a contribution to your super fund, you are actually buying units in managed funds (in superannuation terms, this is the investment option you've chosen). For unitised superannuation funds, your contribution is allocated to a pool of assets that is invested according to the option's investment strategy. To keep track of the value of each person's share of the pool, the total value of the assets is divided into units, and each unit is priced.

Unit prices are calculated by dividing the net assets of the fund by the total number of units on issue. When investment returns are positive, the unit price will go up. When investment returns are negative the unit price will go down. In the last 18 months, as investment returns have fallen, unit prices have also fallen significantly. As a result, your contribution to super is buying more units than before.

For example, Alex earns $50,000 and 9% of his salary ($375 per month) is salary sacrificed to superannuation.  After contributions tax (which is currently 15%), Alex invests $318.75 in a balanced growth option. In November 2007, a unit in this option was worth $1.10 and Alex got 289 units for his $318.75 contribution. By March 2009, the price of this unit had fallen to 65 cents and, for the same contribution, he received 490 units.  If Alex continues to contribute to his balanced growth fund, he will have more units to participate in any market recovery that occurs. To put it in dollar terms, if the unit price eventually returns to $1.10, the 490 units bought in March 2009 with a $318.75 contribution will be worth $539.*

For more on unit pricing, see our article Units are your super building blocks.

If you would like to speak with a Mercer financial adviser regarding your super contributions strategy, please call us on 1800 633 403.

* This example is included for illustrative purposes only and should not be relied upon as a forecast, indicator or guarantee of future performance of any super fund. As always, please remember that past performance is not a reliable indicator of future performance.

Tania Mawbey is an authorised representative #239307 of MINL. To read more about Tania, click here.

Permanent residents

If you are a permanent Australian resident or citizen, or a New Zealand citizen, then you cannot cash your super at this point in time.  Further, you are not able to 'roll-over' or transfer your Australian super savings to an overseas superannuation scheme.  Essentially, you will have to wait until you are at least 60 years old and retired.

If you are able to meet a ‘condition of release’ at this point in time you may be able to receive your superannuation in cash - see the
26 November 2007 Ask an Adviser response to learn about 'conditions of release' and when you can access your super.

Temporary residents

If you are in Australia because you hold a temporary visa you may have your super paid in cash once you have left Australia permanently* and your visa has ceased to be in effect.  This is referred to as a Departing Australia Superannuation Payment (DASP).  This rule changed slightly in December 2008 – before that, payment was restricted to holders of specified temporary visas.  Now holders of any type of temporary visa can qualify for payment as long as the holder is not an Australian citizen, permanent resident or New Zealand citizen.  

Temporary residents must apply to their superannuation provider and prove their eligibility to receive the payment in cash (the type of proof required will depend on the amount of your withdrawal benefit).

If a payment is requested under the DASP provisions, the payment will be subject to withholding tax at the following rates (these tax rates are set to increase from April 2009):

• Tax free component — 0%
• Taxable component (untaxed) — 40%
• Taxable component (taxed) — 30%

The withholding tax aims to recover the concessions provided to temporary residents’ superannuation benefits. These payments are not subject to the Medicare levy.

Superannuation funds and RSA providers are required to make payment within 28 days of receiving a complete application although some Government sector funds are not required to make payment.

If a temporary resident does not claim their superannuation within 6 months of departing Australia, the superannuation of a temporary resident will become “unclaimed” and the Australian Tax Office (ATO) will require that the superannuation fund or RSA pay any benefit to the ATO. (Note that this will not apply to certain Investor Retirement and Retirement visas).However it will be possible for departed temporary residents to later claim their superannuation from the ATO as it will remain on account with the ATO (and be repaid after normal DASP taxes are paid).  However no interest will generally be paid and, as indicated above, the DASP tax rates will increase from April 2009.  These tax rates will apply at all ages, in other words it will not be possible to defer cashing your benefit until after age 60 in order to obtain a tax free benefit which applies to Australian and New Zealand citizens.

I hope this information assists you. It may be worthwhile speaking to a financial adviser about your situation prior to leaving Australia.

* You may still be able to return to Australia on another Visa even if your claim and receive your superannuation money.

There are specific guidelines that must be met before you are able to access your super savings due to financial difficulty, which I’ll summarise below.  To find out more about the rules for accessing your super due to financial difficulty and to obtain any relevant forms you should visit the Australian Prudential Regulation Authority (APRA) website at apra.gov.au. We also recommend that you contact your super fund as the governing rules of your super fund will need to allow access to your super in these circumstances.

Financial hardship

To be able to access your super savings under the financial hardship rules you must:

• be in receipt of a Commonwealth income support payment (such as Newstart, Disability Support Pension etc), and have been so, continuously, for the last 26 weeks; and
• satisfy the trustee of your super fund that you are unable to meet reasonable and immediate family living expenses.

If you satisfy both of the above tests you may receive a one off lump sum payment of between $1,000 and $10,000 from your super (tax may be required to be paid on the withdrawal).  No other withdrawals of this type would be allowed in the following 12 months.

If you are aged 55 years and 39 weeks or more, you may be able to access all of your super savings if you:

• have received a Commonwealth income support payment for a cumulative period of 39 weeks after reaching age 55; and
• are not gainfully employed on a full-time or part-time basis on the date of your application to the trustee.

Again, tax may be payable if you are under age 60.

In both cases you need to provide the trustee of your super fund with a letter from Centrelink (or Department of Veterans’ Affairs) confirming that you have been receiving an income support payment.

Specified grounds for release

A person who cannot satisfy the financial hardship conditions may be able to access their super by applying under specified grounds (outlined below).

Access to super may be available in order to cover expenses in respect of:

• medical treatment or transport for the member or his/her dependant where the treatment is necessary to treat a life threatening illness or injury, or to alleviate acute or chronic pain or acute or chronic mental disturbance, and where such treatment is not readily available through the public health system;
• to prevent foreclosure of a mortgage, or exercise of a power of sale over the member's principal place of residence;
• modifications to the family home and/or vehicle to meet the special needs of a disabled member or his/her disabled dependant; or
• palliative care, in the case of impending death for a member or his/her dependant;
• death, funeral, or burial expenses of a member’s dependants.

The legislation also allows APRA to assess applications for early release of benefits where the circumstances are consistent with, or in direct relationship to, the grounds specified above.

As mentioned above the best place to start is to have a look at the APRA website and to then contact your super fund and make enquiries of them.

Diane Haggett is an authorised representative #264940 of MINL. To read more about Diane, click here.

The general terms that are associated with a personal Loan of the size you require would be as follows:

• Maximum Loan size $75,000
• Maximum Loan Size can not be greater than 50% of the clients Gross Annual Income
• Maximum Loan Term - five years
• Repayments Principal and Interest Monthly in arrears
• Generic Fixed Interest Rate - 13.25% pa up to 20% pa.
• Must have a clean credit rating and must be up to date with all loans being refinanced.

The short loan term associated with a Personal Loan means that your cash flow would need to be very strong in order to repay the entire debt over a five year period i.e. assuming a rate of say 15% pa the monthly repayments would be $1,784 compared to $1,250 per month for interest only payments on the cards assuming a rate of 20.0% pa.

In reality the only cash flow effective means of reducing the debt would be to take out an additional Mortgage with your brother to repay the Credit Cards. The lower interest rates associated with a Mortgage and longer loan term would assist your cash flow. Assuming a loan term of 25 years on the mortgage and a rate of say 9.0% repayments on a $75,000 loan would be $629 per month. The problem with this solution is that your brother would be just as liable for the new debt because it is not possible to quarantine the debt. You could have an arrangement with your brother to cover the repayments for the new loan however should you default your brother would be liable for the entire debt on the home.

You may wish to speak to a financial counsellor or look at loan calculators (most lenders have a calculator on their website) to learn more about your options prior to committing to any particular course of action.

Diane Haggett is an authorised representative #264940 of MINL. To read more about Diane, click here.
 

Whether or not there is a specific form that you must complete or whether you can simply write a letter to the trustee depends on the super fund you are with – it is advisable to ring your super fund and discuss the issue with them.  They will be able explain your options, and the procedure you must follow – if required they can also send you the relevant forms.

Generally, depending on your super fund, you have three options in relation to making a nomination:

• You can make a binding nomination which means that the trustee of the super fund must pay a death benefit to the nominated individual(s) and in the proportion that you specify.  This type of nomination usually requires a form to be completed by the member and has to be witnessed
• You can make a non-binding nomination which indicates to the super fund trustee to whom you wish the super death benefit to be paid and in what proportion.  However, the super fund trustee has the final say as to who the super death benefit will be paid to and in what proportion
• You can choose not to make a nomination at all, in which case the trustee of the super fund has complete discretion as to who will be paid the super death benefit and in what proportion.

Some funds may not give you a choice but rather your death benefit is paid automatically to your estate or, in the case of some pension funds, to your spouse.

However, in all cases the trustee of the super fund can only pay a death benefit to:

• Your spouse (including a de-facto but not including a de facto of the same sex);
• A child of yours (including an adopted, step or ex-nuptial child);
• Someone with whom you have had an interdependency relationship;
• Someone who is (or was at the date of your death) financially dependent on you;
• The trustee of your deceased estate.

So, while the trustee of your super fund may have discretion as to whom they pay the super death benefit, its not as if they can pay just anyone – they are limited to one of the above options.

Some super funds have specific rules about how they will pay a death benefit.  For instance, if you don’t make a nomination the trustee of the super fund may pay the death benefit to your estate – this may or may not be in line with your intentions.

You can contact your super fund (by phone or refer to their web site) or read the Product Disclosure Statement to learn more about death benefits and what choices are available to you in relation to having a say as to who receives a super death benefit should you die – particularly if you are interested in making a binding nomination.

Jade Khao is an authorised representative #316316 of MINL. To read more about Jade, click here. 

The most common are employer Superannuation Guarantee (SG) contributions.

All contributions made by an employer are generally taxed at 15% (where you have provided your tax file number to your super fund) and form part of the taxable component within your superannuation fund.

Regardless of employment status you can also make contributions directly to your superannuation account if you are aged under 65.  However if you are aged between 65 and 74 you must be gainfully employed on at least a part-time basis* during a financial year to be eligible to make personal contributions.  Under certain circumstances these contributions allow you to become eligible to receive a Government co-contribution.

* A person is gainfully employed on at least a part-time basis during a financial year if the member has already worked at least 40 hours in a period of not more than 30 consecutive days in that financial year. 

Your husband may also be able to make contributions directly to your superannuation account.  Spouse contributions aren’t subject to contributions tax and won’t be taxed when you withdraw your super at retirement. Your husband may make superannuation contributions for you if you are under age 65. If you are between the ages of 65 and 69 (inclusive), you must have been gainfully employed on at least a part-time basis* during the applicable financial year to be eligible to have these contributions made on your behalf.  Your husband’s age is not relevant.  Your husband cannot contribute for you if you are age 70 or over.

Furthermore, if your assessable income and reportable fringe benefits are less than $13,800 in a financial year, your husband may be entitled to a tax offset in relation to contributions he makes on your behalf.  Regardless of the tax offset, contributions made by a spouse may be an effective way to enhance wealth for retirement.

'Splitting' superannuation contributions

Rather than making contributions directly to your superannuation account, your husband may elect to ‘split’ superannuation contributions that were made for him with you. 

The maximum contributions that can be split in a year being the lesser of:

• the concessional contributions cap (which was explained in detail in a previous Ask An Adviser (08/04/2008) and
• 85% of the concessional contributions received by the fund for the member

Your husband can effect a split by requesting a rollover to your super account. Split contributions are treated as a taxable component and are preserved when received by the spouse’s superannuation fund.

In order to be eligible to split superannuation contributions the receiving spouse must be under the age of 65 and not retired.

Before implementing a splitting strategy you should ensure that the superannuation fund of the member whose contributions will be split allows splitting to occur.  Superannuation funds are not obliged to offer splitting, and defined benefits funds can only offer splitting on any ‘accumulation’ amounts. 

Consideration should also be given to the amount of superannuation contributions made as contribution caps have applied to the amount of superannuation contributions that can be made yearly before having penalty tax applied to them.

Remember, before making any decisions concerning your super, you should consider seeking advice from a licensed or appropriately authorised financial adviser.

Lynda is an authorised representative #264429 of MINL. To read more about Lynda, click here.

Thus for you to withdraw your preserved money out of superannuation in the future you need to meet a specific ‘condition of release’.

The most common forms of condition of release are:

• permanent retirement (on or after your preservation age which is 55 for those born before 1 July 1960 and increases to 60 for those born after 30 June 1964),
• termination of employment with an employer after age 60,
• suffering a terminal medical condition or becoming permanently incapacitated (specific rules apply to these conditions),
• reaching age 65. 

You cannot withdraw money from superannuation just because you want to – even if they were ‘extra’ contributions to start with.

Severe financial hardship is also a condition of release but this usually means you are in serious financial difficulties and meet certain specified criteria. 

Contributing extra money into superannuation should be about building your wealth for retirement.  Therefore, before you put extra money into super you need to think about whether or not you may have a need for this money in the future, and take into account that you will not be able to get access to it unless a condition of release has been satisfied.

Remember, that when you are making any decisions concerning your super, you may wish to consider seeking financial advice from a licensed or appropriately authorised financial adviser.

Doug Allan is an authorised representative #295113 of MINL. To read more about Doug, click here.

I would also suggest that you consider further investigating not only the level of cover you have, but whether or not the cover is appropriate and suited to your individual needs.  A common misunderstanding that we come across as financial advisers is a client’s perception of TPD (Total and Permanent Disability) cover, and the manner in which it may be paid to the insured.  It is imperative that you ensure you are covered not only for the right amounts, but for the right types of cover. 

Should you require further assistance with this matter, please do not hesitate to contact your nearest Mercer office.

Lynda Cross is an authorised representative #264429 of MINL. To read more about Lynda, click here.

What is volatility?

The prices of individual shares and therefore the market index, tends to fluctuate on a daily basis representing investors reaction to news.  The fluctuation is referred to as volatility in the share price.  The following chart shows the volatility of the Australian sharemarket, measured on a monthly basis from January 1985 to January 2005 – each point on the chart is the return over 12 months to that month end.

As you can see, the sharemarket has historically  been volatile however that volatility had been muted in the last few years compared to the period prior to 1995.

It’s worth noting that volatility in individual share prices does not always reflect the fundamental earnings story of the underlying company in the short-term as financial statements are only released on a half-yearly or annual basis. Similarly, share price volatility of a whole market such as the Australia, US or India does not necessarily reflect the health of the underlying economy in the short-term.  The share price volatility reflects the reaction of lots of investors to myriad news and their different perceptions of the importance or effect of the news.

volatility represents an investment risk – the risk that your investment may be worth less on a given day than it was a few days before that.  Many things worth doing in life involve some risk. Investment is no exception. While you can’t avoid risk; you can try and understand it, manage it and endeavour to make sure the risks you take are calculated.

What is the ‘sub-prime’ issue?

As the name suggests, ‘sub-prime’ mortgages are loans to homebuyers with poor credit histories, and are often characterised by having low or no down payments. In the case of the US sub-prime mortgages, many had below market interest rates for an initial period (honeymoon period) which varied in length. Following expiration of the honeymoon period the interest rate rose sharply to rates above market rates to compensate the lender for the increased risk of default and loss of earnings over the honeymoon period.

Low interest rates during the honeymoon period and a sound economy in the US helped to keep defaults in sub- prime mortgages to a minimum in recent years, leading to more profitable loans and increased lending.

In 2006, many of the honeymoon periods started to expire requiring borrowers to make higher repayments when the interest payable increased. At the same time home price appreciation started slowing. Thus, sub-prime mortgage defaults started to increase in late 2006 and 2007.  There were flow-on effects on lenders and the credit market in general.  The result is that credit is now more expensive than it was in early 2007.

What is the impact on shares?

In the last few months, investors have increasingly been concerned that the housing downturn in the US is affecting other parts of the US economy, including consumption.  In the last month, this concern has manifested itself in falls in share prices across global markets.

Should investors move to cash?

Well diversified portfolios include growth assets such as shares and property, income producing assets such as credit and hedge funds, and defensive assets such as government bonds, cash and gold.

As markets move in cycles investors should hold diversified portfolios so that gains in some investments offset losses in other investment. The proportions in which investors hold the different classes of investments should match their risk/return profile. 

How you respond to the drop in share prices depends on your financial situation. Investors with long time horizons and high risk tolerance may consider increasing their exposure to growth assets such as shares.  On the other hand, investors with short time horizons and low risk tolerance may consider increasing their exposure to defensive assets such as cash.

It is important that investors stick with their strategy. We recommend you speak with a licensed, or appropriately authorised financial adviser before taking any action.

Although significant market changes may prompt investors to review their investments, they should also check that their portfolio continues to match their risk/return profile on an annual basis.

What should you do?

Generally, over the long-term, volatile fluctuations in investments  tend to even out. Your returns may be down one week or one year, but if you stay in the market you may benefit from a recovery. In other words, it’s important to balance your tolerance for risk with your desired return,  and consider diversifying within shares and across other asset classes keeping in mind your financial goals.

One of the things some investors fail to do is set an appropriate asset mix for their situation and risk profile. On top of that, they can forget to protect their wealth and undertake estate planning.

For instance, if you’re a senior executive and your remuneration and wealth is tied up in a single stock, you and your dependants may be particularly susceptible to short-term share market volatility. After several years of consecutive (and record) growth in Australian Shares, it’s a good idea to think about investing in a sound financial plan.

A financial adviser will be able to help you to assess your tolerance to risk, identify a mix of assets to match your stated goals, check any existing financial strategy to see if it remains appropriate or prepare one which is more suitable for your current life situation. They may also be able to identify any wealth protection and estate planning gaps which are critical in any financial plan.

If you are still feeling concerned about the impact of the current market changes on your investments, consider contacting the Mercer Wealth Solutions Helpline on
1800 633 403 for information or advice. Always speak with a professional before you take any action.

Tony Doyle is an authorised representative #304138 of MINL. To read more about Tony, click here.