2009 Economic Update Seminar

1. 2009 Economic Update Seminar Presented by Neil Cox, CFP Director &Head of Investment Research

2. General Advice Warning Today’s presentation may contain some general advice. This means that individual objectives and needs have NOT been considered in providing this advice. This information is general in nature and does not constitute comprehensive advice. Before acting on this advice, you should give consideration to the appropriateness of the advice for you. You should seek proper personal financial advice. While the information given in the presentation is in good faith and is believed to be accurate and reliable, Financial Foundations Australia does not give any warranty as to the reliability for any errors or omissions.

3. Helping you through the financial crisis • Dealing with Market Volatility – Dollar Cost Averaging • Have your cake and eat it too with more super for your retirement – Transition to Retirement • Improve, or gain access to a Social Security entitlement– Centrelink • Legislative Update -Income Test Reforms from 1 July ‘09

4. 2008 was a ‘1 in 50’ year event for Australian share market returns All Ords /ASX 300 Accumulation Index – 50 years to 2008 Source: Standard & Poor’s

5. But every period of negative returns is generally followed by increased gains All Ords /ASX 300 Accumulation Index – 50 years to 2008 Source: Standard & Poor’s

6. Dollar Cost Averaging • A way of dealing with volatility • Helps decrease risk of investing at the top • Can help make a profit even in a overall flat market

7. $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Dollar cost averaging Down market: lower price, buy more shares Up market: higher price, buy fewer shares

8. “Steadily rising share price” $32,231 Share Price ($) Year The Benefits of Dollar Cost Averaging $200 invested every month for 10 years ($24,000)

9. “Rising share price with short term volatility” $42,434 Share Price ($) Year The Benefits of Dollar Cost Averaging $200 invested every month for 10 years ($24,000)

10. “Share price recovery” $62,640 Share Price ($) Year The Benefits of Dollar Cost Averaging $200 invested every month for 10 years ($24,000)

11. Share Price ($) “Steadily rising share price” $32,231 Year “Rising share price with short term volatility” Share Price ($) $42,434 Year “Share price recovery” $62,640 Share Price ($) Year The Benefits of Dollar Cost Averaging $200 invested every month for 10 years ($24,000)

12. Accumulators • Cheap markets represent an excellent long term entry point; • For regular investors, volatility brings increased future profits by using DCA techniques; • Great time to begin/increase a regular investment program • Protect your family and income with appropriate insurances for Life, Disablement and Income Protection • Don’t forget super Opportunities

13. Cont…. • Retiree’s • No quick fix, we need to ride out this volatility; • Ensure using new super rules to maximum effect -your own private tax haven; • Assets tested Age Pensioners, seek a Centrelink review now to get a pension increase based on market value reductions.

14. Super is No. 1 $10,000 SALARY Taxed at marginal rate 31.5% SUPER 15% Contribution Tax 24% ..RETURN.... IMMEDIATELY $6,850 $8,500 Income at 31.5% Income at 15% Lump Sum Tax 15% (Worst Case) Capital Gains 15.75%

15. Transition to Retirement - Overview • Problem –how to boost your super as you transition to retirement without lowering your current income • Solution –a strategy based around accessing your super through a non-commutable account based pension (NCAP) • Action Steps • Continue to work • Boost your super with salary sacrifice payments • Maintain current income with an NCAP • Result – have your cake and eat it too with more super for your retirement

16. Your Preservation Age If your date of birth is: Your preservation age is: 55 Before 1 July 1960 Between 1 July 1960 and 30 June 1961 56 Between 1 July 1961 and 30 June 1962 57 Between 1 July 1962 and 30 June 1963 58 Between 1 July 1963 and 30 June 1964 59 After 30 June 1964 60

17. NCAPs in a nutshell • NCAPs can only be started once you reach preservation age • Purchased with superannuation money • No work test • Minimum and maximum payment limits • Lump sum withdrawals (commutations) generally not allowed

18. How to have your cake and eat it too • Once you’ve reached your preservation age, continue to work at your present level • Purchase an NCAP with your superannuation money • Salary sacrifice into your super account (subject to employer’s agreement) • Purchase an NCAP with your superannuation money • Maintain current income by drawing a pension from your NCAP • Tax advantages mean your income stays the same but your super may receive a boost

19. Peter’s story • Peter, age 55, wants to retire at 65 and work full-time until then • He earns $60,000 per year - $47,250 after tax and Medicare levy • Peter has $300,000 in super • On 1 July 2008, Peter rolls over all his super into an NCAP and chooses the maximum pension payment of $30,000 • He salary sacrifices $37,519 (year 1) into super and receives the same net income of $47,250 after tax and Medicare levy

20. Peter’s position without a Transition to Retirement strategy Employer Employer Pays Super Guarantee (9%) Gross Income Taxed at Marginal Income $60,000 Superannuation $300,000 (Accumulation) 15% Tax on entry 15% on earnings Tax-free Withdrawals (after age 60) TAX MAN Take Home Income $47,250

21. An NCAP gives Peter a super boost TTR Strategy Employer Pays Super Guarantee (9%) Employer Salary sacrifice $37,519 Saved Gross Income Taxed at Marginal Income $22,481 Superannuation $300,000 (Accumulation) 15% Tax Saved TAX MAN Accumulated Super used to purchase NCAP 55 -59comes with a 15% rebate Take Home Income $47,250 TTR Pension 0% Tax $30,000 Saved $300,000 60+ Totally tax free Saved

22. The projections in this strategy are based on various assumptions, including but not limited to: • maximum pension payment = $30,000 in year 1; • salary sacrifice = $37,519 in year 1; • no change in take-home pay before/after strategy; • no change in risk profile; • estimated investment return (Prudent portfolio) = 6.1% pa (super), 7.0% pa (pension); • all investment earnings figures are after tax and after fees; • no change in Super Guarantee contributions, ie 9% of $60,000.

23. Peter’s estimated gain • It’s estimated that by using this strategy Peter will have built an extra amount of around $91,800 in super by age 65 • The increase is due to tax advantages and will not require a change in investment strategy • By making additional salary sacrifice contributions Peter could increase his super still further

24. Implementing a TTR Strategy • Once you’ve reached preservation age, a transition to retirement strategy can potentially boost your super as you transition to retirement without lowering your current income. • To re-cap it involves • continuing to work • rolling existing super into an NCAP • boosting your super with salary sacrifice payments • maintaining current income with an NCAP • As a result you can have your cake and eat it too with more super for your retirement

25. Improve, or gain access to a Social Security entitlement With super fund returns continuing in the negative many investment / superannuation account balances are probably lower since your last assessment. What you can do: • Existing clients should contact Centrelink and request for a re-assessment of the value of these investments to see if they are eligible for an increase in their age pension entitlement. • Clients who were previously not eligible to claim the Age Pension due to the assets test may wish to contact Centrelink to see if they are now eligible.

26. Legislative Update - Income Test Reforms from 1 July '09 Proposal to assess certain 'salary sacrificed‘ contributions to superannuation as income is to broaden the definition of income that is assessed in determining eligibility for government support Programs Review of how the proposed changes will impact the more popular strategies used for Clients:

27. Cont……. • Personal deductible contributions to super and 10% rule • From 1 July 2009: Any amounts sacrificed into superannuation from salary or wages will be added back to assessable income to determine whether the employee meets the 10% rule or not. • From 1 July 2009: Assessment for the above tax offsets will include any salary sacrificed amounts to superannuation. • Government Co-contribution • From 1 July 2009: This strategy will no longer be viable to high income earners as any salary sacrificed amounts will be added back to assessable income for determining eligibility. • Family Tax Benefits (A&B), Child Care Benefit, Baby Bonus, Senior Australian Tax Offsets, Child Support, Medicare Levy Surcharge From 1 July 2009: Assessment for the above benefits will include any salary sacrificed amounts to superannuation AND/OR any amounts contributed to superannuation as a personal deductible (concessional) contribution. • Mature Age Workers Tax Offset, Spouse Super Contributions Tax Offset • Commonwealth Seniors Health Card • From 1 July 2009: The income definition to determine eligibility for the CSHC will be expanded to include non-assessable (tax free) income from superannuation pensions and lump sums, salary sacrificed contributions, personal deductible super contributions and total net investment losses. This is a consequence of the expanded "adjusted taxable income“ definition.

28. Where to from here? • Remember, no one has a Crystal Ball • ‘We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful’. Warren Buffet • Always get quality advice and buy quality investments; • Focus on your strategy and long term goals; • And finally… “In each and every market down turn a massive amount of wealth is transferred from the impatient to the patient” We want to make sure you are one of the patient ones!

29. Feedback • Please complete the feedback form in order for us to continually improve the service to clients; • In order for us to communicate in the most timely manner, please provide your email address on the form located on your seat.

30. Disclaimer This information is a summary based on Financial Foundations Australia Pty Ltd’s understanding of the relevant legislation. It is general in nature and may not be relevant to individual circumstances. The case studies should not be considered recommendations or personal advice.  You should not do or refrain from doing anything or rely on this information without obtaining suitable professional advice.

31. QUESTIONS??