A geophysicist who worked for decades for a large international firm, Richard Plumb had no superannuation in Australia. Now 65, Plumb and his wife Marisa, a couple of years older and a former teacher’s assistant, were concerned the private company pension offered by his international employer would be considered foreign income and attract tax in Australia. So, 20 years ago, the couple met financial management specialists in Perth for professional advice on how best to structure their finances, and include superannuation. “I wanted to arrange this so I could have security in retirement,” Plumb says.
About 17 million Australians have a super account, according to the Association of Superannuation Funds of Australia (ASFA), with an average balance for men over 15 of about $183,000 and an average balance for women over 15 of about $146,000.
Intended to provide funds for retirement, superannuation accounts have broad tax advantages and they can be structured – and restructured – to suit individual account holders: investment strategies can be aggressive or balanced, and include cash or bonds, shares or other assets.
During that first meeting in 2005, the Plumbs were advised by independent financial advisers at Capital Partners in Perth that superannuation would provide the required security and maximise tax benefits. Two retail super funds – one for each of them – could be tailored to their financial requirements and over time the portfolios could be adjusted to a more conservative and risk-averse profile.
In general, finance experts say, the younger the superannuation account holder, the more likely financial managers will suggest an aggressive strategy to maximise funds, given there is time for a rebound should the markets dip. With clients closer to retirement, finance professionals will more likely recommend a larger investment in cash or bonds.
Administered by Capital Partners, via Macquarie Bank, the Plumbs’ retail super funds were originally spread across “value companies” both international and domestic, Plumb says.
“It was very much a case of more long-term goals,” he says. “It was fairly conservative, but with a good spread. We relied completely on their advice, and it worked out really well.”
The Plumbs met Capital Partners principal wealth adviser Rakesh Shah and his colleagues regularly. “Once a year we’d review how the funds had gone and whether there was a case to redistribute funds into bonds or back out of bonds into shares,” Plumb says. “As we got closer to retirement, we decided to be more conservative in investments and, especially with interest rates going up, maybe have a bigger cash balance.”
Shah says the Plumbs’ portfolios are reviewed throughout the year, and once a year the company presents the couple with their investment recommendations, and the Plumbs are contacted outside the meeting cycle if a change is required more quickly.
The Plumbs’ retail super funds have now been converted into the pension phase and they withdraw cash either on a monthly basis, or “in chunks – whatever we feel we require”, Plumb says.
Shah says he always discusses short-term and long-term goals with clients and determines what they want to achieve in retirement; how much capital they have, and how much risk they are willing to accommodate.
Delicate balance
“For most people, we would recommend a diversified portfolio of shares and bonds locally and globally,” he says, adding the share market can be volatile, so super funds administered by Capital Partners usually include a portfolio of shares and more defensive bonds, and sometimes property.
Capital Partners has high net worth clients who can afford to have a chunk of their capital tied up in property, Shah says, but not everyone has the luxury of investing in an illiquid asset.
“It’s such a delicate balance between living now and saving for the future, no matter what age you’re at,” he says. “Many people aged 70 or 75 are perfectly healthy and enjoying life. The odd knock somewhere and all of a sudden you’re looking at aged care, so you need to have that buffer built in. Which is why, in our portfolios, we always have exposure to growth assets.”
Mary Delahunty, CEO of the Association of Superannuation Funds of Australia, says everyone who has or wants to set up a superannuation fund should seek advice on the structure and focus of the fund.
They should also look at expert recommendations for changing the risk profile of the fund as time goes by, she says, adding that super account holders “overwhelmingly” move toward a more conservative risk profile the closer they get to withdrawing funds.
“Depending on their licence, funds can provide advice either just about the super or more broadly – about the house, other assets and private savings,” Delahunty says, noting that when the advice pertains only to the super fund, in some cases it’s possible to pay for the advice from the super fund.
Australia has many complex superannuation and taxation rules and requirements, she says, adding “nobody should be expected to know them all, that’s what the professionals are there for”.