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Probate is the legal process that occurs when dealing with a loved one’s will after their death. It can be difficult to know what’s involved with the process and the questions to ask. What is Probate? Probate is the process that makes sure the instructions in a will can be followed. It involves proving and registering a will in the Supreme Court and, if successful, will result in a ‘grant of probate’. What’s a grant of probate? A grant of probate means the will is recognised as legally valid and enables the executor (the person dealing with the estate) to distribute assets to the beneficiaries named in the will. Most financial institutions require a grant of probate before they can release accounts and funds to anyone other than account holders. What to do if a family member passes When a family member passes away, if you’re the next of kin then you need to determine whether they made a will. If they haven’t, they are said to have died “intestate”. In this situation, an application needs to be made to the court for “Letters of Administration” authorising a person to distribute the assets of the deceased family member’s estate, the law will set out how their estate can be distributed, if not, there’s no guarantee that your loved one’s wishes will be honoured. What’s a will? A will is a legal document that outlines what happens to a person’s possessions and assets when they die. However, a will isn’t legally binding on its own — there are steps that must be taken to make sure the will is valid, just as there are steps that family members can take if they want to contest the will. At its most basic a will must be: in writing signed by the will maker witnessed by at least two adults (a beneficiary should not witness a will. If they do, they may lose their entitlements under that will) made by someone of testamentary capacity. Ensuring a will is properly made and signed can be very complex and it is always a good idea to ensure a lawyer is involved. What’s testamentary capacity? Testamentary capacity means that someone’s in a fit state of mind to legally understand what they’re doing. If these things are all done, then the will can be used to help divide up the estate. Life Insurance and probate Provided you have a named beneficiary with your policy, your life insurance should be easily accessed by your loved ones when the time comes. Life Insurance should be paid directly to the beneficiary and avoid having to be distributed through the deceased’s will. Having your life insurance beneficiaries up to date can help ensure your loved ones are taken care of financially if something were to happen to you. What happens once probate or the court process are completed? Once the court process, or probate, is completed and settled, there is then the process of the administration of an estate by the executor or administrator, after the grant of probate or letters of administration have been provided. This process of administration is something that needs to happen when a family member passes away. This process starts when probate or letters of administration are granted, and finishes when the assets listed in the will are formally handed over to the executors of the estate and distributed to. An estate can be made up of many things, including: Real estate Shares Loans Income or capital allocated by the will maker Cash investments Personal property But doesn’t usually include these items: Jointly owned assets that are held as joint tenants – e.g. family home (If the owners are tenants in common, the deceased person’s portion can become part of the estate) Super pensions or annuities (except when directed by the member to be paid to the estate) Life Insurance where the benefit is paid directly to one or more nominated beneficiaries Here’s what you need to get started with probate: The current and original will Original death certificate from the relevant state registry The probate application Income or capital allocated by the will maker; and/or Lodgement fee Probate runs through the court system in each state, and executors or administrators of the estate need to swear to the court that they’ll distribute the will as instructed. It is important to consider getting a lawyer who can help you with the probate process. What happens if someone contests a will? If a family member wants to contest a will because they feel that it isn’t fair or feel that something has been left out, they need to do it in the probate stage. If someone challenges the will then the court will hold off on granting probate until the contest is sorted. As the law in this area is very complex and can be different depending on where you live, when dealing with a will and estate planning it is always recommended to talk to a lawyer to make sure that the whole process is managed correctly, and the deceased’s wishes are most likely to be fulfilled. They can guide you through the process, ask questions you may not have considered, and recommend arrangements for a range of scenarios. They can help you prepare your own will, or manage the affairs of a family member. It also ensures you are getting the right advice from a professional. Being prepared can really save you time and headaches down the line. Source: TAL

The big issue for investors in or close to retirement, is risk. The 2020 COVID-19 share sell off and recent equity market volatility shows just how quickly share prices can move. Volatility can have different meanings for different investors, those with a long-term horizon can be less concerned, knowing they have time on their side. But what about retirees? How can  they manage the mental challenge of watching their hard-earned capital shrink before their eyes? And do it without becoming so conservative they have to downgrade their lifestyle? It’s a pertinent question right now because higher inflation, rising interest rates and the Russian invasion of Ukraine are making markets nervous. Perpetual Private’s Associate Partner, Daniel Elias says volatility is more tangible for retirees. “The numbers on your portfolio spreadsheet aren’t theoretical – they pay your bills. Because that capital is so important, the challenge for retirees is reining in the fear and anxiety that can lead them to irrational decisions.” In the years around retirement, the risk that a market downturn occurs right before you retire, or soon after, is called sequencing risk. To manage sequencing risk, having a diversified portfolio of assets can help dampen the effect on your portfolio when markets fall. That’s when things go V-shaped When COVID-19 lockdowns first hit in March 2020, markets fell, quickly and sharply. As people stayed at home and started upgrading their Netflix accounts, economists and analysts were arguing about the shape of a potential recovery. Would markets fall even further, then bump along the bottom before gradually rising again (U-shaped)? Or stay down for years (the dreaded L-shape)? Ultimately, we surfed a dramatic V-shaped recovery. Writing in January 2022, Mano Mohankumar from superannuation researcher Chant West said, “Since the market low-point at March 2020, growth funds have surged an astonishing 31%, which now sees them sitting 16% higher than the pre-COVID-19 crisis peak.” Investors who looked through the dramatic market falls associated with COVID-19 were rewarded for sticking to their strategy. But many who reacted emotionally paid a price. In May 2021, the McKell Institute estimate that those who redeemed via the Early Release of Super scheme at the nadir of the COVID-19 crisis gave up nearly five billion dollars in lost returns during the markets’ rebound. Remaining rational in times of crisis is a difficult challenge for all investors, but ensuring you listen to the financial advice and don’t react with emotions is the key to not making the wrong decision during times of market stress. Ask yourself – how much risk is right for you? The key to investment selection and portfolio management is optimising ‘risk efficiency’ by choosing the right mix of assets to give you the maximum return for the level of risk you’re able to absorb. Before making any changes to your investment strategy, ask yourself, “Am I still comfortable with the level of risk I originally implemented in my portfolio.” Understanding your risk tolerance will help you find the right mix of assets that will have enough risk to grow your portfolio, but not so much that you can’t sleep at night or you are led to sell at the wrong time. As you approach retirement, you have fewer years of earnings to save and invest and may need to draw down on your savings. This shorter time horizon limits the ability to overcome a market downturn. As a result, the amount of investment risk in your portfolio matters. Diversification – your best defence The other great weapon retirees can wield against market volatility is diversification. Whilst the volatility in January and February 2022 was felt in the majority of retiree portfolios, losses would have been lower than the broader equity market because many retiree portfolios are diversified across other asset classes including bonds, credit assets, property and increasingly, alternative assets. Diversification helps to smooth returns across different economic conditions. This is because of the low or negative correlation between certain asset classes, so if one asset class falls in value in response to an economic or geopolitical event, another might rise. Bonds can also play an excellent role in protection against equity market risk in times of market volatility and help to minimise sequencing risk. There are alternatives In times of ultra-low interest rates and share market volatility, alternative assets can add another source of income and an additional layer of diversification to an investor’s portfolio. Alternatives include things like private equity, venture capital, opportunistic property and private debt. They can add returns to clients’ portfolios but must be considered in context of each retiree’s overall investment goals, portfolio size, time horizon and their appetite and tolerance for risk. Investors must clearly understand the risks associated with investing in alternative assets as they can have long lock up periods, and are less liquid than more traditional assets, meaning they can’t be sold as quickly and converted into cash. Building a resilient portfolio Volatility will persist while the world adjusts to a changing economic and geopolitical order. That could mean a wider range of returns – but not necessarily a poorer real-life outcome if you stick to a robust, diversified strategy that’s attuned to your needs. Remaining diversified across asset classes can help ensure you have the optimal blend of assets in your portfolio to weather a variety of market conditions. When it comes to ensuring you don’t let your emotions influence your investment decisions, your financial adviser can really help. Source: Perpetual

Both older and younger Australians, as well as low-income earners, are set to benefit from some upcoming super opportunities. From 1 July 2022, there will be some changes made to super to make it easier for people to grow their retirement savings. These changes will create opportunities for both older and younger Australians, as well as low-income earners, by removing some of the barriers that currently exist in the super system. Here’s what’s changing: The $450 Super Guarantee (SG) threshold will be removed, meaning that employers will start paying super for low-income earners. The SG contribution rate will rise to 10.5% p.a. for all employees. People aged 65-74 will no longer have to meet the work test to make voluntary contributions to super. The ‘bring-forward’ rule age limit will increase to 75, so more people can make lump sum contributions to super. The minimum age for downsizer contributions will reduce from 65 to 60, giving more flexibility to people who are selling their home. First home buyers can now save up to $50,000, and any deemed earnings, to use as a home deposit through the First Home Buyer Saver Scheme. Here are some more details about how each of these changes will work, and how you can take advantage of these opportunities to boost your retirement savings. Employers will start paying super for low-income earners SG contributions are the mandated contributions that your employer puts into your super on your behalf. For a lot of people, these are the only super contributions that go into their account. Until now, employers haven’t had to make these contributions if an employee earns less than $450 in a calendar month. Because of this, if you work casually, or you work part-time across multiple jobs, you may not have received any contributions at all from your employment. From 1 July 2022, the $450 threshold will be removed. Employers will have to make SG contributions regardless of how much the employee earns (unless they are under 18 and working less than 30 hours per week). Of all the upcoming super changes, this one has the potential to make the most difference, because it means low-income earners will finally have super contributions going into their account without having to make voluntary contributions themselves. These regular contributions can go a long way towards building up retirement savings. For example, someone who currently works three jobs, earning $400 per month for each job, will now have $1,512 contributed to their super in 2022-23, which will then accumulate further earnings. Over a 40-year period, this could add up to over $84,000 or even substantially more, depending on how their super is invested.   SG contribution rate will rise to 10.5% for all employees The SG contribution rate is currently 10% p.a. of your wages or salary. This rate will increase to 10.5% from 1 July 2022, and it’s scheduled to increase progressively to 12% by July 2025. Each of these incremental changes is great news for people who are paid SG contributions by their employers, because it means your super balance will grow faster without you having to make any extra contributions. People aged 65-74 will no longer have to meet the work test to make voluntary contributions to super People aged 65-74 currently have to satisfy the work test (or qualify for an exemption) to be able to make voluntary contributions to super. This means proving you worked for a minimum of 40 hours, during a period of 30 consecutive days, in the financial year for which you want to make a contribution. Contribution acceptance: From 1 July 2022, you won’t have to meet the work test for the super fund to accept any type of contributions you make to your super, or any contributions your employer makes to your super, while you are under age 75. From age 75 the only type of contribution that can be accepted into your super account are downsizer contributions or compulsory employer superannuation contributions. Personal deductible contributions: From 1 July 2022, if you are aged 67 – 74 at the time you make a personal super contribution, you only have to meet the work test, or work test exemption, if you wish to claim a tax deduction for those contributions. A work test is not required to claim a tax deduction for personal contributions made while you are under age 67. This change gives older Australians more flexibility to be able to contribute to super and boost your retirement savings, regardless of your employment status, in the years leading up to your 75th birthday. ‘Bring-forward’ rule age limit will increase to 75 The ‘bring-forward’ rule allows you to use up to three years’ worth of your future non-concessional (after-tax) super contribution caps over a shorter period – either all at once or as several larger contributions – without having to pay extra tax. The non-concessional contributions cap is currently $110,000 per year. So, if you use the bring-forward rule, you may be able to contribute up to $330,000 in a single year as long as you don’t exceed the total cap over the three-year period. This strategy is mostly used by people nearing retirement, who want to contribute as much as possible to super before they stop working, or people who receive an inheritance or other type of windfall. Currently, you need to be under age 67 at any time in a financial year to use the bring-forward rule. From 1 July 2022, the age limit will increase to 75. This is great news for people who want to put as much money as possible into their super before they retire, without being penalised for it. Eligibility for the bring-forward rule will depend on your total super balance at the most recent 30 June, and the amount of your personal contributions over the past two financial years. Minimum age for downsizer contributions will reduce from 65 to 60 The downsizer contribution is a strategy aimed at helping older Australians put … Read more

Everyone buying into the housing market hopes that their purchase will appreciate over time, while sellers want to pick the top of the market. Clearly the growth rates in the Australian housing market, particularly in Sydney and Melbourne, peaked some time ago – March last year. But prices have mostly been still rising, albeit at a slower pace. National average property prices now look likely to peak around mid-year and then enter a cyclical downswing. There’s a number of reasons for that. Poor affordability is pricing more home buyers out of the market. Fixed rate mortgages are rising, up 75 per cent from their lows of last year, and they’re still increasing. The Reserve Bank of Australia (RBA) is likely to push variable rate mortgages higher, and we expect them to rise around one per cent by the end of the year. Also, higher inflation makes it harder to save for a deposit. Sydney and Melbourne sellers are trying to take advantage of higher prices and solid construction after two years of zero immigration meaning there’s more supply on the market, dragging on prices. And finally, the reopening of the economy means people can once again start to spend more on services, which could reduce housing demand. Homeowners have done well over the past 12 months, with Brisbane and Adelaide leading the way. Houses have outperformed units and the regions have done better than capital cities and continue to do so as home buyers focus more on quality-of-life considerations.     March % change 12 months to March % change Sydney -0.2 17.7 Melbourne -0.1 9.8 Brisbane 2.0 29.3 Adelaide 1.9 26.3 Perth 1.0 7.0 Hobart 0.3 22.3 Darwin 0.8 10.6 Canberra 1.0 21.6 Capital city average 0.3 16.3 Capital city houses average 0.5 18.6 Capital city units average 0.0 9.4 Regional average 1.7 24.5 National average 0.7 18.2   Average capital city prices are now more than 20 per cent above the previous record high in September 2017 and are up 25 per cent from their lows in September 2020. But there has been a wide divergence between capitals. Sydney dwelling prices fell for the second month in a row in March this year, and Melbourne prices were also down. But Brisbane and Adelaide price gains remain strong. Both are playing catch up, having lagged the larger capitals – particularly Sydney – in the early part of the rebound. Property demand in Brisbane is benefitting from strong interstate migration, and both cities are seeing less of an affordability constraint. Perth, the worst performing capital over the past 12 months in a large part due to lockdowns, is also picking up as the state border reopens. Overall, the slowing in monthly price growth is seeing annual price growth roll over too. After a period of well above 10-year average growth, simple mean reversion suggests a further slowdown ahead. It isn’t surprising that the housing market is cooling, though this cycle is happening earlier relative to the timing of RBA rate hikes. That’s because of the bigger role ultra-low fixed rate mortgage lending played this time around in driving the boom. Normally fixed rate lending is around 15 per cent of new home lending but over the last 18 months it was around 40 to 50 per cent as borrowers took advantage of sub 2 per cent fixed mortgage rates. However, fixed rates have been rising since the June quarter last year which has taken the edge off new home buyer demand well ahead of any move by the RBA. After 22 per cent growth in national average home prices last year, average home price growth this year is expected to be around 1 per cent and we expect a 5-10 per cent decline in average prices in 2023. Top to bottom the fall in prices into 2024 is likely to be around 10-15 per cent, which would take average prices back to the levels of around April last year. This is likely to mask a continuing wide divergence though. Sydney and Melbourne already look to have peaked but laggard cities like Brisbane and Adelaide, and possibly Perth and Darwin which are less constrained by poor affordability, are likely to be relatively stronger in 2022 with gains likely to persist into the second half of the year. The main downside risks to our forecasts could come from another big coronavirus setback to the economy, a serious deterioration in the Russian invasion of Ukraine affecting confidence, or alternatively faster mortgage rate hikes. This is a significant risk given the jobs market has tightened more than expected, and inflation looks to be rising much faster than forecast with the consumer price index likely to be up by at least 5 per cent over the year to the June quarter. The main risk on the upside is a rapid surge in immigration, although this is likely to show up initially in higher rents and then higher prices with a lag. While the national average property downswing unfolding looks like just another cyclical downswing, it’s worth noting that the 25-year bull market in capital city property prices is likely to come under pressure in the years ahead. The 30-year declining trend in mortgage rates which has enabled new buyers to progressively borrow more and more, and hence pay more and more for property, is now likely over. Also, the work from home phenomenon and associated shift to regions may continue to take some pressure off capital city prices.   Source: AMP

With war in Eastern Europe, inflation surging and Covid lockdowns inhibiting industrial production in parts of China, investment markets faced a rising tide of volatility over the past quarter. Yet while this may feel like the worst of times, it may really be that the 14 or so years since the GFC are the outlier and the new market environment is more normal than it looks. What’s influencing the outlook? Ukraine and China The cruelty of Russia’s ‘special military operation’ has shaken the world but history tells us war does not always derail investment markets. Strikingly, global shares fell over 30% when the world locked down for Covid (February 2020 to March 2020). But they’ve risen slightly since the fighting started in Ukraine. There are more specific forces at play that will influence markets. There are widespread attempts to shun Russian energy sources, which constrains supply and means oil and gas prices are rising. Higher energy prices are a major economic blow because they suck cash from consumers’ pockets. Meanwhile, the loss of Ukraine’s harvests will add to food costs. Somewhat lost in the fog of war is another Chinese Covid crisis – as we write there are over 20 million people locked down in Shanghai as Chinese policymakers stick to a futile zero-Covid policy. That has implications for Chinese industrial production, keeps the pressure on global supply chains and curtails Chinese consumer confidence and spending. Inflation and interest rates For investors today, inflation and interest rates are the terrible twins: inseparable and inexorably influencing investment assets. Hopes that supply chain pressures would ease as the world recovered from Covid have been dashed by the Ukraine crisis and China’s decision to slam the doors on large chunks of its population. That means inflation is now at rates unthinkable a year ago – 7.9% in the US, 6.2% in the UK, 7.5% in the Euro area. And around the world rates have started to rise in response. There are more rises to come, with the US response stretching to a potential seven rates hikes. Who’s going to drop the ball? This confluence of events throws up another risk – major policy error by governments or central banks. A recent IMF bulletin sums it up: “There are already clear signs that the war and resulting jump in costs for essential commodities will make it harder for policymakers in some countries to strike the delicate balance between containing inflation and supporting the economic recovery from the pandemic.” What’s normal anyway? According to Andrew Garrett, Investment Director at Perpetual Private, markets are now dealing with geopolitical risks and inflation pressures they haven’t experienced for over a decade. Yet while Perpetual Private does expect higher volatility and lower overall returns, that doesn’t mean well-diversified portfolios can’t deliver solid results for investors. Instead, a more nuanced market environment places a premium on specific investment skills. “The long-running, low-rate environment that’s just ended inflated investment markets and made growth assets, especially ‘promising young tech stocks,’ more attractive,” says Andrew. “To use a Buffetism, it lifted all boats.” By contrast, a rising-rate environment is one where active investors with a nose for quality can do well. We’re likely to see better results from value stocks (ie profitable companies with predictable earning whose full potential is not built into their ticker price). And from value managers – like Perpetual – who specialise in the deep research needed to unearth those opportunities. Recent results in Australia may be a sign of things to come in this growth/value shift. Value shares were up 11.7%. Growth shares lost 4%. (As measured by the MSCI Australia Value and MSCI Australia Growth indices for the March quarter). Source: Perpetual  

How much you need to save for a comfortable retirement is a question many of us ask. While we all hope for a simple answer, how much money you need in retirement differs for everyone. Additionally, a comfortable retirement is based on a whole range of factors including: When you retire How long you’ll spend in retirement Whether you’ll sell assets to fund your lifestyle How your assets are invested. There are a number of guides that are useful to consider when working out how much you need to save for your retirement. A modest or comfortable retirement The ASFA Retirement Standard is published each quarter by the Association of Superannuation Funds of Australia (ASFA). It provides approximate figures for the level of income required for a modest or comfortable lifestyle, assuming you own your own home. The current ASFA comfortable lifestyle standard is $45,962 per annum for a single person and $64,771 per annum for a couple, while the modest lifestyle standard is $29,139 for a single and $41,929 for a couple respectively. A modest retirement lifestyle assumes you are able to afford basic activities. A comfortable retirement lifestyle enables an older, healthy retiree to be involved in a broader range of leisure and recreational activities and to have a good standard of living. You should be able to afford to buy household goods, private health insurance, a reasonable car, good clothes, electronic equipment and to travel overseas and in Australia. Determining what you need as a lump sum It’s also useful to understand how much money you need to live a modest or comfortable retirement as a lump sum. ASFA estimates that the lump sum needed at retirement to support a comfortable lifestyle is $640,000 for a couple and $545,000 for a single person. This assumes a partial Age Pension. A different approach is to look at your pre-retirement income and consider how much of it you will need in retirement. Assume, for example, you will need 65 per cent of your pre-retirement income, so if you earn $50,000 now, you might need $32,500 in retirement. Another method to calculate a lump sum Another method is to take your current annual expenses and multiply this amount by the number of years that represent the difference between the age you retire and average life expectancy to calculate the lump sum you may require in retirement. In Australia, average life expectancy is 83.5 years. If you take the $32,500 figure and assume you retire at age 65, this would equate to a lump sum target of $601,250. This is a guide only. Keep in mind the investment returns you generate and your actual expenses in retirement will impact the amount you need to fund your retirement. No matter how much you assume you need, the more time you have to plan, the greater your chances of achieving your retirement income goal. There are many steps you can take to help you achieve your retirement savings goal. First, understand your current financial position including your income and expenses, what you own and what you owe. You may consider strengthening your financial position by repaying debt, building up your savings and investments or making additional contributions to super. Start considering how best to use your financial resources to support your income needs in retirement. Make sure you monitor your plan on an ongoing basis. The idea is to make the most of the retirement planning opportunities available to you. And remember you don’t have to go it alone. Seeking financial advice can help you achieve the retirement you hope to achieve. Source: BT

Introduction Inflationary forces continued to intensify in key regions, which suggested interest rates could be raised more quickly and more aggressively than previously anticipated. Government bond yields continued to rise sharply, resulting in negative returns from fixed income markets. The likelihood of rising borrowing costs also appeared to spook equity markets, which performed poorly over the month. Central banks are essentially being forced to tighten policy settings to combat rampant inflation, but risk an economic slowdown or recession if borrowing costs are raised too substantially. Corporate earnings growth could slow in this environment. Further Covid lockdowns in China also hampered sentiment towards risk assets, and could add to inflationary pressures. Various shutdowns and the likelihood of supply-chain interruptions seem likely to push prices higher. The threat of energy and food shortages owing to the ongoing conflict in Ukraine caused further unease among investors. Australia: Trimmed mean inflation – the Reserve Bank of Australia’s preferred underlying measure of price increases – rose 1.4% in the March quarter; almost double the official forecast from as recently as February. On an annual basis, inflation has quickened to 3.7%; up from 2.5% in the December quarter and well above the Reserve Bank of Australia’s 2% to 3% target range. New Zealand: The Reserve Bank of New Zealand raised official cash rates by a further 0.50 percentage points, to 1.50%. The move seemed understandable given the extent of inflationary pressures, but does risk dampening house prices and, in turn, consumer sentiment. That said, the overall economic outlook brightened somewhat due to the imminent reopening of the country for tourists. From May, overseas visitors will be able to visit New Zealand for the first time in more than two years – good news for the country’s tourism-related businesses. This development should be a welcome boost for the economy, which appears to have lost momentum recently. US: Following the increase in interest rates in March, all eyes were on the next Federal Reserve Board meeting in early May to see whether borrowing costs will be raised again and, if so, by how much. Consensus forecasts suggest US interest rates will be raised by 0.50 percentage points as policymakers continue to grapple with spiralling inflation. CPI has soared to an annual rate of 8.5%. There was a surprise drop in GDP in Q1. Growth was -1.4% in the period, compared to expectations for a 1.0% increase. More encouragingly, unemployment in the US fell to 3.6% in March, only a whisker above the pre-pandemic level of 3.5%. Wage growth has picked up too, partly due to labour shortages in some sectors. Nationally, average hourly earnings are up 5.6% over the past year; double the average rate over the past 15 years. Europe: Until recently the European Central Bank was not expected to amend monetary policy settings this year. Persistently high inflation, however, and the prospect of intensifying pricing pressures owing to the war in Ukraine has prompted investors to revise these forecasts. With Eurozone inflation running at an annual rate of 7.5%, observers are now anticipating as many as four interest rate hikes in the remainder of 2022. The first could occur in May, following the European Central Bank’s next meeting. The conflict in Ukraine is affecting economic prospects for the broader region. Rising fuel costs and risks of energy shortages have dampened consumer confidence in both France and Germany, for example. The inflation situation in the UK is being exacerbated by rising taxes. In real terms, wages could fall by as much as 4% this year; one of the worst outcomes since World War II. This prospect is dampening consumer confidence and clouding the outlook for discretionary spending. Asia With virus cases increasing sharply, tough new Covid restrictions were implemented in several cities. This could have implications for global growth, given the associated impact on supply chains. Economic activity levels in China in the March quarter were quite resilient and supported a better-than-expected growth outcome. The latest wave of infections has clouded the outlook for GDP growth, however, and prompted authorities to suggest stimulus will be ramped up to help support activity levels and investor sentiment. Separately, data confirmed that energy demand has fallen sharply in China. Oil consumption is down the most since the initial Covid shock two years ago, owing to the latest shutdowns. In Japan, the yen deteriorated to its lowest level against the US dollar for around 20 years. Australian dollar The Australian dollar struggled in April, declining in value by 5.4% against the US dollar. By month end, the ‘Aussie’ bought just over 70 US cents. Commodity prices edged higher, providing some support, but concerns over the global growth outlook hampered the currency. As well as weakening against the US dollar, the Australian dollar lost ground against a trade-weighted basket of other international currencies. Australian equities Australian equities were quite volatile during April and lost ground in the month as a whole. The S&P/ASX 200 Accumulation Index closed 0.9% lower. Investors contemplated the potential implications of a longer conflict in Ukraine, China’s zero Covid policy and associated lockdowns, as well as the release of higher-than-expected local inflation data. March’s recovery in the IT sector unwound in April, with the sector falling 10.4%. Stocks in the Materials sector (-4.3%) struggled as the impact of Shanghai’s city-wide lockdown and new restrictions in Beijing cast doubt on Chinese demand for metals including iron ore – a key input in the manufacture of steel. Utilities (+9.3%) continued to benefit from elevated energy prices. Similar to their large cap counterparts, the Information Technology sector was the biggest detractor from the S&P/ASX Small Ordinaries Index. Listed property Like broader equity markets, global property securities struggled in April. The FTSE EPRA/NAREIT Developed Index declined by 0.1% in Australian dollar terms, although this outcome was assisted by currency moves. In local currency terms, the Index declined by more than 5%. The best performing regions included Switzerland (+2.0%), Hong Kong (+1.0%), Singapore (+0.9%) and Australia (+0.6%). Laggards included Sweden (-15.8%), Germany … Read more

The RBA has hiked the cash rate by 0.25% taking it to 0.35% and signalling more rate hikes ahead. We expect the cash rate to rise to 1.5% by year-end and to 2% by mid next year. However, the RBA will only raise rates as far as necessary to cool inflation and high household debt has likely made rate hikes more potent. Rate hikes are unlikely to de-rail the economic recovery at this stage as monetary policy is still very easy, but they will add to the slowdown in home prices, where we see dwelling prices falling 10 to 15% into early 2024. Introduction For the first time since November 2010, the RBA has raised its official cash rate – from 0.1% taking it to 0.35%. This was above market expectations for a 0.15% hike and a bit closer to our expectation for a 0.4% move suggesting that the RBA appears to have partly accepted the argument that it had to do something decisive in order to signal its resolve to get inflation back down. The RBA also announced it will start quantitative tightening, by allowing its portfolio of bonds to run down as they mature, which along with the ending of cheap funding for banks under the Term Funding Facility will see a significant decline in its balance sheet next year. Its commentary was hawkish, indicating it will “do what is necessary” to return inflation to target and that this will require further interest rate increases. Banks are likely to pass the RBA’s rate hike on in full to their variable rate customers and deposit rates will also start to rise. Fixed mortgage rates have already moved up in line with rising bond yields in anticipation of higher cash rates – doubling from record lows around 2% a year ago. The RBA has now joined central banks in the US, Canada, the UK, NZ, Korea, Norway and Sweden in raising rates – some of whom have started to hike more aggressively with 0.5% moves. Why the rate hike? The start of rate hikes has come well ahead of the RBA’s guidance up until early this year that a rate hike was unlikely until 2024. Only a few months ago the RBA conceded a rate hike was “plausible” this year, but it was prepared to be “patient” and then last month it was implying it would wait for March quarter inflation (which we saw last week) and wages data (due later this month). What’s changed is that the jobs market, with just 4% unemployment and inflation at 5.1% year on year or 3.7% year on year in underlying terms, have been far stronger than the RBA expected, removing the luxury of patience and waiting for more wages data. Consistent with this, it announced a downwards revision to its unemployment rate forecasts (to 3.5% by early next year from 3.75%) and big upwards revisions to its inflation forecasts (to 6% for year end from 3.25%) and appears to have become more upbeat on wages growth noting “larger wage increases are now occurring in many…firms”. While inflation of 5.1% is still below the 8.5% in the US and the circa 7% rates in Europe, the UK, Canada and NZ, it’s been following the other countries higher and, in the near term, we are likely to see a further rise in underlying inflation with Coles, for example, warning of further significant supermarket inflation. Won’t hiking rates just add to the cost of living? It’s true that the rate hike will add to “cost pressures” facing households with a mortgage. But tightening monetary policy by raising the cost of borrowing (or money) in order to slow demand growth relative to supply in the economy is one of the few levers policy makers have in the short term to reduce inflation. Much of the surge in inflation owes to pandemic distortions to global supply and goods demand, made worse by the war in Ukraine and the recent floods, which may reverse to some degree at some point. And the RBA can’t do much about supply constraints. But it had no choice but to act to increase the cost of money from near zero. First, having a near zero cash rate when unemployment is 4% and inflation is over 5% makes no sense. Second, the experience from the late 1970s tells us the longer high inflation persists the more inflation expectations will rise making it even harder to get inflation down again without a recession. Thirdly, the global backdrop now of bigger government, a long period of ultra-easy monetary policy and big budget deficits, the reversal in globalisation and the demographic decline in workers relative to consumers, all point to a transition from the falling and low inflation world of the last 30-40 years to structurally higher inflation. Finally, waiting till after the election would have left the RBA vulnerable to criticism that it was influenced politically, which could call into question its independence and further dent its credibility. Does this mean that the RBA got it wrong? After the long period of below target inflation and low wages growth last decade the RBA was right to move in 2020 to focussing on actual, as opposed to forecast, inflation and to adopt more dovish forward guidance. But the messy removal of its bond yield target last November, the surge in inflation and now the far earlier rate hike than its recent guidance indicated, have likely dented its credibility. A key lesson is that its interest rate guidance is based on forecasts which can be wrong, so it’s wise for the RBA not to emphasise it too much as some may have read more confidence into it than was warranted. How far will interest rates rise in Australia? In order to bear down on inflation expectations, we expect another increase in the cash rate in June (probably of 0.25% but it could be up to 0.4%), a rise in the cash rate to 1.5% by year … Read more

The lead up to 30 June can be a good time to maximise tax benefits that may be available to you inside super. Certain contributions, which we cover below, may have the ability to reduce your taxable income, or see you pay less on investment earnings. Contributions that could create tax benefits: Tax-deductible super contributions You may be able to claim a tax deduction on after-tax super contributions you’ve made, or make, before 30 June this year. To claim a tax deduction on these contributions, you’ll need to tell your super fund by filling out a ‘notice of intent’ form. You’ll generally need to lodge this notice and have the lodgement acknowledged by your fund, before you file a tax return for the year you made the contributions. Putting money into super and claiming it as a tax deduction may be of particular benefit if you receive some extra income that you’d otherwise pay tax on at your personal income tax rate (as this is often higher). Similarly, if you’ve sold an asset that you have to pay capital gains tax on, you may decide to contribute some or all of that money into super, so you can claim it as a tax deduction. This could reduce or at least offset the capital gains tax that’s owing. Government co-contributions If you’re a low to middle-income earner and have made (or decide to make before 1 July 2022) an after-tax contribution to your super account, which you don’t claim a tax deduction for, you might be eligible for a government co contribution of up to $500. If your total income is equal to or less than $41,112 in the 2021/22 financial year and you make after-tax contributions of $1,000 to your super fund, you’ll receive the maximum co-contribution of $500. If your total income is between $41,112 and $56,112 in the 2021/22 financial year, your maximum entitlement will reduce progressively as your income rises. If your income is equal to or greater than the higher income threshold $56,112 in the 2021/22 financial year, you won’t receive any co-contribution. Also, you’ll generally need to have at least 10% of your assessable income coming from employment/business sources to qualify. Spouse contributions If you’re earning more than your partner and would like to top up their retirement savings, or vice versa, you may want to think about making spouse contributions. If eligible, you can generally make a contribution to your spouse’s super and claim an 18% tax offset on up to $3,000 through your tax return. To be eligible for the maximum tax offset, which works out to be $540, you need to contribute a minimum of $3,000 and your partner’s annual income needs to be $37,000 or less. If their income exceeds $37,000, you’re still eligible for a partial offset. However, once their income reaches $40,000, you’ll no longer be eligible for the offset, but can still make contributions on their behalf. Salary sacrifice contributions Salary sacrifice is where you choose to have some of your before-tax income paid into your super by your employer on top of what they might pay you under the superannuation guarantee. Salary sacrifice contributions (like tax-deductible contributions) are a type of concessional contribution and these are usually taxed at 15% (or 30% if your total income exceeds $250,000), which for most, means you’ll generally pay less tax on your super contributions than you do on your income. If you’re in a financial position to set up a salary sacrifice arrangement, you may want to do this before the start of the new financial year, so talk to your employer or payroll division to have the arrangement documented. Important things to consider Contributions need to be received by your super fund on time (ie, before 30 June) if you’re planning on claiming a tax deduction or obtaining other government concessions on certain contributions when you do your tax return. There are limits on how much you can contribute. If you exceed super contribution caps, additional tax and penalties may apply. Read more about super contribution types, limits and benefits. Currently, if you’re aged 67 to 75 and wanting to make voluntary contributions, a work test applies unless you meet an exemption. Changes to the work test are coming more on this below. The government sets general rules around when you can access your super, which typically won’t be until you reach your preservation age and meet a condition of release, such as retirement.   Source: AMP

The government has announced a number of changes to the super system could create opportunities for Australians of all ages. Here’s a rundown of what you need to know. More people will be eligible for contributions from their employer, under the Superannuation Guarantee (SG), as the minimum income threshold of $450 per month will be removed. Work test requirements for those aged 67 to 75 will be softened and only apply to people who want to claim a tax deduction on voluntary super contributions they may be making. More people will be able to make up to three years’ worth of non-concessional super contributions in the same financial year, with the cut-off age increasing from 67 to 75. More people will be eligible to make tax-free downsizer contributions to their super from the proceeds of the sale of their home, with the eligibility age reducing from 65 to 60. First home buyers, who meet certain criteria, will be able to withdraw an additional $20,000 in voluntary contributions from their super, to put toward a deposit on their first home. How you could benefit from the changes Compulsory (SG) contributions from your employer Under the government’s Superannuation Guarantee (or SG for short), you currently need to earn at least $450 per month to be eligible for compulsory super contributions from your employer. However, from 1 July 2022 that minimum income threshold will be removed. This means that even where an eligible employee earns less than $450 in a calendar month, there is now an obligation on the employer to make contributions. The work test  Currently, people aged 67 to 74 can only make voluntary contributions to their super if they’ve worked at least 40 hours over 30 consecutive days in the financial year, unless they meet an exemption. From 1 July 2022, the work test will no longer apply to contributions you make under a salary sacrifice arrangement with your employer, or personal contributions that you don’t claim a tax deduction for. The work test however will still need to be met if you wish to claim a tax deduction on personal contributions. Under the new rules, the work test can be met in any period in the financial year of the contribution. This is different to the current rules, where the work test must be met prior to contributing. Non-concessional super contributions Currently, those under the age of 67 at the start of the financial year can make up to three years of non-concessional super contributions under bring-forward rules. From 1 July 2022, the cut-off age will increase to 75. The bring-forward rules allow you to make up to three years of non-concessional contributions in a single year if you’re eligible. This means you could put in up to three times the annual cap of $110,000, meaning you could top up your super by $330,000 within the same financial year. How much you can make as a non-concessional contribution will depend on your total super balance as at 30 June of the previous financial year. Downsizer contributions The age Australians can make tax-free contributions to their super from the proceeds of the sale of their home, which needs to be their main residence, will be reduced from 65 to 60. (Note, there is no upper age limit for downsizer contributions and no requirement to meet the work test.) The maximum downsizer contribution amount of $300,000 per eligible person and other eligibility requirements remain unchanged. For couples, both spouses can make the most of the downsizer contribution opportunity, which means up to $600,000 per couple can be contributed toward super. The First Home Super Save Scheme (FHSSS) The First Home Super Saver Scheme (FHSSS) aims to provide a tax-effective way for eligible first home buyers to save for part of a deposit on a home. Under the scheme, you can withdraw voluntary contributions (plus associated earnings/less tax) from your super fund, with the current maximum withdrawal broadly $30,000 for each eligible individual. From 1 July 2022, this withdrawal cap will increase to broadly $50,000 for each eligible individual.   Source: AMP