Welcome to the May edition of Mail2Me

In this edition:

• investment market update;
• asset class commentary;
• the Federal Budget 2009 and your super; and
• pour more in before 30 June - it doesn't have to break the bank.

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Investment market update

When will world financial markets recover?

This is a question that everyone wants answered and one that is hotly debated by professional investors. Such investors hold varying opinions on ‘when world financial markets will recover’. These views are in large, supported through economic indicators; statistics about the economy. They indicate what has happened in the economy, and may also signify its future performance.

Given the abundance of economic news in the media, here’s a snapshot of a few economic indicators that are the focus of professional investors.

1. Chinese Purchasing Managers Index (PMI): The Chinese PMI is a package of indices, covering purchasing and supply managers of more than 700 manufacturers across China.
   
   The Chinese PMI is a good indicator of the health of China’s manufacturing industry; an integral part of the world economy given it’s a touch point for so many companies and industries. It is also seen by many as the backbone of China’s economy.
   
   The Chinese PMI strengthened for a fifth straight month in April to 53.5 per cent – where any reading above 50 suggests an expansion of the industry.
   
   
2. US Retail Sales: Retail sales are an important economic indicator because consumer spending drives much of our economy. Given the US is globally, the number one consumer, strong demand in the US fares well for the rest of the world.
   
   Strong retail sales also provide a gauge of consumer sentiment, given it directly reflects when consumers are willing to open up their wallets.
   
   Whilst US consumers have increased spending over the last few months, retail sales figures are still 12 per cent lower than the hefty heights set in late 2007.
   
   
3. Corporate Debt Spreads: Corporate debt spreads indicate the health of credit markets. The LIBOR-OIS is one particular spread that indicates the confidence that banks have in lending to one another. A higher spread is typically interpreted as an indication of reluctance by major banks to lend to one other, while a lower spread indicates more confidence in the stability of the financial system.At the height of the credit crunch, banks lacked the confidence to lend to one another as the LIBOR-OIS spread spiked considerably in October 2008.
   
   Whilst it is still above long-term averages, it has since dropped substantially. This is a promising sign given the key to any sustainable recovery is to restore confidence in the banking sector.
   
   
4. Unemployment: The unemployment rate is a lagging indicator, meaning it tends to indicate what has happened in the economy and not what is going to happen in the future. Since it’s a lagging indicator, unemployment can worsen even after the economy starts to improve.
   
   These four economic indicators are only a few that are monitored by professional investors. They all help to paint a picture of the performance of the economy and how it will perform in the future.
   
   They don’t specifically answer the question of exactly ‘when the world financial markets will recover’, however they do send strong signals to the market and help mould investors’ perception of where the economy is positioned.
   
   Whilst there are many different opinions on the exact timing of the market recovery, markets have always recovered in the past and therefore it’s expected that they will recover again.
   
   The recent volatility and market movements may have you thinking of switching your super investments out of growth assets like equity and into more conservative assets like cash. However, it’s important to consider whether changing your asset allocation is appropriate for your personal situation, and whether it supports your long term strategy.
   
   We recommend you speak to your financial adviser if you have concerns about your current investment strategy or asset allocation.
   
   As a member of your corporate super fund you have access to Momentum Financial Advice. This service involves financial advisers providing general advice over the phone, at no cost to you. You can also attend an initial face-to-face consultation with an adviser, who will assess your personal situation - again at no cost to you.*
   
   If you would like further information on Momentum Financial Advice call a Plum Member Services Consultant on 1300 55 7586 who can put you in touch with an adviser directly.
   

*Important note The Momentum Financial Advice service is delivered by GWM Adviser Services Limited (GWMAS) ABN 96 002 071 749 AFSL 230692. GWMAS is part of the National Australia Group of companies. Telephone-based financial advisers are licensed through GWMAS. Financial advisers on the Momentum Financial Advice panel are licensed through GWMAS or other licensees. The financial advisers and their associated licensees may receive a commission when applications are lodged for certain financial products. Further information on commissions can be obtained from the financial adviser's Financial Services Guide.

Neither Plum nor the Trustee endorses or guarantees any advice provided by GWMAS or any financial adviser referred through the Momentum Financial Advice services. The Trustee, through its administrator, Plum, merely facilitates members’ access to these services and does not accept any liability for the services provided.

Do you have any questions or feedback about this article? We'd love to hear from you.

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Asset class performance

Share markets enjoy a much needed rally

April 2009

Australian shares

World share markets continued to recover sharply in April, with both global and Australian shares returning over five per cent for the month. In Australia, this is the first time the index has posted consecutive monthly gains since the March/April period of last year. The resources sector lagged, despite news that the worst of the economic decline may have now passed. The consumer durables, consumer staples and diversified financials sectors all outperformed the broader market. In the banking sector, rising bad debts impacted profits, leading to weak earnings reports from both the NAB and ANZ. Small cap shares outperformed large cap shares again.

International shares

Global share markets continued to forge ahead in local currency terms. The US S&P500 Index rose by 9.4 per cent while some European markets such as Germany and France performed even better, rising 17.4 per cent and 13.6 per cent respectively.  Emerging market shares were even stronger, with Asian markets outperforming strongly. Sentiment was helped by the Chinese stimulus package which seems to be filtering through to other economies in the region. Conversely, Latin America has been largely underperforming.

Property

Listed Property Trusts rallied in April, outperforming ordinary shares. Their returns are well above the negative returns seen across unlisted property trusts as the underlying values of the properties are gradually being re-valued downwards.

Australian and international fixed interest

In the bond markets, Government bonds have had a sharp sell-off, as rates have risen from the lows of a few weeks ago. The World Government Bond Index returned -5.4 per cent over the month on an unhedged basis. However, both the UBS Composite and the Barclays Global Aggregate Indices were supported by improved returns from the non-Government bond sectors and have shown net returns close to zero. There has been a sharp recovery in the prices of some high yield corporate bonds in recent weeks, as buyers have returned to take advantage of the higher yields on offer compared to the minimal returns available on cash and bank bills.

Source: JANA Investment Consultants Please note: Past performance is not a reliable indicator of future performance

Do you have any questions or feedback about this article? We'd love to hear from you.

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The Federal Budget & your super

In one of the most eagerly anticipated Budgets in decades, the Federal Government announced a range of measures that will affect the super savings strategies of millions of Australians. These measures include:

• reduction in contribution caps;
• reduced Government co-contribution;
• transferral of ‘lost’ super accounts to the Australian Taxation Office (ATO);
• pension drawdown relief continued; and
• portability of super between Australia and New Zealand.

Reduction in contribution caps

Date of effect: 1 July 2009

The concessional contribution (CC) caps will be halved from 1 July 2009. As a consequence, the annual non-concessional contribution (NCC) cap will become six times the CC cap (as it applies to those under age 50).

The table below shows the caps for the current financial year, those that were scheduled to apply for 2009/10 and the new reduced caps for 2009-10.

¹ These thresholds are indexed in line with movements in Average Weekly Ordinary Time Earnings (AWOTE) in increments of $5,000 (rounded down). 2 This cap is not indexed. 3 This cap is equal to six times the CC cap from 2009-10.  It will change when the CC cap is indexed.

Employer contributions to fund defined benefit arrangements in place at 12 May 2009 will be deemed to meet the reduced cap.

Who do these changes impact?

These changes may impact you if:

• you have a salary sacrifice strategy in place;
• your employer makes Superannuation Guarantee (SG) on your behalf or voluntary employer contributions;
• your employer contributes additional amounts to your super to cover fees or the cost of your insurance cover;
• you are nearing retirement and you were relying on being able to make significant pre-tax contributions (up to $100,000 p.a. until 30 June 2012 or $50,000 p.a. thereafter) into your super in your later employment years; or
• you have adopted a strategy of combining a salary sacrifice strategy with a transition to retirement pension.

The consequence of exceeding the CC cap is an additional 31.5 per cent tax (and the excess also counts towards your NCC cap).

Note: From 1 July 2009, if you have a salary sacrifice arrangement in place please be sure to check that your arrangement won’t take your CC beyond $25,000 p.a. if you are under age 50, or $50,000 p.a. if you are age 50 or over.

Reduced Government co-contribution

Date of effect: 1 July 2009 – 30 June 2014

There will be a temporary reduction to the maximum rate and amount of Government co-contributions for eligible individuals who make personal after-tax contributions to super.

Who does this change impact?

This may impact you if you currently earn under $60,342 p.a. and you make voluntary, after-tax contributions into your super.

Transferral of ‘lost’ super accounts to the ATO

Date of effect: 1 July 2010

From 1 July 2010 super funds will be required to transfer the following accounts to the ATO:

• accounts with balances under $200 identified as ‘lost’; and
• accounts that have not been active for five years where the fund cannot identify the owner.

Currently, super funds are only required to transfer lost or inactive accounts when they are classed as unclaimed benefits from age 65, or they relate to unclaimed temporary resident benefits.

Who does this change impact?

This may impact you if you have a low super balance with your current fund or if you have super funds elsewhere which have a low balance and the fund(s) do not have your current contact details.  It may also impact you if you have a balance in a super fund and you have not been in contact with that fund over the last five years.

Pension drawdown relief continued

Date of effect: 1 July 2009 – 30 June 2010

The relief recently provided by the Government for members in account based pensions, allocated pensions and term allocated pensions (TAPs) (only requiring members to draw down half their calculated minimum income requirement¹ for 2008-09), has been extended for a further 12 months to 30 June 2010.
The reduced drawdown rates are set out in the table overleaf.

¹Subject to fund rules, for account based pensions, the minimum payment requirement is based on both regular income payments and lump sum withdrawals. The reduced drawdown requirements also apply to equivalent annuities.

Who does this change impact?

This may impact you if you are currently invested in an account based pension, allocated pension and/or TAP.  The measure has been introduced in recognition of the effect that the global investment market downturn has had.

Portability of super between Australia and New Zealand

Date of effect : To be announced

Who does this change impact?

This may impact you if you live in Australia and have super savings in New Zealand, or vice versa.

Do you have any questions or feedback about this article? We'd love to hear from you.

plum.feedback@plum.com.au

Pouring more into super doesn’t have to break the bank

Did you know that giving up one coffee a day could mean around $107,000¹ extra in super?

It goes to show making additional contributions into super doesn’t have to break the bank. As well as increasing the amount of savings in a retirement nest egg, making additional contributions can often deliver some worthwhile tax incentives. 

There are a number of strategies to consider when making additional contributions into super. Which strategy to adopt could depend on an individual’s income, time to retirement and overall financial situation. Let’s take a look at the different ways additional contributions can be made into super.

Government co-contributions

If an individual has a total income of less than $60,342 p.a. (including assessable income and reportable fringe benefits), they may be eligible for some help from the Government through the co-contribution scheme.

The Government may contribute up to $1.50 for every $1.00 of after-tax contributions contributed to super, up to a maximum of $1,500 in a financial year. 

After-tax contributions

This involves contributing a certain amount to super from an after-tax income at regular intervals or as one-off payments.

¹Assumption: Based on a male aged 30, with a $20,000 super balance earning $50,000 p.a. If one cup of a coffee a day (costing $3.50) was given up and paid into super each year (approximately $1,280 p.a.) until retirement (at age 65). Invested in a balanced portfolio with an earning rate before management costs and tax of 8%. Fund fees consist of a management cost (% of accumulation) of 0.55%, $52 management fees p.a. and $78 insurance premiums p.a. Assuming contributions are paid monthly and Government co-contributions are included.

Salary sacrifice

Spouse contribution

A super account can be established on behalf of a spouse and/or contributions made on their behalf.

As well as building a retirement nest egg for a spouse there are a range of potential tax benefits.

What’s next?

To see the difference making additional contributions could make to an end retirement benefit go to www.plum.com.au and use the Superannuation Calculator in the Calculators & online resources section.

If you know your member number and PIN login to the secure member section of the site and check out the Voluntary super contributions calculator also.

To make a one-off after-tax contribution into your super account simply complete a Your after-tax voluntary contribution form and return it together with your cheque to Plum.

Alternatively, we offer BPAY®. For further details go to our website.

To automate your salary sacrifice or after-tax contributions from your salary
and take advantage of dollar cost averaging, please contact your HR or Payroll representative.

Do you have any questions or feedback about this article? We'd love to hear from you.

plum.feedback@plum.com.au

Disclaimers:

Interest in the Plum Superannuation Fund (Fund) ABN 20339905340 is issued by PFS Nominees Pty Ltd (Trustee) ABN 16 082 026 480, AFSL 243357. The administrator of the Fund is Plum Financial Services Limited (Plum) ABN 35 081 812 731, AFSL 243356. This document has been prepared by Plum. The information in this document is current as at May 2009. Any advice contained in this document is general in nature and has been prepared without taking into account your objectives, financial situation or needs. Before acting on any information contained in this document you should consider whether it is appropriate having regard to your personal circumstances.

Plum recommends that you consider the Fund's Product Disclosure Statement (PDS) before making any decisions about your superannuation. To obtain a copy of the Fund's PDS call a Member Services Consultant on 1300 55 7586. Neither Plum, the Trustee, nor any other company in the National Australia Bank Group accepts liability whatsoever for any decision that is made on the basis of or in reliance of the information contained in this material. If you need help in making a decision you should seek the advice of a qualified financial planner.