FPA 2020 Survey Insights – COVID Edition &Top Tips For a Financially Secured Future

FPA 2020 Survey Insights – COVID Edition &Top Tips For a Financially Secured Future

According to a recent FPA 2020 Survey, the global pandemic has caused an inexplicable disruption to our professional and social lives, one of the biggest setbacks humankind has witnessed in the last decade. Observations concede, four in ten Australians have lost income because of COVID-19 and are either struggling to make ends meet (11 percent) or dipping into savings to get by (31 percent). So, it is no wonder a quarter of Australians (23 percent) are experiencing acute stress about their financial position, with roughly a third (30 percent) ‘feeling okay’.

The figures also depict a contrasting story for people making the most of their changed circumstances. A small number (one in 10) said they are in a better position financially as they have managed to build some savings due to working from home and canceled holidays. And the majority, (46 percent) are still feeling in control of their finances, at least for the time being. It will be interesting to see if these financial comfort levels change in 2021, as JobKeeper comes to an end and the long-term effects of this pandemic may still linger on our economy and household incomes.

‘No Worries’ – Not Quite Yet

Despite the JobKeeper payments supporting businesses to keep employees on the payroll, ‘job insecurity’ is still the number one concern for Australians right now. Women are far more likely to be worried about losing their job (40 percent compared to 29 percent for men). Whereas, the vast majority in the 18-24 year-old cohort (81 percent) are worried about becoming unemployed.

Having ‘less in savings’ and ‘loss of super’ was next in line as the most common financial worries, except for the 35-44-year-old age group. This age group is most worried about paying off their mortgage, a concern, that is also linked to their work prospects and ability to earn an income.

What COVID Events Of 2020 Has Taught Us?

For vast Australians, the recent events of 2020 have been a wake-up call for their financial habits and behaviors. With 70 percent of Australians surveyed saying, they could have done better to improve their financial position. It seems we all have learned an important lesson about being financially prepared for the unexpected.

One in five said they could have put money in reserve for a rainy day, 17 percent think they could have controlled impulse buying and 11 percent believe they could have focused more on paying down their debt.

The good news is that these ‘key learnings’ are helping us re-think our financial priorities. When asked about positive behaviors that could be propelled post-COVID, the survey respondents ranked “be more frugal about my lifestyle choices” first, followed by “pay down debts” and “create a budget to understand what I’m spending and saving.”

Top Tips For a Financially Secured Future

To help you experience greater peace of mind and financial well-being, please read and share these simple steps to commit to a long-term plan for better financial outcomes:

  • Prepare for ‘The Unknown’ – Take this as an opportunity to harness the positive financial habits you have imbibed during COVID. Prepare a list of expenses you don’t need anymore and another list of how you could use this money to meet your current needs or look after your future – by saving, investing, or paying down debts for example. By keeping a COVID mindset even after COVID is over, you can make a lot more progress towards your financial and life goals.
  • Plan Ahead  Peacefully think over where you want to be financially in the future – think five years, ten years, or retirement. Then, work backwards for how to get there, along with a timeline of the important milestones you want to achieve along the way.
  •  Book an Appointment with a Qualified Financial Planner – Understanding your current financial situation and short and long-term financial goals – having a financial plan – means you can better manage your finances. Planning your immediate expenses, without compromising on saving for the future allows you to live your best today while making sure your future is on track. Contact Prime Advisory to speak with a Senior Financial Advisor, today.

 

 

 

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Covid-19 Implications On Deferred Loan Repayments and What It Means For You. The Big Question?

Covid-19 Implications On Deferred Loan Repayments and What It Means For You. The Big Question?

With the initial sixth-month deferral period ceasing soon, lenders are commencing to contact customers who deferred their home and business loans due to the direct impact of Covid-19.

These borrowers make up for at least 260,000 mortgage deferrals and 105,000 business loan deferrals. More than 900,000 loans have been deferred in total since the beginning of this global pandemic.

But what does it mean for you? If you have deferred your repayment and are yet to resume paying it then, please read the following options:

 

  • If you are in a position to resume your repayments, by way of currently being employed or running a business that is coping well, you will need to start making these repayments which, possibly is a good thing. This is because lenders can capitalise unpaid interest from your deferred payments into the balance of your loan. So, the longer you defer your payments, the more unpaid interest will accrue. You could end up with a higher loan balance – and higher repayments – than when you started the deferral. Speak to one of our professional financial advisors to discuss this in greater detail.
  • If repaying the loan amount in full, is not a feasible option available, financially, fret not, there still might be a way around restructuring the loan, resorting to interest-only payments for a set time, or extending the loan term. Please bear in mind, these options are specially curated to decrease the impact of your repayments in the short-term, which might be the greatest relief you need, to get through this pandemic. However, greater care should be exercised as there may be long term ramifications. Always practice your due diligence and ask your lender what you will end up paying over the life of the loan. And if you are in any doubt, please contact us for a piece of professional financial advice before making any major decision.
  • Some mortgage holders who are still caught in a deep financial rut may be eligible for a further four-month extension to repay their home loans. However, it should be noted that this may be assessed on a case-by-case basis only. It is worthwhile discussing your current situation with your lender and unravel how a few months buffer may enhance your repayment plan. But once again, don’t forget to find out how much more you will repay over the life of the loan and what it would look like.
  • If you are facing a severe financial crunch and repaying your home loan looks like a distant dream, speak to our experienced and highly accomplished financial team, here at Prime Advisory, to understand your best options and map out a recovery plan for the future.

 

 

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Personal income tax cuts

Personal income tax cuts

As widely predicted, the Government has brought forward stage 2 of its planned income tax cuts by two years. Originally intended to apply from 1 July 2022, the tax cuts will come into effect from 1 July 2020 (subject to the passage of the legislation). The Treasurer the Hon Josh Frydenberg anticipates more than 11 million taxpayers will get a tax cut backdated to 1 July this year.

At a cost of $17.8 billion over the forward estimates, bringing forward the tax cuts is a controversial move. The Government argues that the measure will “boost GDP by around $3.5 billion in 2020-21 and $9 billion in 2021-22 and will create an additional 50,000 jobs by the end of 2021-22.” Others in Parliament believe the measure rewards higher income earners and the money could be better spent elsewhere. The Senate will decide whether the Government’s plan comes to fruition.

Stage 3 of the Personal Income Tax Plan that simplifies and flattens the personal income system remains scheduled for 2024-25.

  Tax thresholds
Tax rate Current From 1 July 2020 From 1 July 2024
0% $0 – $18,200 $0 – $18,200 $0 – $18,200
19% $18,201 – $37,000 $18,201 $45,000 $18,201 – $45,000
30%   $45,001 – $200,000
32.5% $37,001 – $90,000 $45,001$120,000
37% $90,001 – $180,000 $120,001 – $180,000
45% >$180,000 >$180,000 >$200,000
LITO Up to $445 Up to $700 Up to $700

Bringing forward the personal income tax plan will:

  • Increase the top threshold of the 19% tax bracket to $45,000 (from $37,000)
  • Increase the top threshold of the 32.5% tax bracket to $120,000 (from $90,000)
  • Increase the low income tax offset from $445 to $700

In addition, the LMITO (low and middle income tax offset), which provides a reduction in tax of up to $1,080 for individuals with a taxable income of up to $126,000, will be retained for 2020-21. This measure was to be removed at the commencement of stage 2 of the reforms from 2022-23.

If you need any assistance please contact your PrimeAccountant on 02 9415 1511 or email reception@primeadvisory.com.au.

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Do not be scammed

Do not be scammed

The Australian Government and Australian Tax Office are warning Australians to keep an eye out for fake/impersonation scams. Scammers want to get their hands on more than just your money. Your personal info is just as valuable.

You might be familiar with scams that ‘phish’ for personal and financial information – like your TFN, myGov details, address, or date of birth – by pretending to be government agencies. Criminals can use these details to drain your bank accounts, buy expensive goods and even scam your family and friends.

Scamwatch reports over $1.26 million lost and more than 7100 reports made as in June however in reality the losses are likely to be far greater. Reported scams increased during tax time with text messages claiming to be from myGov or from agencies claiming to help victims gain early access to their superannuation.

“Scammers are increasingly taking advantage of the financial difficulties and uncertainty generated from the COVID-19 pandemic to trick unsuspecting Australians,” ACCC Deputy Chair Delia Rickard said.

From 1 January-5 July 2020 Scamwatch has received:

  • 67 reports of scams involving impersonation of the Department of Health, or state Department of Health and Human Services, with losses over $8700
  • 443 reports of scams involving Australian Federal Police impersonations with losses over $176,000
  • 1,070 reports of scams involving Services Australia impersonations with losses over $94,000
  • 1,638 reports of scams involving myGov impersonations with losses over $105,000
  • 2,016 reports of scams involving Department of Home Affairs impersonations with losses over $99,000
  • 2,389 reports of scams involving ATO impersonations with losses over $905,000.

 

If you have been scammed and needed to change any of your contact information, please get in touch with our office.

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Binding Death Benefit Nominations

Binding Death Benefit Nominations

by Stephen Lynch, Somerville Legal

Just as it is desirable to maximise your wealth during your lifetime, it is important to ensure that in the event of your death your assets pass to the people you wish to benefit. For most people, superannuation is one of the most significant assets they have, and ensuring that it is paid to the appropriate people is a critical element of estate planning.

One of the most common mistakes people make is thinking that their superannuation is automatically an estate asset, and therefore covered by their will. In fact, superannuation is a separate type of asset that is held by the superannuation fund and paid out by the trustee of the fund upon the death of the member of the fund.

In fact, in most cases, it is the trustee, and not the member, which decides who gets the member’s superannuation death benefits, and in what proportions.

For most people, the only way to ensure they, and not the trustee, control whom their superannuation death benefits pass to upon death, is to make a binding death benefit nomination (“BDBN”), which is a specific form which directs the trustee how to pay the member’s superannuation upon death.

The advantages of having a BDBN in place include the following:-

  1. Control
    Just as having a will is important to ensure that your assets are distributed according to your wishes, most people would rather decide who should get their superannuation if they should die. Most super funds’ rules state that unless there is a BDBN in place, the trustee has complete discretion as to whom to pay the person’s superannuation, as long as the recipient is a dependant of the deceased member(such as a spouse, or child including adult child, of the member) or the member’s Legal Personal Representative (ie their estate).If you want to make the decision as to payment of your super, rather than leaving it to the trustee to decide, a BDBN is critical.
  1. Certainty
    For many people, it is not just that they don’t want the trustee of the super fund to decide who gets the person’s superannuation – it is that they have specific intentions about how all of their estate is to be distributed. For example, they may want a spouse to get the super, but the children to get the non-super assets. A BDBN allows the peace of mind that your wishes will be followed in relation to your super. This allows you to make other decisions, such as gifts during your lifetime that will even up the ledger.
  1. Flexibility
    According to the Commonwealth superannuation laws, superannuation death benefits can only be paid to a person’s dependants (such as spouse or children), or estate. If you want your super to pass to someone else, such as your parents, a sibling or a charity, you will need to have a BDBN directing the trustee to pay your super to your estate. Your will can then stipulate that the proceeds are to pass to the intended beneficiary.Or, if you want your superannuation to be held for the benefit of your children, but do not want them to have control until a later age – say, 27 – having a BDBN in favour of your estate and a will that establishes testamentary trusts for your children may be the answer.Without a BDBN, your will may contain very specific provisions as to how your superannuation is to be distributed, only for the trustee to bypass your estate altogether in which case the terms of your will would not apply.
  1. Speed of payment
    When a person dies, the executor of their will would in most cases need to obtain a grant of probate of the estate from the Supreme Court. Although probate is usually a relatively simple process, there can sometimes be delays in obtaining probate, for example due to a dispute over the terms of the will, or delays in obtaining the details about each asset that need to be disclosed to the Court. If there is a BDBN in place that directs the trustee to pay the superannuation to one or more dependants (ie not to the estate), the trustee may be willing to pay out the superannuation before probate is granted.Without a BDBN, even if the trustee was inclined to pay the superannuation to the deceased member’s dependants, the trustee may await probate so as to obtain the executor’s consent to the trustee bypassing the estate.Similarly, if there were no BDBN there may be competing claims from dependants (eg the deceased’s spouse vs his or her children from an earlier marriage). Before making a determination, the trustee would in all likelihood need each claimant to provide a substantial amount of information and would take some time to go over that information before making its decision. Such delays may be avoided if a BDBN is in place.
  1. Self managed super funds and BDBNs
    If a person has a self managed super fund (“SMSF”), there are several factors which will influence who would control that SMSF upon the person’s death. Without a BDBN, whomever controls the SMSF may have the same discretion to decide how the super will be paid. If that person is a dependant, they could exercise that discretion in favour of themselves to the exclusion of their other family members, regardless of the wishes of the deceased. There have been several instances where this has occurred, with devastating results for family relationships.Of course, a BDBN may not be the best way forward in your particular circumstances. There are some circumstances where flexibility is more important than control. In all cases, the decision as to whether or not a BDBN is appropriate for you should be made only after seeking the advice of your financial adviser and estate planning solicitor.

Beware the non-binding death benefit nomination
Many people believe they have a binding death benefit nomination in place, when in fact their nomination is a non-binding nomination. A non-binding nomination indicates your preference to the trustee, but the trustee is not bound to follow it.

If your nomination as to whom is to receive your superannuation death benefits was made by simply ‘ticking a box’ when you fill out your application for membership of the super fund, and was not done by way of a separate form with adult witnesses, then in all likelihood your death benefit nomination is non-binding rather than a BDBN.

There have been many cases where the trustee has acted contrary to the wishes set out in the deceased member’s non-binding nomination. Accordingly, non-binding nominations should be treated with extreme caution, and advice sought from your financial adviser and estate planning solicitor.

Beware the lapsing period of BDBNS
Many BDBNs will lapse after three years, after which they cease to be binding on the trustee. Others are called non-lapsing nominations and will remain in place until revoked. Be careful to ensure you know whether or not your BDBN needs to be renewed every three years.

At the end of the day, superannuation represents a significant part of most people’s wealth, and careful consideration needs to be given as to whom their superannuation may be paid to in the event of their death and whether they have any specific wishes as to how it is to be paid. A BDBN is a critical tool for many people in ensuring their superannuation is properly dealt with upon their death, and should be carefully considered after obtaining specialist advice.

If you need assistance please get in touch with one of our advisors on 02 9415 1511 or email reception@primeadvisory.com.au.

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