The perils of cashing out your super

Close to retirement?

Frustrated and angry with your super fund?

Thinking of cashing out your super?

That’s understandable.

The share market crash last September hit Australia’s super funds very hard.

And many people, who are about to retire, have had a rude shock when they looked at their prospective payouts.

But, as we all know, acting in anger can lead to bad decisions.

And there are two things many people are overlooking right now.

The first is the income superannuation funds earn, from dividends, rent and other sources.

The second is likely capital growth.

Investment consultant Russell Dew says that, broadly speaking, that income  is something like 6 per cent a year, for balanced funds and, perhaps 8 per cent a year for a typical growth fund.

Fees might take 1 per cent of that.

So if you have, say, $100,000 in your balanced fund super pot, you would lose a prospective income of $5,000 a year, or some $96 a week, by cashing out your super.

If you are in a growth fund, you would be saying “no” to an income of $7,000 a year, or almost $135 a week, with that decision.

These are not huge amounts, but they would help with the grocery bills.

And there are those likely capital gains to consider as well.

The share market crash, which hit your payout so hard, is already passing.

The market is already up by some 10 per cent from its low point – and likely to go higher – as the global economic crisis passes.

Cool, rational thought is particularly valuable in a crisis.

And those who cash out in haste might well repent at leisure.

Get some good advice.  Be prepared to pay for it.

Swan cautious as economy faces new tests

Australians will know much more about the state of the nation’s economy by the end of this week.

The Statistician is planning a string of important releases this week, starting with July’s economic indicators and new figures on the nation’s social trends tomorrrow.

The really big numbers, though, will be released on Wednesday and Thursday.

The nation’s retail trade figures for May, which are to be released on Wednesday, will show whether Australians kept spending as the first round of the Federal government’s stimulatory measures passed.

The bureau is also planning to release new building approval figures for May and engineering construction figures for March on Wednesday.

Fresh international trade figures, also for May, are also to be released on Thursday.

On Friday, Australians will  also get a much clearer picture of the nation’s job market, with the release of current labour market figures, which will draw together a range of  labour market statistics.

So far, at least, Australia has held up remarkably well  against the ravages of the global economic crisis.

However the Federal Treasurer, Wayne Swan, is warning Australians against excessive optimism, saying the nation still has “a rocky road ahead.”

He said the commodities boom is now unwinding and he warned that would have a “devastating” impact on Australia’s trade.

Mr Swan said the value of Australia’s commodity exports is expected to fall by 18.1 per cent in the new financial year.

He said that would strip $35 billion from the nation’s export earnings over the coming 12 months.

“This will be drive by a sharp decline in  minerals and energy export earnings, which are expected to fall by 22.4 per cent,” Mr Swan said.

MP’s superannuation blasted in the Senate

Many of Australia’s politicians have superannuation benefits that far exceed anything their constituents can expect.

And that, according to one of them, is part of the reason why politicians are held in such low respect in that country.

So which MP said that?  You are right. It was Nick Xenophon.

So why doesn’t this South Australian independent Senator do something about it?  Especially, as he admits himself, he is a member of one of those privileged superannuation funds.

Well, he has tried, at least.  In the Senate this week, he moved an amendment to the government’s budget bills, that he believed would have brought those privileged funds, known technically as defined benefit schemes, at least a little closer to the funds that the rest of us have.

That is schemes, as we have learnt all too painfully over recent months, that can develop big holes in their payouts, if you are unlucky enough to retire shortly after a stock market crash, like the one that occurred last September.

In the May budget this year, the Rudd government cut deeply into the concessions it offers Australians, to encourage them to save for their retirements, through superannuation.

The Treasurer, Wayne Swan, said he had been forced to do that, to make up some of the revenue shortfall that the government will suffer this financial year as a direct result of the global economic crisis.

Those cut backs, though, did not affect the privileged few, who are in defined benefit schemes.  That is people who know, in advance, precisely how much their superannuation funds will pay them, when they retire.

Senator Xenophon said their benefits should be curtailed too.

Politicians, who entered one of Australia’s parliaments before 2004, are mostly in defined benefit schemes, of this kind.

Senator Xenophon, who was in the South Australian parliament, before he became a Senator is among them.

The government, though, rejected his proposed amendment.

The former superannuation minister, Nick Sherry, reminded Senator Xenophon that many people, besides politicians, are also members of defined benefit schemes.

He said these included Qantas pilots, many public servants, judges and members of Australia’s military forces.

But most private defined benefit schemes closed their books to new members, many years ago, Senator Sherry said.

People joining the Federal public service today generally don’t have defined benefit schemes available, these days,  either.

Coalition Senators, too, voted against Senator Xenophon’s amendment.

In fact, it won only two votes.  That of Senator Xenophon himself and his cross bench colleague, the Family First Senator, Steve Fielding.

Consumer confidence surges

There’s been an extraordinary surge in consumer confidence, according to a new survey.

But the OECD has forecast that the Australian economy will shrink by 0.4 percentage points this year.

However the Treasurer, Wayne Swan, said the OECD report also confirmed that the Australian economy is “outperforming” every other advanced economy, “in the face of a savage global recession.”

Mr Swan said the OECD report also confirms that Australia has lower debt and deficit levels than other advanced economies.

The survey, conducted by Sensis, shows consumer confidence rising by a record 18 per centage points.

The results, released today, show that almost six out of ten Australians are now confident about their financial prospects, over the coming 12 months.

The report’s author, Christena Singh, said the Sensis consumer confidence index now stands at 39 per cent.

That is its highest level since February last year, when the incicator stood at 44 per cent.

However this measure is still below the record level of 61 per cent, seen in December 2007.

Even so, the current level is still remarkable, when set against the current global economic crisis.

Especially as the World Bank has tipped, only this week, that the global economy will contract by 2.9 per cent over the coming year.

Mr Singh said the survey showed that Australians, who have jobs, are taking a rosy view of the future.

“Employment is the key driver of consumer confidence in Australia at the current time,” Ms Singh said.

“Having a secure job is the key reason for being confident, while umemployment is the key reason for being worried,” she added.

But the survey revealed a touch of realism, too.

“It is interesting to note that while Australians are increasingly optimistic about their financial prospect, they (also) believe the Australian economy is contracting,” Ms Singh said.

Australia’s banks chalk up big profits

Australia’s big four banks are still turning  in strong performances, despite the global economic crisis.

They chalked up average profits of 30.6 per cent last year.

The Australian Prudential Regulation Authority also reported yesterday that the total assets of the nation’s big  – and small  – banks rose by 22.1 per cent last year, to almost $3.3 trillion.

APRA also reported that the banks gathered $46.4 billion in interest income last year.

They also charged their customers another $20.9 billion in fees and commissions.

The banks have their critics,  though.

The most notable was the Treasurer, Wayne Swan, who recently called the Commonwealth Bank “selfish” after it had raised a key home loan interest rate by 0.1 percentage points.

However the Commonwealth bank did not retreat, saying it had to cover the higher cost of the funds it now lends.

Other banks later followed its example, in different ways.

Public complaints about the “greed” of Australia’s banks are common, too.

Australia’s banks, though, mostly resisted the trap that US banks fell into, with sub-prime housing loans.

And their strength has been a key factor in Australia’s relatively good performance, at least so far, in the global economic crisis.

Even so, the Federal government felt impelled, earlier this year, to guarantee Australia’s bank deposits.

It did that to prevent a possible panic, which might have produced a run on the nation’s banks, in the wake of the global economic crisis.

That crisis, clearly, still has some way to run.

The World Bank is now predicting that the global economy will shrink by 2.9 per cent over the coming year, rather than the 1.7 per cent retreat that it forecast earlier this year.

Would a reverse mortgage be right for you?

Reverse mortgages can be very useful.

But new research suggests that these products, which are usually used by people over 60 are not always well understood.

And one big question hangs over them.

Are they right for you?

The Australian Securities and Investment Commission has a new publication which might help you decide

Its called “Thinking of using the equity in your home? A new independent guide to reverse mortgages and other equity release products.”

It was launched jointly yesterday by the Chairmen of the Australian Securities and Investment Commission and the Australian Government Financial Literacy Board.

They are, respectively, Tony D’Alosio and Paul Clitheroe.

Mr D’Alosio said taking out products like these is a big step.

The family home is often people’s biggest asset, he added.

He said, too, that these products can involve “significant risks.”

The guide provides important information on:-

• the risks
• the alternatives
• whether equity release is right for you
• what to look out for
• where to get more information

If you would like a copy of the guide, you can go to www.fido.gov.au or call 1300 300 630

Surviving the crisis:What to do

Need more business?  Having trouble with your debts, because of the global economic crisis?

Help is available on both fronts.  It’s just a matter of knowing where to look for it.

The Federal government’s stimulus package is the biggest game in town right now.  Especially for trades people.

Where, though, do you go to find out what work is available, and whether it would suit you?

Senator Mark Arbib, the Minister for Employment Participation, has some good advice on that.

He says businesses interested in work, or tradespeople interested in subcontracting should visit

australia,gov.au/economicstimulus and follow the links in State and Territory websites.

Then click on work opportunities.

That should give you a good idea of the work that is available in your area.

Senator Arbib said more than 280 primary school projects have already begun, under the latest stage of the government’s stimulation package.

That’s just the start.  There are also new projects, involving defence housing, road upgrades and much else besides.

What, though, if you have lost your job – and the debts are piling up, uncontrollably?

That is a grim situation for any person or family to face.

The earlier it is faced, though, the better.

And, once again, help is available.

The Treasurer, Wayne Swan, says Australia’s building societies, credit unions and banks have all signed up now to a set of principles meant to help borrowers who are in distress.

The options available will include:-

• postponing repayments
• longer contracts with smaller repayments
• interest only breaks on repayments and
• fee waivers.

Contact your lender first.

“Don’t worry” about inflation

You can stop worrying about inflation.

That message emerges very clearly from a new survey that was conducted jointly by the Westpac Bank and the Australian Chamber of Commerce and Industry.

Many Australians are, indeed, worried about the prospect of inflation surging, as a result of the Federal government’s three stage stimulation package, which involves heavy borrowing and big sepnding programs.

Those programs, essentially, are the government’s response to the threat of recession – or worse – arising from the global economic crisis.

These matters, of course, are highly sensitive, politically.

They are at the heart of the debate between the government and the opposition, over Australia’s response to the challenges the crisis is presenting.

The survey partners, clearly, didn’t want to be seen to be seen standing  either on one side, or the other, in that debate.

So they chose their words carefully.

But their assessment was unmistakable.

The survey partners said that although business confidences has improved, activity levels remain weak and unemployment is likely to rise.

“Both prices and costs are expected to fall,” they added.

“Contrary to the commonly quoted inflation scare, the greater risk is deflation.”

They said that risk would emergee as excess capacity and rising unemployment, both in Australia and overseas, contained any inflation pressure.

There is good news for homebuyers, too, in comments the bank made on  the results of the survey.

“Westpac is surprised by current market pricing which is pointing to rate increases of around 150 basis points by the end of 2010,” the bank said.

“It is far more likely that rates can fall further rather than rise in the current environment,” it added.