MLC Market Watch

Gemma Dale leads a team of technical specialists at MLC responsible for providing information to advisers and investors on a range of superannuation, tax and social security issues.

View the  Budget video here.

Self-funded retirees who are invested in the sharemarket have arguably been the hardest hit by the global financial crisis.

Many may now be wondering if they should move their account-based pension into a more conservative investment portfolio, which contains less growth assets such as shares and property.

So we went back through history to see the impact that switching to a more conservative portfolio would have had, if done after a major market fall.

We also outline some strategies you could discuss with your financial adviser to help you weather the storm.

What is an account-based pension?

Before we reveal the lessons we can learn from history, we thought it was worthwhile going back to basics to explain how account-based pensions work.

An account-based pension enables you to invest your superannuation savings and receive a tax-effective income to help meet your living expenses.

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The prospect of a recession leaves most people with a sense of dread. There are, however, some benefits which if used wisely, can serve to safeguard, or even improve, your financial prospects.

We’ve identified four advantages of a recession: and how you could be profiting from them.

1. Decreased cost of living

While an economic boom cycle is great news for investors, it has the counter-effect of driving inflation into worryingly high levels. In simple terms, inflation is a rise in the average price of goods and services, as measured by the consumer price index (CPI).

During a boom cycle, the economy is in full swing; exports are high, jobs are plentiful and the nation generally enjoys high levels of prosperity. With more people eager to spend, the price of goods and services increase as producers take advantage of the high levels of demand.

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It’s often the case in dealing with the demands of every day life, we forget the financial year will soon be drawing to a close.

There are, however, great benefits to getting in early with your financial year-end planning.

We’ve identified four strategies to consider as the tax year draws to a close. Three of them may boost your retirement savings while paying less tax, and the fourth is a tax-effective way to purchase insurance.

And this is just the tip of the iceberg! Your financial adviser has many other strategies which may be suitable for you, all designed to improve your financial position.

So why not make this year-end a clever one?

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Given what’s been happening in financial markets recently, most people with superannuation or pension investments would have seen their account balance fall in value.

If this has happened to you, we understand you may be quite worried at the moment. So here are some things people at different life stages could consider:

People who are ten or more years away from retirement

It’s important to keep in mind that super is a very tax-effective place to invest.

This is because:

• investment earnings are taxed at a maximum rate of 15%, not your marginal rate which can be up to 46.5% (includes a Medicare levy of 1.5%), and
• you can receive a tax-free income at age 60 or over.

You also need to remember that super is a long-term investment. This is because you are investing not only for the ten or more years until you retire, but the 20 to 30 years you could spend in retirement.

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