Welcome to the latest edition of our quarterly newsletter for 2023. In this edition we will provide you with a market update and changes to the minimum pension payments. We will also touch on the question of whether to use accrued leave or take the lump sum when approaching retirement. Finally, we will introduce you to Jany, the Mortgage Broker. 

Market Update

(A year thus far that has almost but not quite achieved its full potential).

Following on from the record breaking 2022 for all the wrong reasons, including war, interest rate rises and high inflation, 2023 had promised to be a much better year. As we look back at the last 6 months, conditions have improved significantly but there remains important market factors that have not yet pushed market returns from ‘good to great’!
 
Firstly we need to look at what our largest trading partner China has been up to. The anticipated robust consumer-led reopening in China during 2023 has not yet fully materialised. This has raised questions about the Government’s 5% GDP target. The real estate sector (a major component of China’s GDP) has not rebounded as expected, combined with lacklustre manufacturing figures, suggest a potential for further rate cuts in China to bolster the low inflationary pressures.
 
In contrast, the US labour market data remains very strong. Encouraging for the Fed, measures such as average hourly earnings have started to moderate somewhat, which is one indicator of a slow down in the economy as well as lower inflationary pressures. The US and European markets have performed strongly over the past 6 months, leading to solid gains for investors with portfolio’s tilted towards these regions.
 
Closer to home, domestic GDP growth slowed the most since post pandemic era, however wage pressures continued to pick up. This surprised financial markets and led to another unpopular rate-hike of 25 basis point from the RBA. We continue to favour assets that have demonstrated resilience during higher inflationary periods and closely monitor market segments that have already priced in the effects of slowing economic growth.
 
Portfolio distribution is generally paid in the month of July so please keep an eye out for extra income hitting your portfolio’s over the next 4 weeks. If you’re unsure or have any questions, please make contact with your adviser.

Changes to Minimum Pension Payments

As part of the Government response to the COVID-19 pandemic, the minimum pension payment required for account-based income streams was reduced by 50% from the 2019/20 to 2022/23 financial years.

The Australian Taxation Office (ATO) has advised that the 50% reduction will not be extended beyond 2022/23. This means that the normal minimum pension payments will apply from 1 July 2023.

The age-based annual minimum payment required from 1 July 2023 are as follows.
 

 For existing pensions, the minimum is recalculated based on your account balance as at 1 July each year. To ensure that the minimum requirements are met, you may see an increase in your pension payments if you currently receive the reduced pension payment or your nominated amount is less than the new minimum.

Your adviser will be in contact with you throughout July to discuss how the change will impact your personal circumstances.
 

Strategy Update

Retirement Planning (Use Leave or Take the Lump Sum)

As clients approach retirement, a commonly asked question is "do I use my leave before retiring or take the lump sum?". The answer depends on your personal circumstances and objectives, but there are a few key considerations that can be used as a starting point.

Remaining employed and using Paid Leave

• Your employer will continue to pay employer SG contributions into your super.

• Option to continue to make regular salary sacrifice contributions into your super.

• You will continue to accumulate more leave entitlements.

• Continue to receive an income, reducing the need to start drawing from your superannuation savings.

• Retain work related benefits such as staff discounts (gym memberships and private health insurance).

• Ability to split your income across financial years to assist in reducing your personal income tax by taking advantage of the tax-free threshold and lower marginal tax rate.

Retiring and taking the Lump Sum

• You no longer have an attachment to your employer.

• You have a lump sum to use towards capital expenditure purposes such as purchasing a new car, holiday or reducing/eliminating debt.

• Exempt under the income test for Age Pension. The amount will be deemed but the lump sum will not be counted as income as opposed to taking paid leave.

• Funds can be contributed into your super to boost retirement savings prior to starting a pension.

• Available funds to use for investment purposes, generating income or capital growth, which is a potential missed opportunity if you take the paid leave option.

Each option has its pros and cons and sometimes a combination of the two works particularly well for clients. We work closely with our clients to assist in determining which option may be appropriate for their individual circumstances.

Barwon Mortgages

We are excited to officially announce the addition of our new team member, Jany Sitas, in her role as Mortgage Broker. Jany has nearly 20 years’ experience within the financial services industry, of which 11 years was with a major 4 bank, and will now head to our mortgages and home loans division - Barwon Mortgages Pty Ltd.

Jany is a born and bred Geelong local, and has a passion for all thing property and construction. She utilises her knowledge of the Geelong region and industry experience to help client’s achieve their property goals, whether this be purchasing a new home, building a dream home, buying an investment property or refinancing an existing loan.

I am sure many of you will meet Jany over the coming months. Please reach out to her if you have any questions.

As always, thank you for your continued trust and confidence.

Warm regards,