NO HARM IN SPLITTING IT
I always read your very informative articles in the Money section. I am a woman who will turn 64 in September and I will be made redundant from October this year. I have approximately $500,000 in my superannuation, which I have in a Defcredit term deposit. I should be getting a redundancy payout of $60,000. Should I leave my super in the Defcredit retirement fund? Do you think it is a large amount in one fund? I am worried about the security of the bank if it should go bankrupt. R.T.
The Retirement Savings Account at Defence Bank, formerly known as Defcredit Credit Union, is subject to the government guarantee on the first $250,000. If bad times were to hit, all banks would be supported by the Australian Prudential Regulation Authority and ultimately by the Reserve Bank, so I think things would have to be pretty dire before you lose any money.
However, it's always a comfort to spread your eggs across more than one basket and if you want to split your super, do so. Just be sure to pick a fund backed by a strong owner and preferably not associated with the Health Services Union.
DON'T BANK ON IT
As we are both 80 years old, we decided to sell two investment properties, worth $700,000. We would like to help our four children and also invest money in a tax-effective way. We are thinking of bank shares as they pay good dividends. Would you agree or should we diversify more? J.B.
Lucky children. Sometimes the best advice is 5000 years old: "Buy low and sell high!" Right now, asset prices, both shares and property, look like they will be cheaper in the near future than they are now. So while I agree with your decision to sell your properties, assuming you do not require the income from them, I suggest holding the proceeds in cash before buying shares and, if you do, go for a diversified portfolio.
I also think there's some truth in the New Yorkers' saying: "Do me a favour, don't do me a favour!" Before you buy anything for your children, find out what they need. It could be that the most appreciated gift you could give would be to place money into a mortgage offset account, or pay private school fees for grandchildren, or simply give them cash for a much-needed family holiday.
BE CAREFUL OF THE CAP
I am a member of a British defined pension scheme and deferred my pension in 1988 when I migrated to Australia. I will be entitled to a pension this year as I will be reaching retirement age as per the British scheme rules (60 years). I have the option of taking a lump sum and a reduced pension, which I plan on taking. If I transfer the lump sum into my SMSF in Australia, will I be exempt from tax? Could you also give me details of tax advisers who specialise in this area? M.A.
If you are taking a lump sum and simply investing this into your SMSF as a non-concessional contribution - without claiming a deduction - you are only restricted by the $150,000-a-year cap, although this can be extended to three years' worth - so $450,000 - in a three-year period.
Be careful you don't exceed the cap as you are then slugged an excess contributions tax of 46.5 per cent. All advisers are familiar with this. It doesn't sound as though you are transferring your pension to an Australian super fund, otherwise this would be affected by the British government's rules for "QROPS" or Qualified Recognised Overseas Pensions Schemes.
FIGHTING AN EXPENSIVE SALE
What recourse do we have with our financial planner? We asked him to sell down our share portfolio and after much to-ing and fro-ing he finally did, but cost my wife and I $200,000 in between times, as the market tanked. Have you any advice? We have written to the firm's complaints division, but they had no interest in helping us. Who can we go to help us in our fight? P.L.
If you are getting nowhere with the planning firm, your next approach is the Financial Ombudsman Service on 1300 780 808, although FOS requires you to first send a letter of complaint to the planner. Sample letters of complaint are listed at fos.org.au.
If you have a question for George Cochrane, send it to Personal Investment, PO Box 3001, Tamarama, NSW, 2026. Helplines: Financial Ombudsman, 1300 780 808 pensions, 13 23 00.
Frequently Asked Questions about this Article…
Is my superannuation safe in the Defence Bank (formerly Defcredit) Retirement Savings Account?
The Defence Bank (formerly Defcredit) Retirement Savings Account is covered by the government guarantee for the first $250,000. In extreme stress the banking system is supported by APRA and ultimately the Reserve Bank, so losses would only be likely in very dire situations. If you’re uncomfortable keeping a large balance in a single institution, it’s reasonable to split your super across other funds backed by strong owners.
Should I split my superannuation across more than one fund?
Yes — spreading your super across more than one fund can reduce concentration risk and give you peace of mind. The article recommends choosing funds with strong ownership and avoiding funds associated with the Health Services Union if you prefer added security.
If I sell investment property, is it a good idea to immediately buy bank shares for dividends?
Not necessarily. The article suggests holding the proceeds in cash for a while because asset prices, including shares and property, may be lower in the near future. If you do invest, opt for a diversified portfolio rather than concentrating only in bank shares, and consider whether you actually need the investment income.
What are tax‑effective ways to help my children with proceeds from a property sale?
Before buying investments for your children, ask what they actually need. Tax‑effective or practical options can include contributing to a mortgage offset account, paying private school fees for grandchildren, or simply giving cash for a meaningful purpose. The best choice depends on their circumstances.
Can I transfer a UK pension lump sum into my SMSF tax-free?
If you take a lump sum and invest it into your SMSF as a non‑concessional (after‑tax) contribution without claiming a deduction, you’re limited by the non‑concessional cap rather than automatically being tax‑exempt. The article notes that different rules apply if you’re transferring a pension under QROPS arrangements, so you should check the specific British rules if that applies.
What is the non‑concessional contribution cap and what happens if I exceed it?
The standard non‑concessional cap noted in the article is $150,000 a year. You can use a three‑year bring‑forward rule to contribute up to $450,000 over three years. If you exceed the cap, you may be charged an excess contributions tax — the article cites a rate of 46.5%.
My financial planner sold my shares late and I lost money — who can I complain to?
If your planner’s complaints division won’t help, your next step is the Financial Ombudsman Service (FOS). FOS requires you to first send a written complaint to the planner; sample complaint letters are available at fos.org.au. You can contact the Financial Ombudsman Service on 1300 780 808.
Where can I get more help or helplines about pensions and disputes?
For disputes with financial planners contact the Financial Ombudsman Service on 1300 780 808 (after lodging a complaint with the planner). For general pensions help the article lists the pensions helpline at 13 23 00.
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