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SASS Wise

Money wisdom, tips and insights from the SASS community.

Our poll from the March edition revealed that the majority of you (72%) have plans to leave something behind to loved ones as an inheritance. But almost a third of SASS members (27%) are uncertain about what they’ll be leaving behind. Since then, the world has changed dramatically for all of us.

In this edition, we take a deep dive into the impact of recent events for SASS members. We’ll explore how to build a ‘new normal’ in times of change, how to get on top of your budget and rebuild your savings if you need to.


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An update for SASS members

How does the financial impact of COVID-19 affect SASS members? What protections and options do you have within the scheme? We spoke to Lynn Baker from our team.

Q. Many Australians are worried about the impact of poor share market performance on their super. Will market volatility have an impact for SASS members and their scheme benefit?

The SASS scheme provides unique protection for members. The good news is contributing SASS members have the protection of a defined benefit that limits the impact of market volatility on their savings. Both the employer-financed benefit and basic benefit are based on a formula that takes into account years of service, personal contributions and their final average salary. Those parts are not a market-linked calculation and so movements in the share market have no impact. Only the personal account (roughly a third of the end benefit) is impacted by market volatility.

Deferred accounts are fully exposed to market volatility as they have no defined benefit component. The entire account balance is invested and therefore exposed to market volatility. The extent of the impact will depend on which investment option they are invested in. Whilst the investment option for the basic benefit (roughly 15%) is decided for them, deferred members have choice over where the rest or their money is invested.

Q. What actions or steps should SASS members be taking right now?

The first thing I would say, is to understand how your money is invested. If you haven’t done so recently, review your investment option to make sure your personal account is invested in line with your risk appetite. You will need to be proactive about this. If you are a contributing member and you don’t choose your investment option, your savings will be invested in the growth fund – which may suit some people but may not be for everyone. For deferred members up to age 59, the default investment option is growth, but this changes to the balanced option once they reach age 60.

Secondly, I would urge SASS members to take caution before reacting to movements in the share market. Super is a long-term investment that requires careful planning and consideration. Reacting to market volatility and switching investment options now could mean you’re locking in losses. Timing the market is always difficult, but SASS members have the added challenge of a time delay when switching options. If you plan to switch your investment option, you’ll need to indicate your intention on, or before, the 25th of a month but the actual investment will not be moved until the last day of that month.

It’s also important to keep in mind the diversification principle. Both SASS balanced and growth funds are invested in a diverse range of quality assets. Diversifying your money across different asset classes (such as shares, fixed income and property) aims to smooth your returns over time, because different assets can react differently to the same market event.

The final thing I’d say, is to seek financial advice from a professional that understands the SASS Scheme before making changes to your investment option – or any other significant changes for that matter. An Aware Super financial planner can assess the true impact of any changes and let you know if there’s a better alternative.

Q. What legislation has been handed down as a result of coronavirus, and how could it impact super?

One of the key changes is that the minimum withdrawal amounts from account-based pensions have been halved. The government has introduced this measure so that pension holders don’t need to withdraw large sums of money at a time when the market is unstable. This legislation doesn’t apply to defined benefit pensions though.

The second piece of legislation is around early release of super on compassionate grounds. Eligible super fund members were able to $10,000 from their super in the 2019/2020 financial year, and are able to access up to $10,000 until 24 September 2020, to help ease cash flow issues during this period. There is no tax applied to this payment and the withdrawal does not affect Centrelink or Veterans affairs payments. Whilst defined benefit funds were not included in the legislation, State Super has put measures in place to enable contributing and deferred SASS members to access their super if they meet the eligibility criteria.

Q. What are the key considerations for any SASS member who is considering dipping into their super?

There are a lot of people in financial distress at the moment, particularly relating to cash flow, so it’s understandable that they might be thinking about dipping into super. But it should ideally be a last resort once all other options are exhausted.

For contributing SASS members that do access their money, a debt account will be created which is subject to interest at the fund’s earning rate and will be deducted from their final benefit at exit. Before withdrawing from super, it’s important to weigh up whether there are other alternatives to help manage short-term cash flow.

Q. What other alternatives are there to help manage cash flow?

There are a few things that can be done. For example, re-assessing your budget, consolidating or suspending things like memberships and online subscriptions or trying to get a better deal with utilities providers can all make a difference to your cash flow. We’ve created a useful worksheet to help with this process.

An option that contributing SASS members could consider if facing financial hardship, is to apply to reduce the percentage contributions to their personal account. State Super will consider an application to reduce the contributions to as low as 1% or to stop them altogether for a limited time, provided the member can prove that they would suffer financially if the application was rejected. To find out more about this option, including the impact that it may have on your benefit, you can contact the State Super customer service team on 1300 130 09 8.30 am – 5.30pm, Monday to Friday (AEST).

Short-term solutions are obviously helpful, but it’s the long-term strategies that really make the difference. Having a solid financial plan that takes into account your years to retirement, and plans for your money, will help you stay resilient and on-course to where you want to be.

 

Re-building a new normal in times of change

Covid-19 has meant significant life changes for many of us. Life as we knew it has changed in the blink of an eye. Whilst unsettling, change can sometimes be a good thing. It can push us to re-assess what’s really important and inspire us to make some positive changes.

Reaping the environmental benefits of new ways of living

In the past months, new ways of living have provided a glimpse into a world with a kinder impact on our planet. Transport alone represents 23% of global carbon emissions1, so working from home and a ban on air travel have led to a significant drop in pollution. Closer to home, the sudden short supply of essential food items has led to less food wastage and more people cooking from scratch.2

Building stronger communities and connections

In our neighbourhoods, we’ve seen a stronger sense of community3. From checking in and bringing supplies to the elderly, to supporting local businesses, more of us are becoming conscious about the impact we can have on those around us. Our relationships with those we care about have benefited too. Separation has forced us to find new ways to stay connected, with 39% of us catching up with friends and family more often4. Technology has in some ways come into its own and brought the world closer together through this shared experience.

Research shows that these positive changes could be here to stay. A recent UK survey showed that just 9% of people want life to go back to ‘normal’5.

Tips to re-building a new normal

Of course, many of us are also having to adjust to a way of life we hadn’t planned for. The new normal may mean adjusting to more solitude or a change in work circumstances. Or it may mean getting used to a lower level of income and forgoing some of life’s luxuries. Here’s some tips on dealing with change and uncertainty:

  1. Take time out to reflect - what have been the changes you’ve experienced over the past weeks and months? What have been the positive outcomes for you personally? Have there been any surprise blessings? What hasn’t gone so well? Give yourself the space to feel what has been hard as well as what’s gone well.
  2. Keep what works - as you slowly start to find your rhythm and new ‘normal’, do a sense check before reverting back to old habits and routines. Think about the things that have improved your life. Whilst you can’t beat face-to-face connection, supplementing meet ups with online technology may keep you better connected.
  3. Take a fresh look at your finances - now is a good time to re-think your budget. What have you been able to go without? What items have you replaced with cheaper options? Give your budget a spring clean and see how much you can save. This handy worksheet can help you set up your new budget.
  4. Set time aside for self-care - when life throws a curveball, looking after our emotional wellbeing is often one of the first things to be forgotten. Self-care is different for everybody, but it could be as simple as having a nice bath or making your favourite meal.
  5. Create routine and structure - having a daily routine is proven to reduce stress and anxiety6 where even small tasks can bring about a sense of accomplishment. Routine and structure can also bring a sense of purpose, which in itself can make us more resilient when dealing with life’s challenges7. Whatever your new normal is, make sure your routine includes something that makes you feel good.

With so many ups and downs, change can feel a bit like a rollercoaster. Taking the time to reflect and remembering what’s important, connecting with people and really looking after yourself can help keep you feeling well balanced and positive.

 

Give your budget a spring clean

If like most of Australia you've had to make adjustments to your home and work life, your ‘normal’ saving and spending patterns have probably changed. Now is the perfect time to spring clean your finances.

Download the worksheet

 

Social connection and technology survey

The impact of social interactions on health and wellbeing can be really significant. In fact, research tells us social isolation can be worse for your health than not exercising . We’d love to hear your experience of staying socially connected in recent times.

 

Take the survey

Questions from the SASS community

Q. Can I access my State Super benefits early and what are the considerations (pros and cons)?

SASS has introduced a special guideline that allows individuals financially impacted by COVID-19 to access some of their defined benefit superannuation early. This access is subject to ATO approval. The ATO will assess your application using the same criteria announced by the Federal Government, which includes (but is not limited to) a reduction in working hours of 20% or more, or not currently employed. You can find out more about the ATO’s eligibility criteria here.

If you meet the criteria, you will be allowed to access up to $10,000 this financial year from your super, plus up to $10,000 in the next financial year, until 24 September 2020. Any amount released will not need to be declared on your tax return and will not attract any tax liability. There is a 2 step process for SASS members to apply. Firstly through the ATO online services in your MyGov account and then by completing Form STC 241 and returning it to State Super Customer service.

It’s important to remember that early access to some of your superannuation benefit will reduce the amount of benefit you receive in the future. If you’re a current contributing SASS member, a debt account (adjusted for interest at the funds earning rate) will be created and the accumulated debt will be deducted from your benefit when it is either deferred in the scheme, or paid to you (at retirement age, for example).

If you don’t apply or qualify for early release, your SASS benefit may only be released after your scheme’s earliest retirement age (this is generally 58), resignation or dismissal, retrenchment or invalidity. Access to any benefit in these situations will however still be subject to the Federal Government preservation rules and pre or post preservation age tax treatment.

Q. With all the uncertainty around COVID-19, should I be reviewing how my SASS balance is invested? And what do I need to consider if I want to switch investment option?

Whilst increased market volatility has created a challenging environment for all investments, including super, the impact of this volatility on your SASS benefit is different to a standard super accumulation account. This is because not all of your overall benefit is exposed to the investment markets.

If you’re a contributing member, only the account holding your personal contributions (including any investment gains or losses), is subject to market movements. Generally speaking, this is around 30% – 35% of your overall SASS balance. The impact on your account will depend on the investment choice you have chosen or allowed it to default to. If you haven’t chosen an investment option for those funds, they automatically default into a Growth option.

You don’t need to make an investment choice for the Employer-Financed Benefit or Basic Benefit components as these are based on a set formula that takes into account factors such as your length of service and contribution level.

If you’re a deferred SASS member, however, you have significantly more exposure to the investment markets. With the exception of your Basic Benefit, your total SASS benefit is subject to the investment option you have chosen or allowed it to default to. Generally speaking, this is around 80-85% of your overall SASS balance. If you have not made an investment choice, your benefit will be allocated to the Growth option if under age 60, then switched to the Balanced option after this point. The investment choice for your Basic Benefit is decided by the trustee, State Super and invested in a similar way to the Growth option.

You could review your current investment option, and consider whether it’s appropriate for your age, investment timeframe, risk tolerance and any other investments you have outside of super. However, it’s important to not make rash decisions. History has shown that having a long-term plan, and sticking to it, gives you the greatest chance of reaching your retirement goals. Those who do this, ultimately end up better off than those who change investment options.

Also bear in mind that switching to a more conservative option, such as cash, after a market fall can lock in losses and mean that you miss out once the market bounces back. The market falls that resulted from the October 1987 crash, the bursting of the tech bubble in 2001, the September 11 terrorist attacks and even the 2008 global financial crisis, were all followed by a bounce back within a relatively short timeframe.

A financial planner experienced in defined benefit schemes, such as an Aware Super planner, can guide you through the options you have (Growth, Balanced, Conservative, Cash) and what impact a change may have on your overall benefit.

If you do decide to change your investment choice, bear in mind these changes can only be applied once a month. The form, available via the State Super website or Customer Service team, must be received by Mercer on, or before, the 25th in order for the switch to occur on the last day of that month. If the form is received any later than the 25th, your request will not be processed until the last day of the following month.

 

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