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Aware Super
Aware Super
Members Adviser

SASS Wise

Money wisdom, tips and insights from the SASS community.

Our latest poll revealed that, for the majority of you (59%), Coronavirus hasn’t changed your bucket list. While your bucket list may not have changed, the events of 2020 have put the future in focus for many of us. You may feel it’s more important to be prepared for the unexpected ups and downs life can send our way. So what can you do to stay on track with your finances?

In this edition, we explore how changes to your work arrangements could impact your SASS benefit, what you can and can’t do with the money in your SASS scheme, and we bring you some tips on getting financially fit for whatever life brings.


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Understanding the impact of work changes on your SASS benefit

Whether planned or not, changes in your work arrangements can have a big impact on your scheme benefit. In this video, we cover some of your options and what they could mean for you.

 

Watch video

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.

 

3 tips to getting financially fit for the future

One thing we’ve learnt in recent months from the COVID-19 pandemic, is that it pays to be ready for anything. It’s not surprising that many Australians are feeling more anxious than usual. When it comes to your finances, feeling financially secure can have a big impact on your mental health1. Here are 3 tips to help you make sure you’re financially fit and prepared for the future:

1. Maximise the power of your super and savings

As a member of SASS, there are a number of things you can do to influence the outcome for your retirement. Maximising your employer financed benefit by accumulating 180 accrued benefit points and understanding how to maximise your final average salary in the lead up to retirement are key to getting the most out of the scheme.

But there are also ways to maximise your super outside of SASS. This may be a good option if you have additional income or lump sum amounts that can’t be contributed to SASS, such as income or proceeds from a term deposit, investment property or an inheritance. Making tax effective contributions to another super fund means that you can make better use of the contributions cap, enjoy more tax benefits whilst you’re still working, and earn more tax free income on your super savings when in retirement.2 Putting money into super also means you’ll be benefitting from the power of compound interest over time.

Bear in mind that when you contribute to super, the contribution cap limits will apply, and your money must remain in super until you meet a condition of release.

1 https://headtohealth.gov.au/meaningful-life/feeling-safe-stable-and-secure/finances
2 Income on investments in super attract zero tax in the retirement phase.

 

2. Make sure you have the right level of insurance cover for you

We’re living in more uncertain times and insurance is one way you can build a safety net to cushion you from some unexpected events. If you are contributing member of SASS, you have the option of taking out Additional Benefit Cover (ABC), optional insurance designed to provide a benefit in the event of total permanent incapacity or death.

It’s worth remembering the limitations of ABC. The cover will only bridge the gap between the employer financed benefit you have accrued up until the day you access the cover, and the benefit you would have received from your employer at your scheme earliest retirement age. The cover assumes your average contribution rate remains the same for the period and is limited to the maximum points per year and overall total of 180 points.

If you have reached 180 accrued points or your earliest retirement age, which for most members is age 58, the ABC no longer provides any insurance cover. And if you are made redundant or leave the NSW public sector, the ABC cover ceases. So, if you need income insurance or additional cover to provide you with more peace of mind, you’ll need to look at insurance options outside of the scheme.

Like any financial decision, it’s important to plan ahead, consider your overall insurance needs and review your cover on a regular basis. Your age, financial obligations or the dependents you have, may all influence what type and level of cover is right for you. For expert and personalised advice on your own insurance needs, you can speak with one of our specialist risk advisers.

 

3. Be confident you don’t have all your eggs in one basket

When markets are volatile and things around us are constantly changing, being smart with where you put your money is more important than ever. Super is an essential saving strategy, but remember, you may not be able to access your money for some time.

The younger you are, there is the likelihood that at some point you’ll need to access the money you have saved to pay for unexpected expenses or living costs. So, it’s important to weigh up the tax benefits of savings within super, with the need for access to your money before you retire. Providing for unexpected events, such as a loss of income for a period of time, is an important part of a personal financial plan. As a SASS member, making informed decisions about the percentage of your salary you are contributing to SASS, and the benefits of saving money outside of super is even more important, because of the potential impact to your employer financed benefit at retirement.

Of course, the right strategy for you all depends on your own circumstances and goals. Meeting with a financial planner3 from Aware Super can provide you with the right advice to balance your cashflow needs in the short term with your long-term retirement goals.


3 Financial planning services are provided by Aware Financial Services Australia Limited, ABN 86 003 742 756, AFSL 238430, which is wholly owned by Aware Super Pty Ltd.
 
 

What can I do with my super?

With early access to super an option for many Australians in recent months, now is a good time to refresh what you can and can’t do within SASS – and the options you have outside of the scheme. Test your knowledge with this simple Q&A.

Download the worksheet

Questions from the SASS community

Q. I have a few months of long service leave accrued. I’m 57 years old and planning to retire at 60. Would I be better off, in terms of tax and my final benefit, if I take the lump sum at age 60, or take the leave and be in service for an additional 18 months?

 

It really depends on your own unique situation and circumstances. There are a number of factors to consider when weighing up your options and deciding which option will make you better off. These include (but are not limited to):

· Whether you have maximised your employer financed benefit

· What your final average salary might be under each option

· The size of your final benefit

· Whether you need to access your benefit at age 60

  • · Your estimated taxable income in retirement
  •  
  • · Whether you or your partner could be eligible for Centrelink benefits when retired
  •  
  • The answer to this question isn’t straightforward, so it might be a good idea to talk your options through with a financial planner who understands how the SASS scheme works. Doing this could provide you with peace of mind and confidence that you’re making the right decision for you.
 

Q. I’m a deferred member in SASS and I also have an Aware Super accumulation account. In a year’s time at age 59, I’d like to reduce my working hours and go part time. I’ve heard that I can access my super through a Transition to Retirement income stream. Can you explain how this works and whether I can access my SASS benefit this way?

 

A Transition to Retirement Income Stream (TRIS) enables access to preserved super as additional income whilst you continue to work – whether fully or in a reduced capacity but over 10 hours a week. You must be over your personal preservation age* to have a TRIS account and must elect to receive between 4% and 10% of your TRIS balance each year as income payments^. While you’re under 60 years of age, all or part of your TRIS payments will be subject to tax – any taxable component will be taxed at your marginal tax rate less a 15% offset. From 60, you don’t pay any tax on income payments. The earnings within your TRIS will receive concessional tax treatment – earnings are taxed up to 15%. SASS will release a deferred benefit account from after age 58. The SASS funds may then be rolled over and amalgamated with any other superannuation holdings (such as the Aware superannuation holding) and used to commence a TRIS. If you are below your personal preservation age you will not be eligible to commence a TRIS.

Everyone’s situation and needs will vary so you should seek professional financial planning advice to assess whether a TRIS structure is an appropriate structure for you and provides the best outcome for your circumstances.

 
* Your preservation age is when you can first access your super. It changes, depending on your date of birth and is currently 58 years of age.
  
 
 
^ Drawing from your super now could mean you have a lower balance when you fully retire.
 
This is general information only and does not take into account your specific objectives, financial situation or needs. Seek professional financial advice, consider your own circumstances and read our product disclosure statement before making a decision about Aware Super or Aware Financial Services Australia Limited. Call us or visit our website for a copy. Issued by Aware Financial Services Australia Limited ABN 86 003 742 756, AFSL No. 238430. Aware Financial Services Australia Limited is wholly owned by Aware Super ABN 53 226 460 365. The trustee of Aware Super is Aware Super Pty Ltd ABN 11 118 202 672, AFSL 293340 .
 

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Are your finances on track?

Aware Super financial planners are experts in the SASS scheme. For personal advice that is based on your individual circumstances, get in touch with us today.

¹ Financial planning services are provided by our financial planning business, Aware Financial Services Australia Limited, ABN 86 003 742 756 AFSL No. 238430.

This communication contains general advice only, which means we have not taken into consideration your objectives, financial situation or needs (circumstances).  Before taking any action, you should have regard to your own circumstances, and seek appropriate professional advice if you think you need it. Further, this communication does not contain, and should not be read as containing, any recommendations to you in relation to Aware Super’s products. You should also read our product disclosure statement (PDS) and Target Market Determination before making a decision to acquire a product.  Contact us to make an appointment to see one of our financial advisers and read their Financial Services Guide carefully if you are seeking financial advice.  Financial planning services are provided by Aware Financial Services Australia Limited, ABN 86 003 742 756,  AFSL No. 238430. Estate planning services are provided by Aware Super Legal Pty Ltd (ACN 606 835 170), an Incorporated Legal Practice.

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