Superannuation Death Benefits – not generally covered by your Will
As superannuation has become the second largest asset after the family home for many people, it is important to remember that the superannuation benefits of a deceased person do not automatically form part of the estate of the deceased.
Superannuation specialists, SuperCentral, say that the reason for this is that “many years ago tax was levied either on the estate of a deceased individual (death duties) or upon inheritances received from a deceased estate (succession duties). If the superannuation benefit of a member was automatically paid to the estate then the benefit would have been subject to such duties. Consequently, a practice developed that superannuation benefits would be allocated at the discretion of the trustees. This meant that the superannuation benefits were not treated as forming part of the estate of deceased members”.
Given that death and succession duties were eliminated in Australia decades ago, they note that “there is now no tax or legislative reason preventing a superannuation fund from automatically paying death benefits to the estate of the deceased member. However this is not the current practice and the reason is due to the flexibility of trustee decisions and, to a lesser extent, the ability to pay death benefits directly to the dependants without having to wait for probate”.
Most superannuation funds, but not all, now allow Members to make what is known as a binding death benefit nomination (BDBN) specifying how their death benefits are to be allocated to their eligible beneficiaries. A BDBN can also be in favour of the deceased’s legal personal representative (the executor or administrator of the estate) in which case the superannuation benefit should be distributed along with other assets as specified in the Will.
The underperformance of many of our “Blue Chips”
Our share market is very concentrated; the largest twelve ASX listed companies currently make up just under half (49%) of the ASX200. These companies are the most widely held in the domestic market, with an average market capitalisation of nearly AU$60bn and a combined market capitalisation of approximately AUD$700bn.
Unfortunately, many of these companies have underperformed in recent times for various reasons:
- The big 4 banks (which are the four largest companies on the ASX), heavily exposed to Australian residential property, are being forced by regulators to raise capital through earnings dilutive raisings and to restrict loan book growth to investor housing, limiting overall prospective earnings growth.
- The major commodity companies, such as BHP Billiton, Woodside Petroleum and Rio Tinto, are suffering from falling demand and a continued expansion of supply in the bulk commodities and energy sectors. The result is many commodity prices have fallen to levels last seen in the early 2000s. Many are low cost producers but these are highly cyclical businesses and their dividends may well fall.
- Telstra, the telco industry leader with pricing power due to its superior mobile network and the recipient of sizeable payments from the NBN, is facing increasing pricing pressures and increased investment by its peers.
- The major supermarket players, Wesfarmers and Woolworths, are feeling the impact of increased competition from foreign entrants such as Aldi. This is putting some pressure on their strong margins. Woolworths also has some management issues and the cost of its loss making Masters hardware chain.
Commodity Prices – yes, they are weak and hurting Australia
Most Australians are very aware that commodity prices are weak, in particular iron ore and coal, Australia’s largest exports. This can be seen in BHP’s share price which has fallen below $20.
The picture for nearly all commodities is weak which is reflected in the CRB index, which measures 22 basic commodities, which has more than halved since its peak and the RBA Commodity Index which has also halved over the past few years. The lower Australian dollar has helped our miners to a degree but not enough to offset price falls.
Some major moves include:
- Iron ore prices have fallen from over US$140 per tonne to around US$40 per tonne currently.
- Oil, which as recently as July 2014 was over US$100 per barrel, is testing the $40 per barrel (WTI crude) level due to US dollar strength and continued global oversupply, reflected in high stock levels. Large OPEC members, like Saudi Arabia, have not cut production to counter increased supply from US oil shale producers and weak demand. The weak oil price has hurt Australian companies like Woodside, Origin Energy, Santos & others. Major oil companies globally and businesses servicing these companies, like Worley Parsons, have also been severely impacted.
- Copper (sometimes known as Dr. Copper as the price is often viewed as a reliable leading indicator of economic health) is ailing as well and is also trading at six-year lows. Copper prices have dropped 28% year-to-date. China drives roughly 40% of world copper demand, where it is used in construction and manufacturing.
- Aluminium prices are down around 30% this year. As of November 23, benchmark 3-month aluminium futures were trading at around $1,440/ton on the London Metal Exchange, just above a six-year low. Six years ago the world was in the midst of the worst financial crisis since the great depression of the 1930’s.
- Nickel prices have fallen even more than most other metals. Currently nickel is trading at just over US$8,000 per tonne, down from over $US17,000 a tonne just 7 months ago. This volatile commodity peaked at over $US50,000 per tonne in 2007.
Changes to the Centrelink assessment of defined benefit income streams
From 1 January 2016, Centrelink will apply a 10 per cent cap on the ‘deductible amount’ of defined benefit income streams resulting in an increase in assessable income for approximately 48,000 people.
Defined benefit schemes impacted are provided by the Federal Government (20 per cent), State and Local Government (75 per cent) and corporate schemes (5 per cent).
The Government claims an anomaly was created with the simpler super changes in 2007 which significantly increased the deductible amount of defined benefit income streams for a number of social security recipients. The rules are complex, but put simply the deductible amount calculation was changed in 2007 from a fixed amount, which represented a person’s after tax contributions, to a tax free percentage which also included the pre-July 1983 component. For those with significant pre-July 1983 service, this resulted in a large deductible amount.
This newsletter contains general advice. It does not take account of your individual objectives, financial situation or needs. You should consider talking to a financial adviser before making a financial decision.