Sent: 31-10-2005 00:16:25
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Greed or lack of knowledge can cost you dearly - Tony Negline
IT is self-evident that the retirement system is complex and changes constantly. This persistent evolution requires a self-interested investor to be constantly vigilant. If an investor fails to take an active interest in changes being made, opportunities might be lost or adverse changes may not be identified. The uninterested investor can lose, whatever happens.
A good example of this is the small-fund defined benefit pension opportunity, which will be closed in December next year.
It is common to hear people of good commonsense wonder why the system had to be so complicated and subject to so much variation. Some people have begrudgingly accepted these unpleasant facts.
One consequence of the system changing so constantly is that it is impossible to tell how well some changes have worked because most regulatory measures are not around long enough for anyone to make an objective assessment of their usefulness or suitability.
Every political party wants to stamp its philosophy on the retirement system. At the last election the ALP proposed at least 43 changes to the super system. The minor parties had their own policy ideas.
But it is important to remember that there is a long and winding road between an announcement and formal legislation or regulation. Many proposals are frequently amended, postponed or abandoned.
If only policymakers would see the benefit of leaving the retirement system alone for at least five years. This is the only way that knowledge of the system would increase. We would also get some breathing space so that we could judge what is good and bad about the system.
Modern politics just wouldn't allow a politician to practise "masterly inactivity" - the key measure Sir Humphrey Appleby used to judge how successful he judged a minister to be.
Despite these unpleasant realities, retirees have to use their finite resources to generate a sufficient income so they can live with dignity.
There are six big themes that retirees have to grapple with when working out how much income their funds can generate: government benefits (such as the aged pension and concession cards), taxation, super rules, estate planning, longevity and investments.
Finding a way through these six issues is never easy. Most investors find it impossible to work out a suitable solution themselves and the only way to move forward is to seek out a suitable financial planner. Finding a suitable planner can be hard work. Surveys of planners' clients consistently show that planners fail to deal with clients in the way that the client wants to be dealt with, especially on an ongoing basis.
Investors tend to under-estimate and under-value the huge amount of work some planners do to prepare a financial plan. Any investor who has sought the services of more than one planner will know the feeling of utter confusion when one planner's solution, which looks fine, is diametrically different from another plan, which also looks fine.
How can solutions be so different? In most cases there is no right or wrong answer.
Sometimes the suitability of a strategy will not be known for many years. But a common mistake that many investors make is to solve their problems without looking forward to the next 20 or 30 years.
Also, financial planners tend not to provide projections in their financial plans. (These projections are often kept in the client file but to limit liabilities are not shown to clients.) Investors need to confirm, as best they can, that their chosen strategy will survive legislative changes and will cope with a change in personal living requirements. For example, a retiree couple might be prepared to do practically anything to receive the Government's aged pension. To do this, they might be forced to put all their savings into a Term Market Linked
Pension -- the new pension that can be offered from September 20 and is 50 per cent assets test exempt.
This strategy might give them quite good income for a few years but these new income streams are not allowed to be converted into a lump sum. What would a couple who implemented this strategy do if they needed funds to maintain or renovate their home or needed funds to pay a deposit on a nursing home?
Unless they wanted to break the law, there would be nothing they could do. Greed or a lack of knowledge can cost you dearly.
This email is general in nature only and does not constitute or convey specific or professional advice. Legislation changes may occur quickly. Formal advice should be sought before acting in any of the areas discussed. Be aware that the information in these articles may become innaccurate with time. Responsibility is disclaimed for any inaccuracies, errors or omissions. Particular investments are neither invited nor recommended and hence this publication is not "financial product advice" as defined in Section 766B of the above legislation. All expressions of opinion by contributors are published on the basis that they are not to be regarded as expressing the official opinion of any other person or entity unless expressly stated. No responsibility for the accuracy of the opinions or information contained in the contributor's articles is accepted by any other person or entity. Copyright: This publication is copyright. If you wish to reproduce this article you require a license, which can be purchased here, to do so.