In May 2009 the Federal Treasurer Mr Wayne Swan announced a number of proposed changes as part of the 2009 Federal Budget.

There were two main changes proposed for super and these included reducing concessional contribution caps and temporarily reducing the government co-contribution.

Changes to super contribution cap amounts

Concessional Contribution caps (pre-tax)

From 1 July 2009 it is proposed that the concessional contributions cap will reduce by 50% for members aged 50 and under, to $25,000 p.a. (indexed).
The transitional contributions cap for members aged 50 and over would then be reduced from $100,000 p.a. to $50,000 p.a. between 1 July 2009 and 30 June 2012.
‘Grandfathering’ arrangements will apply to certain members with defined benefit interests as at 12 May 2009 whose notional taxed contributions would otherwise exceed the reduced cap.

What this means for you

  
If you currently salary sacrifice into your super or have a transition to retirement strategy in place you should review your current arrangements to ensure you don’t exceed the caps in the new financial year. Contributions exceeding the concessional contribution cap attract an additional tax of 31.5% and will be counted against your non-concessional contribution cap. 

Non-concessional contribution caps (after-tax)

The current cap on non-concessional contributions is $150,000 p.a (2008/2009 financial year) and it is stated to remain at that level in 2009/10. In the future, the cap is proposed to be calculated as six times the level of the (indexed) concessional contribution cap.
 

Government co-contribution rate temporarily reduced

The Government has proposed to temporarily reduce the matching rate and maximum co-contribution that is payable on an individual’s eligible after tax super contributions, with effect to contributions made from 1 July 2009.  

 
Remember, the eligibility criteria remains the same, and you can still qualify for a Government co-contribution even if you earn up to $60,342 p.a. You may wish to take advantage of the higher co-contribution rate for the current financial year and maximise your contribution by up to an additional 150% from the Government.  You can even BPAY® into your AMP superannuation account but do it before 30 June 2009 – it doesn’t need to be $1,000 either!

Summary of other 2009 Federal Budget proposed changes:

Good news for some:

Not so for others:

What you need to know

The advice in this article is general advice only and does not take into account your objectives, financial situation or needs. Therefore, before acting on the advice, you should consider its appropriateness to your personal circumstances. Although the information in this article was obtained from sources considered to be reliable, the information is not guaranteed to be accurate or complete. This publication was prepared by AMP Financial Planning Pty Limited ABN 89 051208327. The information in this article is current as at June 2009 and may change over time.

With the recent market volatility, it can be hard to make sense of what’s going on. Sometimes reading the financial pages in your daily newspaper is like trying to understand a foreign language. To help you make sense of what you’re reading, we’ve explained what each column heading means.

ASX Code:

A code of at least three letters given by the Australian Stock Exchange to each listed company.  This code is expanded to identify securities other than ordinary shares.

Company Name and Par Value:

This company name is the official stock exchange abbreviation, not the full legal company name.  Par value is the nominal value given to the company’s shares, most commonly 50c or $1.

Last sale:

The last sale price of the stock.  It is worth noting that for smaller companies the sale may have been several days or more in the past.

+ or -:

This shows if there has been any price variation on the day.  It is quoted in cents per share and if there has been no change or no sale, it is left blank.

Vol 100′s:

The turnover figure showing the number of shares sold in multiples of 100.  From Tuesday to Friday the figure is for the previous day’s activity but on Monday it shows the total for the entire previous week.

Quote – Buy / Sell:

The buy and sell are the closing buyer and seller quotes.  The buy quote is the highest price that prospective buyers are bidding for a stock.  The sell quote is the lowest price sellers are willing to accept in the market.

Dividend yield %:

This is the theoretical return on an investment if shares are purchased on the sharemarket at the prevailing price.  It is calculated by multiplying the dividend (in cents per share) by 100 and dividing this by the market price of the shares (in cents per share).

EPS (Earnings per share)

This is the profit per share that the company has earned.  This is shown in cents per share, and is based on the company’s last full year’s profit.

P/E ratio (Price/Earnings ratio):

The price/earnings ratio shows the number of times the market price exceeds the earnings per share.  It is calculated by taking the current share price and dividing it by the ‘per share’ earning rate.

The information in the last two columns gives an indication of the sharemarket assessment of a company’s performance.

A final note – try not to get into the habit of stock watching (checking your stocks on a daily basis).  Time frame is one factor, which can constitute the difference between ‘speculation’ and ‘investment’.  The intra day and inter day noise the market experiences is evidenced by several ups and downs and more often than not just causes anxiety.  If you must check your share market values more frequently than quarterly, try to obtain access to a price chart, which provides a pictorial view of medium to long-term price trends. 

If you have a family and a mortgage, insurance should be an important part of your financial planning strategy because you need to be able to maintain your income and meet your obligations should disaster strike. Your insurance strategy should include life insurance cover and income protection, which can help you and your dependants meet your financial obligations in the event of your premature death or illness.

Life insurance

Death cover usually pays a lump sum to your nominated beneficiary in the event of your death from an illness or accident. It can help your loved ones to pay your outstanding debts and pay for living expenses so that they don’t face any unnecessary financial hardship.

Most Australian families with dependent children do not have enough life insurance to look after their families for more than one year if they died so it’s important to consider this sort of cover in your financial planning.

Often, you’re automatically accepted for basic Death cover through your superannuation fund, so check whether you’re fund provides this type of cover  already. Then check the level of cover and whether it is adequate for you. If not, you may need to top up your cover through your fund once you determine exactly how much cover your need.  If you do take out death cover through your superannuation fund, you can pay for the cover using superannuation guarantee contributions being made to your account by your employer or can opt to top up your super account yourself, if you are self employed. Plus, Premiums for death cover offered through superannuation funds are generally cheaper than death cover owned in your own name which can save you money.

Total and Permanent Disability insurance

Total and Permanent Disability Insurance (TPD) is commonly taken as an extra with death cover, or on a stand alone basis. TPD cover provides a lump sum payment in the event of your total and permanent disablement and is generally only paid after you are unable to work for at least 6 months.  Policies have varying definitions of TPD so it is important to understand the extent of your TPD cover.

Trauma insurance

Another form of life insurance, trauma insurance, is designed to provide you with a lump sum payment in the event of a specific medical condition or procedure, which can assist you with medical bills, or other financial commitments like your mortgage. Given the nature of what the payment is designed for, the amount of trauma cover required is generally not as great as death cover. Usually, a benefit payment will be made once the specified medical condition is diagnosed or the medical procedure is undertaken. Make sure you check what conditions and procedures are covered in your policy, as these can vary from one policy to another.

Income protection insurance

Income protection insurance provides you with a regular income if you become ill or are injured and are unable to work. This is the sort of cover that will help pay your mortgage and meet other living expenses once your work sick leave and any other benefits run out.

You can typically claim on your insurance if you are unable to perform certain duties of your own occupation or any occupation (depending on the type of policy you have), but policy definitions can vary widely on when you can claim so you need to research all your options. 

Many financial planners recommend that you insure for 75 per cent of your gross annual income up to age 65. To determine the exact level of cover that is right for you and your family, you’ll need to consider the costs of meeting a mortgage and other debts and providing for your partner and/or family. Generally, the longer you request cover, the more expensive the policy. The good news is that premiums for income protection are generally tax deductible.

Like death cover, income-protection insurance can be available through your employer-sponsored superannuation fund but there can be a limit on how long benefits are paid for. Some superannuation funds restrict the maximum payment period for any one claim to two years after the waiting period, which is typically 90 days. A comprehensive income protection policy outside superannuation can provide benefits up until age 65.

If you do have a policy through your superannuation fund with a two-year benefit period, you may want to consider taking out another separate policy (with coverage up until age 65 or beyond) with a two-year waiting period. This can make the policy premium less expensive than a retail policy with a 60-day waiting period.

Please contact NewCourse Financial if you have any questions or would like more information or advice on what type and amount of insurance is suitable for you and your family.

What you need to know

The advice in this article is general advice only and does not take into account your objectives, financial situation or needs. Therefore, before acting on the advice, you should consider its appropriateness to your personal circumstances. Although the information in this article was obtained from sources considered to be reliable, the information is not guaranteed to be accurate or complete. This publication was prepared by AMP Financial Planning Pty Limited ABN 89 051208327. The information in this article is current as at June 2009 and may change over time.