SASSAPR 2014

Enjoying the best possible lifestyle in retirement is all about the earlier decisions you make about your superannuation.

State Super seminars are designed to help you understand the State Authorities Superannuation Scheme (SASS). The seminars provide you with important information about your options and how you can get the most from your membership. You will also learn how financial planning advice can help you maximise your super benefit to afford the lifestyle you want in retirement.

Have you planned for your retirement?

It’s important to understand how changes to seemingly small factors such as how long you intend to work can make a substantial difference to your available income in retirement – and how long that income will last. A financial planner can help you answer questions such as the best time to retire, and whether you have enough money to stop working.

Financial planning advice is about understanding your situation and using the planner’s knowledge of superannuation, taxation and Centrelink rules to help maximise your income in retirement from all possible sources.

It’s never too early to start

The sooner you attend a seminar, the sooner you can develop a sound financial strategy that will improve your wellbeing and lifestyle in retirement. If you wait until you are ready to retire to understand your superannuation benefits, it may be too late!

State Super conducts around 80 seminars a year. We offer two types of seminars: Understanding Your Super and Planning for Retirement.

The Understanding Your Super seminars are designed to help younger SASS members understand how to maximise their benefits while they still have time to make appropriate choices. The main issues covered are: how to maximise the employer component of your benefit; understanding the possible benefits of salary sacrifice; and death and disability insurance cover. These seminars are available in Sydney, Newcastle and Wollongong.

The Planning for Retirement seminars are more detailed and generally commence at 4.30pm and conclude at 8.30pm to allow members to attend after work. These seminars are held in the Sydney metropolitan area and in regional areas across NSW.

Make a booking

All our seminars are free to attend, although bookings are essential. To reserve your place, simply register online at www.statesuper.nsw.gov.au/sass. Alternatively, you can make a reservation by calling 1300 130 095 or by sending an email to seminars@statesuper.nsw.gov.au.

Important: SAS Trustee Corporation (STC) is not licensed to provide financial product advice in relation to the State Super schemes. This newsletter contains general information only and nothing is intended to be or should be regarded as general or personal advice. In preparing this newsletter, STC has not taken into account your objectives, financial situation or needs. You should consider your personal circumstances and seek professional advice before making any decision that affects your future.

Attend a State Super seminar

Member services

Visit the State Super website www.statesuper.nsw.gov.au to find out about the seminar schedule and other important information about your scheme.

Register for online services to:

• Obtain a benefit quote

• Update your contact details

• View and download annual statements

To register for access, go to www.statesuper.nsw.gov.au/sass, click the Register button and follow the directions.

We value your feedback

To help us make the website as useful as possible, we would value any comments or suggestions you have about the site. Please email your feedback and suggestions to enquiries@stc.nsw.gov.au or call 1300 130 095.

2 SuperViews | April 2014

One of the greatest risks most of us face in retirement is outliving our money. That’s why it’s important to make sure you take advantage of strategies, such as salary sacrifice, to help you achieve the lifestyle you desire in retirement.

Save tax and boost your retirement benefit

Depending on your financial situation, salary sacrificing into super can increase your super savings while reducing the amount of tax you pay. Your super contributions are deducted from your salary before tax, and instead of being taxed at your marginal tax rate, are taxed at the 15% concessional rate that applies to the money paid into super. This means you could save 19% or more on the portion of the salary sacrifice contributions you make to super.

The tax savings for 2013–14 at different income levels are:

• 19% for income between $37,000 and $80,000

• 23.5% for income between $80,000 and $180,000

• 31.5% for income between $180,000 and $300,000

• 16.5% for income over $300,000.

If you choose to salary sacrifice, you will have to account for tax paid on your super contributions. This means you will need to increase your rate of contribution so you’re contributing the same net amount as you would if you were making after-tax contributions. To work out your increased rate of contribution, divide your current after-tax contribution amount by 0.85. For example, a 6% contribution rate will be a 7.06% deduction from your pre-tax salary (6% ÷ 0.85 = 7.06%).

Is there a limit to how much you can salary sacrifice?

Concessional contributions are currently capped at $25,000 per year for members aged under 60, or $35,000 per year for members who were 59 or older on 30 June 2013. In 2014–15, the limit will increase to $30,000 per year for members aged under 49, or $35,000 per year for members who were 49 or older on 30 June 2014. As of 1 July 2013, any excess concessional contributions are taxed at your marginal tax rate plus an interest charge.

Take the next step and get the right financial advice

You need to determine whether salary sacrifice is the right choice for you. Special conditions apply for concessional contributions to defined benefit funds such as SASS and you will need to take these into consideration. A financial planner from State Super Financial Services (SSFS) can recommend an appropriate salary sacrifice strategy for your personal situation. To make an appointment with SSFS, call 1800 620 305 or visit www.ssfs.com.au for more information.

You can also use the State Super calculator at www.statesuper.nsw.gov.au/sass/tools-and-resources/calculators to see how salary sacrifice could affect your after-tax income and compulsory personal contributions.

Note: State Super Financial Services Australia Limited (SSFS) is wholly owned by State Super. However, State Super is not responsible for the advice that SSFS provides. State Super pays no fees to SSFS for the services it provides to SASS members. State Super is not a representative of SSFS and receives no commission when making referrals to this service. SSFS is the holder of Australian Financial Services Licence 238430, ABN 86 003 742 756. Neither the SAS Trustee Corporation nor the New South Wales Government take any responsibility for this information or the services offered by SSFS, nor do they or SSFS guarantee the performance of any product provided by SSFS. This information is of a general nature only and is not specific to your personal circumstances or needs. It is published for your interest. Before making any decisions based on this information you should consider its appropriateness for you. Every effort has been made to ensure this information is accurate. We strongly recommend that you consult a financial planner before taking action based on this information.

Salary sacrifice – could it work for you?

Example

Alison is 51. She earns $90,000 a year and has been a member of SASS since 1992. Alison contributes 5% to SASS after tax, and has accrued 117 benefit points. This gives her a take-home pay of about $62,900 per year.

Alison plans to retire in nine years, aged 60. To maximise her employer-financed benefit and earn 180 benefit points by the time she retires, Alison could increase her contributions to 7% if she chooses to salary sacrifice her contributions instead of paying them from her after-tax income.

In this case, salary sacrifice results in an increased employer-financed benefit of $34,425 at retirement, assuming a final average salary of $90,000, and with no real change in Alison’s take-home pay. The increased contributions are offset by the income tax saving. Although not discussed in this example, the accumulation of extra contributions could also increase Alison’s potentially higher personal account balance.

Notes:

1. A contribution rate of 7% is grossed up to 8.24% for pre-tax contributions, to take into account the 15% tax payable on contributions made to SASS.

2. Employer-financed benefit = 2.125% (after contributions tax) x final average salary x accrued benefit points.

3. This example assumes a final average salary of $90,000.

4. This example is based on 2013–14 tax rates, including the Medicare Levy.

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Take advantage of the SASS benefit points system and optimise your employer-financed benefit

As a State Authorities Superannuation Scheme (SASS) member, your employer financed benefit is based on the benefit points system, which allows you to accrue up to an average of six benefit points for each year of your membership.

This means that if you haven’t been contributing enough to accrue the maximum average of six benefit points for each year of your membership, you can increase your contribution rate up to 9% of your salary and accrue more benefit points to make up for lost time. Read the information below to understand how the benefit points system works and, most importantly, how you can optimise the employer component of the final benefit you receive from SASS.

How the benefit points system works

Every 1% of your salary you contribute to your SASS personal benefit account will earn you approximately one benefit point, subject to the limits listed below. SASS members can contribute 1–9% of their income, deducted on an after-tax or before-tax basis, or a combination of both. Read the article on page 3 for more information on the benefits of salary sacrifice.

The SASS benefit points system is subject to the following limits:

• If you work full-time you can accrue a maximum average of six benefit points for each year you are a member of the scheme.

• You can accrue a maximum of 180 benefit points over the duration of your membership. This would take at least 30 years if you were working full-time and contributed an average of 6% of your salary each year.

• If you are a former member of the State Public Service Superannuation Fund (SPSSF), you are entitled to a maximum of 162 points if you retire at age 55, or 180 points if you retire aged 58 or older.

Each benefit point you accrue represents an extra 2.5%1 of your final salary or final average salary which is paid by your employer as part of your final retirement benefit. For SPSSF members, each benefit point represents an extra 3%1 of final salary or final average salary. By accumulating the maximum number of benefit points during your scheme membership, you will optimise the employer-financed portion of your SASS entitlement. For more information, see ‘What are the benefits of increasing your rate of contributions?’ on page 5.

1 Since 1 July 1998, employer contributions are subject to Commonwealth tax which generally reduces the extra employer-financed benefit to 2.12% and 2.55% for SPSSF members.

Before you decide to increase your rate of contribution, you should be aware of the Commonwealth Government limits on contributions and the special conditions for members of defined benefit schemes. These will be discussed later in ‘What are the Commonwealth Government limits on contributions?’ on page 5.

Important note: You should consult a financial planner before making any decisions about raising your contribution rate. This example above is provided as an illustration only and is based on the facts stated above. You should not rely on this example when making decisions about your personal situation.

Example: How you can boost your average rate of contribution

Henry joined SASS 25 years ago and has always worked full-time. Initially he contributed at the rate of 6%. After five years, Henry reduced his contribution rate to 3%. Henry is 50 years old and intends to retire in 10 years, so he is thinking about the rate at which he needs to contribute to achieve the optimal number of benefit points.

As mentioned earlier, Henry will accrue approximately one benefit point for each 1% of salary he contributes each year, up to a maximum of six benefit points per year.

To calculate Henry’s optimum rate of contribution, we first need to calculate the number of benefit points Henry has accrued after 25 years as a member of the scheme:

Contributed points = (6 x 5 years) + (3 x 20 years) = 90.

This means Henry would need to increase his contribution rate to 9% to catch up and achieve the optimal number of benefit points as calculated over the entire duration of his scheme membership.

4 SuperViews | April 2014

What are the benefits of increasing your rate of contributions?

Each benefit point provides you with an employer-financed benefit (EFB) of approximately 2.5% (or 3% if you are a former member of SPSSF) of your final average salary or final salary, depending on your age and reason for leaving, and within the limits listed earlier.

Using the previous example, if Henry maintained his current rate of contribution at 3%, he would accrue a total of 120 benefit points at age 60 (that is, 6 x 5 years + 3 x 30 years). Assuming he retires with a final average salary of $75,000, the following formula would be used to calculate Henry’s EFB:

EFB = final average salary x 2.12% x number of benefit points

= $75,000 x 2.12% x 120

= $190,800

If Henry decided at age 50 to increase his contribution rate  to 9% of his income, he would receive an additional 60  benefit points.

Contributed points

= (6 x 5 years) + (3 x 20 years) + (9 x 10 years)

= 30 + 60 + 90

= 180

Henry’s EFB would then be calculated as:

EFB = final average salary x 2.12% x number of benefit points

= $75,000 x 2.12% x 180

= $286,200

Important note: This example above is provided as an illustration only and is based on the factors stated above. You should not rely on this example when making decisions about your personal situation. This example assumes a number of factors including an assumption that Henry is employed on a full-time basis throughout his SASS membership. For benefits accrued from 1 July 1988 onwards, the EFB is reduced by the tax payable on employer contributions. You should also take care that you do not breach the concessional contribution caps as discussed next.

In addition to the EFB, Henry will also receive the balance of his personal account and his basic benefit entitlement.

What are the Commonwealth Government limits on contributions?

The general concessional (before-tax) contributions cap for 2013–14 is $25,000. From 1 July 2013, the limit on concessional contributions increased from $25,000 to $35,000 for members who were aged 59 or over on 30 June 2013. From 1 July 2014, the limit will increase to $30,000 per year for members under age 49, or $35,000 per year for members who were 49 or older on 30 June 2014. The concessional contributions cap applies to concessional contributions made to all your superannuation accounts, not just your SASS account.

For a defined benefit fund such as SASS, the concessional contributions applicable to your account are also known as notional taxed contributions. Notional taxed contributions include contributions your employer makes to the fund plus any salary sacrifice contributions you make to your personal account.

Contributions within the Commonwealth Government limits receive favourable tax treatment. However, if you contribute beyond these limits, the excess will be included in your assessable income and taxed at your marginal tax rate plus interest.

There are also limits on after-tax (non-concessional) contributions; the after-tax contribution cap is currently $150,000 per annum. If you are younger than 65, you can make contributions up to $450,000 over a three-year period. If you exceed the non-concessional cap, you will be subject to a 46.5% excess non-concessional contributions tax.

SASS special conditions – benefit category

Members of defined benefit schemes such as SASS are subject to special rules when calculating concessional contributions.

If you exceed the Commonwealth limits specified above, the contributions will be deemed to be within the limit and are reported as such. However, these ‘deeming’ provisions can be lost. They will not apply if you have increased your contribution rate and moved to a higher benefit category since 12 May 2009. The relevant benefit categories and factors that apply to SASS members are detailed in Fact Sheet 16 SASS Concessional contributions cap which is available from the State Super website at www.statesuper.nsw.gov.au/sass/tools-and-resources/factsheets. In accordance with Commonwealth regulations, a different calculation is required for each benefit category.

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To illustrate, let’s look at the example of Henry mentioned earlier. There are four benefit categories for standard SASS members which are based on a member’s contribution rate as shown below:

Standard SASS members’

contribution rate Benefit Category

SASS total benefit factor

including basic benefit

Less than 4% 6.0%

4% 7.2%

5% 9.6%

6% or more 10.8%

If Henry increases his contribution rate from 3% to 9%, he will lose the protection of the deeming provisions because he moved to a higher benefit category after 12 May 2009. This would only be a concern if Henry’s total annual contributions to SASS were close to the concessional contributions cap of $25,000.

Alternatively, let’s assume Henry was contributing 6% just prior to 12 May 2009 and wanted to make up for lost time by increasing his rate to 9%. Henry would not lose the deeming protection because he maintained his contributions within the ‘6% or more’ benefit category.

Important: These special conditions only apply to contributions made to the SASS scheme. If you are making contributions to other superannuation funds, your total contributions may exceed the caps specified by the Commonwealth Government.

How to increase your rate of contribution

You can only change your contribution rate once a year, and as we can see in the example, you need to be aware of the Commonwealth Government limits on contributions. As such, we recommend you follow these three easy steps before you change your rate of contribution:

1. Confirm your current rate of contribution by checking the personal details information on page 1 of your Annual Statement. Alternatively, call Customer Service on 1300 130 095. If your contributed benefit points are less than your maximum benefits, you should consider increasing your rate of contribution to accrue the optimum number of benefit points.

2. Use the online SASS calculator on the State Super Financial Services (SSFS) website (www.ssfs.com.au/education-centre/calculators/sass-calculator) to compare the difference a change in contributions will have on the employer-financed portion of your retirement benefit.

3. Obtain financial advice to make sure you don’t exceed the Commonwealth Government contribution limits.

A financial planner from State Super Financial Services (SSFS) can assist you in determining the contribution rate that will enable you to receive the maximum employer-financed benefit. They can also help you avoid the risk of exceeding any contribution limits that could adversely affect your financial situation. SSFS provides over-the-phone and face-to-face financial planning advice for SASS members and their families. To speak to a financial planner, call SSFS on 1800 620 305, or visit www.ssfs.com.au.

State Super Financial Services Australia Limited (SSFS) is wholly owned by State Super. However, State Super is not responsible for the advice that SSFS provides. States Super pays no fees to SSFS for the services it provides to SASS members. State Super is not a representative of SSFS and receives no commission when making referrals to this service. SSFS is the holder of Australian Financial Services Licence 238430, ABN 86 003 742 756. Neither the SAS Trustee Corporation nor the NSW Government take any responsibility for this information or the services offered by SSFS, nor do they or SSFS guarantee the performance of any product provided by SSFS.

6 SuperViews | April 2014

Global economic overview

In the second half of 2013, the global economy faced a series of risks: a slowdown in the Chinese economy, concerns about the outlook for Europe, political gridlock in the United States and the possibility that ending the US Federal Reserve’s huge stimulus program might delay a global economic recovery. By the end of the year these concerns had eased, and the global economy finished 2013 looking stronger than at any time since the global financial crisis (GFC).

This improved economic outlook in the second half of 2013 was reflected in the strong performances of international and Australian shares over that period.

Growth takes hold in the United States

Throughout 2013, there were signs that the United States’ economy was returning – albeit slowly – to growth. Employment numbers were improving, property prices were rising and consumer confidence surveys more positive.

However, the good news was offset by two factors. Firstly, the US Congress fought a drawn-out battle over the Government’s debt limit, which led to the Government effectively shutting down for 16 days. Secondly, financial markets were affected by concerns that even a gradual reduction in quantitative easing (a stimulus policy whereby the US Federal Reserve injects money into the economy by buying bonds) would slow economic growth and weaken share market returns.

Despite this, at the end of the year financial markets appeared unaffected by the first official tapering of quantitative easing and another political dispute – President Obama’s public health care plan. By 31 December, the S&P 500 share index had delivered an annual return of nearly 30%, reaching a record high.

Better news from Japan and China

International share returns were also boosted by the two big Asian economies of Japan and China. ‘Abenomics’ – the Japanese Government’s attempt to stimulate its long-dormant economy, named after Prime Minister Shinz Abe – appeared to be working, and the Nikkei share index had risen more than 50%.

China’s announcement of reforms designed to move its economy in a more consumer-oriented direction was also well received. Over the long term, this will move China away from its reliance on fixed asset investments, potentially strengthening the Chinese economy and also leading to stronger growth in other economies that can provide the greater range of consumer goods Chinese consumers are likely to demand.

Signs of growth in Europe

In contrast, European economies remained relatively weak. Unemployment is still very high and while there are signs of better growth in some countries, a full economic recovery may be years away. However, the final six months of 2013 saw no more of the sudden debt crises that have affected Europe since the GFC. Indeed some European countries – notably Ireland – have dramatically reduced their debt problems.

Effects on the Australian market

Throughout 2013, the Australian economy was adjusting to the waning boom in commodity prices and mining investment – a process made easier by the Reserve Bank’s decision to push interest rates down to record lows.

By the end of the year, increases in residential property prices – especially in Sydney, Melbourne and Perth – demonstrated the benefit of lower interest rates. Lower interest rates also reduced the attractiveness of cash and term deposits, leading investors to move out of these assets and into shares.

In mid-2013, investors were leaning towards shares that paid high dividends – investing in banks, for example. By the end of the year, companies with significant overseas earnings were also doing well due to the falling value of the Australian dollar, which dropped to US$0.87 from a high of US$1.06, making those overseas earnings more valuable.

Impact on financial markets

The strengthening global economy in the final six months of 2013 helped growth assets like shares and property deliver strong returns over the calendar year.

Australian investors with exposure to international markets – such as those committed to the balanced and growth options of many super funds – would have seen their international returns enhanced by the falling Australian dollar.

In Australia, the move from interest-paying assets into shares saw the S&P/ASX 200 index up over 15% for the calendar year, which followed on from a return of over 14% in 2012. Mining and mining services companies performed poorly due to falling commodity prices, but high-yielding shares like the Big Four banks all rose more than 20% over the calendar year. In 2013 – and after a number of difficult years – a number of major retailers performed strongly, as lower interest rates allowed customers to spend more readily. The weakened Australian dollar also reduced competition from overseas based online retailers.

Investment market overview

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Outlook for 2014

In early 2014, weakness in emerging markets has followed the Federal Reserves moves to gradually withdraw excess liquidity from money markets. The capital flows from emerging markets resulting from this has improved valuations relative to developed economies. However share markets in developed countries can offer reasonable returns in 2014 but investors should expect more volatility.

In Australia, the transition from a mining investment driven economy to one better balanced over the consumer, housing and business investment sectors is yet to be clear. This also represents a risk to markets and economic growth prior to an expected pick up in export volumes.

In 2014, investors in Australia and around the world will continue to watch the United States and Chinese economies carefully, as these two economies may well set the tone for how the global economy and global investment markets perform.

STC investment performance as at 28 February 2014

Investment performance has been assisted by exposure to growth assets which has experienced good returns as the recovery in the United States economy underpins confidence in investment markets. Valuations are pricing in further economic recovery and returns could be subject to further volatility should the recovery suffer shocks or fail to gain pace, particularly in Europe or China.

Growth Balanced Conservative Cash

1 month 2.0 1.5 1.1 0.2

YTD 10.2 8.6 6.1 1.7

1 year 13.9 11.5 8.3 2.7

3 years 8.7 8.3 7.0 3.5

5 years 10.4 9.3 7.4 3.6

Important: Past performance is not a reliable indicator of future performance. The crediting rates shown above have been rounded to one decimal point and are shown as an annual rate. Actual crediting rates are declared monthly to four decimal places. The annual rate is the compounded monthly rates.

8 SuperViews | April 2014