Andrew Brown
(Australian Associated Press)

More than one million superannuation account holders will receive notice from their funds saying they have underperformed.

New requirements will force 13 super funds to write to 1.1 million members on Monday, urging them to switch where they invest their savings.

The notice comes after the funds were found by the financial regulator to have failed key performance tests.

The tests found that $56.2 billion was invested into underperforming funds.

It’s the first time the measures have been taken under the federal government’s new Your Future, Your Super reforms.

Superannuation Minister Jane Hume said the measures were designed to make super funds more accountable.

“If your fund has underperformed, they will write and tell you that they have not delivered on their promise and to direct you to the YourSuper comparison tool so you can see which fund might better suit you,” she said.

“The bright sunlight on accountability will be an uncomfortable reality for some.”

The super fund tests were carried out by the Australian Prudential Regulation Authority, which examined 76 MySuper investment options.

Next year’s performance tests will be expanded to include a larger range of superannuation products.

Funds that fail the tests twice in a row will be banned from taking any new members.

It’s estimated that Australians pay more than $30 billion each year in superannuation fees, with the industry worth an estimated $3 trillion.

Your Future, Your Super reforms came into effect from July this year.

Senator Hume said the letters by super funds would help people to switch over their funds to better-performing providers.

“The comparison tool is part of the reforms that are estimated to save Australian workers $17.9 billion over 10 years,” she said.

Money and Life
(Financial Planning Association of Australia)

With the rising cost of housing, an aging population, climate change and now a pandemic falling squarely on the shoulders of Australia’s millennials, how is this generation faring financially?

The first millennials (born between 1981 and 1996) are turning 40 this year. Still, despite more than twenty years in the workforce, it seems their financial wellbeing isn’t guaranteed.

A Commonwealth Bank study has found that almost two thirds (61 per cent) of millennials (also known as ‘Gen Y’) don’t have a regular savings plan, while 1 in 10 are still living pay cheque to pay cheque. A third (31 per cent) say they don’t feel comfortable talking about money.

Yet, millennials haven’t let go of the great Australian dream. More than half (58 per cent) are holding out hope they’ll be able to buy a house in the next five years. Currently only 28 per cent of millennials own their own home, according to the study.

Structural challenges 

After a decade of slow economic growth, little to no wage growth and spiralling housing costs in our major cities, it seems millennials are feeling the pinch.

While older households have done well from rising house prices and superannuation, research by the Grattan Institute shows that the wealth of millennial households has barely moved since 2004.

“Poorer young Australians have less wealth than their predecessors and are far less likely to own a home,” the study’s authors say. “In contrast, older households’ wealth has grown by more than 50 per cent over the same period because of the housing boom and growth in superannuation assets.”

Contrary to popular belief, the report’s authors say there’s no evidence that millennial spending habits are to blame for stagnating wealth.

“In fact, younger people are spending less on non-essential items such as alcohol, clothing and personal care, and more on necessities such as housing, than three decades ago.”

No issue with soy lattes and avocado brunches then it seems.

A COVID-19 legacy?

Adding to the financial worries, more than a third of millennials (37 per cent) say they’ve been affectedfinancially by the COVID-19 pandemic, the highest of any generation.

And, while the pandemic has further stifled wage growth, it’s also is forcing many to ‘shelter in place’, choosing job certainty over career advancement. It’s unclear what the longer term impact of this will be, but redundancies and lack of career progression in some industries is likely to shape our workforce for years to come.

Resilience in the face of hardship

Despite the cards being (economically) stacked against them, it seems Gen Y are a resilient bunch. There’s evidence to suggest they’re more financially savvy than previous generations.

A study by Afterpay[1] found that more than 80 per cent of millennials budget, compared with only two-thirds of older generations. They’re also 30 per cent more likely to save regularly than their parents.

UBank agrees, saying that Aussie millennials take an active interest in managing their own finances, and are the most likely to budget.

“Despite 45% of the population admitting their finances have been negatively impacted in the last six months [by COVID-19], we’re seeing millennials emerge as being quite resilient,” said UBank executive, Philippa Watson.

“They’re taking the opportunity to implement budgeting and saving strategies to keep their financial goals, such as buying a home, on track, with many putting away half their salary each month,” Watson said.

A transfer of wealth

While the wealth of millennials pales in comparison to older generations, that could be about to change. According to the experts, Australia is on the verge of its largest ever handover of wealth, with up to $3.5 trillion in assets set to pass from baby boomers to millennials over the next 20 years.

Boomers are said to be the wealthiest generation in history, having lived through some of the most prosperous years on record. How much of that wealth they’ll pass down to their heirs is anyone’s guess though. Boomers will spend close to thirty years in retirement on average, so they’re just as likely to spend their ‘hard earned cash’ rather than gifting it to their heirs.

Financial wellbeing top of mind

With the millennial generation now hitting their thirties and forties, major life events like home ownership, marriage, children and saving for retirement are taking centre stage. Good money management and financial planning are becoming increasingly important, especially given the structural, economic and environmental challenges they face.

It’s a positive sign then that 1 in 2 millennials say they want to have more open discussions about money, with more than half of those (54 per cent) keen to know how to get ahead financially, according to the Commonwealth Bank research.

For a generation that came of age during the global financial crisis, a global pandemic just over a decade later might feel doubly unfair. But it seems millennials are nothing if not adaptable, and resilient. Getting the right financial planning advice now will help millennials navigate the challenges that come with this stage of life and ensure their financial wellbeing far into the future.

If you’re in your thirties or forties, now is a great time to start planning for your financial future. Speak to your Financial Planner^® about ways to achieve financial security and freedom for yourself and your family. You can find a CFP^® professional near you using our Match My Planner tool.

[1] Afterpay Touch Group Limited (2020). How Millenials Manage Money: Facts on the spending habits of young Australians. Retrieved from https://www.aph.gov.au/DocumentStore.ashx?id=185d5f3a-88fb-455e-b939-36daf31e66a7. Accessed 29 August 2021.

Clarity
(OnePath)

Know the difference between stepped and level premiums

Life insurance premiums are predominantly based on the risk of certain events happening to you. Because health risks increase with age, life insurance premiums will generally increase over time.

That’s why most insurers offer two common ways of paying for, and managing, the costs of your cover over time:

1. Stepped premiums: when the cost of your cover is recalculated each year based on your age at your policy anniversary. Generally this means your premium will increase each year as you get older.
2. Level premiums: where premiums are calculated based on your age when any cover started. Your premium is generally averaged out over a number of years, which means you avoid increases in your premium due to age at each policy anniversary. This means your cover is more expensive than ‘stepped premiums’ at the beginning of your policy, but generally gets cheaper (relative to stepped premiums) as your policy continues.

Regardless of whether your policy is on stepped or level premium, premium rates and premium factors are not guaranteed or fixed and many life insurers in Australia have repriced premium rates in the past.

Stepped or level premiums – which is right for you?

Generally, this depends on how long you’re planning on keeping your insurance. If you’re planning on keeping your policy for longer than 10-12 years, level premiums may save you money over the life of your policy.

‍You may also be able to use a combination of stepped and level premiums.

For example, if you think you might want to reduce your level of cover down the track (e.g. when you’re kids are grown up or you’ve paid down debt),you may be able to use level premiums for the portion of cover you think you’ll keep longer and stepped premiums for the additional cover.

This is something your financial adviser can help you with.

Repricing is a possibility regardless of which structure you choose

It’s important to note that at policy anniversary the premium may still increase (even with level premiums), because age is just one factor that determines your premium. Other factors that impact premium (such as claims trends in Australian population) can result in a repricing of your insurance cover.

When insurers reprice stepped or level premiums, they don’t do it for an individual policy within a specific group unless they do it for every policy in that group.

To decide whether you’re better off on stepped or level premiums going forward, we recommend you speak to your financial adviser. They can help you understand your policy as well as any repricing activity that’s recently occurred, so you can make an informed decision.

A graphical example

Below is an illustration of stepped v level premiums, showing the difference between the two when you look at increases due to age. Other types of premium increases aren’t shown on this graph.

For illustrative purposes only. This graph illustrates age-based premium increases for stepped against level for all covers. This premium comparison has been calculated, assuming all other factors affecting the premiums are excluded.

Both stepped and level premiums can increase due to factors other than age.

Premium rates and premium factors are not guaranteed or fixed, and insurers have increased premium rates in the past and may increase in the future.

We recommend that you refer to the relevant product disclosure statement and policy documentation, and speak to your financial adviser, to understand other factors affecting your premiums.

Well Covered
(Steadfast)

Cyber insurance has recently become a highly discussed topic. Cybercrime is on the rise, with criminals becoming increasingly audacious in their attacks.

For instance, the world recently watched on in horror as a large part of the US population was unable to access fuel as hackers infiltrated a utility company’s IT system and shut it down.

Even more recently, in Australia hackers brought down the back end of the Nine Network, which owns major TV and radio stations and newspapers, disrupting broadcasts.

Gerry Power is the head of sales of specialist cyber insurance provider Emergence Insurance. He says large attacks like these mean small businesses can longer ignore cyber threats.

“Every time I pick up a newspaper, somebody’s talking about ransomware or cyberattacks. Smaller businesses can’t say they don’t understand the threat.” He says at the moment the top cyber exposures are business email compromise, ransomware and human error.

In response to the heightened threat, governments have become much more active in stamping out cybercrime, Power explains. “Governments and regulators are acting to control ransomware. In Australia, the federal government is ramping up efforts and regulation to protect personal data. There’s also a push to make it mandatory for companies to disclose if they have paid money in a ransomware attack. So there is massive amounts happening behind the scenes.”

“Cyber insurance also provides cover for the cost of any litigation from affected parties ”

How to reduce cyber risks

When it comes to developing a robust approach to cyber security in small business, start by trying to understand your security controls and security posture.

“The challenge in this space for smaller businesses is they’re so focused on trying to keep the business afloat during what has been a very difficult 12 months, they haven’t addressed their cyber risks in the way they should,” says Power.

To address this, the first thing businesses need to do is ensure they are backing up data properly. “One of the ways that we can avoid paying a ransom is if a business has meticulously backed up their data every single day. That means if there is an attack, we can wipe the system and build it back up from back-ups so we don’t have to pay a ransom,” he adds.

It’s not enough just to have backed up the data, it also needs to be recoverable. Says Power: “Sometimes we find when we go to retrieve the data, it’s faulty or compromised. So test back-ups work before an attack happens to give yourself peace of mind your data is recoverable.”

Automatic updates of the system’s anti-virus software are also a must.

Cyber help for small business

It can be hard for businesses focusing on their day-to-day operations to know how to identify the right sort of cyber health.

“Many smaller businesses put blind faith in their managed IT services provider or consultant. But it’s also essential to invest an appropriate amount in your systems and controls. Your IT expert should be abler to guide you here,” says Power.

Cyber insurance also plays a key role. This cover provides protection for businesses and allows them to transfer losses arising from a cyberattack to the insurer. Power explains there are three main cyber risks SMEs can manage through insurance.

“The first one we call first party costs, such as IT forensics, remediation and public relations and marketing costs to communicate to affected people. If there is a loss of data, there may also be an obligation to report this to the Office of the Australian Information Commissioner or the Privacy Commissioner, which also has a cost attached. These costs are borne by the business if there is no insurance policy in place.”

Cyber insurance also provides cover for the cost of any litigation from affected parties and loss of profits if your business experiences a cyber breach.

But it’s important to realise insurance is just one part of the cyber puzzle. Taking a proactive approach to your business’s cyber health is crucial. Staff training and the right IT support and infrastructure can play a critical role in reducing the risk of an attack.

With threats only increasing, now’s the time to take a look at your cyber protocols to ensure if there is an attack, you’re as prepared as possible. Speaking to an insurance broker is a good place to start. They will be able to assist you in identifying cyber related risks and selecting cover that is suitable for your circumstances.

This article provides information rather than financial product or other advice. The content of this article, including any information contained in it, has been prepared without taking into account your objectives, financial situation or needs. You should consider the appropriateness of the information, taking these matters into account, before you act on any information. In particular, you should review the product disclosure statement for any product that the information relates to it before acquiring the product.

Information is current as at the date the article is written as specified within it but is subject to change. Steadfast Group Ltd and Steadfast Network Brokers make no representation as to the accuracy or completeness of the information. Various third parties have contributed to the production of this content.