Question 1

Michael is not sure about what he should do with his superannuation and the payments he will receive from his employer when he finishes work in one month. Explain what options are available to Michael with respect to the payments he will receive upon termination of his employment and his superannuation balance.

He may decide to consult from experts on the best way to handle his reduced cash inflow. The two main options are discussed below.

The main option that Michael has at his disposal is investment in a viable business such as stock market and purchase of bonds. While stocks are more preferred by other individuals, bonds would be more suitable in Michael’s case due to their high security.

Another option for Michael is that he can purchase financial instruments. This is not, however, a very good option because such instruments are very volatile and can put his investments at risks.

Question 2

The couple is concerned their current superannuation arrangements will be inadequate to provide for their future. They would like to know how they can increase the balances of their superannuation funds.

NB: Showing calculations where relevant:

a) Estimate the total capital the couple will need to accumulate in order to achieve their preferred lifestyle in retirement.

Total assets held by the couple                                    $ 889,000

Joint Investment                                                        $ 181,300

Karen’s pre-tax for 3 yrs                                              $ 105,000

Personal superannuation (taxed)                                  $196,550

Michael’s investments                                                  $ 135, 500      

Karen’s investments                                                    $ 38, 178


In terms of the couples objectives and goals after retirement:

Annual Expenses                                                               $ 50,000

Purchase of a new car                                                         $ 30, 000

Available funds                                                                  $ 25, 000

Total minimum funds the couple should accumulate               $ 2,100,000

In order for the couple to achieve their objectives, they will require to have all their expenses covered while keeping their shares intact.

b) Analysis of gaps between total capitals required achieving retirement goals and the couple’s current financial position.

The gaps that the couple would have plans and their financial positions total to $628,150. They should go for an investment that will provide them with 30% return for any investment made from borrowed money. If the investment money will not be borrowed, then they will need an investment that gives returns ranging from 15-20%.

c) Identify all of the types of superannuation contributions generally available to    individuals to increase their superannuation savings.

The main types available are complying and non complying superannuation funds. These funds are closely regulated by the SIS in Australia and are both aimed at increasing the superannuation funds. Another superannuation fund trustee channeled funds. Finally, deemed covenants are also channels for superannuation.

d) Explain the rules, restrictions, advantages and disadvantages of each type of contribution individually.

Complying funds are those that have met the regulations outlined in Superannuation Industry (Supervision) Act 1993.  Non complying funds are more risky to handle because they are made through local agreements and are not very strictly governed as opposed to the complying funds. Their security is therefore not guaranteed, unlike complying superannuation funds. It is secure but one of the disadvantages is that it has very many restrictions.

e) State the specific contribution types that would be suitable for Michael and Karen and the justifications for that.

The contributions should be a covenant type because they are almost retiring. Any of their investments should be made very carefully so that they do not run into risks of losing their money or puts their money at risk.

Question 3

Karen has heard from friends about the transition to retirement strategy and is wondering whether it would be suitable for her.

a) Briefly explain the purpose and operation of the transition to retirement provisions.

The provisions are used to guide people on the best ways that they should comfortably retire without many problems with their financial status. They give away part of their salaries which would eventually help them get better lives in retirement. The part of the salary that was forfeited is then received as pension. Since Karen has a few working years before she eventually retires, she can increase the amount of money she forfeits to go to the superannuation fund so that she can redeem it later in her retirement years.

b) Develop a transition to retirement strategy that would be appropriate for Karen in the context of the couple’s goals and objectives, providing complete ‘before’ and ‘after’ taxation calculations illustrating the effectiveness of the strategy you would recommend for her.

Karen would be best suited by the Commencement of a Non Commutable Allocated Pension. This kind of pension is found with people with superannuation accounts. Pension income would be added to the income obtained from employment. This would have an advantage because a part of pension fund would not be taxed. There would be a 15% rebate on the taxable amount which would be used to reduce the tax on the overall taxable income. The pension on the other hand would not be taxed. This strategy would further ensure that superannuation funds do not pay taxes on the capital gains.

d) Outline the advantages and disadvantages of the strategy. Assume no superannuation benefits have previously been taken. Show all workings.

The strategy would lead to a reduction of Medicare by 13.66%, while tax on the overall taxable income would decrease by about half. This would lead to an increase in the received pension.

The salary would reduce because more money would be kept aside for use after retirement. The reduction of the salary would be as high as 74%. The other advantage is that the employee would get a high mount of money in the pension income after retirement.

% decrease





Pre-tax income




Tax on taxable income




Plus Medicare levy




Net tax payable




Question 4

Michael has made no nomination of beneficiary for his superannuation benefit, while Karen has nominated Michael and her daughters equally as her beneficiaries.

In your own words:

a) Briefly explain who is able to receive superannuation benefits upon the death of a member during the accumulation phase and the methods by which benefits can be paid.

Karen has already nominated one of her daughters as a beneficiary. In case death occurred, the process would be simple since there is an already existing way of determining the heir. If Michael died during the accumulation [phase, financial and estate legal advisors would be required to determine the steps that would be used in the process of paying the benefits. In this case, the SIS Act would be consulted and binding and non-binding methods would be used to determine the person to inherit.

b) Identify the two methods of nominating a beneficiary for superannuation members and the advantages and disadvantages of each.

Binding and non-binding. The advantage for binding method is that the trustees can structure a trust deed and therefore accept the benefit nominations of the dead. However, the method is time consuming since every detail has to be taken into consideration. Non-binding is not very strict thus easy to follow. However, its main disadvantage is that the trustees are not bound by the dead person’s decision. The method could therefore end up being carried out with little or no regard to the wishes of the dead person.

c) Outline the tax treatment of superannuation lump sum death benefits.

Tax can be reduced significantly when tax credits are taken up by superannuation. Capital gains to the benefits are, in this case, added to the income and taxed at only 15%. There are no taxes that are paid to the tax free funds. The incomes are primarily based on the total taxable earnings realized through the fund. There are also preservation requirements to all funds which allow for a concessional tax treatment. This in turn increase death benefits amounts.   

d) Discuss the effect of Karen and Michael’s current beneficiary nominations with reference to these issues.

Karen’s issue is well taken and there are no issues that would be experienced if she passed on. However, Michael’s case would be tricky as there are no clear-cut beneficiaries to his wealth and funds. This puts Michael’s daughters and wife in a difficult situation because any of them could feel entitled to a bigger share thus create conflicts. He should therefore define his wishes as his wife has.

Question 5

Michael and Karen would like to access social security payments if possible.

a)  Will the couple be entitled to any Centrelink Age Pension or any other Commonwealth Government benefits based on their current investment portfolio structure at the time Michaels plans to retire. Show all workings and include a discussion of the concession card/s they may also be entitled to.

The couple would get the Centrelink age pension because they cannot get back their actual expenditures. They work with estimates that do not consider components such as rates. They can therefore use Centrelink to ensure that their calculations are made on the least possible figures. Their income would be calculated as follows:

Pension = Basic rate+pension supplement-((Income-Threshold test) * 0.5)

b) Describe two current, legally acceptable strategies that could be employed by the couple to enable them to maximise any Centrelink benefits in their final retirement.

Pension Bonus Scheme- This is acceptable when a coup[le or spouse continues to work beyond their retirement age. If proper planning are done, the couple could receive up to $50000 for couples by the time they retire. Singles through the system can get upoto $30000

Super Pension – This would be used with the guidance of the assets hat are available to the couple or individual. Some of the income would not be income tested. Ones life expectancy is considered to some degree.

c) Advantages and Disadvantages associated with adopting the above strategies.

Pension Bonus is very appealing to pensioners. Ti is due to the high amount of money it can earn a person. Its disadvantage is that it requires thorough planning that can only be done by an expert. Therefore, there are other costs of hiring the expert.

Super pension also earns high aments of money to the pensioner. It however uses the assets of the pensioner(s) thus putting them to some degree of risk.

Question 6

Karen (age 62) will retire when she turns 65. Michael retired one week ago.

The clients require advice on how to invest all of Michael’s final payments and how they can boost their superannuation balances over the next three years before they are both fully retired. They would also like to know what their financial situation is likely to be at this time and if their retirement goals are achievable.

Based on the facts presented in the case study, prepare a comprehensive report describing the strategies and investments you would recommend the couple undertake to satisfy all of their stated goals and objectives both now and in preparation for Karen’s retirement in three year’s time. Your report must include detailed reasons why you feel such strategies would be suitable for the couple.

In preparing your report you must clearly address all of the following issues:

Ensure that all stated goals/objectives, concerns and issues are identified.

Make recommendations to address all of their goals/objectives and concerns, both financial and non-financial, with an appropriate strategy.  Your recommendations must be explained (including the advantages and disadvantages of each one) and justified.

You must make recommendations for the next three year’s to enhance their financial position in preparation for Karen’s retirement.

You should clearly show the financial position of the couple prior to and after implementation of your recommendations using cash flow tables. Your calculations must demonstrate that their net income goals, both for the next three years and in full retirement, can be achieved.

You should discuss the couple’s likely financial position at (Karen’s) retirement and outline the income options, including Centrelink payments and income streams that are likely to be available to them at and from that time.

You must show all calculations, including those for tax, income streams and possible Centrelink benefits. Where spreadsheets or projections are used they must be explained.

You are not required to provide a complete SOA to answer this question however you are required to provide comprehensive advice to the clients on all aspects of their situation and make recommendations as to how to address all of their goals and concerns.

You must address, explain and make recommendations concerning risk management and their estate planning needs as they relate to superannuation and retirement planning.

Where assumed rates of return have not been specified, you may wish to make your own assumptions as to projected rates of return on investments that may be recommended. Any such assumptions must be realistic and have a reasonable basis which is clearly explained. These assumptions must be stated at the beginning of your response to this question.

For any existing investments you recommend Karen and/or Michael retain, the estimated rates of return provided must be used.

To ensure that they live within their preferred lifestyles after retirement, the couple would need to have a minimum of their ten years’ expenses covered without having to liquidate their savings in shares.

They would also have to rethink and re-strategize on their ways of acquiring their desired car and liquid cash for use at their disposal. They could invest the $25000 into a highly liquid investment that would offer them return whenever they do not need the money. They would also get their money any time they would need it.  In this case, they would get a very good source of income and they would get a more realistic way of getting the lifestyles they desire. They would also need to get a less expensive car at first and only buy a more expensive one later after all the other requirements are met. This is the only way that they would accumulate the $2,100,000 capital base in order to achieve their aspirations. In this case, all the unnecessary expenses should be eliminated in the budget.

Another way of increasing their income is by Michael, who has already retired, to get a job for the nest three years before his wife retires too. He is still energetic and another job would not be a very hard thing for him to accomplish. They should further ensure that all the strategies they use would be legally sound so that they do not get caught up in legal matters. Further, investment in health schemes should be adequate because there are many health problems associated with old age.

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