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Welcome to July 2020, I mean, 2021! With a sense of déjà vu, and like most in the Greater Sydney area, I am currently locked down and working remotely. If you are currently living under lockdown conditions, I hope you are handling it all okay. If the current restrictions are impacting your finances or causing financial concern, please don’t hesitate to call me on 0438 383 513 or 1300 276 346. 

If you would like to schedule a call or a Zoom meeting, you can view my availability and book a time here: https://www.bpmfinancial.com.au/book-an-appointment/

In this newsletter, we take a look at: 

  • Sharemarket returns for the financial year just passed,
  • Superannuation changes which are in force as at 1 July 2021, 
  • A summary of the currently available Covid relief packages for individuals, and
  • Some very significant changes for Income Protection policies which come into force for new policies taken out after October this year.

What a difference a year makes. How the main investment markets performed last financial year.

Share markets have had an excellent 20/21 financial year, which is a welcome improvement from the 19/20 financial year. It is a timely reminder for all investors to focus on the longer term, and the benefit in holding tight during times of high volatility.  I have added a table below, which covers the returns of the main investment markets indices for the financial year ending 30 June 2021.
Source – Lonsec Research Pty Ltd.

Covid Relief packages

For anyone impacted by the current lockdowns, please make sure you are across the available assistance that may be available. Below is a summary of the currently available benefits which has been sourced via MLC’s technical team. 

Also, don’t forget to regularly review the NSW governments Covid-19 support page: 

Individuals: https://www.nsw.gov.au/covid-19/financial-support

Businesses: https://www.service.nsw.gov.au/covid-19-business-support-2021

Superannuation changes starting 1 July 2021

From 1 July 2021, there have been some changes to Superannuation, two of the notable changes are: 

  • An increase in the superannuation guarantee (SG) rate. The amount of superannuation employers are required to pay for their employees increased from 9.50% to 10% from 1 July 2021, 
  • An increase in both the concessional cap ($27,500 per annum) and non concessional cap ($110,000 per annum) for contributions. 

There are a few other changes due to begin at the start of the next financial year – July 2022. We will send more details in upcoming newsletters.

For more information on the changes that are now in force (as at 1 July 2021), please click the button below.

Further changes to Income Protection (IP) insurance policies in Australia. Good news for the insurance companies and those with existing policies…..not so good for those taking out new policies after October!

Back in February last year, I outlined a few upcoming changes to the Income Protection insurance market in Australia. Some changes came into effect in March last year, with the rest of the changes coming into effect from October this year. 

The changes are being made under direction from APRA (the Australian Prudential Regulation Authority), with APRA’s goal being to make sure the sector is more sustainable over the longer term – which simply means APRA want to make sure the insurers are making a profit from Income Protection polices after these changes have been made. A cynic may question just how much profit will insurers be making from any new IP policies post the changes! 

In summary, any new policies issued from October this year will need to satisfy the following criteria (and point 4 is the one I would suggest you pay close attention to):

  1. New clauses limiting the size of the claim you can make as well as changes in how an insured person’s pre-disability income levels are calculated (which is better for the insurer but not the insured person).
  2. Policies will renew every 5 years (most current IP policies are guaranteed renewable – terms can’t be changed or amended for the life of the policy – usually to age 65). With a 5 year renewal / review in place, there is the potential for revision of any terms / clauses of the policy (including medical definitions), repricing based on occupation changes or any new pastimes an insured may have (which you will need to disclose). Please note, APRA has stipulated that a medical review is not required, meaning any health changes will not impact your ability to renew your policy. 
  3. Reduction in many of the ancillary benefits often available on current policies…
  4. And finally…(I saved the best for last): New ways to “mitigate” the risk on long term claims – that is, the financial risk to the insurer when they are required to pay out a long term claim. If you are off work, current IP polices give you the ability to claim benefits right through to normal retirement age of 65. This proposed change will allow an insurer to revise how a disability / illness is treated from a claims perspective after, say, an initial two years of being on claim. The insurer will also be able to review your ability to work in any role (not just the role you are trained / qualified for) after the initial first few years of being on claim. For those working in professional occupations –  where they may have spent years in training / getting educated to increase their earning capacity this change is truly shocking.        

I have added a link below to the APRA letter to insurers below, but these changes are so significant that anyone with an existing income Protection policy or those considering such a policy should be across what is happening. 

www.apra.gov.au/final-individual-disability-income-insurance-sustainability-measures

I appreciate many of my clients are retired, and though these changes may not impact them, it may be worthwhile information for their children or associates who are still working. If you don’t yet have an Income Protection insurance policy and want to avoid all these new rules and potential reduction in benefits, please contact the office to discuss.