Question: I run a small business and hold the titles of director and employee. It is through a company/family trust structure. The business pays super contributions into my SMSF.
I also work part time at a major retailer (14hrs/wk) and they pay super contributions into an industry fund as part of the enterprise agreement.
If I gave up the retailing job at age 60, would I satisfy a condition of release and be able to convert the funds in my SMSF and the industry fund accumulated up to that point in time, into a tax free account base pension whilst continuing to be employed by the business?
If I decided to go back to a retail job is there a time period that needs to be satisfied before I return to a second job?
Answer (by Graeme Colley): The definition of ‘retirement’ in the superannuation legislation is important as it can determine whether a condition of release has been met to commence payment of a pension or lump sums. Once a person reaches age 60 ‘retirement’ is considered to have occurred when an arrangement under which the person was gainfully employed has ended. Gainful employment simply means paid for the activity undertaken. Therefore a person who is 60 will have retired where they have ceased at least one paid employment arrangement. Retirement means more than just stopping work with the intention that they will recommence the job within a short period. The cessation of the employment needs to be a full and effective retirement to meet the condition of release. If you return to a second job with the same employer for whom you were previously employed you would need to be able to establish that the cessation of the previous employment was permanent and at that time there was no agreement or arrangement that you were to return to work. There is no time period that applies in these circumstances as it depends on the permanency of the cessation of the original employment
Where ‘retirement’ has occurred after reaching age 60 it is possible for a person to combine their superannuation benefits and use them to commence an account based pension. Don’t forget that from 1 July 2017 there is a limit of $1.6 million on the value that can be transferred into retirement phase to commence an account based pension which includes the value of pensions in place as at 1 July 2017 and pensions commenced from that time.
Question: Santos is revisiting its lows, what do you think of it as a long term play?
Answer (By Paul Rickard): I am probably a little more disposed now to Santos, notwithstanding the fall in oil prices this week.
So far, I have resisted investing in Santos (which has proved to be the right call).
The two cautions: a) is the balance sheet now strong enough for Santos to survive a prolonged weak market in oil prices” and (b) is the impact of any Federal Government move to restrict gas exports a positive or a negative?
In the main, the brokers remain positive (5 buys/3 sells) and a target price of $4.15.
Bottom line -while I am watching Santos, I don’t feel any compelling urge to buy.
Question: Could I ask why is there such a large holding in the Switzer Dividend Growth Fund of BHP, which has low dividend and poor performance?
Answer (by Shawn Burns): The portfolio is run as an integrated unit, put together with the aim of spreading risk, producing a relatively high sustainable yield and also hopefully outperforming the broader market.
The portfolio is broadly comprised of three blocks.
The first is a large proportion of high yield, low growth companies such as the banks, REITs, insurers etc. They give the portfolio its yield objective.
The second block are our favoured growth stocks such as CSL and Resmed. Great companies, however, they are relatively highly priced and usually offer a low yield and no franking. The aim is to add to these stocks when valuations are attractive. They cover off some of the growth aspect of the portfolio.
Lastly, there are the cyclical stocks such as BHP. They offer good diversification to the portfolio and some yield support. Of course, we are holding these names to generate profits from anticipating the cycle and how that is reflected in their respective share prices. So, they are medium term trading stocks with the aim of generate profits for the fund.
Our outlook for the commodity regime that BHP is exposed to is moderately positive. China continues to grow well but at a slowing rate. Therefore, BHP as a low cost, long-life operator is considered the least riskiest way to position the portfolio to take advantage of this. The stock weighting reflects that it is the largest cyclical stock in the portfolio and one of only a few cyclical names in the portfolio.
Hope this explains the rationale. The aim is to avoid concentration risk in the portfolio and aim to achieve the above objectives. Currently the fund is offering over 6% grossed up with a broad spread of risk. Sorry about the long answer but it is a portfolio and more than a collection of stocks.
Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regards to your circumstances.
