Question: I have been retired for several years with a couple of large term deposits. What do you think of Challenger annuities?
Answer (By Paul Rickard): Challenger is one of a number of life insurance companies providing annuities, including the Commonwealth Bank Group via CommInsure.
The product serves a purpose (for the very risk averse investor who wants relative peace of mind), and Challenger is certainly the market leader.
I am not a huge fan of annuities in this climate of very low interest rates because the returns are so low, and I think that over the long term, you can do better in a portfolio of tax-advantaged dividend-paying blue chip companies, with some other assets for diversification.
The provider of the annuity (Challenger) is largely investing your monies in the bond market – so after they take out any distribution costs, their product costs and their profit margin, you can see why the returns are so low.
If you are planning to invest with Challenger in an annuity, ask these questions:
a) What is the effective rate of return/interest rate on your initial lump sum?; and
b) Are there any commissions being paid to my financial planner or adviser? If so, you may wish to ask for the product option that doesn’t pay commissions.
Question 2: With regard to SuperStream, I have briefly checked out the information on the ATO website and the service providers on the ATO register. We are very wary of the need to provide substantial information to a provider. Being sceptical, one can only assume that some time soon the ATO intends to require SMSFs to start paying the 15% entry tax at the time contributions are made. Is your team able to recommend a service provider that we can trust with so much of our personal and financial details?
Answer 2 (By Tony Negline): I’ve put together a few points that should help answer your first question:
- If your SMSF is large enough to be a “large business” taxpayer, then you would have to submit Income Activity Statements every month, like most large APRA regulated funds, and submit super fund tax every month.
- But as most SMSFs are small business taxpayers, they get a concession on how often they have to submit paperwork and tax payments.
- I can’t foresee a time when this will change.
- Politicians and public servants are often greedy for cash flow (i.e. tax collections) and so anything is possible, especially if the Federal Budget continues to be in bad shape.
Your second question involves a service provider for SuperStream. There are a number of providers who have registered, and I haven’t yet seen their proposed pricing. Your SMSF administrator may have developed a solution, and I note Australia Post is one of the providers. In any case, you only need one before May 2014 if your SMSF is taking employer contributions from a large employer that has more than 19 employees.
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.
Also in the Switzer Super Report:
- Charlie Aitken – Seven Group Holdings on the way to $10 [1]
- Tony Featherstone – Why you need to consider infrastructure [2]
- Fundie’s Favourite – A travel insurance company to unpack into your portfolio [3]
- Staff reporter – Buy, Sell, Hold – What the brokers say [4]
- Penny Pryor – Short ‘n’ Sweet – bank bashers [5]
- Tony Negline – How to ask the ATO for advice [6]