Question: Charlie Aitken suggested Sydney Airport as an option for a falling dollar and growing tourism. It seems worthwhile, but I am very concerned about the high debt it carries (82% of capital) and low return on equity. Should I be? Or does the nature of Sydney Airport being a long-term monopoly change the way you look at debt being carried?
Answer (By Paul Rickard): I don’t think you need to be unduly concerned. Sydney Airport has been structured as an infrastructure style investment, which often means high levels of debt and a smallish capital base.
The annuity style revenue stream, plus effective monopoly, provide enormous insulation and protection.
A downturn may see revenues for Sydney Airport fall by low single digit percentage – whereas a downturn for a normal business may see revenues fall by 20% to 30%. Because the revenue risk is so much lower, the market allows it to carry a much higher gearing level.
Question 2: I have an allocated pension from which I receive pension payments. Occasionally, I withdraw extra funds, which I have treated as an advance pension payment. What is the difference between classification as an advance pension payment and as a commutation both now at age 64, and on receipt of a partial old-age pension at 65?
Answer 2 (By Tony Negline): Before 65, lump sum withdrawals are split between your tax-free/taxable split components, determined when your pension commenced (or on 1 July 2007 if your pension commenced before then). On the other hand, all income payments are taxed at marginal rates less a tax offset.
After age 65, all lump sum and pension income payments are tax-free.
All lump sum withdrawals will impact your Centrelink Deductible Amount (used to reduce the amount of income counted under the income test if your pension commenced before January 2015).
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.
