1. Macquarie Adviser Services Are TTR pensions viable for the under 60s? David Barrett & Curtis Dowel Macquarie Adviser Services November 2012

2. Macquarie Adviser Services 2 Disclaimer Macquarie Investment Management Ltd ABN 66 002 867 003 (MIML) is not an authorised deposit-taking institution for the purposes of the Banking Act 1959 (Cth) and MIML’s obligations do not represent deposits or other liabilities of Macquarie Bank Limited ABN 46 008 583 542. Macquarie Bank Limited does not guarantee or otherwise provide assurance in respect of the obligations of MIML. This information is provided for the use of licensed financial advisers only. Financial advisers are prohibited from passing on this information to any retail client. In no circumstances is it to be used by a potential client for the purposes of making a decision about a financial product or class of products. The information in this document is based on our interpretation of the law current as at 1 November 2012. While the information is given in good faith and is believed to be reliable and accurate, neither Macquarie Investment Management Limited nor any member of the Macquarie Bank Group gives any warranty as to the reliability or accuracy of the information, nor accepts any responsibility for any errors or omissions. MIML and Macquarie Bank Limited do not give, nor purport to give, any taxation advice. The application of taxation laws to each client depends on that client’s individual circumstances. Accordingly, clients should seek independent professional advice on taxation implications before making any decisions about a financial product or class of products.

3. Macquarie Adviser Services 3 Agenda 1.Do TTR pension strategies still make sense for under 60s? 2.Further practical considerations in commencing a TTR pension

4. Macquarie Adviser Services Do TTR pension strategies still make sense for under 60s? David Barrett

5. Macquarie Adviser Services 5 TTR pensions for under 60s? Recent impacts on the TTR / salary sacrifice strategy CC cap reduction – over 50s: $100k 1 July 2007 to 30 June 2009 $50k 1 July 2009 to 30 Jun 2012 $25k 1 July 2012 to... (1 July 2014 proposed re $500k threshold test)

6. Macquarie Adviser Services 6 TTR pensions for under 60s? Recent impacts on the TTR / salary sacrifice strategy Tax on death benefits in pension phase: TR 2011/D3 – tax applicable from date of death unless dependent beneficiary is automatically entitled to an income stream Govt announcement 22 October 2012 in MYEFO – law to be amended from 1 July 2012 to allow tax exemption until death benefit paid

7. Macquarie Adviser Services 7 TTR pensions for under 60s? Recent impacts on the TTR / salary sacrifice strategy Taxation of pension payments: ATO – election re form of super benefit for tax purposes not constrained by character of benefit for SIS purposes TTR benefits can be elected to be received as LS without causing them to be commutations for SIS purposes Tax Act pension phase tax exemption considerations

8. Macquarie Adviser Services 8 1. Purpose of TTR pension? 2. CC cap already full utilised? No… $1,000 salary Net rec’d $535 Tax at 46.5% $465 $1,000 CC $850 Accum Acct Pension Acct $781 Tax $150 Tax at 46.5% less 15% = $246 Net rec’d $535 Net $69, plus earnings tax benefit $25k CC constraint from 2012/13 TTR pensions for under 60s?

9. Macquarie Adviser Services 9 $850$803$189$614$46 $850$815$155$660$35 $850$841$46$795$9 30% conts tax for $300k+ income – impact? MTR $1,000 salary after tax 46.5%$535 38.5%$615 34.0%$660 20.5%$795 $1,000 CC after tax TTR pension payment Tax on pension payment (15% rebate) Net pension rec’d Benefit of TTR / sal sacrifice strategy * $850$781$246$535$69 * plus impact of tax free earnings on TTR pension account balance TTR pensions for under 60s?

10. Macquarie Adviser Services 10 30% conts tax impact? $1,000 salary Net rec’d $535 Tax at 46.5% $465 $1,000 CC $700 Accum Acct Pension Acct $781 Tax $300 Tax at 46.5% less 15% = $246 Net rec’d $535 Net -$81, plus earnings tax benefit TTR pensions for under 60s? 0% tax free component (break even at 25.2% tax free)

11. Macquarie Adviser Services 11 3. CC cap already full utilised? Case 1: Accum Acct $500k Pension Acct $0 Earnings taxed: Effective tax rate? CGT 0%, 10%? Asset turnover rate? Income/gains mix Tax based on MAStech return assumptions (7.36% p.a.) = $2,454* Accum Acct $0 Pension Acct $500k $15k pmt Earnings tax exempt Tax at 46.5% less 15%: $4,725 Fund member $10,275 Re-cont $10,275 NCC 0% tax free TTR pensions for under 60s? * See Appendix 1 for return assumptions

12. Macquarie Adviser Services 12 Accum Acct $500k Pension Acct $0 Accum Acct $0 Pension Acct $500k $15k pmt Tax at 46.5% less 15%: $1,890 Fund member $13,110 Re-cont $13,110 NCC 60% tax free TTR pensions for under 60s? * See Appendix 1 for return assumptions Tax based on MAStech return assumptions (7.36% p.a.) = $2,454* Difference $564. Note: Breakeven tax free is 48.1% over 1 year 3. CC cap already full utilised? Case 2:

13. Macquarie Adviser Services 13 Accumulation vs TTR/re-cont strategy comparison Identify break-even point by varying: 1. % tax free component, and 2. gross return (after fees) 3. for each marginal tax rate: 20.5%, 34.0%, 38.5%, 46.5% TTR pensions for under 60s?

14. Macquarie Adviser Services 14 7.36% pa Breakeven Tax Free Percentage TTR/re-cont strategy wins above the line Accumulation strategy wins below the line Accumulation or TTR/re-cont strategy 46.5% MTR, 5 year analysis See Appendix 1 and 2 for return assumptions TTR pensions for under 60s? Case study result 1 Case study result 2

15. Macquarie Adviser Services 15 7.36% pa Breakeven Tax Free Percentage for 38.5% MTR TTR/re-cont strategy wins above the line Accumulation strategy wins below the line Breakeven Tax Free Percentage for 34.0% MTR See Appendix 1 for return assumptions TTR pensions for under 60s? Accumulation or TTR/re-cont strategy Various MTRs, 5 year analysis

16. Macquarie Adviser Services 16 Summary: TTR pensions may still make sense for: 1. original policy purpose – i.e. phasing into retirement 2. TTR / salary sacrifice strategies to CC cap (if 15% conts tax applies) (if 30% conts tax applies, reliant on TFC and earnings tax break) 3. TTR / re-cont strategies depending on: level of tax free component investment return rate recipient’s marginal tax rate Consider also upfront & ongoing costs, and issues of commencing a TTR pension... TTR pensions for under 60s?

17. Macquarie Adviser Services Practical considerations of implementing a TTR strategy Curtis Dowel Outplan Macquarie Adviser Services November 2012

18. Macquarie Adviser Services 18 Practical considerations for TTRs What to consider: –The products –The client –Contributions –The employer

19. Macquarie Adviser Services 19 Practical considerations for TTRs Things to watch out for: –Product minimums & fees –Exit fees –Frozen assets –Ability to refresh the pension Products Minimum cash requirements

20. Macquarie Adviser Services 20 Practical considerations for TTRs Macquarie Wrap – pension refresh Products

21. Macquarie Adviser Services 21 Practical considerations for TTRs Macquarie Wrap fee comparison – example 1 Products Estimated fee: $4,100 Minimum fee: $369 Estimated fee: $4,018

22. Macquarie Adviser Services 22 Practical considerations for TTRs Macquarie Wrap fee comparison – example 2 Products Estimated fee: $4,100 Estimated fee: $36 Estimated fee: $4,059

23. Macquarie Adviser Services 23 Practical considerations for TTRs SMSFs –Generally, product fees are minimised –Administrator/accountant fees –Audit certificates –Segregation –Meeting minutes & investment strategy Products

24. Macquarie Adviser Services 24 Practical considerations for TTRs SMSFs – fee example –From our example earlier, we save around $564 in tax –BUT: $400-$800 for pension commencement paperwork $300-$400 pa audit certificate –An extra cost in the first year! –Savings in subsequent years reduced by $300-$400 Products

25. Macquarie Adviser Services 25 Practical considerations for TTRs Responsiveness Pay cycles The NCCs Clients

26. Macquarie Adviser Services 26 Practical considerations for TTRs Contribution caps SG payments Existing salary sacrifice ‘Catch-up’ payments Contributions The 27 Fortnight year eg: salary of $120k pa SG = $10,800 pa Recommend sal sac of $14,200 to maximise cap BUT if there are 27 pay periods in the year: SG $415.38 pf x 27 Sal sac $546.15 pf x 27 Total concessional contributions of $25,961.31!! Bring-forward trap Make a $150k NCC this FY Accidentally breach CC Make $450,000 NCC in 2014/15 Breach of NCC cap!! 46.5% tax

27. Macquarie Adviser Services 27 Practical considerations for TTRs Treatment of salary Where should contributions be made? Employers Defined benefits? Extra contributions? Employer funded insurance? ‘Matched’ contributions?

28. Macquarie Adviser Services Outplan Curtis Dowel Outplan Macquarie Adviser Services November 2012

29. Macquarie Adviser Services 29 Outplan – who we are Small team of dedicated paraplanners Professional, presentable SoAs Fast turnaround Quality focused Fixed, transparent fees

30. Macquarie Adviser Services 30 Outplan – the process

31. Macquarie Adviser Services 31 Outplan – the process

32. Macquarie Adviser Services 32 Why outsource your SoAs? You focus on what you do best We do what we do best Fixed vs variable costs Flexibility Opportunity for a 2nd opinion More time  more clients

33. Macquarie Adviser Services Are TTR pensions viable for the under 60s? David Barrett & Curtis Dowel Macquarie Adviser Services November 2012

34. Macquarie Adviser Services 34 Appendix 1 – return assumptions

35. Macquarie Adviser Services 35 Appendix 2 – calc assumptions Earning rates are for a Growth portfolio discussed in Appendix 1 3% income drawn from TTR pension is year 1, 4% in remaining income years Income assumed to increase annual with AWOTE (4.0% pa) Future values discounted to today’s dollars assuming CPI rate of 2.5% pa