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Winter 2021 Personal Wealth Newsletter

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As we head into winter, it seems that it willtake more than a change of season to cooldown market sentiment. In Australia business and consumerconfidence are at all-time highs, alongsideother key economic indicators. It ispredicted markets will see at least twoyears of really strong growth, after whichthe pressure will be on central bankinterest rates. The latest ABS jobs dataappears to support this optimistic view,with unemployment in April falling to 5.5%.Recent budget announcements supportefforts to get back into the workforce, withproposed increased childcare subsidies,and the removal of the $450 per monthminimum for superannuation guaranteepayments. This, coupled with a number ofinitiatives to help get additional money intosuper, and home ownership initiatives,signal an election-friendly budget.Talking employment, we’re also looking atthe recent APRA-led changes to incomeprotection, with many changes due tocome into effect by 1 October 2021, andhow these may impact you.Also a timely reminder of the forthcomingCensus, on Tuesday 10th August, andtaking a look at why this data collection isso vital to optimise outcomes for allAustralians.YOUR PERSONALWEALTHW I N T E R 2 0 2 1CONTINUED ON PAGE 3WELCOME TO THEWINTER EDITIONINSIDE OUR WINTER EDITION The Census and you 3INFLATION; A PASSING FAD ORHERE TO STAY?Global equity markets have mostly been treading water over thelast couple of months, with concerns of higher inflation. Addingto these fears, the latest US inflation numbers came in wellabove expectations. Markets are now waiting to see if this is justtransitory, or will be sustained. The good news so far is thatglobal bond yields, which rose sharply in the first quarter havesettled for now.On the COVID-19 front, in the US at least, a large percentage ofthe population has had at least one vaccination and infectionsand deaths are down dramatically. Many health experts believethat herd immunity is very close. The vaccine rollout is stilllagging in Europe (except for the UK), but the real crisis is inemerging markets, particularly in Brazil and India. The Australian economy is now bigger than the pre-COVID-19level and company earnings have also surpassed December2019 levels. However, the vaccine rollout in Australia has beenmuch slower than in the US. This is not a great situation as it willlikely delay the opening of our borders.Inflation; a passing fad or here to stay? 1How changes to income protection affect you 2Federal Budget highlights 4RBA upgraded GDP Forecast 4.25% over 2021 1.1% Australian inflationreading in the firstquarter of 2021 4.2% US annual CPI themost since 2008.3.5% over 2022 3% US core CPI measure,the most since 1996.Inflation EconomyThe global economy should see a big rebound in growth thisyear, from the contraction of around 3.6% experienced in 2020.

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Indemnity value policy, wherethe amount you're insured foris a percentage of your salarywhen you make a claim; or an Agreed value policy, where theamount you're insured for is aWhy the changes to incomeprotection?In response to the $3.7 billionlosses experienced in the sector inthe 3 years to the end of 2020, andinsurer inaction, AustralianPrudential Regulation Authority(APRA) has stepped in to try andimprove the sustainability ofincome protection policies[2]. Atthe end of 2019 APRA informedlife insurers they had to makemajor changes to incomeprotections policies starting from31 March 2020 to 1 October 2021.One of these changes has beenpostponed to 1 October 2022.Who is APRA?The Australian PrudentialRegulation Authority (APRA),licenses banking, insurance andsuperannuation businesses, andsupervises them to ensure thatthe financial promises made totheir beneficiaries (e.g.policyholders) are kept. APRA’ssupervision aims to identifypotential financial or operationalweaknesses as early as possible,and ensure they are rectifiedbefore they can threaten its safetyand soundness[1].What is income protection?Income protection, also known as‘salary continuance insurance’ or‘disability income insurance’,insures one of your mostimportant assets, your income. It’sdesigned to pay you a benefit ifyou are unable to work for aperiod of time due to illness orinjury[3].Initial changesHistorically, income protectionpolicies were provided as eitheran:Limits on income protectionpayments for the first 6months. Rules will be in placeso that benefits cannot exceed90% of earnings for the first 6months and drop to amaximum of 70% of earningsafter that. This is to encourageretraining, rehabilitation andreturn to work.Benefits will be based on thelast 12 months of earnings, ifyou have a predominantlystable income. Previously somepolicies allowed you to lookback 2-3 years and make thebest 12 month period the basisof your claim. This look backwill now be based solely on thepast 12 months’ income.Reducing the risk of longerbenefit periods. This may meanstricter disability definitions forlonger benefit periods.Income protection contractsmay not exceed 5 years. Thismeans terms and conditionsthat used to be able to beguaranteed until age 65, nowpercentage of an agreedamount when you sign up forthe policy. These are generallymore expensive but could beuseful if you have income thatchanges from year-to-year[4].The first big change took effect on31 March 2020, when newapplications for Agreed Valueincome protection insurance werediscontinued. This particularlyaffects self-employed, whoseincome can vary widely each year.What other changes areexpected?The following changes are to beimplemented no later than 1October 2021[5]:APRA has recently announced it willpostpone implementation of thepolicy contract term measure to1 October 2022 [6].need to be renewed andupdated every 5 years, subjectto an analysis of changes inyour occupation and financialcircumstances.What happens to existingpolicies?If you have an existing incomeprotection policy which includes a‘Guarantee of Renewability’ in thepolicy wording, that is, the policy isautomatically renewed each year,your policy should continue.Existing Agreed Value policiesterms and conditions will generallynot change, however, thepremiums charged may change.What should I do?Insurers are starting to develop andrelease new income protectionpolicies which meet the guidelinesset out by APRA.It’s important to remember thesechanges are all aimed at makingincome protection a more long-term viable proposition. If you have been consideringincome protection or would like tohave your existing policy reviewed,it may be useful to reach out to usand discuss the options available toyou.[1][2][3][4][5][6] O U R P E R S O N A L W E A L T HP A G E 2W I N T E R 2 0 2 1HOW CHANGES TO INCOME PROTECTION AFFECT YOU

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However, valuations are wellabove long-term average levels.Australian equities are tradingabove 17 times fiscal forecast 2022earnings while the US market,price to earnings (PE) ratio isabove 21 times.We would expect to see inflationspikes in the 3% to 4% year-over-year range for the US in 2021. Thisis especially true for April to Junewhen inflation plunged in 2020. Ifthis was to be sustained, it wouldresult in much higher bond yieldsand lower PE multiples, and hencelower stock prices. There are someadditional factors causing inflationto spike in the short term,including supply chain bottlenecks.Y O U R P E R S O N A L W E A L T HP A G E 3W I N T E R 2 0 2 1CONTINUED FROM PAGE 1The swing to cyclical stocksshould be positive for Australianequities given the proportion ofthem in our market, such asbanks and resources. We do notknow how long these stocks willoutperform, so we suggest thatclients maintain a mix of growthand value/cyclical stocks. The other major risk to USmarkets is the big governmentand taxing policies of thecurrent administration. Theexpectation is that they will tryto raise the corporate tax ratefrom 21% to 28%, whichamounts to more than $2 trillionin extra taxes over 10 years. Thiswill result in earningsdowngrades in future years, aswell as be negative foremployment in the longer term.Massive spending proposals ontop of a booming economy arealso likely to put upwardpressure on interest rates in theshort term. We do not know how many ofthese measures will get passed,but we do not believe themarkets have focused on therisk they pose to markets,especially given the above-average valuations we have rightnow. Given how far the markethas run up and some of the riskswe have set out, we would bepretty cautious right now.The forecasts of global GDPgrowth have both been upgradedrecently. The OECD projects thatGlobal GDP growth will be 5.6%this year, an upward revision ofmore than 1% compared to itsDecember outlook. Amongadvanced economies, the UnitedStates is expected to surpass itspre-COVID-19 GDP level this year,while many others are expected to return to their pre-COVID-19 levelsin 2022.Another big piece of economicdata was the big miss on new jobsin the US. Markets were expectingaround a million new jobs in April,but only 266,000 were created.One explanation for this is thehigh level of unemploymentbenefits and school closuresforcing parents to stay home.Businesses’ number one concernis the extreme difficulty attractingworkers. OutlookAccording to UBS, consensusearnings per share (EPS) revisionsduring the February reportingseason resulted in EPS upgrades of5% for the Australian ASX 200,reflecting a recovery to pre-COVID-19 levels. Earnings revisions in theUS have been even more dramatic,where companies reportedearnings 22.9% above estimates.The US Fed believes, and probablythe market consensus is, that thespike in inflation will be transitory,and we will soon revert to thebenign inflation rates of recentyears. This open question wouldseem to be the biggest risk toequity markets going forward. Themain result of higher bond yieldsso far has been that value orcyclical stocks have beenoutperforming growth stocks forsome months now.CONTINUED ON PAGE 4THE CENSUS AND YOUAustralia’s next national Census will be held onTuesday 10 August 2021.The Census is a snapshot of who we are, what wedo, and how we live, and tells the story of how weare changing. It’s used to inform many things, fromplanning schools, healthcare, and roads, to localservices for individuals, families, and communities.Why your participation is importantThe Census provides data on important topics suchas populations, rents, mortgages, incomes, religion,languages, housing, and more. The latest inflation readingin Australia showed inflationwas fairly benign

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Superannuation proposalsTax proposalsDownsizercontributionscan be madefrom age 60Work test forcontributionsremoved for those under 75Removal of$450/monthminimum forsuper guaranteethreshold Depreciablebusinessassets, instantwrite-offextended Extended taxcuts for lowto middleincomeearnersBusinesstemporary losscarry backschemeextended First HomeSuper Savercap increasedto $50,00010,000additionalplaces underNew HomeGuarantee*Housing proposalsFamily HomeGuarantee singleparent depositreduced to 2%$17.7 billionfor Aged Careover 5 years &$2.3 billion formental health $164.8 millionsupport forwomenescapingdomesticviolenceIncreasedchildcaresubsidy forsecond andsubsequentchildrenWomen & Care proposalsDid you know at the last census in 2016, there were26% of Australians born overseas?The ABS recently released new data on the size ofAustralia’s overseas-born communities. In June 2020these figures jumped by almost 4%: Since the last Census, the total number of Chinese andIndian born Australians overtook New Zealand born, tonow be the second and third largest overseas-bornAustralian populations. During this period, theproportion of Nepalese-born Australians jumped over123%, whilst the Italian and Greek-born populationsdropped by almost 10% each. As demographer Simone Alexander [1] explains, whatthese figures don’t tell us are details like their age,which suburbs they live in, and whether they are heretemporarily or have relocated permanently. Thisdetailed information, collected through the Census, isvital in helping to plan services for our multiculturalcommunities.With all the border closures and international travelrestrictions due to COVID, it will be interesting to seethe impact of these changes in the 2021 Census!AFSL 229892 ABN 23 065 921 735 23, 25 Bligh Street, Sydney, NSW, 2000Tel. 02 9252 2000 Email: financial planner is an AR or CAR of Lifespan Financial Planning Disclaimer: The articles in this newsletter are of a general nature only and are not to be taken as recommendations as they might be unsuited to your specificcircumstances. The contents herein do not take into account the investment objectives, financial situation or particular needs of any person and should not be used as thebasis for making any financial or other decisions. Your Lifespan adviser or other professional advisers should be consulted prior to acting on this information. Thisdisclaimer is intended to exclude any liability for loss as a result of acting on the information or opinions expressed.W I N T E R 2 0 2 1CONTINUED FROM PAGE 3the Council of the Ageing (COTA) uses Censusdata to help understand issues affecting olderAustralians,the Royal Flying Doctor Service uses Censuspopulation data to determine what healthservices are required in rural and remote areas,andCrime Stoppers uses Census data to deliverprevention campaigns that help keepcommunities safe.It helps governments, businesses, researchers, not-for-profit and community organisations make informeddecisions.Here are just a few of the ways the census data helps:The aim of this budget is to secure Australia’s recoveryand drive the unemployment rate down. It is aimed atcreating jobs, guaranteeing essential services andbuilding a more resilient and secure Australia.It's important to note that these proposals have not yetpassed into law. Many also have a proposed start dateof 1 July 2022, after the next Federal election.Call our office if you have any questions regarding howthese proposals may offer you opportunities.IMPORTANT: These announcements have yet to be passedthrough a Senate in which the current government does nothave a majority.Federal Budget 2021 7.65 million born overseas29.8% of the populatioon[1] increase aspercentage of totalpopulation in 4 years