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The New School of Super podcast series

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Join Sunsuper’s Dream Team Chief Economist Brian Parker and Head of Advice and Retirement Anne Fuchs in our podcast series as they discuss money matters, your super and the things that could affect your financial dreams now, and in the future.

The Sunsuper Dream Team

Anne Fuchs is the Head of Advice and Retirement at Sunsuper. She has worked in the financial advice industry for more than 20 years, and passionately believes great financial advice can change people’s lives. Prior to joining Sunsuper in February 2015, Anne was the Chief Commercial Officer at the Association of Financial Advisers where she was responsible for income generation and servicing of their commercial stakeholders – members, licensees & corporate partners.

Brian Parker was appointed to the role of Sunsuper’s Chief Economist in 2015. In a career spanning more than 25 years, Brian has worked in a series of economics, portfolio management and communication roles with a range of organisations including Rothschild, JP Morgan, Citigroup, MLC and the Reserve Bank of Australia. Brian has an honours degree in economics from the University of Queensland, where he also taught macroeconomics. Additionally, he is a Charted Financial Analyst.

Episode 12

Seven ‘super’ steps to strive for

Sunsuper’s Dream Team welcome back Joshua van Gestel, Sunsuper’s National Education Manager, for a round-table discussion on how to maximise the potential of your super. It’s essential listening for anyone wanting to get on the right track to achieve their retirement dreams.

Launch Podcast

Voice-over: Welcome to The New School of Super, a fresh look at money matters, your super, and the things that could affect your financial dreams now and in future with Sunsuper's Chief Economist Brian Parker and Head of Advice and Retirement Anne Fuchs.

Anne Fuchs: Hello and thanks for listening. Welcome to The New School of Super, Sunsuper's podcast series covering money markets, investing, your superannuation, and helping you fulfil your retirement dreams. Today is a very special day because with me is Brian Parker, Sunsuper's fabulous and most knowledgeable Chief Economist.

Brian Parker: Thanks, Anne.

Anne Fuchs: He knows everything there is to know about investing and money markets and the economy, but we also have another fabulous special guest today. I call him JVG, but he is technically known and was born as Joshua van Gestel. He's our National Manager of Education here at Sunsuper.

Joshua van Gestel: Thank you, Anne. Good day, Brian.

Brian Parker: Hello, Josh.

Anne Fuchs: We are so happy to have you here. For our listeners who don't know me, I'm Anne Fuchs. I head up Advice and Retirement here at Sunsuper, and the team and I come to work every day to understand our members’ retirement dreams and bring them to life. So, Brian, in the spirit of you being the star child with legal risk and compliance, do you have something to say to our listeners?

Brian Parker: I do, Anne, actually. Thank you for mentioning that. Thanks, Anne. It's great to be here again. But before we start, I do need to let everybody know that what we're going to talk about today is really just general information only. Any advice doesn't take into account your personal circumstances, your personal situation. You should consider your circumstances and think about getting personal advice before acting on anything we talk about today. You can also get a copy of our Product Disclosure Statement from our website or give us a call on 13 11 84.

Anne Fuchs: Beautifully done as always, Brian. Look, I have to say, our last podcast that we recorded a while back, it was about the investing principles. It was seven investment principles you shared with our listeners, and I have had a lot of feedback from listeners saying they loved the current affairs story, keeping your face off a current affair. Not to be outdone, Joshua van Gestel certainly doesn't like being outdone by you.

Joshuaua van Gestel: Not at all.

Brian Parker: Certainly outdone by the Economist, no.

Anne Fuchs: No. Josh is here today to join us. We're extending that theme of investing by seven, but today we're talking about the seven super steps to strive for, that's a bit of a tongue twister, when you want to maximize your retirement savings. Josh, where should we kick off?

Joshua van Gestel: Thanks, Anne. Well, as much as I like to outdo Brian, I think we'll kick off with Brian. One of the first steps is to consider your investment choice. Brian?

Brian Parker: Yeah. Look, I think it's important. The best investment portfolio that any member is really one that they've built to suit their particular needs, and preferably one that they built using the help of professional financial advice. Now, at Sunsuper, we've got 20 investment options, including our default or our Life Cycle Investment option for those who don't make a formal choice, but another 19 options to choose from. You can use those 19 options to build an investment portfolio that suits your particular needs in your particular phase of life.

Anne Fuchs: Making that active investment choice is the first one.

Joshua van Gestel: That's right. I think we'll come back to Brian in a minute just to build on that.

Anne Fuchs: Building is a good terminology, Josh, because the next one is all about building. It's about adding extra money into your super.

Joshua van Gestel: That's right. It's putting in additional contributions above what your employee may be putting in. I think I describe this very much as contributions in nudges. Especially when you're young, you can make these small additional nudges over time. As you wage and get closer to retirement, those nudges maybe need to get a bit bigger. There really are two main ways that you can make additional contributions. One is pre-tax, where you can make salary sacrifice contributions through your employer if they allow it, or you can actually make contributions that you claim as a tax deduction. The second way is actually to make after tax contributions. Contributions from your own savings, which I'll come to a bit later on.

But the important thing to note about both of these is that there's actually a limit to how much you can put it.

Anne Fuchs: That's correct. Yes.

Joshua van Gestel: For pre-tax, it's a $25,000 a year limit generally, and for post-tax, it's $100,000 a year. But the important thing where I'd like to bring Brain back in if that's okay is that by making these regular contributions, by rather than putting in big chunks very rarely, by making small contributions overtime, that actually benefits with compound interest.

Anne Fuchs: Compounding interest.

Brian Parker: Yes, absolutely. Yeah.

Anne Fuchs: Someone called it the greatest eighth. Was is greatest natural wonder of the world or am I making that up?

Brian Parker: Yes, I think it was the eighth. I think a famous Australian economist called it the eighth natural wonder of the world and that economist wasn't me.

Anne Fuchs: I thought you're talking about yourself, Brian.

Brian Parker: But the bottom line is the longer you leave money in the system, the more powerful the effects of compound interest become. I know it's hard especially when you're starting out, when you're early twenties or mid-twenties and you're worrying about, "Well, am I going to settle down into a longer term relationship? Do I need to put money aside for mortgage," etcetera, etcetera. There's all these competing demands on your savings and all these competing demands on your income.

But the extent to which you can put money aside for your retirement, the more you put aside for longer, the better your long-term outcome will be because of the power of compound interest. You provide more time for investment returns to do their job.

Joshua van Gestel: If I could go back to the 20 year old JVG, that's what I'd be telling him I think.

Anne Fuchs: To recap for our listeners, so rule number one was making an active investment choice. Rule number two is adding extra to your super, and rule number three is do it often.

Joshua van Gestel: That's right.

Anne Fuchs: Okay.

Joshua van Gestel: That's right.

Anne Fuchs: Where are we at now? What's number four?

Joshua van Gestel: Well, rule four is sort of linked to the second rule of adding extra is do it in a way that where possible the government's putting in some money in for you as well. There's three ways that the government can really chip in, and for some of these you don't actually have to do anything. Firstly, thinking about if you're a lower income earner or maybe you're working part-time or looking to wind down and seeing your salary reduce. If you earn less than $37,000 year, then the contributions that go in from your employer, they effectively have tax refunded to them. That can be up to $500 a year that goes back in.

If you make a post-tax contribution that I discussed earlier, then if you're actually earning less than about $52,000-$52,500 a year, then for every dollar you're putting in, the government may in fact put up to about 50 cents. That can be up to another $500 a year that is automatically going in from the government. Thirdly, if you actually make contributions towards your spouse, they benefit from seeing their super grow, but you can also benefit by having a tax offset provided by the government to reduce your final tax bill.

Brian Parker: You end up with a happier spouse, which is never to be ...

Joshua van Gestel: That's correct. That's correct.

Anne Fuchs: Rule number five is incredibly important because I think the statistic is one in two Australians will have cancer at some point in their lifetime, and they'll be off work or they'll experience another significant illness and the impact that can have on a family's financial security. Insurance through superannuation. Josh, what do we need to cover off there?

Joshua van Gestel: I think there's two things to think about when it comes to insurance. The first is understanding what you get and the second is then thinking seriously about how much you need and knowing that you're paying for that through an insurance premium, but you're getting value for that insurance premium. In superannuation, there's generally three types of insurance that are offered. There's cover for the event of death if you die prior to retirement. There's cover for if you become totally and permanently disabled. Then there's also income protection cover that you can elect to receive, which will help continue some of your income in the event that you're off work for a short period.

In all three cases, there is as I said a cost. There is a premium that you pay to get access to those benefits at a later date if unfortunately you require them. It's important that you think very clearly about how much cover you want and a bit like thinking about investments and thinking about other financial decisions. Are you happy with the payment that you're making for that cover?

Anne Fuchs: I'll jump in and say this is where financial advice is incredibly important because sometimes it's best to have it in super and sometimes it's better to have it outside of super depending on the definitions and the cover you require. Again, this is a very technical area, but important area and financial advice is the best way to go if you are looking at do you have the right insurance for your family.

Joshua van Gestel: But you're jumping to step seven, Anne.

Anne Fuchs: Oh, goodness gracious. Sorry. I can't help it. I so love my job in financial advice. I'm sorry, JVG. Where are we up to then? We're up to seven, aren't we?

Joshua van Gestel: No, we're up to six.

Anne Fuchs: Six. Of course, sorry. I'm sorry.

Joshua van Gestel: We're up to six, which also leads to advice. Many of us have much more than one super account. I think it's really important that you make sure wherever you've got more than one super account that you track them down, bring them together unless there's a really valid reason to have more than one. The important thing is to note is that if you've got multiple super accounts, each will have administration fees coming off it. Each may have insurance premiums coming off it, going back to our earlier discussion. But the other thing is with more than one account, you run the risk of actually losing track. It's important that much like your back accounts that you're on top of where your super is managing it.

Anne Fuchs: I think actually the government's passing some legislation this week that will see more Australians consolidating their super, which is a good thing.

Joshua van Gestel: That's correct.

Anne Fuchs: Which is a good thing.

Joshua van Gestel: That's correct.

Anne Fuchs: The last one?

Joshua van Gestel: The last one is yours, Anne.

Anne Fuchs: Great financial advice. Look, I was plugging financial advice in the insurance top tip. Tip number five I think it was. Look, money makes people emotional. Money can cause divorce. Money can be the source of domestic violence, illness. Money worries can create awful damage in communities. Great financial advice, trusted financial advice has the power to turn a family situation around through stepping back, looking at what can be done and keeping a family on track.

None of these things that we've spoken about today, making more contributions, salary sacrifice, spouse contributions, investment choice, none of it in itself is particular rocket science per se, but it's being able to navigate it, knowing how to fill in the paperwork, what's the right amount you should putting in. That's where personal financial advice really comes to the fore. Like I would decide maybe I want to get fit and maybe one day I'll hire a personal trainer. There's that accountability piece as well that financial advisors bring around keeping members on track with their savings goals. I am passionate about financial advice.

I encourage our listeners to contact us if they're thinking that they need some ... To action some or all of these steps today.

Joshua van Gestel: I think that properly just to recap, the first step, to make an investment choice. Thank you, Brian. There's lots more information that Brian has been involved in. The podcast and videos and things on their website that can help you there. Second step, adding additional moneys to your superannuation and remembering to do that on a regular basis and making sure that compound interest is working for you. That was really another step in there. Fourth, make the government chip in for you. Make sure that you're taking those opportunities. Fifth, look after your insurance and make sure that's appropriate. Sixth, make sure that you bring all your super together.

Importantly, overseeing all of these and something that's beneficial for each of those steps is making sure that you seek some financial advice.

Anne Fuchs: Well, it's been a heavy episode. We've covered a lot, haven't we? Are you okay over there, Brian? Do you need to go and have a nap and lie down?

Joshua van Gestel: He looks a bit tired.

Anne Fuchs: He does look a bit.

Brian Parker: I know. I didn't really know what to do, but it's been a terrific session.

Anne Fuchs: It has been a terrific sessions. Thanks so much listeners and we look forward to you joining us in our next podcast series. Thank you.

Voice-over: This has been The New School of Super. For information and inspiration to help you plan your future, manage your super and enjoy your retirement, visit sunsuper.com.au/thedreamproject, or if you've got a superannuation or investment question you'd like Brian and Anne to discuss, then get in touch at newschoolofsuper.com for it to feature in one of our New School of Super Podcast.

Episode 11

Financial market wrap – what’s next for 2019?

With 2018 now in the rearview mirror, it’s time to look ahead at what 2019 looks like for global markets and your superannuation. Join Sunsuper’s Dream Team, Anne Fuchs and Brian Parker as they discuss everything from the US-China trade war, Italy and the Eurozone, Brexit and, of course, financial events closer to home.

Launch Podcast

Voice-over: Welcome to the New School of Super, a fresh look at money matters, you Super, and the things that could affect your financial dream now and in future, with Sunsuper's chief economist, Brian Parker and head of advice and retirement, Anne Fuchs.

Anne Fuchs: Hello, and thanks for listening. Welcome to The New School of Super, Sunsuper's podcast series covering money markets, investments, Super, and most importantly, making sure you achieve your retirement dreams. With me is my good friend Brian Parker, he's back again, our Chief Economist. The man that knows everything about the world, the Australian economy, investment markets, how to build investment portfolios, and members’ investment needs. My goodness you are clever Brian. Now-

Brian Parker: Oh, thanks so much.

Anne Fuchs: And for those who haven't heard one of our podcasts before, my name is Anne Fuchs and I head up Advice and Retirement here at Sunsuper. And the team and I are passionate about helping our members fulfil their retirement dreams. We come to work every day giving them high quality financial advice to meet that goal. So Brian, what are we talking about today?

Brian Parker: Well thanks Anne, it's great to be here with you again. But before we start, there's an important message.

Anne Fuchs: Yes of course. Of course.

Brian Parker: Yes, indeed. As always, before we start, I need to let you know that what we're going to be talking about today is general information only. Any advice doesn't take into account your particular circumstances, you should consider your circumstances and think about getting personal advice before acting on anything we talk about today. You can also get a copy of our product disclosure statement from our website or give us a call on 13 11 84.

Anne Fuchs: Brian, I always know why you're in the good books with our legal risk and compliance team, because you always do such a fabulous job.

Brian Parker: Absolutely. I just have a much quieter life if I do that.

Anne Fuchs: It's a good approach. So 2018, that was a big year. I don't know if I would describe it as a great year for financial markets.

Brian Parker: Well, it certainly wasn't a good ending to financial markets, share markets across the world really performed quite badly in the December quarter. We have seen a bit of a rebound so far in 2019, which is pleasing. But it's fair to say that financial conditions remain pretty volatile. It's still a very uncertain world at the moment.

Anne Fuchs: So 2018, if we break it down into two halves, what, the first half of 2018 was?

Brian Parker: The first half of 2018, there was plenty of stuff to worry about and there was certainly plenty of uncertainties but still share markets performed reasonably well, that you actually got very, very solid investment returns and markets seemed quite willing to sort of overlook some of these sort of emerging problems. But when the December-

Anne Fuchs: The second half.

Brian Parker: Quarter hit in particular, a whole bunch of things ... Here's a list we prepared earlier, worries about slower global growth, worries about the U.S. China trade war, worries about Brexit, and towards the end of the quarter, worries about another U.S. government shut down, because Congress and the White House couldn't agree on funding the operations with the U.S. government and build a wall at the same time. So, there was a whole list of things which finally sort of put a serious dent in the market’s confidence.

Anne Fuchs: And do you think too, the second half of last year for banks was incredibly challenging as a consequence of the Royal Commission?

Brian Parker: Yeah, absolutely. That's certainly weighed on. If you look at the performance of bank shares in Australia, the whole Royal Commission environment weighed on them very heavily. It also led to a lot of people worrying about how banks would respond. Because one of the things that's really crucial for the longer term health of any economy is that if you're a credit worthy household or business, you need to be confident that you can actually go to your bank and find your bank ready and willing to lend you money on reasonable terms. And there was some doubt as to whether banks would actually respond to the sort of new regulatory environment or the pressures from the RC by sort of unilaterally if you like, tightening credit standards. And I think the jury's still out on that one.

Anne Fuchs: Because the small business complain that they can't get a loan regularly, and yeah, small business is the fuel of the Australian Economy.

Brian Parker: Yeah, very much so. In fact, if you look at some of the business surveys, there's an element of that but it's certainly not dire, I don't want to ring too many alarm bells here. But if you look at some of the more recent business surveys, when you ask businesses, "Are you finding it harder to get credit," there's been a reasonably significant increase in the percentage of businesses saying, "Yes, I am finding it harder to get credit." It's nowhere near GFC days, if you think about it. During the GFC the availability of credit really did seize up for a lot of businesses, not just here in Australia but around the world. But it's certainly something to watch pretty closely there.

Anne Fuchs: And banks just for our listeners, what do the banks represent in terms of the overall stock exchange here in Australia, the market that we have to invest in? Is that testing your knowledge there Brian? I heard a statistic-

Brian Parker: I'd say about it's about a third.

Anne Fuchs: I heard 25% but if you-

Brian Parker: Yeah, it's a very sizable chunk. If you think about it, our stock market is dominated really by a handful of big banks and a handful of big mining companies. And it does mean that that's not exactly a wonderfully diversified portfolio, if you stick to just Australian shares. But yeah, banks are obviously really crucial to the underlying performance of our stock market.

Anne Fuchs: So, I guess which is why investing overseas in incredibly important to how we manage our members’ money here at Sunsuper, and I guess a quick update for 2018 heading into 2019 there's the geopolitical risks that we've spoken bout in a previous podcast, haven't gone away. Trade wars, I'm not sure is North Korea and the U.S.A. are friends today, I don't know if you have an update on Kim Jong-un and Trump, Brian?

Brian Parker: Well, there clearly varying amount of love in that room I think is the best way to describe it. There's certainly a whole bunch of stuff to worry about. As we record this, we don't have any clarity as to what's going to happen to Brexit for example, we don't know whether any sort of reasonable Brexit deal is actually going to be done, and we don't know whether we're going to face yet another U.S. government shutdown, because if Trump can't get his wall, he may just take his bat and ball and go home again.

Anne Fuchs: Well he's threatening to do that.

Brian Parker: Absolutely. And so there's still a whole plethora of political issues that could weigh on markets. And again, one we haven't talked about for a little while is Italy, problems in the Euro zone in general and Italy in particular, could also come back to really unsettle the market. So there's a whole list of stuff to worry about but to be fair, when you're investing money, there is always stuff to worry about.

Anne Fuchs: So I'll ask you the pointed question, what's Italy's ‘problema’, to use an Italian word?

Brian Parker: Oh, very nice. Yeah.

Anne Fuchs: Grazie tanto.

Brian Parker: I've got nothing.

Anne Fuchs: Yeah.

Brian Parker: So look in short, slow growth, very, very high levels of public debt, a very inefficient economy, and a bank system that is basically struggling under weight of quite large problem loans. So it's really not a terribly pretty picture.

Anne Fuchs: So if it's a hard Brexit and the United Kingdom are not able to import the high quality cheese, bread, and olive oil from the Italians, what impact does that have on the Italian economy and the Sunsuper member?

Brian Parker: Oh look, the impact of Brexit on Italy is relatively minor to be honest. Italy is sort of ...

Anne Fuchs: So our members shouldn't be worrying about this?

Brian Parker: The should be ... I'd put it this way, all of these issues one way or another will get resolved. And I think even they're a source of short term market volatility, it’s important to remember that if you're investing money for your superannuation, especially if you're a relatively young member, every crisis, every bare market, every disaster you care to name comes to an end bar none, and life and the economy and business goes on.

And I often sort of say to members is that, there's always stuff out there to worry about but if you're thinking about, where are you going to generate good long term returns from? The reality is, despite all these risks that we've talked about, a whole range of businesses, all around Australia and all around the world are going to basically make a profit and pay dividends out of that profit.

And why are they going to do that? They're going to do that because every day we wake up needing to be fed, to be clothed, to be entertained, to be medicated when we're sick, to be travelled around, to be communicated with, to be banked, to be insured, and a whole bunch of companies all around the world will make a profit by meeting our needs. That hasn't changed regardless of what happens with Brexit, or what happens in North Korea, or what happens in Italy.

Anne Fuchs: However I will say that risk and your risk appetite as an investor is incredibly important, as to finish up this conversation, that in these challenging times, an investor who is considering retiring in a year or two's time, versus an investor who is 35, has much different considerations around where they're money's invested from an asset allocation perspective.

Brian Parker: Yes. Absolutely. And it's worth mentioning that if you happen to be a Sunsuper member in our default option, we kind of take care of that for you. So as you approach and then enter retirement, we are gradually, gradually reducing your exposure to share markets. So that we're trying to reduce the risk of share markets ruining your retirement, and I think it's important to remember that.

But you make a valid point that everyone is different. Everyone is at a different phase of life, everyone has a different appetite for risk, everyone has different financial needs and goals. And so really, while we think our default option suits a large number of members, and full disclosure, it certainly suits this particular member, i.e. me, but at the same time, the best investment portfolio is one that you've actually sat down, got some professional advice about and actually constructed yourself.

Yeah, so I think advice is absolutely crucial here to make sure that the investment portfolio you have suits you and suits your stage of life. And one last point, if you're trying to make up your mind about what kind of investor you are, I have this great rule of thumb called the sleep at night test. As a true measure of what kind of investor you are and how much risk you're willing to take, ask yourself this, "Am I losing more than five minutes of sleep at night because of something I'm doing with money?" If the answer's yes, it means you're taking too much risk and your body is telling you something, because sleeping at night can never be overrated.

Anne Fuchs: I couldn't agree more. So, I think that's a good plug for the importance of financial advice.

Brian Parker: Correct.

Anne Fuchs: Sunsuper members, you can access that by contacting us on 13 11 84 and for those listeners who need financial advice, find a good quality qualified financial advisor and seek out that professional financial advice, because it can make a huge difference. So Brian, I think we're done. They're shooing us off. How rude.

Brian Parker: I know, absolutely.

Anne Fuchs: Don't they want to hear us talk all day?

Brian Parker: You certainly do.

Anne Fuchs: Thank you very much for listening.

Brian Parker: Good on you. Thanks Anne.

Voice-over: This has been The New School of Super. For information and inspiration to help you plan your future, manage your super, and enjoy your retirement, visit sunsuper.com.au/thedreamproject. Or if you've got a superannuation or investment question you'd like Brian and Anne to discuss, then get in touch at newschoolofsuper.com for it to feature in one of our future New School of Super podcasts.

Episode 10

Value of Advice for your best retirement - Part 1

In the first of a three-part series, join Sunsuper’s Head of Advice and Retirement, Anne Fuchs, and National Education Manager, Joshua van Gestel, as they look at recent modelling research that examines the material impact good financial advice can have on a case study of a single female nurse wanting to cut back on her working hours as she eases into retirement.

Launch Podcast

Voice-over: Welcome to the New School of Super, a fresh look at money matters, your super and the things that could affect your financial dreams now and in future with Sunsuper’s chief economist Brian Parker and head of advice and retirement Anne Fuchs.

Anne Fuchs: Hello and thanks for listening. Welcome to the New School of Super, Sunsuper’s podcast series covering money markets, investing, your Superannuation and helping you reach your retirement dreams. Today I'm with Joshua Van Gestel.

Joshua van Gestel: Hello Anne, good to be back.

Anne Fuchs: Good to have you here. You're our national education manager here at Sunsuper-

Joshua van Gestel: I am.

Anne Fuchs: And you are the best at giving member presentations-

Joshua van Gestel: Thank you.

Anne Fuchs: Education seminars. And for our listeners that don't know me, my name is Anne Fuchs and I head up Advice and Retirement here at Sunsuper. The team and I work every day to make sure our members are getting the right financial advice to meet their retirement needs and dreams. Josh, I have a favour to ask you.

Joshua van Gestel: Yes Anne.

Anne Fuchs: Normally at this point in the podcast, our mutual friend ...

Joshua van Gestel: Mr. Parker.

Anne Fuchs: Mr. Parker is doing his best to keep in good with legal risk and compliance but-

Joshua van Gestel: That's right. So, before we get started it's important that anyone listening know that what we're talking about today is general information only and any advice doesn't take into account in your personal situation. So, you should consider what we're talking about and think about your own circumstances. And if you do want to add on, act on any of this, then please seek some advice by either calling us on 13 11 84 or you can also get a copy of our Product Disclosure Statement from our website.

Anne Fuchs: Fabulous. Well today we are talking about something that I'm incredibly proud of here at Sunsuper that we've done. We've commissioned a piece of independent advice looking at typical member scenarios and the impact, the material impact financial advice had to their retirement outcomes. We've worked with an organization, an independent research organization, very well respected, called Core Data and they've put these numbers together with us to help our members identify, I guess themselves in these stories.

Joshua van Gestel: Yeah, and that's great to actually have you in the hot seat today, Anne, I must admit that for me, going out and presenting seminars and talking to our members day after day to actually see the impact, the positive impact that good advice can have on their lives is a big part of what I love and why I do what I do. But can you take us a bit more deeper into what the research was actually about?

Anne Fuchs: Well, yeah, yeah, sure. It's, and sorry if I just cut you off there, Josh.

Joshua van Gestel: Not at all.

Anne Fuchs: Not at all, I'm not used to being interviewed I confess, I'm normally doing the interviewing, it's a bit strange. But I think the first thing, one of the reasons why we did this research is that it is focused on ordinary Australians. There is a perception, I think amongst the community that financial advice is for rich people, wealthy people. And actually my personal view is that it's great to get financial advice if you’re rich, but it's only going to make you richer. Where if you're an ordinary Australian, it's incredibly important that you maximize your-

Joshua van Gestel: Absolutely.

Anne Fuchs: Yeah. You've worked hard your whole life, you deserve to optimize those retirement savings. And so this is where these case studies, we've built them so that our members can look at them, see themselves in the stories, and then know what they should be thinking about and then contacting us.

Joshua van Gestel: So I'll get you to explain a bit more about the case studies in a moment and the impact that good advice made in those case studies. But I thought it's probably worth us quickly going back to some of the qualitative research that we've done in the past when we've asked Australians who have received financial advice about the difference that it made to their lives.

Anne Fuchs: Yeah, I think, so confidence is incredibly important. 80% of people we spoke to that had the confidence to make good quality financial decisions, which I think is, you know, a big part of navigating, accumulating and protecting your wealth. I think the number, 79%, that sounds about right, they felt that they had more control over their money, 80% felt more secure. So I think 77% felt they were more prepared for their retirement and 80% had peace of mind. So what you're hearing is a big chunk, a big proportion of the people we spoke to had got advice, had the sleep at night factor, which Brian rates very highly.

Joshua van Gestel: Which was something I was actually going to mention, absolutely. And so the latest research is slightly different in that it's actually giving us some hard numbers around the dollar value improvement that good financial advice can make to your retirement, and we're talking in some cases, hundreds of thousands.

Anne Fuchs: Correct, yeah. It can be really compelling numbers. So it's all about, at the core of it is around, it's no point having money again at the end folks view of the world if you're not going to spend it. So what do you actually want to do with your money? These stories are about members spending their money, having great lives, having holidays, empowering themselves and their families. Better protection, so when something or if something goes wrong, they're looked after. Paying less tax, I've never met anyone that wants to pay more tax and they're feeling secure in retirement, just great, really great outcomes.

Joshua van Gestel: So, I think all of this is really wonderful, but what I really love about this research is that it's actually very tangible. That we're talking about case studies that people can relate to and that they can understand. So maybe Anne, we dive into one of the case studies and look at the difference that it made for someone's retirement.

Anne Fuchs: Well, I think, maybe we go through the independent woman case study. I think that harks back to a previous podcast series we did about the retirement security for women and the importance of women taking control of their financial situation. So we picked a notional, a fictional member, and we called her Lisa. She's independent, she's 58 years old, she's single. However, she has two adult children that have moved out of home and now her focus is for the first time in a really long time herself and thinking about what retirement looks like for her.

Joshua van Gestel: And Lisa is very typical. I must say of a lot of members that we do meet when we're going around the country presenting seminars. So, what were Lisa's goals for her retirement?

Anne Fuchs: Well, Lisa has been a career nurse, senior full time registered nurse and it's a really hard job, physically demanding, emotionally challenging. And to be blunt, she's just tired. She's been doing it a really, really long time and she decided she needs to step back for her own wellbeing. And so, she's trying to work out from a financial advice perspective, how can she meet her retirement goals, but take the step back that she needs for herself and her wellbeing?

Joshua van Gestel: So, in looking at Lisa's case, there was then some very clear advice that was recommended. Can you take us through some of those pieces of advice?

Anne Fuchs: Yes, I can. And I think I used this terminology a lot about it not being rocket science, that financial advice isn't rocket science per se. So, the simple steps, the advice that was given to her included opening up a transition to retirement account from her Superannuation fund. She had an investment property and the advice was to sell that property and then salary sacrifice back into Superannuation. And Josh, for our listeners who want to know more about salary sacrifice, we've had an episode with Josh on before talking about salary sacrifice and what it can do for your super. And also the other last piece of financial advice was that she was fortunate to inherit a small amount of money from a relative, and so how she was to invest that money.

Joshua van Gestel: So, this isn't something that would be foreign to many of our listeners. And as we said earlier, some of these case studies we actually saw significant improvements into the hundreds of thousands of dollars. So what was it that we actually saw as the outcomes for Lisa or in this case study?

Anne Fuchs: So, if I asked you Josh, would you pay $3,000 initially and then one and a half thousand dollars every year to have $200,000 more in retirement, start working part-time and be able to draw down an extra $12,000 a year from your super account, do you think that's a good deal?

Joshua van Gestel: Absolutely. And at the same time, you've probably given me a lot of peace of mind and comfort.

Anne Fuchs: Exactly. So there is the whole wellbeing factor, which you rightly touched on there, that this member Lisa is being able to, yes, she's $200,000 better off as a consequence. And yes, she's able to draw down the $12,000 a year, but what I love about this story is this woman who has given herself as a nurse, the emotional impact that would have on her, she's put herself last her whole life, she gets to step back and has four days a week for herself. And I think that to me, almost is you know, you can't put a price on the impact that financial advice has to her.

Joshua van Gestel: And I would say, and I know I've reflected on this a bit and that sort of what comes up with doing podcasts like this that I reflect on the number of people, I only hear good advice stories when our members come and speak to me at seminars. But I also hear lots of stories from people like Lisa who probably to a point you made earlier, get very scared about financial advice, not realizing that actually it’s small steps and maybe a different perspective that can really shift things quite dramatically.

Anne Fuchs: Correct. And I think probably pointing out too that they think they can't afford it, and I wanted to highlight to our listeners, that if Lisa sounds like you, that you are thinking about how can you start winding down from work, do something to fast track your retirement savings because you're not comfortable that there's enough in there, then contacting us at Sunsuper is a great place to start because you can, if you need that comprehensive financial advice, if you work with an external financial advisor who is registered with Sunsuper and that advice is around your Sunsuper account, you can have that fee that Lisa, you pay the $3,000 I made mention of earlier, paid out of your Sunsuper account. So it's not that you're having to fund that out of your back pocket. So I wanted to highlight that, don't think that you can't afford it. If that, that retirement planning advice is about Sunsuper and building your retirement dreams, that, that financial advice fee can be funded out of your Sunsuper account. So that's I guess all I probably wanted to finish up on, Josh.

Joshua van Gestel: Well, can I say thank you for letting me sit in Brian’s seat. It is a very big seat to fill-

Anne Fuchs: It is.

Joshua van Gestel: One that's quite comfortable actually. But, can I maybe be a bit forward and suggest that we come together again at another point and talk about another case study and really look at another situation where we can make a substantial difference to someone who just follows some simple financial advice and some very valuable advice.

Anne Fuchs: Great, that sounds lovely. I would love to do that with you, Josh. And our listeners, thank you again for listening. We appreciate your loyalty and we look forward to you joining us again soon. Thanks.

Voice-over: This has been the New School of Super. For information and inspiration to help you plan your future, manage your super and enjoy your retirement, visit sunsuper.com.au/thedreamproject. Or if you've got a superannuation or investment question you'd like Brian and Anne to discuss, then get in touch at newschoolofsuper.com for it to feature in one of our future New School of Super podcasts.

Episode 9

What about women's super?

To celebrate International Women’s Day, Anne is joined by Joshua van Gestel, Sunsuper's National Education Manager, to discuss wealth equality and closing the superannuation gap as you head into your retirement.

Launch Podcast

Voice-over: Welcome to the New School of Super, a fresh look at money matters, your super, and the things that could affect your financial dreams now and in future, with Sunsuper's Chief Economist, Brian Parker, and Head of Advice and Retirement, Anne Fuchs.

Anne Fuchs: Hello, and thanks for listening. Welcome to the New School of Super, Sunsuper's podcast series covering investment markets, money matters, your superannuation, and most importantly, making sure you achieve your retirement dreams. Today we are mixing it up a bit, and I have a fabulous fellow. He's been with us on a previous episode, Josh van Gestel, a National Education Manager here at Sunsuper.

Josh van Gestel: Hi, Anne. Thank you, thank you.

Anne Fuchs: Welcome, it's good to have you here. I'm feeling a bit weird, Brian not joining us today.

Josh van Gestel: Yeah, the seat's a bit warm, yeah.

Anne Fuchs: Yes, it does feel a bit unusual. We are talking today about things that aren't investment related as such, which is why Brian's not joining us.

Josh van Gestel: Yes, he doesn't know much outside of that.

Anne Fuchs: That's unkind, but we are talking about women and money. Before we get started though, I'm going to hand over to you, which the job that Brian normally has.

Josh van Gestel: Yes, yes, thanking our sponsors. So yeah, before we start, Anne, just what we're talking about today is general information only. Any advice doesn't take into account our listener's personal situation. I think it's important that anyone listening should consider their circumstances, and think about getting personal advice before acting on anything we talk about. As you know, Anne, you've got a wonderful advice team, and they can be contacted on 13 11 84 to assist them.

Anne Fuchs: Listeners can also get a copy of our product disclosure statement on the Sunsuper website as well. That's probably worthwhile highlighting that.

Josh van Gestel: Thank you, Anne, yes.

Anne Fuchs: This podcast today is in honor of International Women's Day, and it's important we stop and reflect on the challenges women face when it comes to wealth equality globally, but in Australia, what is a wealthy country. We want to talk together and encourage our listeners to think about what more they can be doing to bride that gap.

Josh van Gestel: Absolutely.

Anne Fuchs: That wealth equality gap.

Josh van Gestel: I think, and probably to show how much of a concern it is, is we've got employers really starting to actively think about not just the pay gap, but also thinking about the inequality in retirement. I think it's between men and women, we've got the government thinking about it, we've got a lot more measures now, especially for when women might leave the workforce to raise children, but I think some of the stats are actually quite scary.

Anne Fuchs: Well, I have a son and two daughters, and I think it's outrageous that on average, women are earning $245 less per week than men, and that a 20-year-old woman is earning ... let's call it 19%, close to 20% less than her male counterpart in the same job. Then that doesn't even take into account the fact that they're jobs in sectors that we say as a society we value; looking after our elderly, looking after our young ones, so aged cared, childcare, that those sectors are incredibly underpaid, and in fact, childcare workers are paid less than retail workers and hospitality workers.

Josh van Gestel: I think when you combine all that, the scary thing is, certainly from a retirement perspective, that we are seeing women on average retire with about half as much as a male counterpart. I think the other thing, just to a point you made, was that we in our society generally see that it is women who take time off to look after children and raise them, but the other thing we're also seeing is that older women are then leaving the workforce again in many instances, to help care for their parents or for the in-laws. There's these huge periods generally within our society for women where they're absent from the workforce, and their super stops, effectively.

Anne Fuchs: And you know, I have three children, 12, 10, and 8, and I am the main breadwinner in our family. Even though I took very short breaks, you know, three months, two months, four months, my super wasn't getting paid over that period, and I think about now, and I was back in my 40s, almost mid-40s, as sad as that is, and I didn't know or think about in my early 30s the fact that my employer actually wasn't contributing to super while I was off-

Josh van Gestel: Absolutely.

Anne Fuchs: ... and the impact that has in compounding interest. Probably ... not probably, and I'm quite certain the fact that I was being paid much less than my male counterparts. Even though I'm in a great job in a secure role, I'm still going to be in the back foot compared to a male equivalent in my position.

Josh van Gestel: I think although we're talking today and at the moment about whether it's thinking about the effects on retirement, or even the pay inequality, I think the other issue that's important to probably just highlight is that it is women who will more likely be subject to financial abuse, who will have control of money in a relationship generally fall to a male, and the statistics there are alarming as well, that three in five Australian women will actually have some form of financial abuse.

Anne Fuchs: Yeah, CoreData published that recently. I think it's absolutely terrible. It's a form of domestic violence. It's all well and good, I think. I think it's all well and good to encourage women to think about their retirement savings gap and do something about it, but it can be so daunting to be on the back foot so profoundly, and when you're in a lower paid job, but sticking your head in the sand equally too is only going to exacerbate the problem. No matter what salary you're on, these simple tips that we could have a quick chat about are worthwhile really reflecting very much about.

Josh van Gestel: I think there's also opportunities there that people just aren't aware about.

Anne Fuchs: Like?

Josh van Gestel: There's a few things to think about, and from my perspective, I've got a wife who has gone from being very highly paid, to leaving the workforce and now coming back into the workforce on a part-time basis. There's strategies worth implementing that I think I know about because I live and breathe the industry.

Some of those strategies that people may not be aware of, is as your income drops, the government really gives three free kicks, as I see it. If you earn beneath $37,000, then the tax that normally is deducted from the contributions that your employer's required to make, super guarantee, that tax is effectively refunded. That's the first thing that it's not really a strategy you have to think about, it just automatically happens. I would suggest most people don't know about it. When your incomes drops, there is a payback.

Anne Fuchs: There's also, I guess, if you have a spouse that's then earning more than you, the concept of spouse contributions, because one of the things with women retiring in poverty and this increased phenomenon is that they might have given up their career, and they haven't had superannuation contributed at all, and then they divorce in their 60s, and then all of a sudden they have barely any assets.

Josh van Gestel: That's right.

Anne Fuchs: This concept of spouse contributions-

Josh van Gestel: If I as a spouse make a contribution-

Anne Fuchs: To your wife, yeah.

Josh van Gestel: ... to my wife's account, and I do that contribution from our joint savings, it's coming from our combined wealth, that I then am entitled to an offset on my tax return of up to $540. There's two things happening here. I as the contributing spouse am getting a tax advantage. Meanwhile, my wife is actually benefiting from seeing her super balance grow.

Anne Fuchs: As sad as it is with one in two people divorcing, it's a nice insurance policy for her that she's actually building up some financial independence in terms of her retirement savings.

Josh van Gestel: That's right, that's right. There are two other things as well. One thing that the member can do, and in my case, that my wife can do, from again, our personal savings, she can make a contribution herself, and if she earns less than $52,600 odd dollars, then the government will actually throw in up to $500 as well.

Anne Fuchs: That's called a co-contribution, if you hear about it.

Josh van Gestel: That's correct. To your point, Anne, that actually helps the spouse in this situation, or any person, actually, grow their superannuation when they may be on lower income. The only other thing that I'd like to mention as an important strategy is I also have the ability in my relationship, and as many people would in their relationships, that there may be one person who's earning more than the other, they've got higher superannuation contributions going into their account.

There is this ability to split contributions, for me to at the end of the financial year, actually take some of those contributions have come into my account, and actually put those into my wife's account. Doesn't give me a tax advantage, doesn't give me a savings advantage, but where the equalization is, is that it's actually making sure that we're spreading out our retirement wealth across both accounts.

Anne Fuchs: Yeah, that's right, yeah. I think there are lots of people that aren't in relationships too, and just good old fashioned salary sacrificing. I spoke on a previous episode with Brian about New Year's resolutions, and one of ... I think about the money I waste on not being organized and packing my lunches. It's $10 here, $10 there, and it adds up. I do think just the principle of just being organized, and using that money to contribute to superannuation rather than a very expensive sandwich.

Josh van Gestel: Absolutely. I present to a lot of members, and I talk about superannuation is doing small nudges. It is that sandwich, it is that coffee, it's diverting that money. It's a small nudge, but you're doing it numerous times, and those all add up.

I think the other thing is though, that every person can do in making sure their super is growing and working for them is actually to think about how they're investing it. What is it that you're actually able to achieve not just by putting additional money in, but actually growing that through thinking about the investment strategies that we offer?

Anne Fuchs: And look, I think that's a really good point, Josh. Sunsuper have a service offering for our members where our members can access simple, trusted financial advice over the phone. If you're a woman and a member of Sunsuper, and you want to think about, and you're thinking about what more you could do to maximize your retirement savings, and to make sure that money's invested to maximize, again, your retirement savings, the best thing you could do is call Sunsuper.

We live and breathe this stuff day in, day out. We help women like you, our listeners, every day do more so that you can bridge that gap, that wealth equality gap that exists. We desperately want you to. We want you to live the life that you deserve to live and fulfill your retirement dreams. We celebrate today, Women's International Day, and Josh, I love your ... you're an honorary feminist in my eyes.

Josh van Gestel: Thank you, Anne, and thank you for inviting me in Brian's hot seat.

Anne Fuchs: Yes, it was a pleasure to have you.

Josh van Gestel: It's been wonderful, thank you.

Anne Fuchs: Thank you, listeners, and we'll look forward to you joining us again soon. Thanks.

Voice-over: This has been the New School of Super. For information and inspiration to help you plan your future, manage your super, and enjoy your retirement, visit Sunsuper.com.au/thedreamproject, or if you've got a superannuation or an investment question you'd like Brian and Anne to discuss, then get in touch at newschoolofsuper.com for it to feature in one of our future New School of Super podcasts.

Episode 8

Thinking of starting an SMSF?

In this episode, Sunsuper’s Dream Team is joined by Joshua van Gestel, Sunsuper’s National Education Manager to help you get wise on self-managed super fund and if one could be right for you.

Launch Podcast

Voice-over: Welcome to The New School of Super, a fresh look at money matters, your super, and the things that could affect your financial dreams now and in future with Sunsuper's Chief Economist, Brian Parker and Head of Advice and Retirement, Anne Fuchs.

Anne Fuchs: Hello and thanks for listening. Welcome to the New School of Super, Sunsuper's podcast series covering investment markets, money matters, superannuation, and most importantly making sure you fulfill your retirement dreams. Today, as per usual, the fabulous Brian Parker, Chief Economist, is by my side. The man that knows everything there is to know about money markets and the economy. Hello, Brian. [inaudible 00:00:47] see you.

Brian Parker: Hello, Anne. Great to be with you again.

Anne Fuchs: And we have a special guest today. A very special appearance. Joshua Van Gestel, our national education manager is joining us today. Josh is going to break down self-managed super funds for us Brian.

Anne Fuchs: And before we get into it I should introduce myself, too, even though I'd like to think all of our listeners know who I am by now. My name is Anne Fuchs and I head up advice and retirements here at Sunsuper and we make sure on my team that all of our members get fabulous trusted high quality financial advice so they maximize their retirement savings.

Anne Fuchs: So Brian, what do we need to do to stay in the good books with our compliance team?

Brian Parker: Oh, thanks Anne. Well, as you mentioned Josh is here today to explain self-managed super funds and I think a lot of people are attracted to the idea of an SMSF for its flexibility and the control it can offer. That as always the devil's in the detail and one detail we definitely need to share with our listeners is that before we start we need to let you know that what you're going to hear today is general information only. That anything we say here, any advice that we give here, doesn't take into account your personal situation. You really should consider your circumstances and think about getting personal financial advice before acting on anything we discuss. You can also get a copy of our product disclosure statement from our website or give us a call on 13 11 84.

Anne Fuchs: Beautiful. Well, Joshua, welcome. It's lovely to have you here.

Josh Van Gestel: Thank you. It's wonderful to be here at last.

Anne Fuchs: And I look forward to all of our listeners being that much wiser about this SMSF thing, this thing called self-managed super, 'cause you're going to educate us all about it today. And probably it's worthwhile starting with what on earth is it? Are you able to break it down for us?

Josh Van Gestel: Well, we'll certainly break it down but I think really probably the thing to think about is the main consideration I think around SMSFs and their popularity is maybe there's been a bit of a disconnect between perceptions and what they can actually do. We've seen this incredible growth in them, with I've personally had a lot more people talk to me at barbecues about them than anything else once they know what I do for work.

Josh Van Gestel: But we have a lot of questions from people about what they're actually wanting to achieve with it. Is it that they think they can perform better? Is it going to be cheaper for them? Does it give them opportunities? And those are some of the things that I think we should actually unpack tonight.

Anne Fuchs: So SMSF, is it sort of this niche kind of very boutique investment opportunity or is it a sizable part of the superannuation market? How big is this sector?

Josh Van Gestel: Oh, it's a very big part and the growth has been absolutely unbelievable. So at the moment they probably make up a good quarter of the entire superannuation industry.

Anne Fuchs: That much.

Josh Van Gestel: Probably have about a million members or more but they do have incredible wealth within them. But really at the end of the day, Anne, they just run like a normal superannuation fund. They look the same, feel the same, largely have the same opportunities. But the main things is that when you've got an SMSF, you're the one in control. You're the one who not only calls the shots but you also have to take on all the responsibility.

Anne Fuchs: So is that ... 'Cause I was going to ask you why do you think there's been this sort of surge in popularity over the last how many years with SMSF and why it's a quarter of the market now. Is the psychological sort of concept of control? Or people are repressed investment managers and want to be like Brian? 'Cause we all want to be like Brian.

Brian Parker: [crosstalk 00:04:30] be like Brian.

Josh Van Gestel: I think it goes back to the original point. There's this perception versus reality. I think a lot of people perceive that they can do better than Brian and his peers. And the reality though is maybe they've bitten off more than they can chew. And so although we've seen this tremendous growth, it should be noted that we're also seeing now a bit of an uptick in how many people are actually closing their SMSF because maybe they have the realization that they just can't look after it.

Anne Fuchs: So you said earlier it sort of looks like a super fund, smells like a super fund, quacks like a duck, that type of concept, but surely that can't be true. And I just, in a sense of you said earlier that concept of you take on all the responsibility. So it's our responsibility here at Sunsuper to make sure we protect and grow our members retirement savings assets and so that they have that money when they retire. But when you're in a SMSF, what happens when you invest in a dodgy investment, like a unit of the plan and something goes wrong.

Josh Van Gestel: Absolutely. So when you're on your own SMSF you have the same obligations and outcomes as we do at Sunsuper. You are trying to achieve a good retirement outcome. I do wonder though how many people maybe go into a SMSF not realizing that that's actually what they're trying to do. I think a lot of people might go into a SMSF because it feels glamorous, because they can access property, because they can do a number of things.

Josh Van Gestel: Truth just is they want all the rest of it, but do they actually realize at some point in time they're going to have to withdraw from this thing. That they need to draw down an income or lord forbid that they actually need to make a withdrawal because someone passes away or they suffer a disability or some event like that.

Anne Fuchs: So, Josh, a friend of mine has just become a barrister and he's going into the Inns of Court in Brisbane and he's talking about thinking about rolling out of his industry fund and buying rooms at the Inns of Court and setting up an SMSF and there are some scenarios where SMSF is reasonable and appropriate.

Anne Fuchs: In general advice terms, are you able to give some just general principles around when SMSF sort of feels right or when it's more likely to be considered as something that might be right for you and-

Josh Van Gestel: Absolutely. And I think it's very important to realize SMSFs are actually a really great investment vehicle or superannuation vehicle, but definitely for the right person. Firstly, you need to think about the balance. So you don't want to start or even considering starting an SMSF unless you've got some reasonable money to put in. Different research suggests anywhere between 200,000 and half a million is probably a good starting point.

Josh Van Gestel: The second thing to think about is then what are the costs? What's the reality of it? If you are going to buy property with your SMSF, well that property will actually come with legal fees, management fees, everything else that normally is part of purchasing a property.

Josh Van Gestel: Thirdly, you also need to think about am I really interested? Am I personally going to invest the time to run my SMSF? Or do I actually have to pay someone to help me run it? So ultimately you are in control and you have to make the decision am I going to do it or am I actually going to outsource elements of it? And if I do then it comes back to that very first thing, do I have enough money? And what is the cost going to be?

Anne Fuchs: I think it'd be worthwhile bringing in our illustrious Chief Economist at this point. 'Cause I would like to jump to the fact that the Productivity Commission recently highlighted I guess the significant underperformance of SMSFs compared to a typical balanced fund within my super and the lack of investment strategy and philosophy and active management. Brian, what's your experience in this area?

Brian Parker: I'd say a few things actually, Anne. The draw on Josh's point about how much money you can put into this. And personally I think you need sort of up towards the half a million and above before you'd even think about it given the cost of actually running your fund. But it's also worth bearing in mind that you want to build, if u go back to investments 101 you want to build a sense of reconstructed diversified portfolio. And I can do that a hell of a lot better with $55 to $60 billion than I can with $500,000. But getting a really well-diversified portfolio is a real challenge unless you've got serious money to put to work in your self-managed super fund.

Brian Parker: And I suppose the other thing is, and again to Josh's point about what are you actually trying to achieve, and if you think you can do better, you have to ask yourself can you really? And one of the things we saw after the global financial crisis when your returns were very poor, 'cause markets were very, very unkind obviously, and a lot of people say well why am I paying superannuation fund fees to get negative returns? I can do better myself. Now frankly the productivity commission data suggests that that's simply not the case. That and those markets have recovered and as super fund returns have really performed well in recent, or really over the last nearly decade, those super funds have actually come back with a vengeance and they have outperformed most self-managed super funds.

Brian Parker: Now we really shouldn't be surprised by that and it's not just the investment expertise that you get by investing through major super funds, but it's also just simply the fact that these funds are able to invest in a very widely diversified way and invest globally. I mean the investment universe that major super funds are able to access is just far greater than whatever's available to the typical self-managed super fund investor.

Josh Van Gestel: And I think the other advantage is though when you've got someone like Sunsuper looking after investments, and it brings all of that with it, but you know can also to some extent set and forget. You know that your money's in good hands. If you're looking after it yourself and you're SMSF, then you have to invest the time. You absolutely have to invest the time. You can't just set and forget.

Anne Fuchs: And I mean you've both heard me talk at length about why I think money's such an emotional thing. And people make decisions about money, it's not rational, it feeds back into what their parents taught them, what their emotional relationship is. And I do think there is a strong connection, in my experience anyway, with people who estimates in a lot of cases where they just ... It's a lack of trust and desire to control. And that's sort of the rational things that Brian and you have referenced in a lot of instances just aren't as important as the desire to just control my nest egg at all costs. But they can't, as we all know, 'cause we live and breathe superannuation governance every day and compliance, there is a lot attached to governing a superannuation fund.

Anne Fuchs: So it's probably worthwhile, Josh, if you just high level explain what are the obligations, the paperwork with APRA, which is the regulator attached to super, what are the things our listeners need to know?

Josh Van Gestel: So I think again, it comes down to this perception versus reality. The reality is it's not easy. And whether that's lodging tax returns each year, getting audits done each year, managing the investments, we've already spoken about, all of these things you have to make a decision. Am I going to do it? Or am I going to pay someone else to do it?

Josh Van Gestel: So once you've answered that questions it really is going to drive two things: How much work you, yourself, have to do? And how much money you're paying out of the fund in fees? The obligations are many and I would actually go as far as saying a lot of people go into an SMSF without actually knowing what those full obligations are.

Josh Van Gestel: So besides tax return and audit, there's also just operationally. How do you make sure that the fund is doing what it's to and doing it legally? Are you purchasing and selling investments within the fund in the right way? Are you allocating returns to the members in the right way? If you're running a pension out of the fund, are you actually able to manage all the issues and requirements around that? There will come a point where you, yourself, have to think about am I up to it and am I still willing to keep doing it.

Anne Fuchs: And I was going to ask that question actually around the transition from when you're accumulating retirement assets to decumulation when you're actually drawing on those assets to draw an income in retirement. There's not only the, I guess the compliance obligations of how you structure that, but I guess too, Brian, to throw to you again, is what is a change in investment strategy required? Are different assets required? Because-

Josh Van Gestel: You can't sell one of the bedrooms.

Anne Fuchs: Well no, and this is right, we spoke in our previous episode about the importance of diversification and risk. And it probably is worthwhile just touching on that now, in light of SMSF investment strategy and the different phases of your retirement and accumulation lifestyle.

Brian Parker: Absolutely. And the key question is can you have a self-managed super fund that is big enough and diversified enough to be able to pay you an income without you having to basically sell down a chunk of assets really. And to go to Josh's point where can't sell a bedroom, you can rent it out, but you can't sell a bedroom. And that is an ongoing challenge for self-managed super funds.

Anne Fuchs: So I think any final tips. Brian's very good. You're sort of following someone who's very good at giving our listeners tips. Joshua, I have to warn you. I don't know if you heard our previous episode about tips for investors-

Josh Van Gestel: Brian's seven tips.

Anne Fuchs: Brian's seven tips do we have-

Josh Van Gestel: Do I have seven-

Anne Fuchs: So does Joshua have any ... Does he have any tips?

Josh Van Gestel: I might be a bit more succinct than seven. I think first and foremost if you're thinking about an SMSF, don't listen to your friends. Don't listen to the family. Don't just read the newspaper. Really important to get good advice. Really, really important. Know exactly what you're chewing off. What you're biting off. Know what the reality is not the perception. That would be the first thing.

Josh Van Gestel: Second thing is I think if you're going into a SMSF you have to research. What are you paying? What are you going to invest in? Are there elements you can do yourself? Are there elements that you have to outsource? Know exactly what you, yourself, are going to do.

Josh Van Gestel: And I think thirdly, going back to an earlier point, SMSFs can be a really great option for the right person. And I think the right person is someone who not just wants to invest through it, but also invest the time in it. Maybe have a bit of passion about it and enthusiasm about it.

Josh Van Gestel: If you're wanting a set and forget superannuation product, I'd suggest an SMSF ain't right for you. And there's got to be a greater reason to have one other than to be able to talk about barbecues about it. That would be my closing thoughts I think.

Anne Fuchs: Thank you and I think it's probably I'd like to just highlight to our listeners if they are thinking about an SMSF, they can contact Sunsuper. We have some fund-based advisors. They're able to provide simple advice on super, but they can after talking with you refer you to advisors. We have a number of advisors, external advisors to Sunsuper around the country. We have, we call them [inaudible 00:16:40] but they pass the [inaudible 00:16:42] test. We've stringent sort of guidelines and education standards that they [inaudible 00:16:46] and we have the highest level of trust that they can and will provide you the right advice for you. And if setting up an SMSF is what you need, then they will provide you that advice.

Josh Van Gestel: And Anne, I'd suggest they can also talk to them if they're at a point in their SMSF life if they have one where they feel it's actually time to pass that trust and responsibility to a superannuation fund like Sunsuper and how they actually go about that.

Anne Fuchs: Well I like [inaudible 00:17:13] and Nuser and I think Nuser is absolutely a hotspot for people who like to wind down SMSFs as life becomes more lovely and relaxed and anyway on that note I think I would like to thank you, Joshua.

Josh Van Gestel: Thank you, Anne.

Anne Fuchs: Josh, it's been great to have you. Brian, it's been a bit unnerving. You've been a bit quieter because there's been a special guest on the show but-

Brian Parker: I know. It's been physically painful [inaudible 00:17:36] honestly talk enough. I think I've done well, absolutely.

Josh Van Gestel: Thank you, Brian.

Brian Parker: Thank you, Joshua. Thank you, Anne.

Anne Fuchs: All right, well look forward to you joining us on our next episode of the New School of Super.

Voice-over: This has been The New School of Super. For information and inspiration to help you plan your future, manage your super, and enjoy your retirement visit sunsuper.com.au/thedreamproject, or if you've got a superannuation or investment question you'd like Brian and Anne to discuss, then get in touch at newschoolofsuper.com for it to feature in one of our future New School of Super podcasts.

Episode 7

Seven investment rules to live by

The Dream Team return. Join us as Chief Economist Brian Parker and Head of Advice and Retirement Anne Fuchs deliver Brian’s seven top investment tips to live by to help you achieve your retirement dreams.

Launch Podcast

Voice-over: Welcome to the New School of Super, a fresh look at money matters, your super and the things that could affect your financial dreams now and in future with Sunsuper's Chief Economist Brian Parker and head of Advice in Retirement Anne Fuchs.

Anne Fuchs: Hello and thanks for listening. Welcome to the New School of Super. Sunsuper podcast series covering investment markets, money matters, your superannuation and most importantly, making sure you fulfill your retirement dreams. With me is my good friend Brian Parker, our Chief Economist here in Sunsuper. Brian is so entertaining, we've had such wonderful feedback about you Brian, because you really do apparently know everything there is to know about money and investment markets..

Brian Parker: Well, thanks so much Anne. I'm so glad about you too. I'm glad to be here with you again, but before we start, as always we need to let our listeners know that what we're going to talk about today is general information only. Any advice doesn't take into account your personal situation. You should consider your circumstances and think about getting personal advise before acting on anything we talk about today. You can also get a copy of that product disclosure statement from our website or give us a call on 131184..

Anne Fuchs: Before we get into it, Brian, I should point out, I actually head up advice here at Sunsuper. So I'm the head of advice and retirement here and we have a fabulous advice offering for our members here at Sunsuper so they can get to trust the advice they need and financial resolutions. [crosstalk 00:01:32] So, happy New Year to you sir..

Brian Parker: Thank you..

Anne Fuchs: [crosstalk 00:01:35] Financial learnings or things that you could explain to our members to help them to get financially fish in 2019 and yeah, are you happy to have a chat about that today?.

Brian Parker: Yeah, absolutely. As I sort of travel around the country talking to members and talking to a lot of the employer groups who use Sunsuper, I've, and really over many, many years, this is ... I've found this is some of the smartest people I've met, really successful people, successful business people, doctors, lawyers, engineers, et Cetera, often have very little clue about money. I've seen some really, really smart people make some really dumb decisions with money and it just kind of struck me that we really didn't get told a lot about money matters. We don't really get taught a lot about investments and financial matters at school and so now we're all grown up and have to my grown up decisions about our super and about whether we can afford a mortgage or in decisions which really our education system hasn't really prepared as for..

Anne Fuchs: Culturally too, I might point out, Brian. That culturally Australians are really uncomfortable generally talking about money. I'm married to a German, Germans are very comfortable talking about money a bit too comfortable-.

Brian Parker: They're too comfortable talking about it..

Anne Fuchs: Too comfortable actually. So we thought in this safe environment of a podcast, people we can have a chat about money today without being judged as you normally would be at a barbecue or at a family function. So there are some lessons, you've got I think six just-

Brian Parker: Seven..

Anne Fuchs: Seven? I got it wrong, seven-.

Brian Parker: Seven rules-.

Anne Fuchs: Goodness gracious-.

Brian Parker: When it comes to investing money..

Anne Fuchs: Okay. All right. So the seven top tips, and you've got a really catchy name for this, don't you Brian? The seven top tips. What do you call that?.

Brian Parker: Honestly, this is the seven rules to live by and it's how to keep your face off a current affair..

Anne Fuchs: Yeah. No one wants to be on current affair..

Brian Parker: Yeah, you don't want to be one of those people who turns up on a current affair because of some really, really stupid thing you've done with money. You don't want to be one of those people looking mournful and having Tracy Grimshaw look at you in sort of politely nod at you and feel sorry for you. You just don't want to be one of those people. So I've got seven rules to live by and probably rule number one, we all grew up with the saying that there's no such thing as a free lunch. But in an investment speak, people need to realize there's this long run trade off between risk and return. Anybody who actually comes to you and say, "I've got this great investment idea, is going to deliver a really, really strong returns and it has no risk", run a mile, get out of there..

Anne Fuchs: That was one of the things about story financial, I remember. I've been an advice for 20 years that it sadly when there is risk, but actually understanding what that risk is too. So, this goes back to financial literacy, doesn't it?.

Brian Parker: Absolutely, and when we think about financial markets, we often think about risk in terms of volatility. But for our members, risk is really, "Will I have enough to live on retirement? Could I lose my money completely? Could I suffer a catastrophic loss of capital?" This is what we find a lot of members are really worried about. So understanding risk in return and the trade off is an absolutely crucial part of investing and again, a lot of people get caught up with it on a very basic point..

Anne Fuchs: Actually I'm just thinking it'll might be really good in our next episode when we've got the fabulous Joshua Van Gestel who's our expert in all things SMSF to explore that concept of risk return when it comes to SMSF as well and the risks attached to investing your own superannuation. But not to confuse things now, but maybe something to get our listeners excited about for the next episode..

Brian Parker: Yep, absolutely..

Anne Fuchs: Okay. But what's the next lesson we need to know?.

Brian Parker: Okay, rule two. Now we all again grew up at the saying, "Oh, you shouldn't put all your eggs into one basket", right? Now and again, in investment speak, this is the power of diversification. It's about having lots of eggs and lots of different baskets investing in a whole range of different assets and a whole range of different markets so that if something goes wrong with one particular investment, it's not going to be fatal to your overall strategy and it's not going to ruin your retirement dreams by itself. Diversification is often ... People often say it's the only free lunch in investing, lots of eggs, lots of different bars.

Anne Fuchs: But would that mean having a property portfolio with houses in Redfern, Hornsby and Bondi Beach? Is that diversification?.

Brian Parker: No, probably no. Just means you go both sides of Sydney harbor covered, but that's not really diversified portfolio..

Anne Fuchs: Okay. So what does that mean? What does diversification mean? So it's still breakdown that jargon. So ....

Brian Parker: Yeah. It's like investing in a range of different asset classes for example some shares-.

Anne Fuchs: So what's an asset class? Okay..

Brian Parker: Like shares or fixed interest or property. Lot's of different asset classes but also within that asset class, ensure that you're not just investing in say one or two properties or you're investing in say three shares. It's about investing in lots of different companies and ideally lots of different properties so that you're spreading your risk, you're not going to be ... So if something goes wrong with one particular investment, it doesn't destroy your retirement dreams. Diversification is crucial..

Anne Fuchs: That sounds like a good insurance policy, really protection..

Brian Parker: Yup, it is. It is a way of protecting your downside. It's a way of basically ensuring that if something goes wrong with one thing, it doesn't destroy your retirement..

Anne Fuchs: Okay, well that's a really and very important lesson when you have to live in your retirement savings. Lesson number ....

Brian Parker: Lesson number three..

Anne Fuchs: Three, yes..

Brian Parker: When it comes to investing, jealousy is a curse. I know I hate this old time when someone says, "Oh, but I made a lot of money by doing this" or if you tell "My old boss actually used to call it barbecue risk". Is the risk that you turn up at a barbecue thinking you're doing really well. Let's say you turn up at a barbecue, you've turned up at the barbecue earlier this year and you've just got your statement from your Super fun and you think you've done well and someone turns up and they've done a whole lot better. Now the temptation is to say, well, what did you do? How did you get a better return than me?.

Anne Fuchs: But we don't talk about that in Australia, do we?.

Brian Parker: No, we don't. But if someone says, they might've said, "Oh, I invested here, I invested there and I've made a lot of money" and you think, "Hang on a minute, I was really happy with the way I did. Now I'm feeling really annoyed about how I've done cause I didn't do as well as this other person" and that's a challenge. In other words, my point about jealousy being a curse, it's about your retirement dreams, no one else's. It's about your appetite for risk, it's about your financial needs. What someone else does with their money and how well or how badly they do with their money is utterly irrelevant to you and that's real, and it's particularly dangerous when I go to my rule number four, rear view mirrors and knowledge useful is windscreens both in driving a car and an investing money. So the person you met at the barbecue, what worked for them last year may or may not work for them or work for you over the next few years..

Anne Fuchs: But surely to, I think the media has a role to play here, Brian. Cause when they publish the top performing super funds for 2018 or whatever it might be or talking about investment markets, it does create, as you said, whether it's jealousy or concern, they're missing out the form or panic and as a consequence, people make rash decisions without getting professional advice..

Brian Parker: Absolutely. But the key thing, absolutely right, a short info on some performance makes no sense. Especially when you're talking about superannuation where this is the longest term asset most people will ever hold..

Anne Fuchs: And the second biggest asset they'll probably hold..

Brian Parker: Pretty much, exactly. So really [inaudible 00:08:41], it's about being forward looking. It's about realizing that what worked last year may not work next year. So, really mirrors not being as useful as windscreens. Look, the rule number five is the power of common sense and I call it a BS detector. It's the ability ... Call it a sniff test if you like..

Anne Fuchs: Pretend I don't know what that means, as being the lady I am..

Brian Parker: Well, call it a sniff test. If someone comes to you with an investment idea and it just sounds too good to be true. Well guess what? It probably is. The ability when someone gives you this really hot investment idea they go, "You know what, that's just no, that just doesn't sound right"..

Anne Fuchs: Well, that goes back to my earlier point when you were talking about risk and still-.

Brian Parker: Absolutely-.

Anne Fuchs: What happened there, which was incredibly sad..

Brian Parker: Yeah. But, anyone implying that you can actually generate really, really high returns with no risk, that person is either a fool or a charlatan or both. The best strategy when dealing with those sort of people is to run away and fast..

Anne Fuchs: Cause you will end up on a current affair..

Brian Parker: You'll end up in a current affair. Now rule number six is really, really ... It's very difficult rule to tell any Australian audience. Getting a tax bill is good news. Australians, we hate paying tax and a lot of people in-.

Anne Fuchs: I'm not sure this is Australian phenomenon to be honest?.

Brian Parker: No, I don't think its Australian phenomenon, but do you remember like Kerry Packer famously said that he didn't think politicians were spending money so well that he ought to be paying them any extra. I kind of agree with that, but getting a text bill is good news, it's for the simple reason you made money. If you're getting something back from the tax office because of something you've done with investing, you have lost money and the tax department is saying they're, "Sorry for your loss. Here's a little bit of your money back", but you're still fundamentally staffed..

Anne Fuchs: Yeah..

Brian Parker: So getting a tax bill is good news. Now I also, one of the interesting things about, if you think about Australia's history, we used to have really, really high rates of income tax. The top marginal tax rate used to be over 60 cents in the dollar, close to 65 cents in the dollar. Now, if the tax man is going to take 65 cents of your marginal dollar, well by God you do everything you could to avoid nine techs and a lot of people did and a whole industry sprung up to help you do it. Think macadamia nuts, think olives, think tea tree, think a whole range of these things. All designed to basically lose money, so you save tax. Getting a text bill is good news and it's funny how that industry and that sort of mentality to not want to pay tax and to try and get out of paying tax has survived the fact that the top marginal tax rate is now miles below where it used to be. But getting a tax bill is good news, making money good, losing money bad, fairly basic investment preposition..

Anne Fuchs: So if you don't want to lose money, what would be? One, what's your final tip?.

Brian Parker: My final tip is a good advice pays. Good medical advice, good legal advice and good financial advice pays and we believe very passionately advice here and the good financial advice can make a really meaningful difference to people's retirement outcomes. It also means that a financial advisor worth his or her salt should never balk at saying, "I kept your face off a current affair for another year. Here is a bill, here's the cost of my professional services" cause that advice absolutely has a value..

Anne Fuchs: Okay and do you know, we were doing some analysis, the sort of tail end of 2018 looking at those members at Sunsuper who have sought financial advice and have got financial advice and those that haven't, and there is, I mean, you're not going to be surprised by this Brian, but there's a profound gap difference in terms of what people ending up with in retirement. The activity on their account is much more sort of engaged activity around, making the right investment choice, making sure they've got binding nominations when something bad happens. They're really, really so much better prepared for their retirement. Which is why we bang on about it so much to put a cross like we just want more members to do this because you'll be better off as a consequence, that's why we come to work every day..

Brian Parker: Absolutely..

Anne Fuchs: I think we have covered the main points very succinctly today, Brian..

Brian Parker: I think we have indeed. Absolutely. So look, there's my seven rules to live by. I'm very much looking forward to the next podcast..

Anne Fuchs: Look, I am sure Josh Van Gestel is quite a force of nature. I don't know how you're going to contain yourself, Brian in the next episode. You'll have some serious competition..

Brian Parker: I'm sure I'll be fine..

Anne Fuchs: Okay. All right. Well thank you very much for listening and we look forward to you joining us at the next episode of the New School of Super..

Voice-over: This has been the New School of Super. For information and inspiration to help you plan your future, manage your super and enjoy your retirement, visit Sunsuper.com.au/thedreamproject or if you've got a superannuation or investment question you'd like Brian and Anne to discuss, Then get in touch at Newschoolofsuper.com for it to feature in one of their future New School of Super Podcasts..

Episode 6

Using your super when you retire

Join Sunsuper’s Dream Team as Chief Economist Brian Parker puts Head of Advice and Retirement Anne Fuchs in the hot seat to discuss why it’s never too early to start planning for your future, and explain when and how you can most tax-effectively access your super pot when you retire.

Launch Podcast

Voice-over: Welcome to The New School of Super, a fresh look at money matters, your super, and the things that could affect your financial dreams now and in future with Sunsuper's Chief Economist, Brian Parker and Head of Advice and Retirement, Anne Fuchs.

Anne Fuchs: Hello and thanks for listening. Welcome to The New School of Super, Sunsuper's podcast series covering investment markets, money matters, and your superannuation, and most importantly, helping you achieve your retirement dreams. With me is my friend, the Chief Economist of Sunsuper whose name is Brian Parker. This man knows everything when it comes to investing. He is a source, font of wisdom that we rely on heavily here at Sunsuper. It's great to see you Brian.

Brian Parker: Thanks Anne. Good to be with you again.

Anne: Now, I know you know who I am, but I probably should introduce myself to our listeners. What do you think?

Brian: Every chance really.

Anne: Every chance. So my name is Anne Fuchs. A little bit of gem for our listeners. Fuchs means fox. There's a bit of tidbit for you today. I head up advice and retirement here at Sunsuper. The team and I, we are passionate about helping our members fulfill their retirement dreams, and I would argue the most important enabler for that is actually good quality financial advice.

Brian: Well, thanks very much for that Anne. Today we're actually going to flip our normal podcast schedule, so yes.

Anne: Oh, we're getting crazy.

Brian: We're going a bit crazy. I am actually going to do the interviewing for a change. I'm going to actually ask you some questions. Now in particular today we're going to delve into the whys and hows of using your super balance when you retire, and I'm going to look to you Anne to give everybody listening the straight answers on how far ahead people should be thinking about retirement and what they should do now to make sure the lifestyle they want in retirement is going to be delivered.

Brian: Now before we start, we do need to go through our usual disclaimer. I need to let everyone listening know that what we're going to talk about today is general information only. Anything we say today can never possibly take into account your particular circumstances. You need to consider your own circumstances and think about getting personal advice before acting on anything we talk about today. You can also get a copy of our product disclosure statement from our website, or by calling us on 13 11 84.

Anne: Look, talking superannuation and retirement particularly to younger people but I would actually argue for most Australians is something they really don't want to talk about. I remember when my grandfather retired at 65, people weren't living, particularly men much longer after that. Where now men are living to 84, 87, and the kids that are being born, the babies being born now will well and truly make that, they'll all be getting a letter from King Charles probably and Queen Catherine.

Brian: That's going to be really a frightening thought. That's all good points Anne. In fact, I've always felt the old adage was that people start to pay attention to their super when the balance gets to either 100,000 or a year salary whatever comes first. But when should people be starting to really think about their super and think about retirement? At what point should they really start planning for their retirement?

Anne: There's a really disturbing statistic Brian that people in their 30s, early 30s in particular, the average man has about $43,000 in their superannuation and the women only have $33k. Probably in our 30s, that's when a lot of us have interrupted career breaks because we're having families, so that situation and that inner quality is then compounded again and again, which is why we're seeing more women retiring in poverty and women retiring with 50% of the balances as men.

Anne: So my argument would be that particularly for women, they need to be taking a much active interest as early as possible, but of course men too. I think I speak to all of our listeners that are feminists out there that if they are calling themselves a feminist and they believe in equal opportunity, then you can't assume that in superannuation you're getting a fair go and you need to do more in terms of planning for your retirement.

Anne: I think culturally too about superannuation Brian, and when our members call us, you're spot on, they generally only call us when their balance is of a decent size or they're getting close to retirement. The longer you leave it, my analogy is it's almost like putting on sunscreen. The early you put on sunscreen, the better condition your skin will be in. If you start putting sunscreen on in your 40s, the damage is done. If you're not paying attention to your superannuation until you're late 40s, early 50s, there is only so much a financial advisor can do. You have a couple of choices, you work longer, you invest in more risky assets, and put out your retirement recognizing the risk attached to that, or you die earlier. None of these are particularly attractive options for most Australians.

Brian: Yes, right, Anne, it really just highlights just how important financial advice is, and over many, many years of talking to members and talking to clients of financial advisors, I really haven't spoken to anyone who said, "Gee, I wish I would have come here later." I've spoken to plenty of people who've said, "I should've come here a lot earlier," but also people who've said to me, client seminars or member seminars, "Gee, I should've brought my children or brought my grandchildren along to listen to this."

Brian: Okay, Anne, so talk to us about when people can actually get their hands on their super and how they go about it?

Anne: This is really important when you think about the life expectancies I was mentioning earlier that we're living longer. So the government has a real risk on their hands. They can't afford to pay everyone a pension if we're all living longer. So they've got to make some hard decisions. They've got to balance a budget and so they're looking at what is the right preservation age now and into the future. As it stands it's 56, but it's increasing. This is what our listeners need to understand, that if you're born after the 30th of June in 1964, it'll be 60 for you.

Anne: I as almost a 43-year-old I'm very well prepared that it might be 70 by the time I retire, which is all well and good if I work in a white collar job and I'm not doing physical labor. But many of our members who are listening would be in quite physical roles, whether they're in hairdressing, or laboring, and that has a much bigger impact for our members. I encourage our listeners to think about, "Well, if that preservation continues to go up, what are my options in terms of planning for retirement," and picking up the phone and speaking to us earlier.

Anne: One of the things Brian I probably want to point out to our listeners is that they probably don't understand that when they retire, if they're getting good quality advice, they can set up an income account in retirement. Once the money reaches preservation age, they can roll into this thing that a lot of people call in everyday society a pension and they can use that to draw a tax-free income in retirement.

Brian: At the end of the day I mean superannuation is meant to provide a long-term income stream in your retirement, and your point about that people do tend to look at their superannuation balance and then just kind of take it out, and depending on the size of the balance and what sort of debts for example you might retire with, we do worry that a lot of people take that balance out and then either spend it on a retirement holiday or pay down a mortgage or whatever, but they're not left with much left to actually fund their retirement income. I think it's important for people to consider that when you do retire, the advantages of leaving the money in the system, leaving the money invested so that it can continue to grow.

Anne: Yeah, it's working for you.

Brian: Absolutely, because we all hope to live a hell of a long time.

Anne: Well, and I'd also point out too that if you're keeping it in that superannuation product as opposed to moving it across into either a transition to retirement which we can touch on our retirement income account, you're paying tax unnecessarily within the fund, where if you're moving it across to a retirement product you're in a tax-free environment. And I don't know any Australian ever that wants to pay more tax than what they have to pay.

Brian: Absolutely.

Anne: There's a lot of people too if you think about retirement and what the new paradigm is that maybe retirement isn't just sort of starting getting out the knitting needles or the golf clubs, but you might scale back your work, you might do a different type of job, you might pursue a different career, open up a coffee shop or do tutoring if you were a teacher, whatever that might be, and you can actually set up what's called the transition to retirement account when you reach preservation age. So you can keep contributing to super and also draw an income which is a really tax effective way of accessing your superannuation once you've hit that preservation age.

Brian: Okay. And what about those people who want to have a more traditional retirement, they want to be working one day and not working the next, how do they get access to their super and what should they do?

Anne: That's a really good question Brian. For those people that want to pack up their desk, go home, and that's it, put their feet up and relax and enjoy their retirement, they have a couple of options available to them. If they meet that preservation age I spoke about earlier and they really are retired, then they can look at a retirement income account. Or if they hit age 65, that's also worth noting, there are people that will continue to work full time after age 65. They can also set up a retirement income account.

Anne: The thing to note there is a retirement income account and I did touch on it before, but I cannot stress it enough why this retirement income account is so great for anyone that meets that preservation age or retirement age is because they can be investing with us, with our fabulous investment team, having all of the benefits associated with that, drawing an income stream to fund their lifestyle, their holidays and all of that, and there is not a cent of tax being paid. Now if that is not a compelling opportunity and something to consider. But sadly I have to say a lot of Australians do take the approach that they either get to retirement age or preservation age and they pull their money out and put it in the bank, and we all know what interest rates are doing. Are they doing well or not so well?

Brian: Lots of things with it, bank interest is ... Even pre-tax bank interest is pretty disappointing at the moment.

Anne: Pretty dismal, so not doing much. And if you've got that longevity risk of living to 80, 90, 100, you've got that money's got to be doing something, doesn't it Brian?

Brian: Yeah, absolutely, we all hope to live for a long time. So while we want to be somewhat cautious in our investment approach, but we also want to make sure that our assets will hopefully live as long as we do.

Brian: Okay, so we talked a lot about the need for an income in retirement. We talked about longevity. We talked about transition to retirement. But for those members approaching retirement, what should they do now?

Anne: Do not go to doctor Google would be my advice. This is a serious matter. Your health, your family, and your financial security are the three most important things. You will always go and seek professional advice when it comes to your health, and I think, I strongly believe the same applies to money, and at Sunsuper you can. We have great tools and calculators and lots of information on our website if you want to self-educate. I should point out too that there is lots of information particularly on the MoneySmart website that ASIC have. But I think you cannot beat talking to somebody either face-to-face or over the phone, and depending on the complexity of your situation because the reality is this concept of retirement is an emotional thing, it can create a lot of conflicting emotions of joy and fear and having that human interaction is important.

Anne: Sunsuper have a team of advisers that can provide our members advice about their assets invested with Sunsuper. The sooner you do this, think of I'd go back to the skin analogy Brian. We all are slathering sunscreen all over our children from the moment they leave the house, and maybe we can make generational change here because when I was a kid growing up in Brisbane, you were growing up on the Gold Coast, I don't recall my parents' hysteria if I left the house without sunscreen on. But these days kids know they've got to put on sunscreen. Maybe we can create generational change in superannuation and get the younger people more engaged and buying into this investment that they own. I would encourage the older members listening to talk to your children about it, have a look at the statement with them, play around with the calculator, and again, pick up the phone. We've got a great team here to help you.

Brian: Thanks Anne. Thanks everybody listening for their time. We hope to join you again in the next podcast.

Voice-over: This has been The New School of Super. For information and inspiration to help you plan your future, manage your super, and enjoy your retirement visit sunsuper.com.au/thedreamproject, or if you've got a superannuation or investment question you'd like Brian and Anne to discuss, then get in touch at newschoolofsuper.com for it to feature in one of our future New School of Super podcasts.

Episode 5

Politics, financial markets and your super

From our new PM and whispers of a potential property crash, to the inexorable antics of President Trump and a fractious and fraught Brexit, Sunsuper’s Dream Team looks at what it all may mean for investment markets, your super and your dreams in retirement.

Launch Podcast

Voice-over: Welcome to The New School of Super, a fresh look at money matters, your super, and the things that could affect your financial dreams now and in future, with Sunsuper's Chief Economist, Brian Parker, and Head of Advice and Retirement, Anne Fuchs.

Anne Fuchs: Hello and thanks for listening. Welcome to The New School of Super, Sunsuper's podcast series covering investment markets, money matters, your superannuation, and most importantly, helping you achieve your retirement's dreams. With me today is Brian Parker, our Chief Economist here at Sunsuper, the man who knows everything about the world, the Australian economy. He reminds me all the time that he knows everything at Sunsuper, don't you, Brian?

Brian Parker: Oh, no, Anne, but as long as you think that, that's fine.

Anne: Okay. Well, look, before we get started, I should introduce myself. My name is Anne Fuchs, and I am the Head of Advice and Retirement here at Sunsuper. Me and the team, we come to work every day to help our members get good quality, trusted financial advice so that they can fulfil their personal retirement dreams.

Brian: Thanks very much, Anne. Today we just wanted to give you all a bit of an overview of what's been happening in politics, what's been happening in the Australian economy, the global economy, and also most importantly, what is it all going to mean for your retirement savings?

Anne: Because not much has been happening.

Brian: No, it's been pretty quiet really.

Anne: Very quiet. Well, we've got to do something, don't we, Brian, before we start?

Brian: Yes, we do. We need to let you all know that what you're about to hear from us is general information only. Nothing we say today can possibly take into account your personal situation. You should consider your circumstances and think about getting personal advice before acting on anything we discuss. You can also get a copy of our product disclosure statement from our website, or you can call us on 13 11 84.

Anne: Thank you, Brian. Well, Australia, have we now beat Italy as having the most prime ministers in a period of time? I mean, it's been quite extraordinary. There are certainly some problems in Canberra, to say the least. Has this had any impact on markets and investing? What's your view?

Brian: Well, it has gotten a little bit embarrassing, but what's interesting is that when you talk to global investors and you talk about political uncertainty in Australia, they kind of look at you as if you're from another planet, because relative to a lot of other places around the world, our politics looks kind of mundane. I know it's hard to believe that when we look at it from our perspective, but if you're sitting there allocating global portfolios, Australia still looks like a relatively safe investment from a political perspective.

Anne: I guess that's probably because the policy framework isn't jumping about with prime minister changes, and there is a degree of policy certainty there.

Brian: Look, that's exactly right. That's a really, really important point actually, Anne, because if you think about what really matters from the point of view of financial markets and for long-term investors is it's the long-term direction of the things like interest rates and inflation, the long-term outlook for sort of corporate profits, but even from a government policy perspective, what are both sides of politics likely to do about, say, the budget deficit, for example? Even though there's a lot of noise coming out of Canberra, those sort of broad policy settings, there's not really as much difference between the two sides as you might think. The Reserve Bank still runs monetary policy. The Australian dollar is still going to be influenced by a whole range of things, most of which have nothing to do with events in Canberra. Even when you look at the policy differences between both sides of politics, they really don't add up to much in terms of their influence on the longer-term outlook.

Anne: It's interesting, I think, when you look at developed economies that ... Pardon me, the developed economies around the world are in essence where sort of the crazy behaviour is happening at the moment, and the instability exists if we look at Trump's America and Brexit, two of the biggest developed economic blocs in the world. It just looks a bit scary right now. This morning, I turned on the news, Brian, and I need you to break this down for me and for our listeners. This prospect of a tariff war between the US and China actually looks like it's about to happen.

Brian: Oh, it's underway, well and truly, this sort of tit-for-tat increases in tariffs that both sides have engaged in, and I think there's two key messages for me. One is that the measures that have been put in place thus far, yes, they are significant, but they're not the kind of thing that could seriously derail prospects for either the US or global or Chinese economy. Yes, they are a worry, but they're not the sort of thing which could, by themselves, force the world into another recession, for example. The second thing I'd say is that the trend is clearly not your friend, that the longer this goes on, the more we do risk causing serious damage to the global economy.

Anne: One of the things I also heard on the news this morning is that Australia is choosing not to buy into the rhetoric and the tariff war, and because we rely very heavily on the Chinese economy, and we're in a bit of an awkward position because we have the strong military ties to the United States, but we also have the very clear imperative to stay good with China because our economy needs it. What's your take on that and where this could be heading?

Brian: The short answer is it's complicated, but when you look at the economic impacts potentially on Australia, firstly the bad news. The bad news is that, look, we are a small open economy, and anything that is bad news for world trade is going to be bad news for us. The second thing though is that when you think about the kind of things that we sell to the rest of the world, and most importantly, the things that we sell to China, the things that we sell to China don't tend to feed into Chinese exports. They tend to feed into what's happening within the Chinese domestic economy.

Brian: Let me explain that a bit further. Iron ore is a classic example. Out of the iron ore that we ship to China, not much of that is going to be turned into something else that ends up being sold into the United States, and therefore potentially being the kind of thing that causes Trump to get angry at us. The stuff that we ship to China overwhelmingly goes into helping to develop the infrastructure of the Chinese economy, so in that sense, our exports are not as directly vulnerable to what actually Trump might do. That's a piece of good news.

Anne: That's good news for members, but what about too ... I saw Boris Johnson on the news a lot in the last couple of weeks, and I'm worried. There was some quite dramatic language about the impact that Brexit will have on the United Kingdom and their economy. Is it as dire as that, and is that something else that could have any flow and effects for Sunsuper members and the Australian economy?

Brian: Yeah, look, I think my base case on Brexit is that firstly, yes, it's going to be in the short to medium term, a disaster, well, particularly the short term, because frankly the grownups aren't in charge.

Anne: Angela Merkel's a bit of a grownup though, isn't she?

Brian: Yes, but she's not in charge in the UK, so look, I think that ... and I do feel for Theresa May, because she really got thrown a hospital pass in being forced to deal with all this. It's very hard to see how a deal could be put in place that won't cause at least some significant disruption to the UK economy, but, and this is where the impact on Sunsuper members comes in, over the longer term, is the UK still going to be an economy that will grow and still provide investment opportunities for long-term investors? The answer is absolutely yes. In the case of Sunsuper members, do we have an exposure to the UK? Yes, we do. We will own shares that are listed on the UK stock market. A lot of those shares are in companies that actually do business not just in the UK, but all over the world. They just happen to be listed in London.

Brian: But also towards the end of last year, we acquired a small equity holding in a couple of airports in the UK, in Birmingham and Bristol. Now, you might say, "Why the hell did you do that, given that Brexit is going to be pretty ordinary?" My short answer is that firstly, we buy airports not with the idea of selling them in six to 12 months. This is going to be a multi-year investment for Sunsuper members, and also as we all know, the weather in the UK is lousy 11 months out of 12. Poms are going to fly, and every time they do, we are going to make money for our members.

Anne: Now, journalists and the media have a lot to answer for. If you turned off the TV, you'd probably be doing yourself a favor in a lot of instances, because there's a lot of bad news. There has also been some bad news about the property market here in Australia, in particular Sydney, Melbourne, and to a lesser extent, other capitals around the country. What's your interpretation of this? Because I've actually heard the term, 'we're heading into the next GFC' being thrown about.

Brian: That's a really good question. There's a lot to unpack there. Let's talk about property first. Whenever anyone asks me, "What do you think about the Australian property market," my answer is always, "Which one?" Because so much of the commentary that we read is very much Sydney and Melbourne-centric. When you talk about a bubble in Melbourne property or a bubble in Sydney property, that has not been replicated across the whole country. In fact, there are heaps of areas in the country, especially the regions that were formerly the sort of boom towns during the mining and gas boom, where you saw property prices reach ridiculous levels only to have them collapse.

Brian: If you go to some of these regional areas and talk about a property bubble, they'll look at you as if you're from another planet. A lot of the commentary, a lot of the concern, is very much Sydney and Melbourne-focused. Other parts of the country haven't seen, at least recently, anything like the kind of gains that Sydney and Melbourne have had, and so I think it's important to understand that the Australian property market is quite a diverse beast. The likelihood of getting a 20, 30, 40% across-the-board collapse in property prices is relatively low. I'm somewhat more sanguine than some of the doom-and-gloom stories out there.

Anne: Because we invest in a lot of property at Sunsuper. It's a big part of how we invest money.

Brian: Not so much residential though. Our residential property exposure in Australia is minimal.

Anne: That point you made earlier about, well, what type of property, so maybe do you want to explain? We spoke residential.

Brian: Yeah, I mean, we do have ... For example, we are Australia's largest owner and operator of holiday parks, so we own the Discovery Park network across the country. Do we have office properties? Yes, we do. Do we have industrial property exposure? Yes, we do. We don't tend to have residential exposure, although we will, for example, own shares in companies that build residential property, so that's another matter. One of the reasons we do that is that we typically find with Australian superannuation members, our members will typically already be quite heavily exposed to property, either because they work in the property industry, they own their own home, they may have investment property as well. We don't really want their super fund to be adding to their property exposure, if you like.

Brian: The second thing is that we are quite open to the idea of property investments internationally. For example, in the United States, we will own some exposure in what we call multifamily property investment. These are apartment or housing developments that are built for the rental market, where the yield you can get on those assets is actually quite attractive for Australians.

Anne: Actually, I understand too from our head of unlisted assets, Michael Weaver, that we own a property on the Königsallee in Dusseldorf where my husband is from, so I was very, very happy. I'll have to go and visit it when I go and visit the in-laws in Dusseldorf soon.

Brian: Absolutely, and point of them is that we own that building. I think that's an important point to bear in mind. We are a global investor. We build globally diversified portfolios in all the asset classes we invest in, including in property. Anne, you mentioned the GFC again, and a lot of people in the media talking about, well, is there a risk of another crisis? Look, we've now had many years of decent investment returns, very strong investment returns in fact. It's now been about a decade since the GFC. The world economy has grown at a pretty solid pace. Investment returns have been very strong. Will we see another recession? Yes, we will inevitably. Downturns happen. Recessions happen. Can we time them with any degree of precision? I would argue we can't.

Brian: Many of our members, in fact most Sunsuper members, are relatively young. If I'm sitting here, if I was in my 20s or my 30s, which is where the bulk of our members are, I am investing for 30, 40, 50 years. Now, over that period, I'm highly likely to have to experience a whole range of different crises along the way. I might end up with a major market downturn or a significant financial crisis, I don't know, maybe four, five, six times during my working life. I might experience a whole bunch of sort of miniature versions of it over that time. This is how the economy works. This is how financial markets behave.

Brian: But the key takeout for members is, if you see a major market downturn, your level of pain, how bad you feel about that, very much determines what sort of investor you are. If you're the kind of investor that says, "Look, this is a part of life. I understand that markets will have their ups and downs, but over the longer term, they deliver good, strong returns," if that is your view, that means you're likely to be a far more optimistic and perhaps a more growth-orientated investor. But if you're the sort of investor that says, "Every time there's a major market downturn, I lose sleep," that would tend to suggest that you're a more conservative investor.

Anne: I think that's a really good point, Brian. There was an episode we did recently about life-cycle investing, and timing is, I guess, everything from an investor point. As someone that's the person that heads up all things retirement at Sunsuper, our members ... Well, obviously financial advice is really important, but when you retire and where that sits within the cycle of investments and financial crisis is equally as important if you're realising or in essence withdrawing some money out of super.

Anne: I think I'm mindful of time, and I just encourage our listeners to go back to that episode around our investment options. Brian's spoken about what type of investor you are and your risk profile, how optimistic you are. Also think about, what is the timeframe for when you want to retire? If you are feeling nervous, we encourage you to pick up the phone and speak to one of our financial advisors, or speak to your advisor if you have one already. Brian, thanks. We've really covered a lot of topics today, haven't we?

Brian: We have indeed actually, and thanks very much for your time.

Anne: Thank you.

Voice-over: This has been The New School of Super. For information and inspiration to help you plan your future, manage your super, and enjoy your retirement, visit sunsuper.com.au/thedreamproject, or if you've got a superannuation or investment question you'd like Brian and Anne to discuss, then get in touch at newschoolofsuper.com for it to feature in one of our future New School of Super podcasts.

Episode 4

Socially responsible investing

In this episode, Sunsuper’s Dream Team is joined by special guest Stuart Wilson, Sunsuper’s Manager for Environmental Social and Governance (ESG) Investments to talk about socially responsible investing and Sunsuper’s approach on behalf of its members.

Launch Podcast

Voice-over: Welcome to The New School of Super. A fresh look at money matters, your Super, and the things that could affect your financial dreams now and in future, with Sunsuper's Chief Economist Brian Parker, and Head of Advice and Retirement, Anne Fuchs.

Anne Fuchs: Hello and thanks for listening. Welcome to The New School of Super. Sunsuper's Podcast Series covering investment markets, money matters, your Superannuation, and most importantly, helping you reach your retirement dreams. With me is Brian Parker, Sunsuper's Chief Economist, the rock star of economics in my mind, and what this man doesn't know about investing is not worth knowing. And we have a special guest today which is very exciting. His name is Stuart Wilson, and Stuart is the Manager of Environmental, Social, and Governance Investments here at Sunsuper. Now this is an area of investing which is getting a lot of interest out there. It's very topical. Socially responsible investing is something you might have heard about before, and Stuart is here today to talk to us about how we approach this at Sunsuper.

Anne: Now before we kick off, I'll just introduce myself in case you haven't heard the previous podcast series. My name's Anne Fuchs, and I head up Advice and Retirement here at Sunsuper. I'm passionate about helping our members get the right financial advice, so that they can live a happy and fulfilling retirement. So, Brian ...

Brian Parker: Thanks, Anne. Today, we're joined by Stuart as you said, and he's gonna explain a lot about socially responsible investing, and our approach to socially responsible investing. I think it's fair to say that people in general and super fund members in particular are probably more concerned than ever about how and where their savings are invested. Now, we take this area of investing extremely seriously at Sunsuper. Now, before I start though, there's the usual disclaimer. I need to let you know that anything we're gonna talk about today is just general information only. Any advice does not take into account your particular circumstances. You should consider those circumstances and think about getting personal advice before you act on anything we talk about today. You can also get a copy of our PDS, our Product Disclosure Statement, from our website, or by calling us on 13 11 84. Anne, over to you.

Anne: Okay, Stuart, let's start with socially responsible investing. This acronym, ESG, it was in your title before. Environmental Social Governance. It sounds like a bit of investment jargon for the ordinary person. What does this mean to Sunsuper and why is this really important that members understand this?

Stuart Wilson: Thanks, Ann and it's great to be here. Okay, so ESG is one of the many acronyms that is in my world. Environmental Social and Governance. So all things non-financial risk fall under my purview. And it's important when you're doing investments for the long term, that you're not simple looking at the next six months' earnings, and things like that, that you actually take a broader world view of trends that are happening, underlying risks that some investors not always pick up. And that's my job, to integrate these sorts of risk management processes into our investment decision making and thinking.

Anne: But what does that really mean, Stuart? So when you're talking risk and I think about investing, I think about the stock market going backwards and losing money, and I'm sure to most members, that's what they're thinking about. ESG and risk, where is the risk? What should we be looking out for and what are you looking out for in your job, in protecting our members' money?

Stuart: Okay, so when you're looking in my world, there is a whole range of issues that get thrown out. It could really come from any direction. It could be something in relation to the environment such as climate change. It could be within social issues around stolen wages, or a lack of good safety processes within a company. And within governance, all things around the Board of Directors and how good they are, through to how you remunerate or pay the CEO, and what are you motivating that CEO to do. So all of those sorts of things get thrown into my bucket.

Anne: So, what I'm hearing there is that the superannuation fund in Sunsuper, with very close to 60 billion dollars of assets under management is using that money for good societal community outcomes. Is that what I'm hearing you say?

Stuart: So we have a broad range of investments, and all things being equal, we prefer to invest in things that make a positive impact on the world. But we invest in a whole range of industries and companies.

Anne: So, let's get it into the technical just a little bit for our listeners, so that they can educate themselves about this area of investing. There's a bit of jargon that I know is used, terms such as exclusions, activism, engagement. What do these words mean when it comes to ESG investing?

Stuart: Okay, so as I mentioned, we have a whole range of things that get thrown at us from a risk perspective. They might come from media, they might come from members. They might come from the companies themselves. And we have to take all of these issues, and consider them both in terms of materiality, but also how they might impact the investment portfolio. This means that we have to put them in separate buckets, depending on how severe they may be. Exclusion for instance is something that we prefer not to do, but we will do in extreme circumstances. It means simply getting out of that industry or sector, or things relating to that issue altogether. Activism means taking a really strong view, public view of a particular issue. Engagement talks about behind closed doors meetings with companies and their management, and their boards, to try and get an improvement or resolution. And watching is simply building up our knowledge base on a particular issue, with a view to determining what to do about it.

Anne: So, what are some examples that can bring this to life? What are we not investing in, and what are some of the companies where we've decided that we're going to sell our investment, for example?

Stuart: Sure. Okay, so the main exclusion that we have is tobacco. And we got out of tobacco manufacturers around about five years ago. So, it's been a long standing exclusion. And it's something where we were actually quite early to exclude. Smoking kills almost six million people a year, and it's a unique thing in that taken as directed, it's probably going to kill you. From a customer perspective, it's not great. From an investment perspective, smoking rates globally are falling. Regulation to curb smoking is on the increase. There are E-cigarettes that are in competition. There's a whole range of head winds for that industry, and therefore it makes sense not to be invested.

Anne: So, Stuart, how is that done over a five year period?

Stuart: So, in the five years that we've been out of tobacco, that sector has actually underperformed the market. So, we've actually, it's actually been a positive for members.

Anne: So, smoking's an obvious one, we all know that tobacco is terrible for you, and everyone pretty well agrees with that probably, except the tobacco companies. So, let's think about something that's a bit more contentious and there are different views across certainly the political divide, scientific, and community around climate change. How does a fund like ours approach climate change with an ESG lens?

Stuart: So, we believe in the science of climate change, that the world is gradually getting warmer, and that is to do with human intervention. However, the energy sector is a huge part of financial markets and simply getting out removes the chance that you have for engaging with companies. We look at climate risk through a range of different factors. It's not just how quickly fossil fuels are going to be replaced by renewable energy. It's also a consideration in the physical impact, so the impact of say, the water level rising, or the frequency and intensity of storms on our assets. All of those things are being taken into account.

Anne: So do we then go and invest in renewable energy sources. Are we? Is that an extension of our approach to climate change in ESG, Stuart?

Stuart: So we've increasingly started looking at renewable energy and we've made some investments in that space. They are very, very popular at the moment, and the costs are still coming down. So, we still have a very, very disciplined investment approach, a hard headed investment approach, to make sure that we're not buying things that are just too expensive.

Anne: Okay, and I'm very mindful about time, but I think it's really important to think about, if you're an investor and this is an asset class or a belief system that you hold very deeply and you want your Superannuation to be doing good for the community, how would you invest in Sunsuper? What do you need to be looking out for in our investment menu?

Stuart: Okay, so we have over 20 different options that people can choose from. One of them is our socially conscious balanced option. It's similar to our other balanced option, which is our default fund, but it is ESG on steroids. So, it has a lot more exclusions. It moves into best of sector in relation to ESG for companies, so we try and pick the best of the best. And it's expected to perform inline with our general balanced option. So, it's something for consideration if you were of that mind.

Anne: So Stuart, are you leading a big team, and how involved is the broader Sunsuper business, you know from the top down with the Board and our Chief Executive. Do you feel like you're a very popular person, with a big team of people helping you?

Stuart: The Board is very engaged. We have a diverse Board with different backgrounds, different perspectives. One thing that they have on top of, doing everything in members' best interest is having a very keen interest in ESG and responsible investing. So, they are continually encouraging me to increase the amount of integration within the investment process. The team itself is only relatively small, but I like to think that our ESG activities extend through the investment team, where everyone is a champion.

Anne: Thank you very much, Stuart, for that explanation of ESG. In a prior episode, Brian and I were talking about investing more generally, different asset classes, and the investment menu. If this is something of interest, have a listen to that prior episode and also, you can go to our website and have a look at our investment menu, and find more information. As I said, it's an area growing of interest. I know particularly with the younger demographic of members that are very passionate about doing good with their retirement savings. So, it's been wonderful talking to you today, Stuart. Thanks for coming along, and Brian I have to say, it's a bit unnerving, you being quiet over there. We're not really used to it.

Brian: I know, it's certainly out of character, but I think it's really good to hear from experts internally like Stuart, and the main message I take out from this is that investing with an ESG lens can be done quite comfortably without compromising your return outcomes. That we believe that investing sensibly from an environmental perspective, investing with companies that actually are aware and want to benefit positively the communities they operate in, and companies with good governance ultimately make good long term investments for our members.

Anne: That's exactly right. I think the point that Stuart made about tobacco was really bringing that what you've just said to life.

Anne: All right, well thanks everyone. We'll look forward to talking with you on our next podcast episode.

Voice-over: This has been The New School of Super. For information and inspiration to help you plan your future, manage your Super, and enjoy your retirement, visit sunsuper.com.au/thedreamproject. Or, if you've got a superannuation or investment question you'd like Brian and Anne to discuss, then get in touch at newschoolofsuper.com for it to feature in one of our future New School of Super Podcasts.

Episode 3

The world economic wrap

We’re living in strange and interesting times, but what does it all mean for you and your super? Sunsuper’s Dream Team takes a look at economic growth since the GFC, how current geo-political and other events are shaping the world economy, and what it all might mean for your super investment.

Launch Podcast

Voice-over: Welcome to the New School of Super, a fresh look at money matters, your super, and the things that could affect your financial dreams now and in future with Sunsuper’s Chief Economist, Brian Parker and Head of Advice and Retail Distribution, Anne Fuchs.

Anne: Hello and thanks for listening. Welcome to the New School of Super – Sunsuper’s podcast covering all things investment markets, money, and you know that thing that helps you achieve your retirement dreams – superannuation. My name's Anne Fuchs and I head up financial advice at Sunsuper and sitting opposite me is the Chief Economist of Sunsuper who knows everything when it comes to the economy and investments. Brian Parker, it's so wonderful to see you today.

Brian: Thanks Anne, good to be here.

Anne: So Brian, we’re going to be looking at the world and the economy and how it impacts members’ money, but before we start having a bit of a natter about that, the people in compliance upstairs want us to say something don’t they?

Brian: Yes, they do, Anne. Every time. This is just general advice – but if what we say prompts you to think about taking some action with the way you’re investing money either within your super or outside of it, then please seek personal advice.

Anne: Great financial advice can change things for the better. That’s my little infomercial in this podcast today. So, Brian, we’re living through extraordinary times, I think about 2008 and they were dark, dark, days but it seems like a lifetime ago and we’ve experienced this extraordinary growth. What’s happened?

Brian: It’s a really good question. And I remember 2008 and early 2009 well, and back in early 2009, let’s make no mistake about this. We really were standing on the edge of financial abyss. We really were on the edge of Great Depression part 2. The world financial system was going into meltdown and policy makers at that point seemed to be clueless. However, they did actually take steps which not just brought us one or two steps back from the abyss, but many steps back from the abyss. You know, just when you think things couldn’t get any worse, they don’t, they actually get better. And it’s worth remembering that if you look at the history of these things, every crisis, every downturn, every bare market, every recession bar none comes to an end without exception. At the end of the day, life and the economy and business goes on – the only uncertainty is the timing. And clearly since the end of that time, we have seen some very, very strong returns from world share markets in particular and that’s really helped propel superannuation fund returns over the past 5 to 7 years.

Anne: So what have been the themes in terms of those bright pockets of growth, where I’ve got my superannuation statement and I’ve seen year upon year is growing and growing, what are the themes underlying that? What are the sectors, what are the countries? Where are those bright pockets?

Brian: Let’s talk more broadly. Back then, if you started your investment journey in February 2009, you were starting from a point where global share markets looked unambiguously cheap. Where there was so much bad news, not just in the headlines, but so much bad news factored into the price you paid for shares here in Australia and all around the world. And a lot of the future returns you generate from any asset you buy is really determined from how much you pay for it upfront. And if you overpay for an asset, any asset, the future returns are almost by definition going to be lousy. But if you buy cheap assets that deliver you a reasonable income then your future returns are probably going to be pretty good. and that was one of the overarching lessons, I think, in February 2009, that there was so much bad news factored into share prices already. In addition, a lot of the steps that policy makers took during 2008 and early 2009, both the world’s major central banks, but also governments, actually did bare fruit. They did actually help drive a recovery in the world economy. That recovery helped drive a recovery in things like employment and corporate profits and share prices, and that really helped underpin very good returns over the last 5 to 7 years.

Anne: The growth in particular, if I can ping you, and say looking at the emerging markets versus developed countries, the European Union, the USA versus Brasil or China, how has that played out over the last 5 years and are you game enough to make a prediction about the next 5 years?

Brian: Look, a lot of what I’m about to say, it really does depend on where markets have gotten to today. If I look at valuations, if I look at what I am being asked to pay to buy assets in a range of markets, in particular to buy shares in major world share markets, there are very few bargains to be had. Back in early 2009, there were plenty of bargains to be had. You know, we were in crisis and so there were plenty of good quality assets, good quality businesses trading at very, very cheap prices. And so, when prices return to what you might call fair value, and in many cases beyond fair value, you made a great return. Today, if I was starting from scratch and putting money to work today, I’d look around and say well, where are the bargains? And there are not many out there. Because past returns have been so strong so it’s very, very hard to buy quality assets at a genuinely cheap price. Now what does that mean? It means that overall, future returns are probably going to be lower than the returns we’ve seen from share markets in general and super funds in particular in the last 5 to 7 years. And you mentioned emerging markets.

Anne: I was going to say I wasn’t letting you run away

Brian: You thought I was going to avoid that, no. Look, emerging markets are interesting. If I look at the rate of growth in emerging markets as a group, so these are markets in Asia, in Latin America, in Eastern Europe, and parts of Africa and the Middle East, generally speaking these economies have grown faster than economies in the developed world. And that’s what you’d expect to see because they have more upside, I mean, they are developing, so you’d expect them to grow faster. But another lesson we’ve learned from a very long span of history is that just because an economy is doing well does not mean that the share markets will do well. There’s not a lot of linkage between the performance of an economy perse, and the performance of their share market. Now, for most of the last 6 or 7 years emerging share markets have done alright, but they’ve tended to actually lag the performance of the major developed markets, in particular the United States. That’s changed in the last 12 months. In the last 12 months, emerging share markets have performed very, very strongly. In fact, if we were recording this podcast about a year to a year and a half ago, and if you asked me, where do you see value, where do you see opportunities, I would say look, you know what, emerging share markets look to be one of the few places that offer real value. In other words, where I could buy quality assets at cheap prices. The trouble is, that was about 30% ago, because that’s the kind of returns we’ve seen from these markets. So, even there it’s hard to find value.

Anne: So Brian, you said that there might be some grey clouds out there on the horizon. As a super fund, that’s incredibly important that we manage that, worry about that, and protect our members from those grey clouds. What are we doing?

Brian: Look, that’s a really good question. Let me rephrase your question a little bit if I may.

Anne: Yes.

Brian: Where the hell are returns going to come from? If you look at our product disclosure statements, you know, we tell our members that over the longer term we expect to deliver returns that are CPI plus 3 and a half or CPI plus 4 depending on the particular investment option. What assets are going to deliver those sort of returns, or at least, where can we be most confident of achieving the kind of returns that our members need to fulfil their retirement dreams.

Anne: But also where are we avoiding as well.

Brian: Well partly that too. Firstly, where are we avoiding? We’re tending to avoid, at the moment, sovereign government bonds in particular because if you look at the level of interest rates around the world, you look at the level of bond yields around the world. In other words, future returns from fixed income are lively to be quite low. So we actually tend to have a lower allocation to those assets to many of our competitors. What are we favouring? I mean, I suppose if I go back to my question before, where can we be most confident of generating the return members need? Look, there’s some chance the share markets will still do ok. I’m not saying that the share markets are going to fall into a heap tomorrow, I’m simply saying that future returns are going to be lower, but I need to do what I can and Sunsuper needs to do what it can to maximise the chances our members have of living their retirement dreams – and that means, where can we get the most reliable returns? And the short answer is, it’s in the alternative asset space. It’s investing outside of traditional assets like shares, and by that I mean carefully selected hedge funds or absolute care orientated strategies, but also unlisted asserts. Things like direct property, infrastructure, private equity. We’re still seeing opportunities coming across the desk every week. We’re still seeing deal flow come into our office where we do the math and say yes, this investment is capable of delivering more than adequate returns to justify the risks involved and justify the costs incurred. And more importantly the returns that members actually need to meet their objectives, but I must say that even the returns from those assets classes in the clast 5 to 7 years have been very, very strong, which means it’s very hard to find bargains even in that space. So, future returns there, while still very very attractive, especially when I compare it to the returns from traditional markets like shares. But, future returns from there have also come down. If I looked at say, an infrastructure deal or a property deal 5 years ago and if I did the math it might have said I can get 15% per annum out of this. Well if I looked at exactly the same deal today I might do the math and come up with a return of 9%. Now, I’ll still take 9% every day of the week, it’s just that 9% is not 15. Even in that space we’ve seen returns come down because a lot of money has forced up the price of these assets.

Anne: But I think that there’s this other thing that we haven’t spoken about, and I know we don’t have much time Brian, but I think we’ve got to say the word. It starts with ‘T’.

Brian: And it ends in ‘rump’.

Anne: Yes, Trump. But there are a lot of investors, where it’s just the sheer…

Brian: The unpredictability.

Anne: Yeah, unpredictability and one minute he’s meeting with Mr rocket man, and then he’s not. And it makes people very nervous. And I wondered what is Sunsuper doing to manage that risk?

Brian: Let me take it more broadly. Geo-political risk, if I can use that kind of term, is elevated and it’s going to stay elevated. Geo-political developments are going to remain a source of volatility for markets. But if you think about a longer span of history, geo-politics has always been a source of uncertainty for markets. Trump is just the latest manifestation of it. But I think it’s important to realise that regardless of what happens in the Whitehouse, regardless of what happens in North Korea, or in Italy or in the Middles East, it’s a very uncertain and volatile world. There’s lots of awful stuff happening out there, but I have to say there almost always is. And yet, life and business and the economy goes on. From Sunsuper’s perspective we take the view that, yes, this is a source of volatility, but regardless of that, people are still going to land and take off at Brisbane Airport and we will make money. A whole range of companies listed on the stock market will still make money by meeting our everyday needs as consumers and we will benefit from them making money. People in Finland will still need to turn on an electricity switch to light their homes and we will make money. People will still, in the Czech Republic need to use gas to cook their evening meal on their stove. It’s about investing in a wide range of assets which generate income that we can pass on to members. That doesn’t change regardless of who is in the Whitehouse.

Anne: Ok, so Brian. Final question before we wrap up. China and Australia and the impact China has on our economy, and the impact that China as a country has on our portfolio of investments. Any thoughts? Any advice for our members? Because I know certainly lots of people worry about that.

Brian: Look I think that the worry is real. I mean, China will remain a source of uncertainty and China’s emergence as an economy has been an unambiguous positive for the Australian economy, for the world economy, for global trade and for the hundreds of millions of Chinese that have been lifted out of poverty. But that doesn’t mean that China is not going to be a source of uncertainty, both geo-political and economic. It’s fair to say that the Chinese authorities, certainly in the region, have not been behaving terribly well. And I don’t think that’s a terribly controversial view. And so China will remain a source of uncertainty, but it’s just one of many sources of uncertainty. Now what do you do about it as an investor? It means that an investor, I certainly don’t want to put all my eggs into one basket labelled ‘China’ and I certainly don’t want to put all my eggs into a basket labelled ‘Australia’, because the Australian market and the Australian economy, yes, is quite heavily dependent on the performance of China among other things. I just want to make sure that our best defence against an uncertain world is to build portfolios that are as widely diversified as possible, and that’s exactly what we do.

Anne: Brian, I think for our listeners today what we’ve spoken about, it’s so important that maybe they overlay that with a former podcast we’ve done where we spoke about all the investment options out there, and if you look at the political landscape, the economic landscape and then look at the options that Sunsuper has available, to consider what is the right investment for you. We’ve got a great team of people here to help. You can jump online, visit us at Sunsuper.com.au/newschoolofsuper. There’s a wealth of information to help you make the right decisions about where your money’s invested, make informed decisions after listening to Brian, assessing all those things he’s spoken about, you have to remember, this is your single biggest asset. Think of it like your home, think about what Brian said. Come and have a chat to us if you need to. Brian, thank you so much for talking today. Always a pleasure.

Brian: Thanks very much Anne.

Voice-over: This has been The New School of Super. For information and inspiration to help you plan your future, manage you super and enjoy your retirement, visit sunsuper.com.au/thedreamproject. Or if you’ve got a superannuation or investment question, you’d like Brian and Anne to discuss, then get in touch at the schoolofsuper.com, for it to feature in one The New School of Super podcasts.

Episode 2

Understand your investment options

In this episode, Sunsuper’s Dream Team explains the broad range of investment options Sunsuper offers members, including diversified and single asset class, and active versus passive options, and what you should consider in choosing the right investment strategy for you.

Launch Podcast

Voice-over: Welcome to the New School of Super, a fresh look at money matters, your super, and the things that could affect your financial dreams now and in future with Sunsuper’s Chief Economist, Brian Parker and Head of Advice and Retail Distribution, Anne Fuchs.

Anne: Hello and thanks for listening. Welcome to the New School of Super, Sunsuper’s podcast covering all things investment, money, superannuation and most importantly, making sure you reach your retirement dreams. My name's Anne Fuchs and I head up advice at Sunsuper for our 1.3 million members and we're all about making sure our members make the most of what they have, so that they can live the life that they want. Now sitting opposite me is a pretty special man, who's been around a very long time, though he does not look it. He knows everything about investment markets and the economy, he's our Chief Economist and his name is Brian Parker. Brian, nice to see you today.

Brian: Thanks Anne and what a lovely introduction.

Anne: So, we’re here to talk today, about all things investing and what really is the right investment for you. There's so many products out there, how do you decide which one is the right one for you? So Brian, before we get started and you share your pearls of wisdom, what do those people upstairs need us to say, those compliance people upstairs.

Brian: Anne, they need us to inform the listeners, that this is general information only, it doesn't represent personal financial advice, it doesn't take into account your particular personal circumstances. But if something we say sparks an interest, it sparks something in you, which says I need to make change, we strongly recommend that you seek personal financial advice.

Anne: And great financial advice, wonderful financial advice, can profoundly change lives for the better.

Brian: Indeed.

Anne: So, if you're sitting here today, as a listener and wondering how on earth do you possibly pick the right investments for you, you’re listening to the right session, because we’re going to be unpacking all the different options available within superfund world and I think my one observation before we get started, Brian, is the one thing I've learnt, after twenty years of being in superannuation financial advice, is that members always remember if you've lost them money. They never remember as much if you've made some money. So really this is the most important decision they make around their retirement savings. So, I think a really good place to start, is single class assets versus diversified options, and that is for the ordinary member, I think a bit of jargon. We need to break this down, diversified single asset. What does that mean Brian?

Brian: Okay, a diversified option basically means that if I invest in a diversified option, I’m letting my super fund basically spread my assets across a range of different asset classes. Whether it be shares, cash, or bonds, or property, or infrastructure. Whatever, but it's basically letting the superfund do the work. They spread the assets across a diversified portfolio of assets for me, with a single asset class option, I’m making a decision to put my money into one particular asset class. Be it shares or bonds, or whatever. So, that's really the difference. It’s whether, I suppose the best way to summarise it is, do I want the superfund to do the work, or do I want to do the work?

Anne: So, if I can ask a silly question, why is diversification important? I mean Australia has a great economy, why would I not just put all of my money in Australia shares? You know, there’s a lot of craziness overseas, geopolitical risk. You know, maybe it’s safer just to put it all in Australia?

Brian: It’s really a good question and you think about the way Australian investors behave, we tend to actually favour the home front, a lot more than counterparts overseas. We tend to have what investors call a home bias and that's kind of unusual, given that we are one of the smaller economies of the world. You know, the Australian economy is only a few percent of global GDP. Our share market is only a few percent of global market value if you like. So, most of the investment opportunities, most of the universe of investment opportunities are beyond our shores. You raise diversification, there's an old adage that you shouldn’t put all your eggs in one basket and that's really what it comes down to. It’s that yeah, the Australian economic story is relatively solid, but I still don't want to put all my eggs into a basket labelled Australia. I want to try and pick the best universe of investment opportunities I can find, which means inevitably, I’m going to have to have some global exposure.

Anne: So why would somebody pick a diversified option, so I’m guessing that's a balanced option?

Brian: Well it could be a balanced option in other words, but there's a range of different diversified options that super funds offer. In the case of Sunsuper, we offer a conservative option which is, again, designed for more cautious investors. We offer our retirement, a balanced and then a growth option for those investors that are prepared to take more risks in search of higher returns.

Anne: So what does that mean it does that mean in terms of the exposure to these riskier assets of the further you go up the spectrum from conservative to growth the more exposed you are, and if you're doing that what's the stuff you need to be worried about? What should you be thinking about if you going to make that decision?

Brian: That’s a really good point, and in fact it's a crucial point. I call it the sleep at night test. If you're doing something with money, anything at all, whether it's your super, your mortgage, any other investments you’re making. If you're doing something with money which is causing you to lose more than about five minutes of sleep at night, it means you’re probably taking too much risk and you’re doing the wrong thing. Sleeping at night can never be overrated. Why would I want to take high risk? I take high risks because I’m prepared to do that because I believe I’ll get higher long term returns. If, in search of those higher returns, I’m losing sleep at night, well something's got to give. Half the battle with the deciding where to put your money is working out what kind of investor you really are. What investment returns do you need in order to achieve your retirement dreams. What risk are you prepared to take in search of those dreams. And understand that that there's often a trade off.

Anne: So, the sophisticated investor would have heard of this term of alpha, which is the you know out performance, and there's a lot of talk around, certainly in financial advice circles, about just how expensive it is to invest these days with fees and everything else and try to find that great return that you were talking about and where is the alpha and there's a lot of financial advisors out there that are a big believer in passive investments because it's all about keeping fees low and that's where they believe they can find alpha. But Brian, you’re the Chief Economist, what's your expert opinion on this concept of passive investing versus active investing.

Brian: Look, let’s start by defining some terms, and you raised the point about active versus passive investing. If I'm a passive investor, what I’m essentially trying to do is to replicate the performance of a particular market index or benchmark. So let's take Australian shares as an example. Let's say I just don't believe that there are people out there who can do better than the market, so I'm going to give my money to an investment manager who’ll basically give me a return which replicates the return of say these S&P ASX 300 index, and they'll do that for a very small fee. On the other hand, what if I believe there are managers out there who are genuinely good at what they do, who can actually add value over and above the performance of the index. Now I know that's going to cost more but if I could be convinced, if I could be really confident that those managers can deliver enough outperformance to justify their fee, then I’ll invest in an active manager.

Anne: Ok, and that out performance is that alpha that I was mentioning earlier.

Brian: Correct, exactly. So if you deliver alpha you deliver a certain amount of outperformance over and above a particular market benchmark.

Anne: So we've spoken about passive, active, single asset classes, diversified – it's pretty overwhelming. How would you possibly begin to decide what is the right option for you.

Brian: Look, that's a really good question and it is hard. At Sunsuper, for example, we offer twenty different investment options. We’ve deliberately kept the size of our investment menu relatively small. What we found from a lot of the academic literature on what we call behavioural finance, is that if you give people too much choice people just find it overwhelming so what we're trying to do is provide our members with a nice range of options which will enable them to build a diversified strategy that will suit their particular needs, and what we also do is make sure that we provide our members with a range of both active options but also passive options so that they can choose whether their prepared to pay a higher fee in search of higher returns or not. There are certain asset classes also where we don't offer an active option and that's really come down to two things. One is demand and the other is our view of value for money. If we have an asset class where we don't believe that investment managers can deliver reliable outperformance to justify their fee, then we think members are best going passive and so we only offer a passive option in those particular asset classes.

Anne: So I still think that it's incredibly confusing. As much as you're an extraordinary communicator, Brian, I still think it's incredibly confusing and for the ordinary person they think it's too hard, I'm just going to put my superannuation statement in the bin every year that it comes in because I would rather stick my fingers in my ears, close my eyes and sing ‘la la la’. So how do we make sure as investment professionals we’re helping those members.

Brian: Well that's a really good question and if you think about it most of our members, and I suspect most of pretty much every super fund’s members are what we call default members, that they have chosen or have just literally defaulted into their particular super funds My Super default option, and that means it's really really important that your super fund constructs a default option that works for the majority of those members. And so at Sunsuper we've gone for what we call Sunsuper for life, it's what we call a lifecycle option and we think it's quite unique in the Australian market. Up until the age of 55 investors in a lifecycle option will basically be invested in our balanced option, in other words they will have about 70% of their portfolio invested in what we call growth assets, and that means somewhat higher risk but also a higher returning assets such as shares. At the age of 55, on the day of the 55th birthday the system starts to crank into action. Over the next ten years every month we will very very gradually reduce our members’ exposure to growth assets such as shares, and we’ll do it in 120 discrete monthly steps so that by the time our member in the default option reaches the age of 65 they'll no longer be invested in balance. They won't be anywhere near as exposed to share markets, they’ll actually have 10% of the portfolio in cash and they'll have the other 90% of the portfolio invested in what we call that our retirement option. What is averages out to is that you'll end up with about 45% of your portfolio in growth assets. Why do we do this? We do this partly because we can. We have the administration systems to allow us to do this for members but also and more importantly we want to make sure that our members are not going to be as exposed to a major market downturn either when they’re about to retire or just after they retire. Because if that happens and you're heavily exposed to the stock market, that can really put a serious dent in your retirement plan.

Anne: Certainly I know Brian, I couldn't agree more. In 2008, you know, a number of people that were too heavily exposed to stock markets and we're planning on retiring and then all of a sudden 40% of their portfolio vanished overnight.

Brian: Exactly, and they drawing down on that portfolio, they’re drawing down on a pie that is shrinking.

Anne: Well they had to work longer and then that causes other impacts, you know, whatever else, and I think this is such a great feature for those people that choose just to leave it to the investment professionals. So Brian, we've had a really good natter today haven’t we?

Brian: We indeed, we always do, Anne.

Anne: We do indeed. Well thanks again. We'll see you next time.

Brian: Thanks Anne.

Voice-over: This has been The New School of Super. For information and inspiration to help you plan your future, manage you super and enjoy your retirement, visit sunsuper.com.au/thedreamproject. Or if you’ve got a superannuation or investment question, you’d like Brian and Anne to discuss, then get in touch at the schoolofsuper.com, for it to feature in one The New School of Super podcasts.

Episode 1

Listed vs unlisted assets

For our first-ever episode, Sunsuper’s Dream Team breaks down the difference between listed and unlisted assets and why Sunsuper members should be extra-interested when they take off on a flight from Brisbane Airport.

Launch Podcast

Voice-over: Welcome to the New School of Super, a fresh look at money matters, your super, and the things that could affect your financial dreams now and in future with Sunsuper’s Chief Economist, Brian Parker and Head of Advice and Retail Distribution, Anne Fuchs.

Anne: Hello and thank you for listening. Welcome to the new school of super – Sunsuper’s podcast covering all things money, investments, superannuation and most importantly, how to help you reach your retirement dreams. My name's Anne Fuchs and I head up financial advice at Sunsuper and I'm sitting here today with someone who’s pretty special, the Chief Economist from Sunsuper. His name is Brian Parker and what this man doesn't know about investment markets isn't with knowing. Brian it's so great to see you.

Brian: Thanks Anne, it’s good to be here.

Anne: So today we're talking about unlisted assets versus listed assets and you know, helping our listeners understand what this means and why it's important to their superannuation and retirement savings. But, I think before we start doing that the people upstairs in compliance need us to say something, don’t they?

Brian: Yeah, they do. I think they want me to say that this is general information only and that we're not providing personal advice, and that if what we say today does actually spark an interest and does lead you to think that you need to do something, to change something about the way you invest your money, either in super, or outside of super, then

do get some personal financial advice. Because as you say Anne, you know very good personal financial advice can change people's lives.

Anne: Thank you Brian. So, we're talking about listed and unlisted assets. Listed assets I think are pretty well understood, aren’t they Brian? They’re just the stock exchange simply. How would you describe it?

Brian: Yeah, I think that's right Anne. I mean I think a lot of people can understand that their superannuation fund invests at least a portion of their assets, perhaps a large portion of their assets in shares. In other words, you’re buying a piece of the business and that piece of the business, that share is actively traded, day to day on world share markets. And so, the value of that asset on any given day, in fact any minute of the day, can go up or down quite dramatically.

Anne: And highly liquid, so you can get your money at any given time.

Brian: Absolutely, if you go online or get on the phone and I can basically sell my shares in BHP or Commonwealth Bank. Literally within days.

Anne: Okay and so an unlisted asset means what?

Brian: Well it means I can’t actually get on the phone or get online and actually sell my equity in an unlisted asset immediately. I’m effectively locking money up for a period of time. So, in other words, the value of these assets is not determined day to day in world markets. The value these assets is priced periodically by independent valuers.

Anne: Okay, so if that's still a bit of investment gobbledy-goop.

Brian: Oh, thanks for that.

Anne: Let's break it down even more. So, bring it to life. Like what does that mean? What are you talking about?

Brian: That’s a very good question. It's interesting, I think a lot of people, when they look at their super fund, apart from saying I think there's some shares in there, I think that a lot of people actually don't really have a lot of understanding about where their money is invested. When we talk about unlisted assets, we're talking about primarily unlisted property assets, so direct property. We’re talking about infrastructure assets, such as airports and ports for example, or what we call private equity. So, in other words, we’re buying shares in businesses, but those shares are not traded day to day, on world markets, they’re unlisted businesses.

Anne: It’s still too abstract. How would I describe it to my mom?

Brian: Yeah absolutely, in words, I’m buying equity. I’m taking a stake in an asset say like Brisbane Airport, or if I look overseas, I'm taking a stake in the electricity distribution network in Finland, or I’m taking a stake in the gas distribution network in the Czech Republic. So, in other words, whenever anybody lands or takes off from Brisbane Airport, anyone in Finland turns on a light switch, anyone in the Czech Republic who turns on their gas stove, we will make money.

Anne: So, is this just something that Sunsuper does or do other super funds do it? How does that work?

Brian: Yeah look, a lot of the profit for member super funds and, in fact, I’d probably say most of the profit from member super funds in Australia, and indeed a lot of the big sovereign wealth funds and pension funds overseas, do invest a substantial part of their portfolio in unlisted assets. So, it’s not just a Sunsuper thing. Why we are able to do it, is a more interesting question perhaps. We're able to do it because our members are overwhelmingly young. They’re overwhelmingly investing in compulsory superannuation, which means that our members are not going to be drawing down on the fund, on average, anytime soon.Which means we can afford to worry less about day to day liquidity, than perhaps some of our competitors can.

Anne: So, what if you were describing it to some of our members or you know the listeners here today, what is the main big draw card about this asset class, the big why, behind why we do it? Why is it good for members?

Brian: Very, very simply – higher long-term returns. In particular, higher long-term real or after inflation returns, that are a smoother ride along the way.

Anne: So, does that mean when you say a smoother ride along the way, does that mean it doesn't follow what the stock market does? And that I lose less money? Is that what you're saying?

Brian: It means that the value of the assets we hold, by virtue of the fact that they not traded every minute of the day, it means the value doesn't move around dramatically, so you end up with the returns generated by Sunsuper or a similar profit from a member fund, being somewhat less volatile than a lot of other funds.

Anne: But the downside, risk side of it, does it help with managing that downside risk?

Brian: It does somewhat, yes. Because what you tend to find is during a major share market down turn, especially if that share market downturn is really prolonged, eventually the value of your unlisted assets, is going to be affected by that. But, what we find is the jury major share market downturns, the value of unlisted assets, doesn't decline anywhere near as much as share prices do.

Anne: So, what do you, as the investment managers, worry about? What can go wrong? Because it sounds just fantastic, but nothing's ever perfect. So, what do you worry about? What should we be looking out for to protect our members money?

Brian: Key things: One, is doing a due diligence on these assets. So, we make sure that we have really, really good managers, that are managing these assets day to day. Two, that we do our own due diligence, before we put a single dollar of members money into an asset. We also make sure that we and never, never exposed heavily to one single asset. We'd make sure that we build very well diversified portfolios of these assets and let me give you an example. One of our major assets, if not our largest single asset, is our shareholding in Brisbane Airport. That's a very, very major investment and a very major airport. The value of our equity in Brisbane Airport accounts for less than one percent of the fund. So we're talking about investing in literally a couple of dozen different infrastructure assets around the world. We're talking about in investing in perhaps about a hundred to two hundred individual property assets around the world. And literally thousands of unlisted businesses as part of our private equity folio.

Anne: So, what I'm fascinated by and I guess this is my last question, is how does a fund, look Sunsuper is an iconic Queensland brand, it's for a national fund, one point three million members around the country and all of that, and yes for a big player in Australia. However, how in earth does a fund like ours, get to buy the gas that goes into the Czech Republic, or turning on the electricity network in Finland? How do they even know we have the money to invest in these types of things?

Brian: That’s a really good question. It means that you need to burn a lot of shoe leather and you need to spend a lot of time in international markets talking to the key players and making sure you have really good investment contacts all around the world. So that when these opportunities do arise, you’re well placed to capitalise on them. We also have an advantage, in the sense that we can move quite quickly. The way Sunsuper is governed, a good deal of day to day investment responsibility, is delegated to the investment team, the internal team of professional investors. Which means that if an investment opportunity comes up to invest in a particular infrastructure asset, we can move quickly, and we can actually make decisions, perhaps more efficiently and faster than many of our competitors. That makes us a reliable investment partner for a range of global investment houses.

Anne: So Brian, before we finish up, for our listeners, one final tip around this particular asset class. How would members know how to access this investment class? How to find out whether their money is invested in unlisted assets?

Brian: That's a good question, Anne. If you look at Sunsuper’s range of diversified investment options, the growth option, the balanced option, retirement and conservative option, all of those options have an allocation to unlisted assets. I should also point out though, it’s important to realise that we're not talking about having eighty or ninety percent of the fund invested in these assets. We're talking about a third of the fund actually invested in alternative assets and unlisted assets in particular. We do worry about liquidity, we need to make sure we have the lion’s share of the portfolio invested in liquid assets. So all of our diversified options have exposure to unlisted assets. For those members that want a particular discrete exposure, we also offer diversified alternatives option and we also offer a property option. That diversified alternatives option, it's been on the market now for a few months. That consists of a small amount of cash, but it also consists of our hedge fund alternative investment strategies and our infrastructure and private equity strategy. Now, our property option includes an allocation to liquid property or listed property, but it also includes a substantial allocation to Sunsuper’s unlisted property portfolio. So our members can access it via our diversified options, but they can also access our diversified alternatives directly.

Anne: So, I guess the advice is, talk to your super fund. If you’re a Sunsuper member call us. If you're a member of another profit for member super fund and you're really interested in this asset class, have a look online, give them a call. This incredibly fascinating asset class, I really love it and I've loved listening to you speak about it today Brian. Thanks so much.

Brian: Thanks Anne for you time.

Voice-over: This has been The New School of Super. For information and inspiration to help you plan your future, manage you super and enjoy your retirement, visit sunsuper.com.au/thedreamproject. Or if you’ve got a superannuation or investment question, you’d like Brian and Anne to discuss, then get in touch at the schoolofsuper.com, for it to feature in one The New School of Super podcasts.

Product issued by Sunsuper Pty Ltd (ABN 88 010 720 840, AFSL No. 228975). This podcast contains general advice only, consider the Product Disclosure Statement before making a decision. Call 13 11 84 or visit sunsuper.com.au for a copy.

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