Monthly Archives: July 2019

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Large funds have life insurance covered

Most of us don’t have enough life insurance, so it’s good that large superannuation funds provide ”default” death and total and permanent disablement insurance to their members, who otherwise may not have any at all. It is default cover because the fund member receives it whether they ask for it or not. Consequently, almost everyone has life-insurance cover through their fund.

But life insurance obtained through superannuation funds is getting pricier, with some large funds increasing the costs by up to 50 per cent. The price rises are across all types of super funds – non-profit, retail and corporate. The funds say it’s because they and their insurers are experiencing more disability claims as the economy remains weak and unemployment edges higher.

Insurers are also subject to higher capital-adequacy requirements. The current round of price rises comes after several years of price falls. Super funds are concerned by the underinsurance of their members and have been increasing the level of default cover. That means $1 of premium buys more cover than five years ago.

The amount of cover mainly depends on the member’s age. Most large funds provide the greatest amount of default cover to fund members when their financial responsibilities are greatest – usually between the ages of 35 and 45. This is the default arrangement, but most funds allow their members to decrease the cover if they wish.

Even allowing for the big price rises, life insurance is much cheaper through a large fund than buying the same cover outside super. And large super funds usually accept a fund member’s application for insurance with no questions asked about their medical history, up to the default cover amount.

Applications for cover above the default amount would usually require at least a record of medical history, and cover could be denied. Even if a member encounters health problems later on, they will still be covered up to the default cover limit and pay the same premium as other members of the same age.

Life insurance is so attractive through large superannuation funds that there is talk of self-managed superannuation fund trustees keeping a small amount of money with the large fund they were with before starting their own fund just to retain cheap life insurance with automatic acceptance.

It should be pointed out that ”disablement” is tightly defined under superannuation law. It is ”total and permanent” disablement. To make a successful claim, the fund member usually has to show that because of injury or illness, he or she will never be able to work in ”any” occupation.

There are policies available outside superannuation where the definition is wider. Some of these policies will pay a claim if the person is unlikely to work again in their ”own” occupation. Though easier to make a claim, these policies are more costly.

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How the Y factor turns some stocks into smash-hits

The search for yieldPerhaps the biggest influence on most big superannuation funds is the sharemarket.

The typical managed fund has about half its assets in shares, so market movements can make a big difference to what is left for members when they hit retirement.

It’s worthwhile, therefore, to think about what’s driving the sharemarket, and whether it’s sustainable.

In the first 10 months of this financial year, rising share prices meant the typical super fund had returned a whopping 15 per cent, even if things cooled off in May.

But you can’t help but notice that these gains came against a weakening economic backdrop, with many companies complaining that things remain tough.

It begs the question: if growth is weak, why did share prices start 2013 so strongly? And, more importantly, can it last?

Most experts agree that shares have risen this year because of the extraordinary measures being taken around the world to reignite growth.

As central banks slash interest rates and pump money into the system, it has lowered the return on government bonds and forced investors such as pension funds to snap up other assets that can provide a good return.

In the jargon, there has been a mad rush for ”yield”, with investors piling into high-dividend stocks such as Telstra and the banks.

You can see this trend in the graph, which comes from Macquarie strategist Tanya Branwhite. It includes a ”high-yield” index of Aussie stocks, such as banks, telecommunication, listed property trusts and utilities. As the graph shows, these high-yields stocks have been a smash-hit with investors, rising 50 per cent since mid 2011, far ahead of the rest of the market. In short, the high-yield stocks have been driving market performance.

But the growing question on many investors’ minds is whether a rally built on a search for yield is sustainable.

In recent weeks, a growing number of experts have been raising doubts. Branwhite says the yield-induced rally is now ”maturing” and it may be time to look at ”growth” stocks, such as BHP.

Greg Perry, a former Colonial First State fund manager who was regarded as the best stock-picker in the 1990s, also describes the search for yield as ”very mature”.

What do they mean by mature? Basically, they are concerned that stocks have become too expensive. If investors are simply pushing up share prices because they are looking for yield, there are risks of bubbles forming.

The Commonwealth Bank, for instance, has been trading at a price of about 15 times current earnings, which analysts say is close to its highest ever level. With little in the way of credit growth, sceptics believe the bank is overpriced.

Even the $87 billion Future Fund, one of the biggest investors in the country, last week warned against chasing yield purely for its own sake.

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Getting super across to all

Imagine standing in the middle of a remote community using the only public telephone, waiting to talk to a person in an office in a far-off city. Photo: Tanya LakeWhile many Australians find super challenging, for those living in rural and remote areas – and especially for indigenous Australians – the difficulties are magnified.

Imagine standing in the middle of a remote community using the only public telephone and you are on hold, waiting to talk to a person in an office in a far-off city whose everyday language you barely comprehend and whose jargon you absolutely do not understand, in the hope of discussing your super.

You don’t have your tax file number on hand, you’ve moved house a number of times in the 10 years since joining the fund, and don’t recall the address where you lived when you joined. It’s a recipe for disappointment, disengagement and disadvantage.

And financial exclusion is not limited to remote or country areas.

In urban Australia, where one-third of indigenous super members live, many don’t understand how to leave super to their descendants using the nomination process. People may want to leave super to descendants according to indigenous cultural protocols, and fund trustees may struggle to manage claims in a culturally appropriate way.

The Australian Securities and Investment Commission (ASIC) is taking a number of steps to address this disengagement. Recently in Melbourne, it held an industry-wide forum with 25 funds represented, which tried to break down some of the barriers Aborigines and Torres Strait Islanders face when engaging with the super industry. Participants discussed the need to address problems by developing practical measures, including increasing the numbers of indigenous staff employed in the industry, gathering more detailed information on members and their needs, and considering strategies to deal with the documents and information needed.

The commission has also improved financial literacy tools to better meet indigenous people’s need: ASIC’s revised publication gives information on the fundamentals of super in a booklet written in plain English.

Recognising indigenous consumers as a particularly vulnerable part of society, in 2009 ASIC set up an outreach program. Each year, the team visits about 30 communities around Australia to promote financial literacy.

In 2009, ASIC also implemented a Reconciliation Action Plan. As part of that ASIC has hired its first indigenous cadet and sent ASIC staff on short-term secondments in areas including Redfern and the Kimberley .

Similar to the broader Australian workforce indigenous Australians need to engage with the system to make decisions about such things as life insurance, access to retirement funds and beneficiaries.

Helping people make these decisions needs an understanding of their needs and the barriers they face. With industry’s help, ASIC will be able to dismantle these barriers faster.

Robynne Quiggin is ASIC’s senior manager – indigenous outreach.

Have you had difficulties accessing super? Tell us your stories

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Bali Nine members set to have life sentences cut

Four of the Bali Nine drug smugglers are poised to have their life sentences reduced to 20 years, though the decision still has to find approval from a gun-shy central government in Jakarta.

Martin Stephens, Matthew Norman, Si Yi Chen and Tan Duc Thanh Nguyen applied in May for the sentence reduction. The corrections department in Jakarta has confirmed that prison authorities in Bali have found in their favour.

The final decision, though is up to the Minister for Law and Human Rights, Syamsuddin, who is under pressure from anti-drug campaigners to take a hard line on drug traffickers.

If the four are successful, though, their new sentences will be 20 years. With the eight years they have already spent in Kerobokan prison taken into account, they would have only 12 years left to serve.

Remissions for good behaviour — which in Indonesia are handed out twice a year — could reduce this further so that their likely release date would be 2020 or 2021.

A spokesman for the remission section of the Director General of Corrections in Jakarta said officials were now working on documents of the four, all of whom are serving life sentences without hope of release.

The documents had arrived “a few weeks ago”, the spokesman said. However, without specifying any limit, he said it would take “a long time” before the four to receive an answer.

It’s usual for remissions of sentence to be announced to coincide with Indonesia’s national day in August.

New regulations in Indonesia require drug prisoners, terrorists and others to promise to be “justice collaborators”, and that they express guilt and remorse for their crimes.

Fairfax Media understands that the four prisoners have now met those criteria to the satisfaction of Bali’s provincial authorities and Kerobokan prison leaders.

But in Jakarta the National Narcotics Agency BNN is running a hardline campaign for drug traffickers to be treated harshly. It’s still possible that Syamsuddin or a team of senior bureaucrats who advise him, will be spooked by that campaign and reject the applications.

One Bali Nine prisoner, speaking on condition of anonymity, said: “If they deny it I’ll be so devastated, but I can’t see how they can”.

It is the third time that Stephens, Norman, Nguyen and Chen have applied for remission. The first attempt, in 2011, was stopped with all other remission requests because of a riot in January 2012.

The second was rejected because of the “justice collaborators” regulation. The men made their third application in early May.

As well as expressions of remorse and willingness to cooperate with authorities, the applications include letters showing support from family members, prison guards and other prison officials.

The Bali Nine were convicted in 2005 of attempting to traffic 8.3kg of heroin from Bali to Australia. Two of them, Myuran Sukumaran and Andrew Chan, still face death sentences and have appealed to president Susilo Bambang Yudhoyono for clemency.

Renae Lawrence is serving a 20 year sentence and could be released as soon as 2016. The others are serving life. Michael Czugaj is appealing his sentence, and Scott Rush has exhausted his appeals, and has not yet lodged a bid for sentence remission.

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Manning a ‘broken soul, emotionally fractured’

Fort Meade, Maryland: A counterpoint to the enormity of Bradley Manning having dumped 700,000 classified US documents into the public domain is the fractured and confused nature of the young US Army private which surfaced in testimony at his court martial on Tuesday by Adrian Lamo, a convicted computer hacker in whom the army private confided.

Under cross-examination Mr Lamo revealed a side of the leaker at odds with the prosecution claim that he had deliberately set out to put the top secret files of the US Government in the hands of Osama Bin Laden helping the enemy, as the most severe charge against Private First Class Manning is paraphrased.

The hacker’s account squared with evidence earlier in the day by a forensic digital examiner on contract to the US military, Mark Johnson, who said that none of the material found on PFC Manning’s computer related to terrorism or indicat[ed] a hatred of America.

The hacker Mr Lamo told army prosecutor Major Ashden Fein that PFC Manning had first

contacted him online on May 20, 2010 and that within 24 hours he had reported the soldier

to military intelligence, briefing agents on his dialogue with PFC Manning and in particular, on his references to Julian Assange, whose WikiLeaks anti-secrecy entity was the conduit by which the files became public.

The 30-something Mr Lamo was tight-lipped on the witness-stand, mostly agreeing with or slightly modifying statements put to him by the prosecution and defence lawyers.

Describing himself as a threat analyst and a grey hat, a hacking term, Mr Lamo confirmed that in 2004 he had pleaded guilty to computer fraud charges after he had hacked the networks of The New York Times and Microsoft, among others. On conviction, he had been sentenced to six-months home detention and two years probation.

But in response to questions by David Coombs, PFC Manning’s counsel, Mr Lamo said there had been no suggestion by PFC Manning, whose online identity was Bradass87, that he intended the leaked documents to aid the enemy.

Coombs: At any time, did PFC Manning ever say he wanted to help the enemy?

Lamo: Not in those words, no.

Coombs: At any point, did he say that the American flag doesn’t mean anything to me?

Lamo: No.

Relying on purportedly tamper-proof, real-time recordings of their several chats which were retrieved from Mr Lamo’s computers, Mr Coombs drew out the fragile nature of his client, who had told Lamo he had made a huge mess of his life.

Suggesting he was suicidal, PFC Manning had described himself as a “broken soul emotionally fractured.”

PFC Manning chatted about seeing incredible things, awful things” in classified files, “things that belonged in the public domain, and not on some server stored in a dark room in Washington DC.” He had told Mr Lamo the files revealed how the first world exploits the third, in detail, from an internal perspective showing diplomatic scandals wherever there was a US mission.

“I don’t believe in good guys versus bad guys anymore,” PFC Manning told him.

“Only a plethora of states acting in self interest.”

Mr Lamo told the court martial that he could appreciate, yes, a claim by PFC Manning that he needed to investigate to find out the truth. He confirmed having asked why PFC Manning was not selling the files to Russia or China to which PFC Manning had replied that the information “belongs in the public domain.”

As Mr Coombs itemised the particulars of PFC Manning’s life, Mr Lamo observed that the irony of the parallel with his own circumstances was not lost on him.

PFC Manning had sought him out because of his hacker’s notoriety, but also because of his activism in the lesbian, gay, bisexual and transgender community.

Mr Lamo was 22 when he was arrested in 2004, the same age as PFC Manning at the time of his arrest. And as PFC Manning had, Mr Lamo also had claimed to be motivated by public good.

Both suffered anxiety and depression. PFC Manning had shared with him his gender identity disorder and he — Mr Lamo — had Asperger’s syndrome.

Another irony was that the Manning-Lamo dialogue which led to PFC Manning’s arrest might not have happened.

Explaining that the soldier s initial approaches were a series of encrypted emails from both his personal and US military addresses, Mr Lamo said that he had ignored them because they were just more of the high volume of messages he received from strangers.

He had responded only on registering that one of the addresses was military and Iraq-based.

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