Jacqueline Barton

While we all hope for good health, the reality is that some of us may struggle at times with sickness or injury. And that may affect your family’s financial wellbeing.

Different types of life insurance or personal insurance can provide an income when you’re unable earn, or a lump sum to protect your loved ones if the worst happens.

Insurance products such as life insurance and total and permanent disability (TPD) cover are available through your superannuation fund or directly through an insurance company. There are also other products not usually offered by super funds such as accidental death and injury insurance, and critical illness or trauma cover.

Almost 10 million Australians have at least one type of insurance (life, TPD or income protection) provided through superannuation.ⁱ

Check what your fund offers

Super funds usually provide three types of personal insurance. These include:

• Life insurance or death cover provides a lump sum payment to your beneficiaries in the event of your death.
• Total and Permanent Disability (TPD) pays a lump sum if you become totally and permanently disabled because of illness or injury and it prevents you from working.
• Income Protection pays a regular income for an agreed period if you are unable to work because of illness or injury.

While these insurance products can provide valuable protection, it’s essential to be aware of circumstances where coverage might not apply. For example, super funds will cancel insurance on inactive super accounts that haven’t received contributions for at least 16 months.ⁱⁱ Some funds may also cancel insurance if your balance is too low, usually under $6000. Automatic insurance coverage will not be provided if you’re a new super fund member aged under 25.

Should you insure through super?

Using your super fund to buy personal insurance has advantages and disadvantages so it’s a good idea to review how they might affect you.

On the plus side

• Cost-effective: Insurance through super can be more cost-effective because the premiums are deducted from your super balance, reducing the impact on your day-to-day cash flow.
• Automatic inclusion: Many super funds automatically provide insurance cover without requiring medical checks or extensive paperwork.
• Tax benefits: Some contributions made to your super for insurance purposes may be tax-deductible, providing potential tax benefits.

Think about possible downsides

• Limited flexibility: Super funds can only offer a standard set of insurance options, which may not fully align with your needs.
• Reduced retirement savings: Paying insurance premiums from your super balance means less money invested for your retirement, potentially impacting your final payout.
• Coverage gaps: Depending solely on your super fund’s insurance might leave you with coverage gaps, as the default options may not cover all your unique circumstances.
• Possible tax issues: Be aware that some lump sum payments may be taxed at the highest marginal rate if the beneficiary isn’t your dependent.

Don’t forget the life admin

Whether you decide to buy insurance through your super fund or not, it is important to regularly review your insurance coverage to make sure they reflect your current life stage and to make sure you are not paying unnecessary premiums if you have more than one super fund.

Insurance within super can be a valuable safety net, providing crucial financial support to you and your loved ones. Understanding the types of coverage offered, the pros and cons of insuring inside super and the need for regular reviews are essential steps to make the most of this benefit. If you would like to discuss your insurance options, give us a call.

i The future of insurance through superannuation, Deloitte and ASFA, 2022 1051554 Insurance through superannuation.indd
ii Treasury Laws Amendment (Protecting Your Superannuation Package) Act 2019, No. 16, 2019 Treasury Laws Amendment (Protecting Your Superannuation Package) Act 2019 (legislation.gov.au)

Iron ore has been the backbone of the Australian economy and many investment portfolios for much of the 21^st century. Export of the commodity saw Australia evade recession both in the wake of the Global Financial Crisis back in 2008 and the Covid epidemic.

In 2021, resources accounted for 68 per cent of Australia’s export revenue. This was the year that iron ore prices peaked at almost $US230 a tonne.ⁱ

Large quantities of iron ore were discovered in Australia as far back as 1822 in Tasmania. However, its growth as an export icon really took off with the first shipment of iron ore from the Pilbara in Western Australia in 1966.

Today there are three major companies that mine iron ore in Australia – BHP, Rio Tinto and Fortescue Minerals. Considered blue chip stocks, they are often favourites with investors and their share price performance is linked to iron ore prices. Together, these miners are responsible for 76 per cent of production in Western Australia and contribute to 38 per cent of global production.ⁱⁱ

Share of iron ore production by company, 2021

Source: GlobalData’s Australia Iron Ore Mining to 2026 report

Iron ore’s importance worldwide stems from its use in steel, a key material used in infrastructure, housing and manufacturing equipment globally. Manufacturing includes such things as cars, ships, trains, trucks and pipelines. Iron ore is also used in cast iron and stainless steel which in turn have many applications.

China’s role

The main recipient of Australia’s iron ore is China. In 2022 China bought 1.1 million tonnes of iron ore, 65 per cent of which came from Australia.ⁱⁱⁱ

The driving force powering this demand was the urbanisation and industrialisation of China. China actually produces more iron ore than Australia but it is at a much lower grade.

No wonder, Australia has been riding on iron ore’s back.

While demand is still high in China, Covid put a dampener on its economic growth when the country basically shut down for an extended period. Its strict measures did not start to roll back until December 2022 and investors began to worry.

While economic activity is slowly resuming, it has reduced significantly from its heady days. As a result, demand for iron ore has also fallen.

This has seen the price of iron ore drop to around the $US100 a tonne mark from its $US230 million peak in 2021.

Although China’s economy is not performing as energetically as it did a decade ago, Premier Li recently told the World Economic Forum that it was rolling out more measures to boost domestic demand.^iv

This has triggered some optimism among market watchers, although there are still bears around who are more circumspect.

Global demand

It is not only in China where demand for iron ore is falling. The rest of the world is wrestling with recession and that too has put a dampener on the market.

Added to this slowdown in demand is the move to increase supply. The major Australian producers and Brazil’s Vale Mining have all got new projects and expansions on the horizon.^v

Luckily, iron ore is relatively cheap to mine in Australia, costing Rio Tinto and BHP $US30 a tonne to produce, which means they are somewhat sheltered from price fluctuations. While Rio Tinto and BHP can remain profitable with prices dropping as low as $US60, lower prices will have a flow on effect, impacting superannuation balances, investor returns and the broader economy.^vi

Iron ore price outlook, quarterly

Source: Bloomberg (2023), Department of Industry, Science and Resources (2023)

Impact on the economy

Unfortunately, lower profits mean the Australian Tax Office will also receive significantly lower revenue and that in turn will impact on the Australian economy.

While profits are still boosting the government’s coffers, the outlook is less bright.

Tax revenue from iron ore has made a significant contribution to the robustness of the Australian economy and has been a key reason for the recent return to surplus in the federal budget after 15 years of deficits.

In fact, the federal government is expecting the surplus in 2022-23 to be a whopping $19 billion, significantly higher than the $4.2 million original forecast in the May Budget. Not all that growth is attributed to strong commodity prices, but they have certainly played a part.^vii

Nevertheless, the domestic economy is still expected to slow as high inflation and global challenges make their mark.

Budget papers estimate that a $US10 per tonne increase in the Commonwealth’s assumed price for iron ore exports is expected to result in an increase in tax receipts of around $500 million in both 2023-24 and 2024-25.^viii

But the federal government is still cautious about the economic outlook for Australia and are forecasting a return to a budget deficit and the possibility of a recession as the move to higher interest rates puts brakes on the economy.

Aside from economic performance, any reduction in revenue for the mining companies will also translate into lower dividends and lower price growth for investors.

But despite some bearish sentiment in the market including the growing number of institutional and individual investors steering clear of mining stocks over ethical and environmental concerns, there is no denying that iron ore is still a big money spinner.

If you would like to discuss options for investment in the current economic climate, then give us a call.

i https://minerals.org.au/resources/record-high-for-resources-export-revenue/
ii https://www.mining-technology.com/data-insights/iron-ore-in-australia-2
iii https://edition.cnn.com/2023/05/05/economy/australia-china-exports-record-intl-hnk
iv https://www.reuters.com/world/asia-pacific/chinas-growth-be-higher-q2-projected-hit-annual-5-target-premier-li-2023-06-27/
v https://www.mining.com/iron-ore-price-expected-to-ease-over-next-5-years-on-slower-demand-growth-and-more-supply/
vi https://www.abc.net.au/news/2023-05-30/australian-iron-ore-boom-ending-after-china-rift/102408002
vii https://www.theguardian.com/business/2023/jun/30/australia-budget-surplus-swells-to-19bn-due-to-surging-tax-revenue
viii https://www.watoday.com.au/politics/western-australia/how-wa-s-resource-riches-helped-deliver-the-first-budget-surplus-in-15-years-20230509-p5d725.html

When you’re faced with a decision, do you trust your feelings or do you look at the situation objectively, making a careful list of pros and cons? Emotions exert a strong influence on our decisions, so it’s important to have a bit of balance between reason and emotion – particularly when it comes to the big decisions in life.

The decisions we make have the potential to steer our lives in vastly different directions. Good decisions can profoundly improve our situation in life, while a poor decision can have unpleasant consequences. Examining how emotions influence your thoughts and actions can equip you to make well-grounded decisions, including those relating to your financial affairs.

The influence of emotion

Even if you think your decisions are based on logic and common sense, the reality is they are often steered by emotion.

A study performed by Nobel Prize-winning psychologist Daniel Kahneman showed that emotions contribute around 90% to our decisions, while logic only factors in for around 10%.ⁱ Kahneman’s position was that human reason left to its own devices is subject to emotional biases, so if we want to make better decisions in our personal lives, we need to be aware of these biases.

Awareness is key

Given that emotions and unconscious bias can cloud our judgement, some self-examination can help ensure that you are making the best decisions.

It’s been shown that people who could identify the emotions they were feeling were able to make better decisions, in part due to a greater ability to control any biases caused by those feelings.ⁱⁱ This is known as “making conscious the unconscious” and it involves examining your emotions and beliefs to so you can better understand their influence on you.

The goal isn’t to be emotionless – it’s important to ‘feel’. The key is to understand how your feelings are impacting your choices. A good example might be how feeling particularly confident may cause you to take on more risk associated with an investment than you would ordinarily be comfortable with.

Hit ‘pause’ on reacting

Once you’ve identified how you are feeling, it’s time to hit ‘pause’ for a moment. Decisions driven by the unconscious mind generally happen faster than those we think about. Not reacting immediately gives you a chance to observe any biases without being controlled by them, allowing for improved and more objective decision-making.

Even taking a couple of deep breaths before responding to that email that’s made you angry will help you respond in a more rational way. Just think about how scammers use people’s tendency to react to fear, without thinking too much about what they are being asked to do.

Recognise patterns

Taking time to think also allows you to reflect on past decisions and the result of those decisions. For example, reflecting on past investment choices that were unduly influenced by a fear of missing out, can help individuals better manage future decisions.

Your subconscious can cause you to cling to outdated views you hold of yourself – and these can drive poor decisions. A good example is people managing their wealth according to how they did things when they first started out, rather than adapting their behaviours to their changed financial circumstances.

Get rational

Once you have acknowledged the part that your subconscious and past patterns of behaviour play in decision making, it’s time to get rational. Rational decision-making involves taking emotion and any unconscious biases out of making decisions and applying logical steps to work towards a solution. The process involves a series of steps that generally encompass: identifying a problem or opportunity then gathering the relevant information, developing options, evaluating alternatives, then finally selecting a preferred alternative on the basis of the research you’ve done.

It’s also a good idea to run important decisions by a third party who is not so emotionally involved. For your financial decisions that’s where we come in. While we respect and acknowledge how you feel in relation to your financial life, we can provide factual information and challenge any notions that no longer serve you, to help you make the best possible decisions regarding your finances.

i https://www.jstor.org/stable/1914185
ii https://www.ncbi.nlm.nih.gov/pmc/articles/PMC2361392/

It is a special feeling to welcome a new child or grandchild into the world and watch them grow. Sharing their joy as they reach new milestones is priceless.

Of course, there is a real cost – raising a child is expensive, particularly now as the cost-of-living spirals higher. Estimates vary widely from the few studies completed but it is fair to say that over a child’s lifetime families can spend hundreds of thousands of dollars on living, medical and schooling expenses for their children.

So, having a financial strategy in place to cover the costs and taking advantage of government support where available can make a big difference.

Taking care of the basics

The first step is to update your Will to nominate guardians for your children in case the worst happens. You may also consider life insurance and income protection to ensure your family is protected.

Next, a savings and investment plan will help you navigate the years ahead with more certainty. Adding small amounts of money regularly to an account for education and other expenses can help to ease financial stress. The MoneySmart savings goals calculator shows what can be achieved. You could consider fee-free high interest savings accounts or your mortgage offset account as a way to save cash for short-term needs.

Meanwhile, some longer-term investments such as shares, exchange traded funds or listed investment companies may provide financial support for later expenses. They can offer the possibility of capital growth and diversification for a relatively low cost.

Super splitting

Keeping an eye on the future also means thinking about your superannuation. If one partner is staying at home to care for the children, the other partner can split their super contributions with them. You will need to check if your fund allows it, whether they charge a fee and complete some paperwork.

There are also some tax considerations, so it is important to make sure you understand the implications for you.

Government support

Take the time to discover the government payments and supports available for families. For example, the Paid Parental Leave Scheme provides support for mothers for up to three months before the birth.

A recent change to Parental Leave Pay and Dad and Partner Pay sees these two payments combine into one payment that is available to both parents for up to two years after the child’s birth.

You will need to meet income and work tests and claim within certain timelines.

Even if you are not eligible for parental leave pay, you may still be able to apply for both the Newborn Upfront Payment and the Newborn Supplement.

Then there is the Family Tax Benefit, a two-part payment to help with the cost of raising children. To receive the benefit, you must have a dependent child or a full-time secondary student aged 16 to 19 who is not receiving any other payment or benefit such as a youth allowance, care for the child at least 35 per cent of the time and meet an income test.

Grandparent gifting

Grandparents who are keen to help out their families financially can gift money to their children or grandchildren. Be aware that Centrelink has gifting rules for those receiving an age pension. You can give $10,000 in one year or up to $30,000 over five years without your pension being affected. If you give more, the amount will be treated as though you had retained it in your own accounts.

However, gifts and inheritances are generally not considered as income for tax purposes. The ATO says neither the donor nor the receiver will pay tax on a gift if:

• it is a transfer of money or property.
• the transfer is made voluntarily.
• the donor does not expect anything in return.
• the donor does not materially benefit.

Tax may apply in some cases where property or shares are gifted.

The joys of raising a little one are many, and having a plan to manage the financial implications can let you enjoy the journey. Get in touch with us to create a plan to secure your family’s future.