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‘Good’ investment is in the eye of the beholder WITH
Michelle BALTAZAR Editor-in-Chief • Money magazine Extreme weather around the globe, the threat of pandemics such as Covid and a decline in corporate governance in some sectors are reminders that risks abound and pose a threat to our future prosperity and sometimes our very existence. There is a consensus that global warming is posing a significant risk to economic growth and by extension our savings, prompting super fund members, especially younger generations, to pay more attention to environmental, social and corporate governance (ESG) issues. Super fund trustees have a fiduciary duty to maximise their members’ retirement savings and consequently manage the risks that lie ahead. “Running a big super fund is a tough job,” says Alex Dunnin, executive director of research and compliance at Rainmaker Information. “Sometimes you’ve got to
make long-run decisions with incomplete information and investment bets about what might be happening over the next 10, 20, 30, 40 and 50 years.” Renewables challenge For example, transitioning to a decarbonised future will be challenging and won’t happen overnight, which means a more nuanced, pragmatic approach is required, says Dunnin. “Sometimes a fund is criticised because it’s got BHP exposure. “If you do not want your super fund to have any investments in fossil fuel or resources companies, that’s fine – there are specialist funds like that. “But other people will say they want to support the companies that are trying to convert their businesses. “While people might not like BHP, it’s one of the biggest investors around the planet in renewable energy, so does that make BHP a bad or a good company?
“So, you can look at these things in several ways, which makes it complex.” And if we want to electrify the country and have everyone driving EVs, we’re going to have to dig up more rare earth minerals than ever before. “And to produce all those EVs, all those batteries, all those rare earth minerals, is going to take so much energy, maybe it’s counterproductive.
“There’s a lot of nuance everywhere you look.” Adding to the complexity, there are no official standards on what a green investment is. “The regulator is saying, we’re not going to judge you on a technical definition of what an ethical investment is,” says Dunnin. “We’re going to do it the other way around: you can invest in anything you like, but if you say
that you’re going to have this social impact, you’ve got to be able to demonstrate it.”
are committed to ESG principles. “If you look at the ESG investment indexes compared to the regular investment indexes, there’s not much difference. “But just because a fund is an ESG fund doesn’t make it a good fund. “The upshot is a super fund isn’t good because it does ESG, but if it’s a good fund it will most likely do its ESG well too.”
What fund to look for How, then, can you tell what your fund is up to? Dunnin says its website should disclose what the fund is investing in and its thinking behind it, but make sure it is a good performer. “All the leading super funds
VITA PALESTRANT
Double the benefits through salary sacrificing Because of the way tax is applied to superannuation, savvy employees can turn what would have been a tax liability into extra super by making use of a salary sacrifice arrangement. Many workers can, by agreement with their employer, have money paid into their super
fund from their salary before income tax is taken out. These before-tax contributions can reduce their tax bill and also boost their super savings. Amounts directed to a super fund via a salary sacrifice arrangement will be taxed in the hands of the fund at 15%. These amounts will escape
being taxed at your marginal rate, which in most cases will be more than the 15% levied on the super fund. As an example, Michael earns an annual salary of $90,000 (excluding the super guarantee). If he makes before-tax contributions to his super fund of $10,000 through salary sacrifice,
not only will he significantly boost his retirement savings but will save $1950 in tax. This scenario is based on the 2022-23 income year tax rates and Medicare levy of 2%. Of course, in the no-salary-sacrifice scenario, Michael has higher take-home pay. But with salary sacrifice there
MICHAEL’S BOOST
DOES NOTHING
SALARY SACRIFICES $10,000
Take-home pay Tax
$68,483 $21,517
$61,933 $18,067
Extra money into super
$0
$8500
Net benefit
$68,483
$70,433 ($1950 better off)
is less tax and more super – a handy annual boost to Michael’s savings. He would need to ensure his
total super contributions (including the super guarantee) stay under the cap of $27,500. MARK CHAPMAN, H&R BLOCK
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