Case study: George and Anita Papadakis
You are Ashley Craig, senior financial planner and principal of All Out Financial Planning, a boutique financial planning practice licensed by ABC Financial Solutions Pty Ltd (AFSL 222222).
You first met George and Anita Papadakis two months ago, when they were referred to you by an existing client. At that meeting you completed a data collection form and the clients provided you with copies of the following:
• current superannuation statement for both partners
• tax return for the previous financial year (2018/19) for each of them
• bank statement of loans and savings.
The clients have requested that you prepare a statement of advice (SOA) which addresses their goals and objectives and each of the questions they have raised as outlined in the following ‘Scope of advice’.
They have confirmed that the following information collected through a comprehensive fact find is accurate and still relevant.
George and Anita have been married for over 25 years. George has always been the main income earner as Anita chose to leave her job as a librarian some years ago to be the primary carer for their children.
George has been working as an engineer at BlueScope Steel for the last 26 years and has recently been offered a voluntary redundancy as part of a major restructure. His total redundancy benefit will be $175,000 after tax.
Fortunately, he was offered an ongoing contract as site engineer for Pilbara Port Corporation in Western Australia, with the same total package that he is on now ($195,000 plus superannuation of 9.5%), which he has accepted. The family will soon move to Perth and George will start his new role in about two months time.
Anita is looking forward to returning to the workforce and has found a part-time role in Perth with a publishing company, Banksia Press Pty Ltd. She confirmed she will start her new job in about three months time and will earn $52,000 p.a. plus superannuation of 9.5%.
George and Anita plan to rent initially, at an estimated cost of $650 per week. They have approached an agent to purchase a property in Perth as they would prefer to own a property rather than rent.
George will fly-in fly-out (FIFO) to the Pilbara region. He is required to work for 10 days and then have six days off. The company will bear all his flying and living expenses in the Pilbara region. The family home in Wollongong will be rented out at an expected gross rental of $600 per week.
George has advised that the after-tax $175,000 redundancy payment will be added to the joint online savings account as above when he finishes.
George’s superannuation is with the BlueScope Steel Employer Fund. Its current value is $370,000 (taxfree component is $22,000 and taxed component is $348,000).
Anita has a smaller superannuation balance of $43,000 in CareSuper Industry Fund — conservative balanced option (all taxed component). These benefits were rolled over to CareSuper when she gave up work. She has not made any further contributions.
Assignment tasks (95 marks)
1.Examine the clients’ stated goals and objectives for each of the following questions and issues they have raised and, after analysis, consider appropriate responses.
The questions and issues raised by the clients are important in the development of appropriate strategies you believe the clients should be considering. Those questions to which the clients require a specific response should be addressed in your SOA. All goals, issues and directions raised by the clients form the agreed scope of your advice to the Papadakises.
2.Complete an SOA that incorporates, in a coordinated and communicative way, the strategies the clients should be adopting and suitable responses to each of the questions the clients want you to address. Your SOA should also conform to the content and structure of an SOA and its component parts as described in Topic 8 and the sample SOA which can be found in the online resources for Topic 8.
The following questions and issues raised by George and Anita are designed as prompts to help you consider the key issues. A number of assumptions are required to be determined. These assumptions should be incorporated into your responses and the SOA.
• When they retire when George reaches age 62, they have estimated they will require $65,000 per year in today’s dollars, excluding the cost of holidays every second year estimated at $15,000. They want your advice as to whether this is realistic and achievable, and what strategies they should be undertaking now to achieve this important financial goal, and why.
They have noticed that their superannuation funds offer retirement income streams in the form of account-based pensions. They would like to know how they work and whether they are something to consider in retirement.
In addressing these key retirement issues, the Papadakises have also raised the following related questions and issues which they want you to address in your written advice:
• Should they be looking to establish an SMSF and what are the pros and cons of doing so? How could an SMSF assist them in accumulating wealth for their retirement, particularly if they wanted to purchase more property? What can an SMSF do that their current funds cannot?
• What is your view of them continuing to invest in residential property, coupled with negative gearing, to build wealth for retirement? Additionally, what options should they be considering with their residential investment properties given their poor performance?
What are the pros and cons of purchasing a Perth property to live in compared to renting? Do you have a view as to what they should do?
George and Anita have heard that there would be no capital gains tax (CGT) if they rent the family home for a short period and they would like you to explain the current rules about this.
• George and Anita are not aware of superannuation beneficiary nominations and have not nominated any beneficiaries to their superannuation. What are they and what should they do about them, if anything?
• George has requested you to advise him on a suitable superannuation fund which can accept his rollover benefits, employer and voluntary contributions. He also wants to know what he should do with his redundancy package.
• Anita wishes to build her superannuation for retirement after hearing about the importance of saving for retirement on the local radio. When she starts her new job, she would like to invest more in superannuation and would like you to advise her on how much she should contribute. Should she continue to use CareSuper as her principal superannuation fund?
• In regard to George’s and Anita’s life insurance arrangements, although they wish to address precise strategies in this area separately, as they have policies both inside and outside superannuation, what are the issues they need to be aware of with each option? Is it more advantageous to incorporate all the policies they need through their superannuation funds?