WEALTH THE AUSTRALIAN,TUESDAY, AUGUST 23, 2016theaustralian.com.au/wealth 25

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Super changes raise equity, fairness issues

Equity and fairness are two words used to justify the government’s super changes.

Before we get to this we needto consider some background.

The Murray Financial SystemInquiry came up with two particular recommendations about superannuation — it referred to Treasury research that said most of the tax concessions attaching to superannuation were skewed to higher-income earners and secondly that the objective for the superannuation system should be to “provide income in retirement to substitute or supplement the age pension”

It’s important to notice somekey attributes about this objective. First, the age pension is broadly set at 27 per cent of male average earnings. In June 1992 the Keating government set a “replacement rate” for retirees — that is, what retirement income needs to be to ensure your living standards don’t decline once you have stopped work — at 40 per cent of pre-retirement income.

It’s difficult to know preciselywhat replacement rate this Murray objective is aiming to achieve — on one reading it would appear to be aiming at the current age pension rate plus not much more. From my experience, many people approaching retirement don’t know how much they spend and therefore don’t really know what replacement rate they personally need. You can only do this by preparing an accurate expense and cash-flow budget.

I think this Murray objectiveis primarily about the government and saving it money. But the super system’s objective should be about each individual. If super can enable us to be self-sufficient in retirement then the net result will presumably be savings in government outlays.

In its recent federal budget the government more or less accepted both of these Murray inquiry recommendations, including various reductions in the tax concessions the top 10-20 per cent of income earners get from super.

But is this fair and equitable?From time to time, The

Australian publishes articles about limiting access to the age pension. Regular responses in

TONY NEGLINE

ANZ’s turnaround under newchief executive Shayne Elliott isworking and income investorsshould take notice. Many SMSFinvestors seek adequate incomeand moderate, low-volatilitycapital growth. ANZ is one of ourpreferred stocks for these objec-tives because the strategy to de-risk the bank by shrinking thevolatile institutional (large cor-porate) loan book is not onlydriving the share price higher, itincreases our confidence futuredividends will be steady — es-pecially now the dividend hasbeen rebased lower to more sus-tainable levels.

ANZ cut its financial year2016 interim dividend 7 per centto 80c and forecast a final divi-dend at least the same as the in-terim. We think incrementalgrowth to a dividend of $1.63 isrealistic for FY2017, which putsthe stock on a forward yield of 6.1per cent fully franked. This is at-tractive in a world of 2.5 per centterm deposit yields.

We expect general bankingand economic conditions to re-main stable, so the yield shouldsupport the share price.

Until now we have not re-viewed ANZ in Dividend Detec-tive because the dividend payoutratio, or the proportion of earn-ings ANZ paid as dividends, wastoo high for a bank with an insti-tutional loan book prone tonegative surprises like higherbad debts.

We thought ANZ would haveto cut its dividend and this hap-pened. ANZ now plans to gradu-ally lower its payout ratio fromthe current 75 per cent to 60-65per cent in coming years. It cando this without cutting the divi-dend further because total earn-ings are stabilising andsupported by cost savings andthe reweight from Asia to themore profitable Australian mar-ket.

ANZ is trading about 9 percent below our $29 a share valu-ation, which reduces capitaldownside and highlights the op-portunity in the stock. Value in-vestors rationally choose amargin of safety, or discount tovalue, at which they would buy astock and a 5-10 per cent dis-count arguably is consistent withthe degree of risk in ANZ at themoment. The bank was under-valued for the entire eight years(2007-15) of the Asian super-regional expansion because thestrategy lowered return on equi-ty and increased earnings vola-tility and the market correctlypriced this in. Now the strategyhas changed to something moreshareholder-friendly, the dis-count to value has already closedmarkedly.

David Walker is senior analyst at Clime Investment Management.

DAVID WALKER

Steadier ANZ has greater appeal

DIVIDENDDETECTIVE

ANZASX CODE: ANZSHARE PRICE: $26.51INDUSTRY: BankingFORECAST FY2017 DIVIDEND:$1.63 fully franked

From self-serve kiosks to pizza de-livery robots, the world of fast foodis being reshaped by technologies that cut out the middle man be-tween customers and their fodder.

The biggest name brands havebeen facing headaches in this newlandscape. Over the past threemonths, McDonald’s US shareshave lost 6 per cent and experi-enced sell-offs in the face of weaksecond-quarter sales numbers,while “fast casual” restaurantswith strong tech integration havebeen busy grabbing headlines.

When it comes to fast food,should investors be looking totech to predict long-term share-price growth, or are there moreimportant factors? Here are fourthings to consider when investingin dining on the go:

Fast versus casual battle

Those watching the space recog-nise two competing forces at play,as traditional fast food businessesface off against the world of “cas-ual dining”.

These operations offer a moreintimate and individualised ex-perience, but are still “fast food”.

“You are already seeing smallshop fronts promising fast but in-dividualised dining showing up inSydney and Melbourne,” saysUniversity of Melbourne Associ-ate Professor of Management andMarketing, Anish Nagpal.

That’s not stopping the giantsfrom adopting “artisan” menuitems across a broader variety ofcuisines as they try to win backcustomers from smaller opera-tors, but this is made difficult foroperations with well-honed pro-cesses.

“I think the bigger, more tra-ditional fast food brands are wait-ing to see this trend play out —but these brands (operate) in sucha way that it’s hard for them tomove downstream to this newkind of dining,” Professor Nagpalsays.

There are areas yet to play out There is more to this sector thanthe flagship brands.

Not only do investors have ac-cess to individual stocks both onthe ASX and overseas, there’s alsothe option of taking up exchange-

online subscriber “comments” for these articles will often say, “When I was younger, I was told that once retired I would receive the age pension in compensation for my lifetime of hard work and the taxes I paid”.

Given how often this comment is made there is no doubt that a few politicians from two or three generations ago must have said this.

Now we come to a controversial aspect about these recent government changes. The latest ATO tax statistics for the financial 2014 show that about 600,000 Australians earn at least $150,000 in income. In total they earned about $170 billion income and paid $60bn of this in income tax, or an average 35 per cent tax rate. Good many will think, “well, they can afford it”.

In contrast there are about 8.1 million taxpayers who earn

less than $100,000. They earned $441bn and paid net tax of $72bn or an average 16 per cent tax rate.

Last year, the federal government released research that showed about half of households receive more in government handouts than they pay in tax.

A sizeable proportion of thesehouseholds are working families and whatever tax is paid is returned as various different tax offsets and other assistance such as Family Tax Benefit and Childcare Rebates and Benefits and other tax transfers. .

The majority of those earningless than $100,000 each year during their working life will be eligible for the age pension.

I think this raises three questions about fairness and equity:

• If the age pension represents, in part, a refund of taxes paid while working, then should someone be eligible for the age pension if they haven’t paid any net tax?

• As higher-income earnerscontribute net tax and will be predominantly ineligible for the age pension, then shouldn’t they receive the majority of the tax concessions in the super system?

• As lower-income earners will end up on the age pension why do they have to compulsorily save for retirement and why do they receive any superannuation tax concessions?

Tony Negline is author of The Essential SMSF Guide.

Should someone be eligible for theage pension if theyhaven’t paid any net tax?

Getting true market value key to SMSF selling an asset to the fund’s members

Although the superannuation lawprohibits certain assets owned bymembers being sold to or trans-ferred into their self-managedsuper fund, there is no restrictionon SMSFs selling assets to mem-

bers. Whether an SMSF is acquir-ing assets from members or sellingassets to members, the law re-quires that the purchase and saleprice reflect the true market valueof the asset.

Where an asset falls within thedefinition of “collectables orpersonal use assets” (for example:artwork, jewellery, antiques, arte-facts, coins, postage stamps, mem-orabilia, wine, cars), the lawrequires SMSF trustees to obtain avaluation on the asset from an in-dependent, qualified valuer priorto selling the asset to members atthe recommended price.

The valuation of other assetscan be undertaken by the SMSFtrustee as long as these valuationsare based on objective and sup-portable data. The trustee mustalso be able to demonstrate thatthe value arrived at was based on areasonable process that took intoaccount all relevant factors and isable to be explained to a thirdparty, such as the SMSF’s auditoror the tax office.

There are many situationswhere SMSFs may sell assets totheir members.

An SMSF may use an asset topay a retirement benefit. A mem-

ber may want to live in a residen-tial property owned by their SMSFonce they retire from em-ployment. An asset can be trans-ferred to the member as an in-specie lump sum superannuationbenefit.

By the same token, an SMSFmay not have enough cash to payout a death benefit. In this case anasset with an equivalent marketvalue to the value of the deceased’ssuperannuation savings can beused to pay a lump sum death ben-efit to the deceased’s beneficiaries.

Incorrect borrowing arrange-ments generally mean that the

transaction needs to be “undone”.An SMSF trustee may have struc-tured a limited recourse borrow-ing arrangement incorrectly whenacquiring a property. In order toremove the loan arrangement, theproperty can be sold to the mem-ber of the SMSF.

Contraventions of the super-annuation law also need to be rec-tified and this may necessitateselling an asset. If, for example, anSMSF member renovates a prop-erty owned by their SMSF withoutcharging the SMSF for the reno-vation, the increase in the value ofthe property is treated as a contri-

bution and may exceed the mem-ber’s contributions caps. If themember does not want to incurexcess contributions tax, then oneoption is to remove the propertyfrom the SMSF by acquiring theproperty themselves.

Cash flow problems can also bea reason to sell an asset to mem-bers, if an illiquid SMSF does nothave enough cash to satisfy theminimum pension payment re-quirement for a member. In orderto resolve the cash flow issue, theSMSF commutes part of the pen-sion and elects for the commu-tation to be treated as a lump sum,

and then pays the lump sum usingassets in the SMSF.

SMSFs can sell assets to mem-bers but it is important to remem-ber that the asset must be sold at itsmarket value so that the SMSF isnot disadvantaged and membersare treated no more favourablythan if the asset was sold on theopen market.

Monica Rule is an SMSF specialist and author of the Self Managed Super Handbook: Superannuation Law for SMSFs in Plain English.

www.monicarule.com.au

MONICA RULE

Technology delivers chance to dine out on food offerings

traded funds and managed fundsthat track both consumer dis-cretionary and restaurant sectors,like the Nasdaq-listed BITE ETF,tracking the biggest restaurantchains across the US that has re-turned more than 9 per cent so farthis year.

Beyond restaurants, there’sanother key area of growth left toplay out — food delivery services.These include listed and unlistedoperations that allow app-based

ordering and delivery of a fullrange of food products. The pasttwo years has witnessed an explo-sion of enthusiasm — British op-erator Deliveroo has so far raisedmore than $300 million in variousfunding rounds, while US and Eu-ropean venture capital marketsalso took off throughout 2015 —but fund inflows are slowing.

Venture capital database CBInsights believes that 2016 is ontrack for about half the amount of

funding to food delivery compan-ies compared with last year, as theglobal marketplace becomescrowded. It may be some time be-fore investors can see whichbrands survive.

Tech for tech’s sake

On the local exchange, Domino’sis the market darling when itcomes to integration of tech andfood — from letting consumersplace orders by using emojis to al-lowing them to track their driver’sdelivery route online.

The stock has posted an 86 percent gain over the past 12 months— as well as recently announcinga 29 per cent profit rise for the lat-est year — with many calling it atech company rather than a pizzamaker.

The company’s most recent re-sults highlighted an increase insame-store sales growth as punt-ers continued to take up digitalordering. “Consumers are a bitmore intelligent, and they can tell

if changes (to a business) are justbeing done for the sake of it,” saysProfessor Nagpal.

Tech for tech’s sake will prob-ably not be enough to guaranteelong-term growth, so investorsshould think about what a brand’suse of these platforms does tokeep consumers coming back forthe longer term.

The vigilant customer is kingBoth the use of tech and artisanproducts speak to a desire on thepart of consumers to have theirfood matched to their tastes, anddelivered with their individualtimetables in mind. As such, cas-ual dining companies want to in-stantly match the consumer tothe desired product.

While fast food might not begoing anywhere, the challengewill be finding tech-savvy com-panies that promptly deliver whatdiners want, just the way theywant it.

Change is on the menu, and investors need to keep up

EMMA KOEHN

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2015 16Source: Bloomberg

$USThe BITE ETF of US restaurants traded on the Nasdaq

$US26.32 Last traded down US19.9¢

The challenge is finding tech-savvy companies that promptly deliver what diners want, just the way they want it

The world of fast food is being reshaped by technologies that cut out the middle man between customers and their fodder.EMMA KOEHN

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