GESB video

Hi everyone, my name is Brad Zaknich
GESB, and I'd like to thank you very much

for logging onto today's recorded webinar,
so it's not a live one today,

it's recorded and it's about investing
in super 101. So we're gonna go through

the ideas of investing through
superannuation compared to investing

in other formats. So, for those who
haven't used webinars before, very simple

technology, sit back and relax. Some of
the normal interactive opportunities we

have with webinars has been turned off
for today's session, obviously things like

typing in questions and clicking send,
you can't do that today because there's

no-one to reply to them. So what we'll do
is get through some of the housekeeping.

What we're showing you here is what you
already would have received, well, in fact

what you're going to be receiving, is a
webinar survey follow-up email, we do

still love to get feedback, even with
recorded webinars, so if you wouldn't mind

setting a few moments it takes to complete
that, that'd be greatly appreciated.

The webinar, like I said, is being
recorded, and you'll be able to sit back,

watch it at your own leisure. You can move
forward, you can go back in the slides,

and you can watch it as many times as you
like, and from my understanding, this

webinar will be staying live on the GESB
website, so probably around the end of

the financial year, at which point we'll
most likely get a new presentation up.

Now, I'd first love to show my respect
and acknowledge the traditional custodians

of this land, of Elders past, present and
emerging, on which this event takes place.

And then you've got the all-important
disclaimer. When talking about

superannuation, investing, money, finance,
it's important that you understand that

we're not giving you personalised
financial advice today. My job today it to

provide you with information, explain
things, explain how things work.

It's not to get you to make a decision
based on what I'm saying. So if you do

need personalised financial advice,
you'll need to go elsewhere to get that,

as GESB only provides you general advice.
Now in today's session there is a lot to

get through, some of which might be
concepts that you're familiar with,

and some maybe not. So in this session
we're gonna talk about the basics of

investing, and we're gonna talk about
things like income tax, and how that

impacts investing, budgeting, where to use
your money, borrowing, and debt.

Also going to talk about with investment
concepts, the idea of compounding

interest, the value of superannuation,
understanding the different asset classes

that exist within super, and what
investment options are available.

Now hopefully you all know who GESB is,
I work for GESB, GESB is a state

government department, and it just stands
for Government Employee Superannuation

Board. Now we've been around for over
85 years, we've grown over $42 billion

in funds under management as of 31st
December 2024, and GESB, being a

government department, we're a
not-for-profit organisation.

So the only fees we collect from you,
through your super, through your ??

are to run the fund, we are
not-for-profit. And our returns are

competitive and long-term.

In regards to GESB's product structure,
people often get a little confused,

but it's quite simple. GESB at the top
of the tree there stands for Government

Employee Superannuation Board. Below that
are the different schemes that we

administer. Now we're got some old
legacy schemes like the Pension scheme

and the Gold State Super scheme,
we're not going to be talking about

those at all today, okay, they don't sit
within the ??? of today's presentation.

We're predominantly going to be talking
about superannuation, that are in the

accumulation phase, and are accumulation
accounts, so West State Super, GESB Super,

and some of the other invest, general
super funds that work in a similar fashion.

When we speak about stuff that is general,
superannuation, I'll make that very

well-known. When we're talking about
anything that might be GESB specific,

I'll also make that well-known. What we're
not going to talk about in great detail

today, or if at all, are the allocated
pensions. They are the retired products

that most people use to draw down their
retirement savings.

Well let's quickly talk about West State
and GESB Super because there are some

differences between the two of them,
and you need to be aware. So, West State

Super was the default super fund for
WA State Public Servants who commenced

working for the government prior to
15 April 2007. The reason that is

important is that after April 2007, new
employees to the public sector might have

had a GESB Super account open, or perhaps
some other super fund, Australian Super,

Hostplus, something like that. The reason
it's important to know, is that most

Australian funds like GESB Super, and most
other funds, are considered to be taxed

super scheme. Why is this important?
The government allows super contributions

to be contributed at a lower rate of tax
than your normal pay. We need to remember

that super comes under the tax regime,
and GESB super, like most Australian funds

is a tax scheme and that simply means
when your employer puts money into your

super fund, through your employers' 11.5%
guarantee, or you put extra money in

through your payroll process called
salary sacrifice. Those contributions are

only taxed at 15%, compared to
your normal tax rates through your income.

But it happens on the way into your
account, and while your money's still

invested. If however you've got a West
State Super account, your money's are

not taxed on the way in, because it's
called an 'untaxed super scheme'.

So the money's from your employers'
contributions and any salary sacrifice are

not taxed on the way into your account so
the full contribution hits your account.

Any investment earnings or growth in your
fund would normally be taxed at 15% in

a regular fund, they are not taxed in
West State Super whilst the money remains

in West State Super, but what happens
however is when you take your money

out of the West State scheme, that is
when the 15% tax gets applied.

So it's important that you understand the
difference, and there are some other

differences to talk about in a little
while as well.

Now, when we talk about tax, you need
to remember as well that the way the

Australian tax system works is relative to
your income, is the more income that

you earn, the more tax you generally pay.
So up to the first $18,200 you earn in

earnings through your salary, through your
income, there is no tax applicable to that

income for most Australians. But once your
salary gets above $18,201, up to $45,000,

I shouldn't say salary, I should say
income, in that bracket your income is

taxed at 16%, okay, for every dollar over
$18,201, up to $45,000.

Then, if you're earning over $45,001 per
year, the earnings between $45,001 and

$135,00, that portion alone is taxed at
30%. So people often think 'well I'm

earning over $45 grand a year, I must be
paying 30% tax. Yes, but only on the money

you're earning, above $45,000. And as your
salary goes into the new higher brackets,

you pay more tax on the extra earnings.
Now, as I said earlier, money's going into

superannuation from your employer's
contributions, and through the process

called salary sacrifice. They are not
taxed at your marginal, personal tax rate.

They are instead taxed at 15%. So when you
talk about that, you can see that money's

being earned over $45 grand are normally
taxed at 30%, money going into your super

only going to be taxed at 15% maximum.
That is the benefit of superannuation,

so let's go through this. Let's start
talking investing money, finances,

all those sort of things, and first thing
when I talk about this is the basics of

investing and knowing where your money
comes from.

So knowing where your money goes is
extremely important, being able to track

your spending is an extremely important
part of looking after your money.

Planning your goals, whether they be
short-term, medium-term, or long-term,

basics of knowing where your money comes
from, and what you're gonna spend it on.

But also being a smart borrower. There's
nothing wrong with borrowing money,

but some would argue, borrowing money to
purchase something that is declining in

value may not be a smart borrow, but
that's up to the individual to decide how

they want to do that. Also understanding
compounding interest.

Interest earnt, understand that maybe I'm
making, for example, a 7% return on

my money, but when you understand that
compounding interest is interest on top

of interest on top of interest, that's
extremely powerful.

Albert Einstein once said 'compound
interest is the eighth wonder of the

world, he who understands it, earns it.
He who doesn't, pays it.' Something to

think about there. Well let's firstly talk
about budgeting.

So there is a concept called the
'bucketing approach', cause when we talk

about budgeting, people get quite
concerned and they think very heavily

about every cent that this, and every
individual item, and that is fair enough.

But if you simplify things in budgeting
into a simpler approach, it might be as

simple as dividing your income into three
buckets, or three aspects of your income.

And you might allocate, for example, 50%
of your income to your needs, so for

example your home loan, your rent,
groceries, utilities and your insurances.

So 50% is just a concept, you might have
more than that, you might have less,

but when you identify an amount of
money, that is used for your needs, set

that money aside and you know that your
needs are covered.

And then you might have your wants, and
you might decide to allocate maybe 30%

of your income to your wants. And they can
be things like your, upgrading needs,

money's for evenings out, hobbies,
sporting events, holidays, but upgrading

needs we might talk about maintenance
on your home, new cars, things like that.

And then you might decide to allocate
20% of your income towards savings.

And that might be an emergency fund for
when things go wrong, or maybe long-term

savings for things off in the future,
that might include other investments like

superannuation, shares, property, but it
also might include the overpayment of your

debt, so paying extra money to pay off
loans might be considered to be savings.

And when you break it down into 50%, 30%
and 20%, it's a very reasonable starting

point, you might decide to put more money
into savings, less into wants, but by

having structure, makes it easier to stick
to that structure, and identify what

you're going to be putting your money
into.

Let's now talk about being a smart
borrower. Borrowing money is for most

people, a necessity in life, for certain
things, but not all debt is equal, it will

depend on the purpose of the loan,
it will depend on the interest rates

you're paying, how often and how much
you payments are going to be, and it

should be consolidating different debts,
or different loans, into one.

So for example, when they say 'not all
debt is equal', if you're borrowing money

from a bank or institution, as an
example, and maybe you're borrowing it

and you're having to pay, 5% interest
or 6% interest to borrow that money,

but maybe you're borrowing that money
to purchase something that's going to

increase in value by 7, 8, 9% per year,
that might be said as being 'good debt'.

Whereas 'bad debt' might be something as
simple as paying for a holiday, where you

don't have much to show for it at the
end and you're paying extra when you get

back by way of interest. So understand,
borrowing money is not necessarily a bad

thing, but understanding when you should,
shouldn't borrow to purchase things is

something that you have to decide.

Now lets now talk about compounding
interest, I'm gonna go through the example

we quite often use. Compounding interest
is basically earning interest on top of

previously earned interest. So let's look
at a case study of Jenny, who invests

$10,000 over a five year period. Now she's
gonna, let's say in her example, she

receives 5% per annum compounded interest,
compounded on a monthly basis.

Now, and the end of five years, her
investments actually gonna grow to $12,834.

She's not just earning 5% on $10,000,
so let's see how this works.

If she invests $10,000 at the start of
year 1, by compounding interest at 5%

per annum monthly, she's doesn't end up
with $500, which would be if she

compounded once, she ends up with $512,
it's actually more than 5% over the 12

months because it's been compounded
monthly. So at the beginning of the next

year she's got $512, which she earns 5%
interest compounded monthly, for the next

12 months, she accumulates $538.
Ends up with $11,049, and you can see over

five years, the interests that's been
compounded grows, 512, 538, 565, 594, 625.

So compounding interest, we leave
investments alone, and they compound on

top of each other. It's investments'
interest on top of the last lot of

interest returns. That's where leaving
things long term can generate greater

levels of interest, because it's not
simple interest, it's compound interest.

And that's where these slides come in,
excuse me, time is money.

People often talk about 'timing the market',
it's often more important to spend time

in the market. What do we mean by that?
Well let's say for example, you've got

a 20-year-old, a 30-year-old, a 40 and a
50-year-old, who all of a sudden decide,

with a starting balance of nothing,
they want to put an extra $50 a fortnight

perhaps even less, in superannuation.
So let's just assume this is extra money

you're putting into your super, above and
beyond what you might already be getting.

What difference will it make by putting
$50 a fortnight, now let's assume an

annual earning rate of roughly 7.8%,
so you're probably in the growth plan.

Now if you start when you're 20, an extra
$50 a fortnight, taken out of the

conversation inflation and things like
that, when you get to 60, so after 40

years, you'll have $340,758 extra sitting
in your account.

By only putting in $50 a fortnight.
Now if you don't start until you're 30,

now I've got $154,000, you don't start
until you're 40, about $64,000,

you don't start until you're 50, it's
$21,000. Now you can see, even though

they're only 10-year periods separating
each starting point, the amounts of

difference are massive. Because the person
starting making contributions earlier,

is getting compounding interest every
month on top of the contributions that

have already grown. And that's why the
balance can be quite large, by putting in

significantly small amounts of money,
if you start really early.

Well let's now focus on that $345,000
because we know that starting at 20,

over 40 years, should generate a figure
that's similar to that.

But what if, you need that amount of
money, but you don't start when you're 20.

Well if you don't start 'til you're 30,
to meet the same objective, you'll need to

put in $112 a fortnight, significantly
more. If you don't start 'til you're 40,

now you've gotta do $270 a fortnight,
for a much shorter period of time.

And if you don't start 'til you're 50,
now it's $807 per fortnight.

So this is where compounding interest can
work against you, the longer you wait to

start making investments. And because
superannuation can't be accessed,

generally until the age of 60 anyway,
for a lot of people making extra

contributions in super, the benefits of
compounding interest come along anyway,

because you can't get access to it.
But what it does say, is if you want to

start growing your super, the earlier you
start, generally speaking, the less amount

you've gotta make as a contribution
a fortnight.

And what is the value of superannuation
to you? Well the value of super is this;

It's a very tax-advantaged saving scheme
for retirement, often more, better tax

advantages than you're gonna get through
your income tax rates.

Why is superannuation compulsory, and it's
been compulsory since 1992, it's so that

you have an alternative to, or a
supplement for, the age pension.

The age pension, is not going to disappear
anytime soon, but it is still seen as

being only a safety net for retirement.
Because we've been getting compulsory

super now since 1992.

And the value of super for you might be
to give you the options in retirement

that you might not otherwise have, by just
relying on the age pension, or even just

compulsory super, maybe making extra
contributions, will meet your objectives,

as to what your lives might look like
in retirement.

Now there are different ways of getting
money into super, and the main way is

your employers' contributions.
Now down on the left-hand side you can

see, you can put super through your
employers' contributions, through salary

sacrifice through your payroll, voluntary
after-tax contributions, through cheque

or B-pay or even through your payroll.
There are also personal deductible

contributions which we're not going to
go into great detail about today,

and there's also spouse contributions.
But across the top, there are two main

forms of contributions. One is called
concessional contributions, one is called

non-concessional.

What is the difference? The difference
comes down to the name. Concessional

contributions are moneys' that go into
your super before you pay your income tax.

Now when I showed you before that for
most Australians earning over $30,000 a

year, most of us are paying 30% tax on a
fair chunk of our income.

So for when you have a non-concessional
contribution, that means you've earned

your money, you've generally paid your
tax on your income, which could be 30%.

So if you earn $1000, you might lose 30%
being 300, you can get $700 into your

super, that would be a non-concessional
contribution. But when putting money

into your super as a concessional
contribution, the money comes out of your

income, before it gets taxed at your
regular tax rate and instead goes into

your super and will only be taxed at 15%.
So you earn $1000, only to lose 15%,

you're left with $850. So superannuation
concessional contributions is like earning

$1000 and being able to invest $850,
whereas non-concessional contributions,

which you can invest in anywhere, might
otherwise be earning $1000 and only

getting $700 invested. That's the benefit
of superannuation.

And what this slide here is showing,
excuse me, is normally you earn your

salary, your salary gets taxed at your
marginal tax rate, think 30-odd percent or

possibly more, at the top end, and money
goes into your bank account.

Money that you can buy and invest
elsewhere, the interest or earnings are

also taxed at your marginal tax rate.
But when you put money into superannuation

through your salary, through salary
sacrifice, it'll only be taxed at 15%,

either on the way into your account with
most super funds like GESB, Australian

Super and Hesta, or the money on the way
out, with West State Super, still 15%.

And not just that, not only do you pay
only 15% tax on the contributions, you

only pay 15% tax on the investment
earnings, as opposed to your marginal tax

rate. Now because superannuation
is considered to be tax-effective savings

strategy for your retirement, that's why
the government's put in place, they also

understand, that by saving for your
retirement, the government is going to

receive less tax now, than if you hadn't
put it through your pay.

That's why they limit the amount you're
allowed to put into your superannuation

through what are called concessional
contributions. Now for most Australian

funds, being taxed funds, GESB, Australian
Super, that sort of fund, the limitation

per year is $30,000 per year.
And that includes your employers super

contributions, so you can already get in
11 and a half percent in super, you're

allowed to go above and beyond that up to
$30,000, per year for your superannuation

savings. If you go above that, you're not
penalised as such, but the excess

contribution will be taxed at your
marginal tax rate.

Now, for those of you who might have a
West State Super, or indeed a Gold State

Super Account those concessional
contributions of an annual $30,000 limit,

do not apply to you. Instead, you've got
what's called an untaxed plan cap,

and as that currently stands, that is
$1.78 million in your lifetime.

That gets indexed every year.
So that means, if you've got West Side

Super for example, you're respective of
what your employer's putting into your

employers' contributions