FPC003 Superannuation and Retirement Advice - Case Study Assignment

Assignment 1 details

• This assignment covers Topics 2 to 7 and accounts for 40% of your final
• There are two (2) sections in this assignment:
  • Section A refers to Case Study A and requires you to develop a strategy paper for the clients worth a total of 40 marks.
  • Section B refers to Case Study B and requires you to develop a strategy paper for the clients worth a total of 25 marks.

Answer all questions.

• Marks will be awarded for referencing and
• Your overall mark for this assignment will be rounded to the nearest whole
• Refer to the Criteria-Based Marking Guide for guidelines on what is expected for each
• Full workings must be shown for all calculations. Show all calculations in the text of your assignment and not attached as an appendix. Appendices to the assignment will not be
• Indicative weightings are noted beside each question. Use these weightings to assist you with your allocation of time and The weightings indicate the relative importance of each question.

State all assumptions used in providing your answer.

Independent research

For some or all questions in this assignment, you will be required to complete independent research beyond the provided materials. You will also be expected to analyse this research and use it to support your own reasoned conclusions.

This includes:

• consideration of multiple sources beyond topic notes or other provided resources
• sources included are academically sound and credible
• analysing and understanding the argument or information the source presents
• using the material appropriately to directly support your

Where significant independent research is required for a given question, it will be clearly indicated in the question instructions and the Criteria-Based Marking Guide.

Assignment 1 referencing and presentation (5 marks)

Your assignment should be presented in a clear and appropriate format, with all sources correctly referenced and cited.

You are required to:

• structure a clear response to each question, using headings if required
• number questions (including sub-questions) and pages
• use correct font style and size
• ensure tables or graphs are clearly labelled and readable
• clearly set out calculations or workings, where they are required
• adhere to the assignment word limit
• cite sources and provide a reference list at the end of your It is recommended to use Kaplan Professional’s preferred referencing style, Harvard (see Kaplan Australia: Harvard Referencing Guide, available from the ‘Build Your Skills’ hub in KapLearn), but the consistent application of any other referencing style will also be accepted.

Section A

There is one (1) short-answer question with three (3) parts in this section worth 40 marks. Answer all questions.

Case study A: Tom Blake

You have just had a meeting with a new client, Tom Blake, aged 47. Tom has recently divorced, and has one child, Will, aged 7. He is determined to stay single and wants to plan for his future and eventual retirement. He has come to see you because he recently read that his super fund, AMG MySuper, was in the news because it had failed some test twice and was now closed to new members. He joined the fund about four years ago when he started his current job, because a friend recommended it. He has a second super fund that he has not contributed to in a few years which he kept because he had insurance cover through the fund and he couldn’t be bothered changing it at the time. Now he wants to know what fund would actually suit him best. On further discussion with him about his goals, he nominated 60 as his preferred retirement age and $45,000 as an income he thought should be enough to provide him with a decent lifestyle, although more would be nice.

He has just had a pay increase and felt that he should look more closely at what he is doing with the extra money. You have discussed his financial goals with him and have agreed that his objectives at the moment are to:

• choose the best superannuation fund for the long term to maximise growth
• find a fund that offers decent returns for decent fees
• get financially back on track after the divorce
• reduce tax and increase long-term savings
• make his financial arrangements less complex
• clear his home loan before he turns 60 when he hopes to retire or reduce his work hours
• financially protect himself and his son Will in the event that he passes away prematurely or suffers a serious illness or accident
• retire at age 60 with $45,000 in after tax-income that lasts for

Assets, liabilities and cash flow

This section sets out Tom’s relevant assets and liabilities, as well as his current cash flow.

Table 1 shows his assets and liabilities of relevance and Table 2 details his current superannuation.

Table 1          Assets and liabilities

Item	Value	Loans	Net value
Principal residence: 32 Small Street, Teneriffe QLD	$1,255,000	$300,000	$955,000
Contents (insured value)	$60,000	$0	$60,000
Motor vehicle: 2020 Kia Seltos Sport	$35,000	$0	$35,000
Cash in bank	$6,000	$0	$6,000
Superannuation (combined balance)	$189,650	$0	$189,650
Total	$1,545,650	$300,000	$1,245,650

After the divorce last year, Tom downsized and bought a smaller home with a outstanding mortgage of

$300,000. He has a P&I loan with Suncorp, variable interest at 3.74%, and is currently on track to clear this mortgage in 13 years based on his current repayments. Although this is important to him, he is also keen to start increasing retirement savings as he feels it is a good way of putting money away where he won’t be tempted to use it.

Table 2          Superannuation account details

Item	AMG MySuper	Australian Super MySuper Balanced
Start date	1/08/2017	1/01/1998
Account balance	$67,150	$122,500
Tax-free	$0	$7,500
Taxable taxed	$67,150	$115,000
Taxable untaxed	$0	$0
Death cover	$0	$107,000
Premium (monthly)	$0	$174
TPD cover	$0	$23,000
Premium (monthly)	$0	$80
Income protection cover	$0	$3,000 per month
Premium (monthly)	$0	$273
Average 10-year return	5.14%	9.31%
Nominated beneficiary	No nomination	No nomination

Tom has made no voluntary contributions to superannuation in the last six years. He has no particular knowledge of the funds he is invested in and has simply gone with the default options. He is open to consider other funds. He has completed a risk profile analysis with you and he has been identified as a growth investor. However, he has been somewhat contradictory in his statements as he wants as much

growth as possible but also doesn’t want anything too risky as he needs to build wealth after the divorce.

Table 3 shows Tom’s income and cash flow.

Table 3          Income and expenses

Item	Value
Salary	$135,000
Deductible expenses	$350
Taxable income	$134,650
Tax payable (including LITO and Medicare)	–$37,581
After-tax income	$97,420
Mortgage	–$29,560
Living expenses	–$48,000
Total expenses	$77,560
Net income after tax and expenses	$19,859

Tom is making repayments to clear his loan within 13 years. He has some tax deductions from charities and work-related expenses. His employer allows salary sacrifice. He has custody of Will every second week and his expenses reflect this. He is not in a serious relationship and doesn’t expect to be in the near future.

He and his ex-wife share custody of their son in a 50/50 arrangement and have similar incomes, so there is no child maintenance, and what needs to be covered is included in his living expenses. The property settlement from their divorce has been finalised and is reflected in the details provided above.

Question 1

Prepare a strategy paper for the clients                    (40 marks | Word limit: 2,000 words)

Refer to Case study A: Tom Blake and prepare a strategy paper for the client regarding his superannuation and retirement only. A strategy paper is used to set out and explain the options available for a client and the best option(s) for them based on their needs, wants, goals, constraints and limitations.

Your strategy paper must address the following:

• Summarise the client’s current position:
  • key goals and objectives (3 marks)
  • current financial situation and outcomes based on Tom’s current situation (4 marks)
  • constraints and limitations in being able to meet goals. (3 marks) (10 marks)
• Identify and consider two (2) different accumulation strategies, showing how they meet the client’s

goals, with supporting calculations/data where relevant. (10 marks for each strategy — total 20 marks)

• Given the two (2) different strategies you have outlined in part (b) above, provide a statement outlining which strategy you would recommend that meet Tom’s needs and objectives. You should explain why you prefer one strategy over the (10 marks)

Section B

There is one (1) short-answer question with two (2) key parts in this section worth 25 marks. Answer all questions.

Case study B: Viola and Julius Tennon

Your clients are Viola, aged 55, and her husband, Julius Tennon, aged 61. Julius has been married before and has two adult children, Aaron, aged 40 and Gabriel, aged 38. Together they have a daughter,

Eve, aged 16, who has two more years until she finishes high school. Julius and Viola want to completely retire in five years when Viola turns age 60 and their daughter is age 21.

Viola has just turned 55 and Viola and Julius have finally cleared their mortgage, which prompted them to come and seek advice. Their financial goals and objectives at the moment are as follows:

• They wish to reduce tax and increase long-term
• They will prepare to retire in five years’ time by maximising their
• Julius wishes to cut his work days to four days per week from his current five days per week immediately if
• Julius wants to retire fully when he turns 66 with a combined income of $67,000 per annum after tax. Viola would also like to retire then but would consider working two days a week until she is
• Julius would like to reduce potential tax on his superannuation death benefits to provide equally for his wife and all his children.
• Viola intends to bequeath her superannuation equally to Julius and Eve but assumes the tax will be
• They would consider moving to a smaller home once Eve leaves home, maybe when she is around

Assets, liabilities and cash flow

Table 4 sets out Viola and Julius’ current cash flow and their net position. Table 5 shows their assets and liabilities of relevance, and Table 6 shows their current superannuation.

Table 4          Income, tax and expenses

Item	Julius	Viola	Combined
Salary	$118,000	$82,000	$200,000
Salary sacrifice/deductible contributions to super	$0	$0	$0
Allowable deductions	$550	$1,699	$2,249
Taxable income	$117,450	$80,301	$197,751
Tax payable (including LITO and Medicare)	$30,987	$18,171	$49,158
After-tax income	$87,013	$63,829	$150,842
Accountant annual tax return	–$145	–$145	–$290
Charity	–$405	–$405	–$810
Income protection	–$0	–$1,149	–$1,149
School expenses	–$12,500	–$12,500	–$25,000
Living expenses	–$36,156	–$36,156	–$72,312
Total expenses	–$49,206	–$50,355	–$99,561
Net income after tax and expenses	$37,807	$13,474	$51,281

Viola works four days a week as a careers adviser for a private school. If she had to, she could continue to work two days a week from age 60 to 65. Julius is interested in reducing his work hours now and was wondering about options. He is a psychologist working full-time at a private medical centre. He would like to reduce his workload to four days a week this year so he and Viola can spend more time together.

However, he does not want to compromise their retirement so he will only reduce hours if it makes sense with the bigger picture.

After discussing their current spending in detail, you have discovered that they would be comfortable with

$67,000 per annum in retirement based on their current spending, and the anticipated reduction in expenses once they clear the car loan and Eve finishes her education.

Table 5          Assets and liabilities

Item	Value	Loans	Net value
Principal residence: 3A Glenview Street, Gordon NSW	$2,500,000	$0	$2,500,000
Contents	$120,000	$0	$120,000
Motor vehicles	$62,500	$20,000	$42,500
Cash in bank	$10,000	$0	$10,000
Superannuation	$579,870	$0	$579,870
Total	$3,272,370	$20,000	$3,252,370

Viola and Julius just cleared their mortgage and are almost debt free. They have one car that is financed and the cost is included in their current living expenses. The car loan is for five years, at 6.7% fixed interest. Once the loan is cleared, they anticipate maybe selling the car and replacing with a smaller, cheaper, newer car at some stage.

Table 6          Superannuation

Superannuation balance	Julius: HESTA Balanced Growth	Viola: Australian Ethical Conservative	Combined
Start date	1/08/1988	1/01/1998	n.a.
Superannuation balance	$359,870	$220,000	$579,870
Tax-free	$5,000	$11,000	$16,000
Taxable taxed	$354,870	$209,000	$563,870
Taxable untaxed	$0	$0	$0
Total account balance	$359,870	$220,000	$579,870

Neither Julius nor Viola has made any additional contributions to superannuation above the superannuation guarantee as they were paying off their mortgage. They have completed a risk profile analysis and both have been identified as balanced investors. They are both happy with their current providers and would rather not switch funds unless it was really necessary. They do not have any insurance in their funds having cancelled it once they cleared their mortgage.

Question 1         (25 marks | Word limit: 1,500 words)

Refer to Case study B: Viola and Julius Tennon and prepare a strategy paper for the clients regarding their superannuation and retirement only. A strategy paper is used to set out and explain what options are available for a client and what is the best option(s) for them based on their needs, wants, goals, constraints and limitations.

Your strategy paper must address the following:

• Summarise the clients’ current position:
  • key goals and objectives (3 marks)
  • current financial situation and outcomes based on this present position (4 marks)
  • constraints and limitations in meeting these goals (3 marks)
• Develop and outline an appropriate superannuation strategy for your clients, showing how it meets the clients’ goals, with supporting calculations/data where

Explain your strategy with supporting arguments and relevant data (tables, charts, graphs),

and outline the pros and cons of your strategy with an evaluation of trade-offs where necessary to lead the clients through a structured decision-making process. (15 marks)