NEWS
Dividend reinvestment plans needed for retirees reliant on dividend income
LGIAsuper leadership team to take 10% pay cut BY JASSMYN GOH
LGIAsuper’s directors and executives have committed to a 10% pay cut until at least 30 June, 2020, as a response to the COVID-19 pandemic. The Queensland superannuation fund’s chair, John Smith, said the remuneration cut decision was because its core membership came from the local government sector and they would be hard hit by the virus as ratepayers experienced financial hardship. The fund’s chief executive, Kate Farrar, said the pay cut would be through sacrificing annual leave entitlements. “Many of our members are directly impacted by COVID-19, and it is important they know we are standing with them, while working tirelessly to protect them and their savings,” Farrar said. “We know our fund will be impacted by COVID-19, but our members can rest assured that we are determined to keep investing in services for members even through the fallout from this pandemic.” Farrar noted that the board and leadership team would not ask employees to make the same sacrifices.
Plato Investment Management has urged the big four banks to utilise underwritten dividend re-investment plans (DRPs) to keep paying dividends as they are a major income stream for Australians. Plato’s managing director, Dom Hamson, encouraged the banks to take on the suggestion from the Australian Prudential and Regulation Authority (APRA) as it was a solution that could help address concerns about the ability of lenders to maintain capacity while paying dividends. “We know many of Australia’s traditional income stocks have DRPs. These companies can choose to underwrite those plans, which effectively means that new shares will be issued matching the dollar value of all the dividends that they pay,” Hamson said. “For all those investors electing cash rather than the DRP, the company will still issue new shares which a broker will sell on market during the DRP pricing
period. This allows the company to completely preserve its capital as well as paying dividends to those who rely on the income to make ends meet.” Banks have already been named as a sector where dividends were at risk, particularly the smaller players. This would be caused by the knock-on effect of the rent and mortgage deferments which would mean less cash and the need for banks to keep capital to service their own debt loads. He said he expected Australia would fall into a ‘deep recession’ in the June quarter of 2020. Hamson noted that the DRP would ensure Australian retirees and other investors who relied on dividend income from the big four banks were not “hung out to dry”. Plato estimated that the big four banks paid 30% of gross dividends (cash dividends plus franking) of the entire S&P ASX 200 index in 2019.
Super members need long-term view BY CHRIS DASTOOR
Superannuation fund members need to stop worrying over their current account balances and maintain a bigger picture view as the investment is designed as a long-term solution, according to research house SuperRatings. The advice from SuperRatings comes as members check their account balances to see the effect the sell-off had on their retirement savings and it warned against making decisions based on an emotional reaction to the current environment. Kirby Rappell, SuperRatings executive director, said super members far away from retirement need to stay invested. “Knee-jerk changes to your portfolio could have a negative effect on your retirement,” Rappell said. “Switching to cash will lock in losses and mean you miss out on the upside when the market eventually recovers. “We suggest members talk to their fund or financial adviser to help ensure any decision is aligned with a long-term strategy.” The firm reminded investors that for those in the 20 to 40 age bracket, you still had another 30 to 50 years before retirement, and older investors closer to retirement should be in conservative options to mitigate losses in market downturns. According to estimates from SuperRatings, the median balanced option fell 8.9% in March and was down 10% for the quarter. The median growth option, which was generally more exposed to shares, fell 12.5% in March and 14.1% over the quarter; the median capital stable option fell only 4.1% in March and 3.8% for the quarter. For pension returns, the median balanced option fell 10.2% over the quarter, while the median growth option fell 14.4% and the median capital stable option fell 3.8%. 5 | Super Review
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