Problem Set 2 - Solutions 1. Why do advisers need to be mindful of economic parameters in their dealings with clients? What are some examples? A discussion should include the adviser being aware of the impact of economic variables such as: •interest rates •inflation •unemployment •government policy •global economy. All these factors can have an impact on the earnings ability of investments and ultimately the risk tolerance of the client. 2. Why has the Australian Government been keen to encourage self-funded retirement? What has led to this position? What actions have the government taken to lessen the demand for social security assistance? Basically, because it will be unable to fund everyone in retirement using the Age Pension, since this will place an enormous taxation burden on the smaller labour force which will become more apparent over the next decade. Factors include: •declining birth rate: •ageing population; •fewer taxpayers to support social security budget; •higher health costs associated with ageing population; •people are living longer - pressure on retirement care; •constant immigration intake; •government initiatives, such as: introduction of Superannuation Guarantee scheme; attractive concessional rate of tax for both superannuation fund income and individual contributions; increase pensionable age to 65 years; increase age for superannuation contributions to 75 years; family social security allowances to support young families (e.g., Baby Bonus scheme); Private Health Care Rebate to encourage private health insurance.
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