Economic, Trading and Savings | Financial news

Why loyalty schemes arent worth the effort




DO you feel like every time you’re at a cash register these days, a retailer is offering you membership of their loyalty scheme?

Its not surprising, with hundreds of loyalty programs operating in Australia and the number growing as online operators multiply.

However, signing up to every loyalty scheme is likely a waste of time.

Adam Posner, a customer loyalty specialist and CEO of consultancy Directivity, says businesses benefit when you join their scheme because they get your spending data and demographic details.

He says while some people use loyalty programs to get great rewards, it usually depends on how much you spend.

If you shop around too much in a category, you will never get the benefit.

The biggest problem today is people are changing their programs all the time.

Credit card programs are reviewing their benefits ahead of changes to surcharge rules and bank interchange fees, while Woolworths watered down its rewards program last year.

New research by Directivity found that Coles flybuys remains the most respected loyalty program in Australia, and that people who use loyalty programs have an average 3.9 memberships.

Consumer group Choice isnt a fan of loyalty schemes, and in a report earlier this year outlined the rich data that they provide retailers.

It reported that Woolworths, for example, was able to work out that people who drink lots of milk and eat lots of meat are a better car insurance risk than those who eat lots of pasta and rice and buy their petrol at night.

Loyalty schemes are a bit of a waste of money and tend to benefit retailers much more than they benefit consumers, Choice spokesman Tom Godfrey says.

You are giving up a great deal of data about yourself. If theres a better deal next door with another retailer, you may as well take it.

A Woolworths spokesman says its rewards program is first and foremost a way of rewarding loyal customers.

The supermarket giant copped a consumer backlash after it revamped its program in late 2015, removing rewards based on every dollar spent and replacing them with a program that only rewards purchases of a small proportion of its grocery items.

Our members have responded positively to the core concept of automatically getting money off their shopping, the spokesman says.

At the same time, we have acknowledged that while many members are earning well, a number are not.

From the end of August members will earn rewards on every dollar they spend in Woolworths Supermarkets and BWS stores, and for the first time, members will also earn on every dollar they spend at Caltex Woolworths outlets.

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Why two nest eggs are better than one




BEING single is not a bonus when it comes to making the most of the superannuation reforms announced in last week’s Federal Budget.

But having a spouse can be great for your financial health, experts say, because it enables you to double up on many of the super incentives and squeeze under tougher new contribution caps more easily.

Budget changes included dramatic cuts to how much money people can put into their super each year, and a $1.6 million limit on the amount each retiree can transfer into a tax-free private pension.

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Capping pre-tax contributions at $25,000 from July 2017, down from current caps of $30,000 for under-50s and $35,000 for over-50s is the biggest government revenue raiser of all the super reforms and has created the most controversy. However, Baillieu Holst financial adviser Helen Dundon says super still offers excellent tax concessions.

Super is still a good savings vehicle even though it keeps getting played around with by the government, she says.

Couples who plan together can inject twice as much into their combined super each year, and split their contributions to help one partner catch-up.

Ive always been a big fan of splitting super, because you never know whats coming, but even more so now, Dundon says.

She says the lower caps mean couples should aim to put more away earlier in life if they want to build a bigger nest egg, although under-40s are often better off paying down a mortgage if they have one.

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The more you do at a younger age, the better you are going to be because of the time affect.

Another welcome Budget reform relaxes the rules around claiming a $540 tax offset by making a super contribution for a low-income spouse. Previously it was only available for spouses earning less than $10,800, but the Budget lifts that threshold to $37,000.

Dundon says this change brings the spouse contribution rules into the current century.

KeyInvest managing director Ian Campbell warns that making a spouse contribution will count towards your own contribution cap.

He says the penalties for exceeding the cap are having to pay tax at your marginal rate rather than the 15 per cent tax rate for super, plus an interest penalty.

Campbell says the super changes hit people on higher incomes the hardest, which may improve the attractiveness of other asset types such as investment bonds, particularly when business tax rates start dropping.

Investment bonds and insurance bonds are tax paid at the corporate tax rate, he says. With a lower company tax rate, that will go through to investment bonds over time.