# Why not increase compulsory super?



## Struzball (7 August 2008)

Rather than increasing interest rates which kills the housing market, forces the people who over extended themselves out of their homes, brings down the stock market (it must considering there's talk of a rate cut and the market jumps 3%)...

Wouldn't it be a better idea to just increase the compulsory super contribution from 5% to 6%?  Is it even compulsory at 5% or just the default.

I'd much rather lose 1% of my pay to my own retirement rather than to greedy banks.  As a result of the increase in super contributions, there would be more money in the stockmarket hence companies will be better off.  More money for the retired people, therefore less of a burden to governments to pay for pensions.  

Interest rates would probably fall if anything.  Houses will be affordable thanks to interest rates being lower.  Spending will still be curbed therefore less pressure on inflation, people would be more able to save for a house etc etc.

And then governments could unlock your super to buy houses as a common thing meaning less borrowing and more saving in super (even above the compulsory).

Seems a better idea than artificially jacking up prices thanks to the first home buyers greant, borrowing money you don't have etc. to help people buy houses.

What are peoples opinions?  Has it been discussed before?


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## Struzball (7 August 2008)

Big businesses i.e. Centro will also be unaffected by this strategy of curbing spending as it won't affect their bottom line like interest rates do.

The alternative is that us the consumers/workers are not even the real cause of inflation, and there are other bigger factors, in which case they shouldn't attempt to punish us to decrease inflation.


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## Julia (7 August 2008)

On the 7.30 Report last night Paul Keating was advocating an increase in the super levy to 15%.

He also suggested - as have many others - that the recent tax cuts should have been paid into super rather than to individuals to better contain inflation.

Sounds entirely sensible to me on both counts.

Perhaps Labor could resurrect Keating when the Libs do similarly with Costello??


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## CAB SAV (7 August 2008)

As a employer paying the 9% levy, I would not object to an additional 5/6% (just pass the extra thousands in cost onto my customers, But I do object to employees not having to contribute with their own money. Many will not have enough to retire on, they will blow what little they get unless they are forced to save.


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## Prospector (7 August 2008)

The compulsory super is actually already 9% and not 5%; unless employees were prepared to sacricifice any additional percentage from their current salary, increasing the % has to come out of the business and gives everyone an immediate pay rise.  Not happy about that bit because businesses at the moment are having their own issues in the current market.


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## glenn_r (7 August 2008)

I agree why not make the employee pay 9% of their gross wage into super to match the employers 9% contribution, that would double existing super savings.

But I'm not in favour of resurrecting the pig farmer....


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## robert toms (7 August 2008)

Correct me if I am wrong...but didn't the 9% come as a trade -off instead of wage increases...and if it were increased to 15% wouldn't this also come as a trade-off instead of wage increases...not as an additional impost on employers.


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## Prospector (7 August 2008)

robert toms said:


> Correct me if I am wrong...but didn't the 9% come as a trade -off instead of wage increases...and if it were increased to 15% wouldn't this also come as a trade-off instead of wage increases...not as an additional impost on employers.




That isnt the way it works in private industry though; people are paid a negotiated salary; bonuses and salary rises are negotiated accordingly.  By upping the CSG automatically increases someone's salary by that percentage (even though they dont see the money for a while).  So unless people are paid a salary package with wording eg  "$100,000 pa inclusive of any CSG regardless of increase in that % plus CPI (or 5% pa increase etc etc)" then any increase in the SG has to come from the employer.


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## Struzball (7 August 2008)

My idea was actually to have the employee increase their contributions compulsoraly.

I contribue 5% and work does 12.5% (qld government).  Maybe for private companies they could continue to contribue +4% of whatever the employee contributes, and have the employee contribute a minimum percentage anything above 5%.  And then to curb inflation increase it to a minimum 6% contribution, then 7 etc so on and so on.


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## Tysonboss1 (7 August 2008)

Struzball said:


> My idea was actually to have the employee increase their contributions compulsoraly.
> 
> I contribue 5% and work does 12.5% (qld government).  Maybe for private companies they could continue to contribue +4% of whatever the employee contributes, and have the employee contribute a minimum percentage anything above 5%.  And then to curb inflation increase it to a minimum 6% contribution, then 7 etc so on and so on.




In the private sector there is no legal requirement for an worker to put any money into there super at all, The 9% comes from the employer on top of the workers normal pay, I think any increase in super contributions should be coming from the workers pay,... after all it's their retirement savings.


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## Julia (7 August 2008)

Tysonboss1 said:


> I think any increase in super contributions should be coming from the workers pay,... after all it's their retirement savings.



Agree entirely.


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## Prospector (7 August 2008)

Although one thing that is killing people now is that if they have 'online access' to their accumulation and might check it each day, under the current environment it is getting less despite their employee putting in contributions each month.  Doesnt exactly put the passion into putting funds into super, especially if you are young.

Wow, the Government puts in 12.5% in Qld while everyone else has 9%- Public Servants get it tough, don't they! Not!  Not that the private sector can afford the extra 3.5% but maybe the Government could supplement?


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## RazzaDazzla (7 August 2008)

Struzball said:


> Houses will be affordable thanks to interest rates being lower.




Lower interest rates would mean that more people would be attracted to bowering thus increase housing prices wouldn't it?

I like the idea. Reduce peoples disposable income by forcing more into their untouchable super. But if it is cheap and attractive to borrow, people will still be surging into debt with credit cards, home loans, margin loans etc.

Good idea but. I'm sure with the right application, it could be a very handy idea.


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## Tysonboss1 (7 August 2008)

Putting more money into super doesn't really have the same effect as increasing interest rates, Increasing interst rates takes cash flow out of the economy,

Put money into super just diverts that money into other areas of the economy, If superfunds are buying shares then some one else is selling them there fore giving them more cashflow/spending money


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## RazzaDazzla (7 August 2008)

Struzball said:


> Houses will be affordable thanks to interest rates being lower.




Lower interest rates would mean that more people would be attracted to bowering thus increase housing prices wouldn't it?

I like the idea. Reduce peoples disposable income by forcing more into their untouchable super. But if it is cheap and attractive to borrow, people will still be surging into debt with credit cards, home loans, margin loans etc.

Good idea but. I'm sure with the right application, it could be a very handy idea.


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## brty (7 August 2008)

Hi,

How does putting more into super help the economy at all?? Rhetorical question, because the answer is it doesn't. If super funds got an extra $10b pa because of some type of SG increase, then they have to invest it. The usual place it ends up is the stockmarket. 

However on the market, there is a limited amount of stock available for sale in any one year. All the extra money does is push up prices, (more money, same amount of stock, simple supply/demand).

The money invested disappears into the system, yet the value of the market has risen. Eventually, when all that extra comes to be withdrawn, it's not there, it has been spent by those who made a motza selling to the super funds.

To explain further, if the super funds, as a whole, paid $400b for 75% of the markets cap, or paid $800b for the same 75% of the market, makes no difference to the total returns over the long run. They still only own 75%.

Increasing the SG will only achieve one thing, keep the market value higher for the BB's to cash out, actually doesn't sound so bad to me, cause I'm one of them.

bye


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## Smurf1976 (8 August 2008)

Struzball said:


> Houses will be affordable thanks to interest rates being lower.



I don't see it.

I'd argue that there's little doubt that LOW interest rates have made housing LESS affordable due to fuelling the bubble over recent years. 

In short, people tend to borrow the maximum banks will lend and spend the lot on a house. Not everyone, but that's the generall view especially amongst the young. Hence low interest rates, enabling bigger loans, simply pushed up house prices to the detriment of anyone with actual savings or a deposit. Rewarding the borrowers, punishing the savers.

Worth noting now that Australians are, on average, in roughly the same situation now in terms of interest rates than when they hit 17% nearly two decades ago. That's because lower rates = bigger loans and paying more for the same house.

And now that house prices have risen so much, landlords are seeking higher rents to maintain % rental yield. To the extent they are successful, that feeds directly into the CPI data in a big way. 

Increasing super contributions is a big topic. But I'd argue strongly that if the consequence is lower interest rates then that's not helping first home buyers at all. Existing borrowers might benefit, but anyone not already in the market won't.


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## Smurf1976 (8 August 2008)

glenn_r said:


> I agree why not make the employee pay 9% of their gross wage into super to match the employers 9% contribution, that would double existing super savings.



Unions will love it. 9% overnight pay claims and strikes across the country if bosses don't pay up pronto.


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## Struzball (8 August 2008)

RazzaDazzla said:


> Lower interest rates would mean that more people would be attracted to bowering thus increase housing prices wouldn't it?




I would imagine lower incomes and being able to unlock super to purchase houses would reduce borrowing and hence reduce interest rates and wouldn't trap home owners as they are at the moment.

I do believe houses would be more affordable if interest rates were lower. Even if there are house prices increase due to more people buying etc, less people would default on their loans and lose their houses due to not taking into account interest rate rises, hence making them more affordable.

Then when the economy is overheated and personal super contributions are risen, it won't prevent them from making houseing repayments.



			
				Tysonboss1 said:
			
		

> Increasing interst rates takes cash flow out of the economy,
> 
> Put money into super just diverts that money into other areas of the economy, If superfunds are buying shares then some one else is selling them there fore giving them more cashflow/spending money




Doesn't increasing interest rates just divert money into banks then?  I wouldn't complain if the stockmarket took off due to more money being put in super, I would probably just be more conservative with where my money is going in my super.

There's obviously alot I haven't thought of, I just think it's an interesting discussion that could be investigated further.


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## Tysonboss1 (8 August 2008)

brty said:


> Hi,
> 
> However on the market, there is a limited amount of stock available for sale in any one year. All the extra money does is push up prices, (more money, same amount of stock, simple supply/demand).




Yes to an extent, However prices will only move up in a certain asset class so far before the returns in another asset class become more attractive so the smart money will begin to be diverted in a different direction.

Look at the situation we are in now some of the best companies in the world are trading relativly cheaply at the moment, so when money starts rolling back into the share market these big stable blue chips will recover first but as they recover and become expensive again the money will move to smaller caps, overseas markets, emerging markets, startups, etc etc. 

sophisticated investors will always be diverting the money to areas of higher returns, 

Also Super is not a one way street, Just as there are lots of people paying money into super, there is also people drawing money out, so as the baby boomers start to retire alot of funds are going to be drawen away from the sharemarket and into Cash, Bonds, property etc.etc... So I actually think that unless Gen Y starting investing more heavily then the combined affect of the Baby boomers of Australia, NZ, USA and UK. may have a sucking affect on the markets for some years.


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## Tysonboss1 (8 August 2008)

Struzball said:


> Doesn't increasing interest rates just divert money into banks then?  I wouldn't complain if the stockmarket took off due to more money being put in super, I would probably just be more conservative with where my money is going in my super.




Not so much, Because the Banks might be making an interest rate margin of say 2% on home loans,... So when the reserve bank was charging them 5% the banks would add 2% and loan the money out at 7%,... now that the RBA is charging 7% they are lending the money out at 9% still pretty much the same margin,... infact if there loan book starts to shrink because less people are getting loans then it can have a negative affect on their cashflow.

The RBA offcoarse will be getting the extra cashflow and just stockpiling it,


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## Struzball (8 August 2008)

It is actually a coincidence this article came up the same time I started this thread.

http://www.news.com.au/business/money/story/0,25479,24144864-5013954,00.html

By the sounds of the 'public' opinions I don't think people will be very happy about it


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## Tysonboss1 (8 August 2008)

Struzball said:


> It is actually a coincidence this article came up the same time I started this thread.
> 
> http://www.news.com.au/business/money/story/0,25479,24144864-5013954,00.html
> 
> By the sounds of the 'public' opinions I don't think people will be very happy about it




they are still only saying that the employee's have to put 1.5% of there pay towards their own retirement plan,... The little Aussie battler lives the most sheltered cotton wool wrapped existence on the planet, nothing is their responsibility, they expect every thing should be catered for them either by the government or business...


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## Beej (8 August 2008)

Tysonboss1 said:


> Yes to an extent, However prices will only move up in a certain asset class so far before the returns in another asset class become more attractive so the smart money will begin to be diverted in a different direction.
> 
> Look at the situation we are in now some of the best companies in the world are trading relativly cheaply at the moment, so when money starts rolling back into the share market these big stable blue chips will recover first but as they recover and become expensive again the money will move to smaller caps, overseas markets, emerging markets, startups, etc etc.
> 
> ...




I agree! While the initial proposition seems like a sensible argument on the surface, dig deeper and that's not how things really work. 

Bottom line, that "extra" money, whether it goes into super, or not, has still been earned either by an individual or business, so therefore it ends up somewhere in the economy anyway. Any "spare" money in the economy - whereever it ends up, will be saved or invested (including in the stock market) - the only difference with super is there is less government forced re-distribution of that money due to the concessional 15% flat tax rate. 

So I don't think it would inflate the stock market artificially at all, and what's more, if the aussie market became saturated with funds (which would be obvious as average P/E ratios would rise to unreasonable levels) the money would find other homes - o/s stock markets have more than enough capacity to absorb excess aussie super funds for example, then there is global property, fixed-interest and cash. Plus of course many other alternative investments (a class that is growing dramatically at the moment for exactly this reason). As good example of this I think is the "Future Fund", which did not invest much in the aussie market at all as they were concerned about valuation being high, plus the impact of pouring $50B into the market in that state - so they invested it elsewhere. This would happen more and more as the pile of national savings increased over time.

So increasing the compulsory super contribution would I think help the economy dramatically due to a true increase in net national savings. It would also make more and more capital available for productive purposes such as new capital raisings, new business floats etc etc.

 I would agree however with other comments that the cost should not be imposed on business - as Keating did in the past a deal would have be done with unions etc such that the super was increased in increments over time and would be taken in lieu of pay rises.

My 2c worth.

Cheers,

Beej


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## bvbfan (21 August 2008)

I'm all for it. No way a standard 9% contribution will provide enough in retirement.

The increase though will be one of the first steps in getting rid of the aged pension down the line. 2025-30 I think it will be gone.

Many forget that the SGC was supposed to be 15% already but those financially responsible idiots got rid of it at the start of the biggest bull market.


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## theasxgorilla (21 August 2008)

Over here I'm paying 18.5%, of which 2% is controlled by me... the rest goes to a government pension fund to pay for the current wave of pensioners.  From what I understand I don't get direct access to that 2% part either...but the results I get from investing it determine how my input into the pension is counted which will ultimately determine what I get from it.  Still getting my head around it as most of the juicy stuff is in Swedish.


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## DB008 (21 August 2008)

Depends on your age of course and how much you have at the moment in that nest egg of yours.
I'm under 30 and should have no problems retiring well before the retirement age.


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## nioka (21 August 2008)

A better way to control spending and save for retirement would be to disallow hire purchase without having a reasonable deposit for the item desired. In the 50s it was not possible to buy a car without having a sizeable deposit. The deposit was 40% for a second hand car and 33% for a new one. The wait for a new car could be as much as a year. No such thing as "no deposit and no repayments for 3 years".  
 To have compulsory saving through super and at the same time encourage high interest debt seems counterproductive to me.
 To fund savings with debt is like a company borrowing or having an SPP to pay a dividend.


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## Ageo (21 August 2008)

Super should be compulsory in some cases (ill give you an example). My dad's worker (bricklayer) wants more money as his wife is sick and he is the only 1 that can work. He needs more money to survive and keep his house (which he says is his super). But because of the high wage we pay him already and the workers comp/super contribution onto of that it makes it hard to increase his wage. 

By law we have to pay his super but for our worker he would rather us pay him that extra 9% in his pocket so he can keep his house and provide for his family then put it into a super fund that is useless to him at the moment. The dumb thing about it is that he will basically be forced out of his home because of a stupid law. If super were to be increase then i believe the employee should be responsible for at least half.


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## trading_rookie (21 August 2008)

For all those business owners out there, hope you're aware the "little Aussie Battler" is now also entitled to 9% on their bonus and commissions 

What kills super is the middle men - these good for nothing financial wealth services and wolves in sheep's clothes that go by the moniker of "financial advisers" who rock up at your company providing a solution that your company is only too happy to pass over to them to deal with at no cost to the company - but ultimately to the employee. 

Finally, an MP (Sherry) who has admitted fee's are too high and need to come down to at least 1% and new rules governing who can and cannot give advice. Part of my fee's go to these middle men who have never done anything for me yet have no trouble taking the cream on top...


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