Super, does it have an Achilles heel?

[Julia]

OK, but that's just the point of view of the individual. What governments have to be concerned about is the number of people accessing the age pension because they've failed to provide for themselves. That's going to require a higher level of taxation.

 

[Sir Osisofliver]

OK, but that's just the point of view of the individual. What governments have to be concerned about is the number of people accessing the age pension because they've failed to provide for themselves. That's going to require a higher level of taxation.

With the current kind of Nanny state thinking in the guvmint I don't disagree. It's a very linear and short-term approach to raise the superannuation contribution level for example.

You can then proudly forecast how much more funds will be put aside and how much better off the Australian people are in what sounds good in a soundbite. As a politician you'd be making a difference, unfortunately I'm of the opinion that this does not work.

To me the only thing that will work long-term is a system where the majority of people have some basic education in financial matters (Which I can't see happening as it's not a short term solution and isn't as tangible an improvement so no politician gets to take credit). Currently only those who give a damn become educated in these matters and people who cannot afford to educate themselves are stuck repeating the same behaviours and never going forwards.

Currently we have the aged pension means tested. Financial education could considerably alter the dynamic of those that require a pension placing a smaller taxation burden on the rest of us.

Regards

Sir O

 

[Julia]

To me the only thing that will work long-term is a system where the majority of people have some basic education in financial matters (Which I can't see happening as it's not a short term solution and isn't as tangible an improvement so no politician gets to take credit).

And even if you were to offer this basic financial education, I reckon way less than half those compulsorily required to access this would do anything with it.

I'm just constantly blown away by the number of intelligent people, successful in their own fields, mostly tertiary educated, who refuse to educate themselves financially, but rather year on year bemoan how "Super has failed them".

So, given that level of apathy, I can't see that governments have any option than to continue with compulsory contributions to super. I'm damned if I want to be funding any more than is necessary those people who prefer to spend their earnings rather than make provision for their own retirement.

 

[nioka]

To me the only thing that will work long-term is a system where the majority of people have some basic education in financial matters.Sir O

It used to happen. As kids we had a savings account with the Com Bank. At school we had a book that had slots for pennies and each Monday we took a penny to school and had it placed in our book. When the page was full the money went to the bank and we had the amount added to our savings book. The motto was "look after the pennies and the pounds would look after themselves". Then there was the tin money box where it couldnt be opened without a tin opener.

Education continued after school. Later on to buy a bike you paid so muchdown and so much each week but the bike stayed at the shop until you had paid it off. Later on if you wanted to buy a car you could only get hire purchase credit if you could pay 33% deposit on a new car or 45% deposit on a second hand one.

Easy credit and buy now pay later plus governments running the mother of all pryamid schemes (legally and calling it growth) is the problem.

 

[Sir Osisofliver]

And even if you were to offer this basic financial education, I reckon way less than half those compulsorily required to access this would do anything with it.

I'm just constantly blown away by the number of intelligent people, successful in their own fields, mostly tertiary educated, who refuse to educate themselves financially, but rather year on year bemoan how "Super has failed them".

So, given that level of apathy, I can't see that governments have any option than to continue with compulsory contributions to super. I'm damned if I want to be funding any more than is necessary those people who prefer to spend their earnings rather than make provision for their own retirement.

So how do you combat apathy?

At one stage people were apathetic about smokers. I still remember ashtrays on desks in the workplace. It's not been a quick process to get policy in place in relation to smokers. I think it was just last year that they brought in a fine in QLD if you smoke in your car with children present??

Same approach - you have to change the perception - sure you think the people you mention are dunderheads, but you are currently in a non vocal minority. Sure we will still get smokers despite all the public awareness campaigns that it is bad for you m'kay, just as you will still get people who stick their heads in the sand about their future financial needs.

*Shrugs* still think it would better than what we have now.

@ Nioka - Perhaps a little more complicated than that


Sir O

 

[awg]

Hi Sir O,

Enjoy your contributions to this thread.

I would be interested in your opinion (and others) regarding what I classify as "legislative risk".

By this I mean taxation, preservation and any other factors influenced by changing government legislation, changing demographics, with a medium term view.

I probably should read the Henry report , but what do you think is the likelyhood of change in tax regime, especially pensions?

Are any mooted?

 

[doctorj]

For me, legislative risk with respect to pensions comes in 3 main forms:
(i) There are many examples from all over the world of governments supplementing their balance sheet by acquiring their population's pension assets in times of economic crisis. When this happens, people lose their individual account with the right to select investments and will get much lower returns. Argentina is good example of that, but similar things have been done more recently on a smaller scale under the guise of pension reform, in Turkey for example
(ii) Unfavourable demographics mean governments will push the retirement age back (meaning, when you can get your money). For example, In Russia, the retirement age will soon exceed life expectancy for men. Similar is happening all over the world as populations age and pension deficits grow - it's the easiest way to fill the whole
(iii) The government can dictate what you can invest in. Today, it's a bit of an inconvenience as you lose some flexibility, but similar to (i), it can, and does, get a whole lot worse. Governments elsewhere mandate a minimum exposure to government bonds to meet their funding gaps

The other concern with a scheme like Australia's is you end up with too much money chasing too few assets, driving up asset prices and reducing returns. In Australia, the capital markets are quite well developed, meaning it takes longer to get to the tipping point, but you see in countries like Kazakstan with fewer instruments, they got to this point virtually on day 2 of their mandatory superannuation. The future will be lower returns, more overseas investment and greater use of derivatives, such as currency swaps to manage fx risk.

 

[basilio]

Just got my super statement today. All the figures . What it's all worth.

One striking feature however was a table which looked at the 5 and 10 year earning rates for the various investment options. Cash, Balanced, Growth, Equity Growth etc.

Guess what ? There were 7 investment options and the best performer over 5 years. at 4.86% return -- was Cash. Growth was 2.51%, Equity Growth 2.18% Balanced 3.38%, Capital Stable 3.87%.

Okay so we have had a couple of bad years so this could be expected.

But when you look at the 10 year earning rate the figures barely change.

Cash returned 4.73% Balanced was 4.13% Growth 3.48% Equity Growth 2.44%. The best result was Capital Secure option which showed 5.08% - but this only started in 2003 so it wasn't a truly comparable comparison.

And of course these are raw figures. After allowing for inflation I suspect the real return for super holders would be almost negative.

The nuts of the matter is that over the last 10 years the cash option clearly outperformed all the investment options in Vic Super. I suspect that there would be little substantial difference in other super funds if anyone else can offer some figures.

Sobering set of figures when considering how much of our investment is tied up in super. And of course in almost all funds the management fees are consistent and remorseless.

 

[robots]

Hello,

yes amazing Basilio,

and these guys who "manage" the $ come to this country and people carry on like they are gods, post there newsletters up in bloggosphere

thankyou
professor robots

 

[Julia]

Just got my super statement today. All the figures . What it's all worth.

One striking feature however was a table which looked at the 5 and 10 year earning rates for the various investment options. Cash, Balanced, Growth, Equity Growth etc.

Guess what ? There were 7 investment options and the best performer over 5 years. at 4.86% return -- was Cash. Growth was 2.51%, Equity Growth 2.18% Balanced 3.38%, Capital Stable 3.87%.

Okay so we have had a couple of bad years so this could be expected.

But when you look at the 10 year earning rate the figures barely change.

Cash returned 4.73% Balanced was 4.13% Growth 3.48% Equity Growth 2.44%. The best result was Capital Secure option which showed 5.08% - but this only started in 2003 so it wasn't a truly comparable comparison.

And of course these are raw figures. After allowing for inflation I suspect the real return for super holders would be almost negative.

The nuts of the matter is that over the last 10 years the cash option clearly outperformed all the investment options in Vic Super. I suspect that there would be little substantial difference in other super funds if anyone else can offer some figures.

Sobering set of figures when considering how much of our investment is tied up in super. And of course in almost all funds the management fees are consistent and remorseless.

Basilio, that's just unbelievable! Shameful, especially considering we had a strong bull market for several years during that time period.

I simply don't understand why anyone would put up with this. Can't you start your own fund? Or surely there are some commercial funds which are performing better than this? That cash should be the best performance is quite ridiculous.

 

[basilio]

There is an excellent analysis of what seems to be happening with the world's economic system as a consequence of the 15 debt binge. The author suggests that the promotion of shares as the best long term value for investors might not be true.

Any port in a storm after bursting of the bubble
Stuart Washington
September 11, 2010

THINK for a moment about what has happened across the world's financial markets in the past three years.

In that time the biggest financial bubble in history reached its peak. Forget about tulips and the lure of the South Sea. The world was on a debt-fuelled binge of which practically no one understood the full extent.

When the bubble popped, the world's banking system was found wanting as the financial system suffered the largest-ever collapse in asset values.

There followed the biggest period of concerted government spending the world has seen as politicians tried to repair the damage to the banks.

Do things go back to normal after that? And - depending on your perspective of how long the bubble was building - what was normal anyway?

Many in Australia fear there have been fundamental changes that are yet to be fully understood.

They argue that these changes have raised fundamental questions about how equities should be regarded in the altered environment.

http://www.theage.com.au/business/a...er-bursting-of-the-bubble-20100910-15528.html

 

[burglar]

Hello Sir O, good point about the hedging, of course. Some of us are probably just a bit lazy about doing this when the uber-simple approach is achieving what we need.

Re your distaste for Super in general what alternatives do you think would work to ensure people can fund their own retirement? Australians seem on the whole to be very poor savers, so isn't some sort of compulsory scheme necessary?

The compulsory scheme that is necessary, is to educate australian children in Financial Independence.
My parents did not do this at home.
My teachers did not do this at school.
(especially the nuns in Primary School, wasting 30 minutes a day on "Religious Instructions")