Superannuation - a good thing?

[Knobby22]

Julia has argued the case extremely well.

One additional good thing about super, and if you look at Singapore, they have been experts at it, is that the forced saving creates huge pools of money that can buy major long term assets. As Australia's super builds, it helps the balnce of trade and provides capital for projects within Australia such as mines which may not get up without it. All adding to the wealth of Australians.

Secondly, it also creates an interest in society to have the economy operating well i.e. people want to see their investments grow which is anti-communism. This change in mindset is also good for Australia.

White Goodmen, about getting rid of pensions, healthcare etc. Some people struggle! If it happened to you (i.e. you got MS) what would happen? or do you have a rich Daddy?

 

[burglar]

... The reality is that many people would not save anything if they weren't forced too so super provides a safety net ...

Safety Net??

What will idiots do with their super when it matures?
Will drunks be on the wagon?
Will gamblers stop betting?

 

[sinner]

One additional good thing about super, and if you look at Singapore, they have been experts at it, is that the forced saving creates huge pools of money that can buy major long term assets. As Australia's super builds, it helps the balnce of trade and provides capital for projects within Australia such as mines which may not get up without it. All adding to the wealth of Australians.

Surely...surely...you don't actually believe this statement?

My understanding of investment was that capital goes where it is treated well. You obviously see it that capital must be directed, even if it doesn't want to go there, you are misusing the word investment when what you actually mean is mandated subsidy for business and Government.

 

[Knobby22]

Surely...surely...you don't actually believe this statement?

My understanding of investment was that capital goes where it is treated well. You obviously see it that capital must be directed, even if it doesn't want to go there, you are misusing the word investment when what you actually mean is mandated subsidy for business and Government.

I do.

The enforced savings creats opportunities worldwide but particuarly in Australia.
Obviously Australian capital can see and understand better investments in Australia as they are on the ground. Also Australias dividend system favours Australian residents.

Investing overseas obviously also occurs, creating income for Australia.
You can say that this would occur if Australians were not forced to save in super, but the reality is that most wage earners will not invest in such concerns but will spend the money instead.

You are saying it is a mandated subsidy for business-I disagree, give me an example.

 

[Tysonboss1]

Safety Net??

What will idiots do with their super when it matures?
Will drunks be on the wagon?
Will gamblers stop betting?

Hopfully the money gets put into annuities

 

[Sir Osisofliver]

Hello Sir O: yes, we know you are against Super. But in all our discussions about this, you've not managed to offer an alternative for all those who fail to otherwise save for their retirement.

Hi Julia, we've spoken before about the need for financial education for all Australians, and I have said that for the vast majority super is not good. I do see education being a long-term change solution, but those that are unable to take control of their own investments for whatever reason need to be accomodated for - if that is through a mandated system - so be it. For me it is an issue of control. When you give your hard earned to someone else to manage on your behalf you have no control. So obviously SMSF (if you are going to have any form of super) is the way to go - That's what I have. I know you can lead a horse to water but cannot make him drink, similarly you can educate people about the importance of investing for their future but cannot force them to do so...unless you take it from them. Like tothemax I object to being forced to invest into what is for the vast majority who do not know how to work the system to their advantage, a poorly performing asset.

And it's a bit disingenuous to suggest that anyone feeling Super is better than increased taxation in order to fund age pensions regards this as "the ultimate form of investment".

Er...I think you are reading something into my post I didn't put there. I don't remember mentioning the word taxation. A lot of people have been told that you need to provide for your future. Great! I agree wholeheartedly. However then they get told that super is the only way to do it...and so they believe it and defend it because the people advising them wouldn't lie to them at all would they? /sarcasm. It's been mentioned in the thread before that the superannuation industry tends to act for the benefit of people providing the product rather than the client. Isn't this why you have a SMSF?

However, to hold within a SMSF most investments you can hold outside of Super in such a tax advantaged environment (15% for those who don't know) is hardly a miserable option for many.

No it's not a miserable option. It's certainly better than doing nothing, but you don't know what you don't know. What a lot of people don't know is that there are far far better ways of providing for your financial future over the longer term outside of super, tax advantages included. Without this knowledge they are happy and content to not change what they are doing. If the government in their wisdom decided that super would perpetually be a zero tax environment, and remove the restrictions that in place that limit the effectiveness of the asset class, that might change the equation and make super a better proposition - but I can't see them doing this.

Cheers

Sir O

 

[burglar]

Hopfully the money gets put into annuities

And p!ssed against the wall in spurts?

 

[Intrinsic Value]

Hopfully the money gets put into annuities

I reckon this is likely to be the next big super change. i.e. you cannot take a lumpsum you have to take some form of annuity.

The government thinks that everyone will blow their lumpsum in a few years mad spending and then go on the govt pension so to avoid that they will legislate that you have to take some form of annuity.

 

[Julia]

If you are going to force a society to do something, which is better? To force them to be educated (and therefore act in the most beneficial manner), or force them to contribute to extremely ineffective hedges against their own alleged lack of foresight.
Which one actually contributes to a healthier happier society and which one is merely an exercise in arbitrary revenue raising?
What's 15% of 9% of the annual income of every man and woman in the workforce and where do those billions go? Invested wisely into our futures? HAH!

Sinner, I think most of us here on ASF will agree with the principle of what you're saying, and Sir O is saying the same thing. But it's just a sad fact of life that many people simply do not want to be educated and/or are incapable of absorbing and using the offered information.

I'm constantly blown away by the numbers of my own friends, intelligent, well educated women with good careers who - when I suggest they need to get some financial education instead of relying on their public super fund, and even offer to get them started - just mumble 'yes, I know I should', but never actually do anything about it.

What you're doing is assuming everyone has the same capacity for becoming financially literate as yourself. That's sadly just not so.

Therefore, given it would be impractical to have one system for some people and an exemption from such a system for others, we have the compulsory Super scheme in the hope (?) that eventually most people will be at least partly self funded when they retire.

As I've pointed out earlier, the alternative is that we all pay more tax to provide age pensions for those too improvident or unable to provide for themselves.

Yes, I know it's irritating and yes I know it offends your sense of autonomy and I agree. I just don't think there's a practical alternative.

Superannuation is a good idea and a good concept but unfortunately in Australia successive governments have played around with the laws so many times that many have lost confidence in the system.

Good point and quite true.

Additionally super has been very good to the super providers and their affiliated financial advisors. This is my biggest gripe with super. Most contributors have been ripped off mercilessly for years and the governments both past and present have been complicit in this rip off by failing to protect the contributors from the hidden fees and charges that have decimated many a super fund.

Agree entirely. However, don't you think there is emerging a greater awareness amongst the general public that this is the case so maybe, just maybe they might ask a few more questions and be a bit more discerning?

Still I think the concept is good and if you take control of your own investments thru a SMSF then all the better. The caveat is you never know when those greedy politicians eyeing the super honey pot will try and get their greedy hands on it.

Again, so true. At the very least I'll be surprised if compulsory annuities are not a reality before too long.

Hi Julia, we've spoken before about the need for financial education for all Australians, and I have said that for the vast majority super is not good. I do see education being a long-term change solution, but those that are unable to take control of their own investments for whatever reason need to be accomodated for - if that is through a mandated system - so be it. For me it is an issue of control. When you give your hard earned to someone else to manage on your behalf you have no control. So obviously SMSF (if you are going to have any form of super) is the way to go - That's what I have.

Yes, as I do. And I should acknowledge that I've never been involved in any sort of compulsory super scheme. It wasn't compulsory in NZ and I always rejected the option offered by employers for the very reasons you outline.

I know you can lead a horse to water but cannot make him drink, similarly you can educate people about the importance of investing for their future but cannot force them to do so...unless you take it from them. Like tothemax I object to being forced to invest into what is for the vast majority who do not know how to work the system to their advantage, a poorly performing asset.

OK, so what do you think would happen if Super were no longer compulsory but optional. Do you believe the average Australian, the type of person who has no interest in becoming personally financially literate, will elect to participate in a Super scheme?

The government would have to a much better sales job than they have done thus far on behalf of Super for this to happen, imo.
That would be the ideal, of course, i.e. for those who are capable of adequately providing for themselves to do so without the imposition of participating in any outside scheme, and the rest to accept the option of the supa dupa fund managers continuing to enjoy the healthy commissions from investors that they do at present.

Er...I think you are reading something into my post I didn't put there. I don't remember mentioning the word taxation.

You didn't. But if people are not contributing to Super and therefore will need 'the gummint' to provide them with an age pension, you will be paying more tax to provide this.

I reckon this is likely to be the next big super change. i.e. you cannot take a lumpsum you have to take some form of annuity.

The government thinks that everyone will blow their lumpsum in a few years mad spending and then go on the govt pension so to avoid that they will legislate that you have to take some form of annuity.

Yep, agree. Do you think this is a good idea?

 

[sinner]

Sinner, I think most of us here on ASF will agree with the principle of what you're saying, and Sir O is saying the same thing. But it's just a sad fact of life that many people simply do not want to be educated and/or are incapable of absorbing and using the offered information.

I'm constantly blown away by the numbers of my own friends, intelligent, well educated women with good careers who - when I suggest they need to get some financial education instead of relying on their public super fund, and even offer to get them started - just mumble 'yes, I know I should', but never actually do anything about it.

What you're doing is assuming everyone has the same capacity for becoming financially literate as yourself. That's sadly just not so.

Therefore, given it would be impractical to have one system for some people and an exemption from such a system for others, we have the compulsory Super scheme in the hope (?) that eventually most people will be at least partly self funded when they retire.

As I've pointed out earlier, the alternative is that we all pay more tax to provide age pensions for those too improvident or unable to provide for themselves.

Yes, I know it's irritating and yes I know it offends your sense of autonomy and I agree. I just don't think there's a practical alternative.

Julia this is specifically why I raised the issue of speeding cameras/driving infractions in Germany vs Australia.

Yes, people know they shouldn't speed or drive dangerously. I'm constantly blown away by those that risk their lives, the lives of their loved ones friends and community to such behaviour but when I suggest they slow down they mumble something about getting to work on time because they slept in.

So should we fine them, again and again while we continue to let them drive? Or do as the Germans, and mandate bad drivers take driver education before they are allowed to drive again?

What you are assuming is
a. The current situation is actually practical and actually provides even a semblance of partial self funding for retirement. This is patently absurd if you take a look at the performance of the super industry (http://www.abc.net.au/pm/content/2010/s2973486.htm)! Most of those in my peer group come to me for financial advice, when I look at their super statements I see $0 or close to it after 10+ years of contributing to society through taking on the lowest rungs of social labour that nobody but the young will touch.
All contributions eaten up by malinvestment (by supposed professionals) and the management fees those so called pros take despite their consistently shoddy performance.
b. The only alternative is mandated contributions into superannuation. This is just as absurd an assumption, and some sort of nanny-state cognitive dissonance you are displaying here.
I bring you back to the driving example: Which idea actually makes sense to progress and increase the prosperity of society? To educate drivers with poor driving skills, or to fine them up the wazoo every time they break the law? To me it seems you would fine them over and over again, just assuming their stupidity will never change no matter what you do. Exactly the same logical thought process should be applied to future savings? We are already mandating the people do something. Why don't we mandate something useful instead of something as blatantly and audaciously wasteful as superannuation?
We are literally talking about the transfer of massive, huge, insanely huge amounts of wealth out of the pockets of the productive classes of society into the hands of fund managers and the companies they choose to invest in. How much of the result of Australias working class productive capacity was wiped out by idiot fund managers in 2007 and 2008 never to return even though those fund managers probably took home great paypackets week in week out all through the GFC - literally to the tune of $50mil per day?

JEFF BRESNAHAN: Quite simply, almost $47/$48 million a day coming out of our superannuation accounts to pay suppliers for managing that money.

Everyone should watch this short 30 second clip:

 

[Knobby22]

So Sinner, you are saying that all people will act rationally if taught correctly.
Greenspan was the last person to fall for that with people with degrees from Harvard.

 

[sinner]

So Sinner, you are saying that all people will act rationally if taught correctly.
Greenspan was the last person to fall for that with people with degrees from Harvard.

Mate all I am saying is that this is a big brother or nanny state solution that will fail just as badly as any other poorly concocted ponzi scheme, with the usual result being that those of productive capacity who trusted will not get what they have been promised in the end while those that promised it will be making sure they and theirs are setup very well for retirement.

As for your previous request to me, to provide an example of mandated business subsidy, your own post makes it perfectly clear. Investments which would have otherwise been unable to attract capital due to poor treatment of that capital, suddenly found themselves awash in an ocean of liquidity shortly after John Howard mandated that every man and woman of working age must put 9% of his productive capacity into the top 200 of the index. This is the very definition of a subsidy by taxpayers for business mandated by the government. In this way, banks and miners and all sorts of companies are receiving cash inflows that they almost certainly would not have otherwise, yet they can continue to count on year after year day after day new money will be pouring into their listed shares.

 

[sinner]

For the curious, here is

Sinners Simple Superannuation Solution:

1. Dissolve the super industry, and force those working within it to get real jobs.
2. Provide simple options for future investment. Off the top of my head: term deposits, govt and corporate bonds hedged for inflation, gold bullion, low risk stocks of unlevered companies (if you want to invest in levered companies then just buy shares in the bank providing the loan) at a maximum cap of 50% of total net savings, PPOR. Yes, PPOR (not IP). Let people use their super to buy a house, and pay themselves rent. Any fees on all investment should be capped at 0.5% or less especially in the modern era where most investments are made with the click of a mouse.
3. Dissolve tax on the principal, and only apply tax to earnings on investments a flat rate of 5%, and 0% tax rate for those investments in term deposits or govt bonds.

 

[burglar]

...
Cheers

Sir O

I so look forward to a sensible view on this topic.
Please, please, please, find time to illuminate us.

 

[Tysonboss1]

For the curious, here is

Sinners Simple Superannuation Solution:

1. Dissolve the super industry, and force those working within it to get real jobs.
2. Provide simple options for future investment. Off the top of my head: term deposits, govt and corporate bonds hedged for inflation, gold bullion, low risk stocks of unlevered companies (if you want to invest in levered companies then just buy shares in the bank providing the loan) at a maximum cap of 50% of total net savings, PPOR. Yes, PPOR (not IP). Let people use their super to buy a house, and pay themselves rent. Any fees on all investment should be capped at 0.5% or less especially in the modern era where most investments are made with the click of a mouse.
3. Dissolve tax on the principal, and only apply tax to earnings on investments a flat rate of 5%, and 0% tax rate for those investments in term deposits or govt bonds.

1, Aren't these the people that would have to be doing the paper work behind your "simple options" in your second point, or would they have to be reemployed into government bureaucracy to enable it.

3, Only earnings ( profits) are taxed in the current system aren't they? which tax targets principle.

 

[Tysonboss1]

I reckon this is likely to be the next big super change. i.e. you cannot take a lumpsum you have to take some form of annuity.

The government thinks that everyone will blow their lumpsum in a few years mad spending and then go on the govt pension so to avoid that they will legislate that you have to take some form of annuity.

Makes sense to me, The point of super is to fund your retirement, So to me it would make sense if the funds are paid out over time.

 

[Julia]

So Sinner, you are saying that all people will act rationally if taught correctly.
Greenspan was the last person to fall for that with people with degrees from Harvard.

This is the fundamental point I've been trying to make. It is simply not so.

For the curious, here is

Sinners Simple Superannuation Solution:

1. Dissolve the super industry, and force those working within it to get real jobs.
2. Provide simple options for future investment. Off the top of my head: term deposits, govt and corporate bonds hedged for inflation, gold bullion, low risk stocks of unlevered companies (if you want to invest in levered companies then just buy shares in the bank providing the loan) at a maximum cap of 50% of total net savings, PPOR. Yes, PPOR (not IP). Let people use their super to buy a house, and pay themselves rent. Any fees on all investment should be capped at 0.5% or less especially in the modern era where most investments are made with the click of a mouse.
3. Dissolve tax on the principal, and only apply tax to earnings on investments a flat rate of 5%, and 0% tax rate for those investments in term deposits or govt bonds.

OK, goodonya Sinner. At least you are putting up an alternative.
At first glance it looks feasible.
As long as those of us who choose to have a SMSF never have that option removed.

To be honest, if I were dependent on some dodgy fund manager I'd accept pretty much anything as an alternative.

 

[Julia]

Makes sense to me, The point of super is to fund your retirement, So to me it would make sense if the funds are paid out over time.

Much as I dislike generalisations, I agree that for the majority this does make good sense.

 

[basilio]

I have to say I have big reservations about how superannuation funds are managed in Australia. As I see it the premise that far too much money is simply shuffled between managers, wrap accounts, administration, profits and whatever fees are dreamt up after a Friday afternoon drink is basically true. In fact it was the unions who fought "tooth and nail" to at least establish industry funds which have a significantly lower set of costs than the Bank, Insurance and other ticket clippers in the system.

What alternatives could be offered? How is this for one possibility. As I understand it the long term goal of super funds is to achieve a 3% real return per year for their members. That is Inflation plus 3%. If members were to achieve this result the actuaries would say it was a successful fund. (If you think this to modest check out what the net figures are for any super fund you care to mention. I'd bet very, very few if any could boast such a return over the last 20 yeaars).

So why not have the Government stand in the market place and offer a simple passbook system where they offer inflation plus 2.8% (.2% for admin) and then invest the money as they see fit either in the market place or national infrastructure. People don't have to invest here - it is their option but in this case it offers the Government long term funds that hopefully could be used for nation building either through private companies or government projects.

So what sort of projects ? How about freeways that are built on a cost plus basis rather than financial gouging models. Renewable power plants owned and run by an integrated national public power company. Or perhaps a national publicly owned bank that ran on a cost plus basis rather than maximising profits at every turn.

Yes pipe dreams I suppose. After all if we actually focused on doing something useful with our savings what would happen to the rich layers of sophisticated financial wizards who keep our wealthiest suburbs bubbling along ?

 

[basilio]

Just reviewing this thread in more detail and noticed the conversation about esuperfund. I had a look at their website and it seems extremely simple, cost effective and impressive.

Can anyone on this forum offer personal comments on the scheme? Are there any hidden traps we should know about ? I'm excited !!