Superannuation - a good thing?

[Bill M]

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.

The only thing I know of that is better than being taxed at 15% in Super is the Family Home which is totally tax free. Could you help us out a bit here and if you are reposting something you have written before could you provide the link? I'm very interested in this.

 

[white_goodman]

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 ?

yes sounds well on paper, but your assuming govt know how to spend peoples money effectively which has been anything but the case, all I see is waste and a bankrupt govt...

imagine the bureaucracy with that pool of funds

 

[Julia]

yes sounds well on paper, but your assuming govt know how to spend peoples money effectively which has been anything but the case, all I see is waste and a bankrupt govt...

imagine the bureaucracy with that pool of funds

Yep, that was exactly my thought when I read that, basilio.
Not only would they mess up any investment, but the funds would be at risk of being plundered.

 

[Julia]

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 !!

Basilio, here is a whole thread about them and other options:
https://www.aussiestockforums.com/forums/showthread.php?t=7558&highlight=SMSF

 

[Intrinsic Value]

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.




Good point and quite true.


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?



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



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.


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.




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.


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

Well it is certainly a good idea from the government's perspective. They can ensure that lumpsum payments aren't squandered and that guarantees less reliance on government pensions and handouts.

How it would be administered is again the issue. The track records of governments is far from reassuring in that repsect.

If history is any guidline it will be another bonanza to the super industry and their affiliated financial advisors to further gouge the retirment savings of Australians. Hopefully I can get a hold of mine before this happens.

The deadlocked parliament might be a blessing when it comes to super as it might just stop any changes in the short term.

However in the long term there is no doubt that annuities will figure high on the political agenda and of course the tax free income from super after 60 must go at some stage as well.
This is grossly unfair to the rest of working Australians who are supposed to subsidy older Australians with this most too generous of schemes and of course a drain on the governments bottom line.

 

[basilio]

yes sounds well on paper, but your assuming govt know how to spend peoples money effectively which has been anything but the case, all I see is waste and a bankrupt govt...

imagine the bureaucracy with that pool of funds

Yep, that was exactly my thought when I read that, basilio.
Not only would they mess up any investment, but the funds would be at risk of being plundered.

I was slightly tongue in cheek when I opened the concept of a government super fund. I won't spend huge energies defending the idea but equally I don't believe the "government" has any monopoly on wasting money or plundering it for the benefit of a few versus the majority.

The issue of how well an investment fund works is largely good governance. Does one have thoughtful , imaginative and honest people at the top? Are there effective mechanisms to ensure transparency of operations and prevent rip offs? And in the larger picture is the actual investment into intrinsically worthwhile projects?

I think these questions should be applied to all funds that take our money and promise we will get a pot of gold at the end of the rainbow. As I see it an honest accountable government has a better chance of achieving a balanced , good final outcome. On the other hand we can from widespread experience be far more certain that left to themselves for-profit superannuation funds will benefit the owners the agents and the industry long before the people who have invested their life savings. - us.

__________________________________________________

Julia, Thanks for the link to the esuperfund.

 

[R35]

I was slightly tongue in cheek when I opened the concept of a government super fund. I won't spend huge energies defending the idea but equally I don't believe the "government" has any monopoly on wasting money or plundering it for the benefit of a few versus the majority.

The issue of how well an investment fund works is largely good governance. Does one have thoughtful , imaginative and honest people at the top? Are there effective mechanisms to ensure transparency of operations and prevent rip offs? And in the larger picture is the actual investment into intrinsically worthwhile projects?

I think these questions should be applied to all funds that take our money and promise we will get a pot of gold at the end of the rainbow. As I see it an honest accountable government has a better chance of achieving a balanced , good final outcome. On the other hand we can from widespread experience be far more certain that left to themselves for-profit superannuation funds will benefit the owners the agents and the industry long before the people who have invested their life savings. - us.

__________________________________________________

Julia, Thanks for the link to the esuperfund.

Honestly, the Aussie system is world class - you have options.
In a country like Japan you have zero choice and the return on your funds is under 1% with no option to manage yourself, you can only draw it down if you live in the country. no flexibility.

There is a growing class of younger folks in Japan who are refusing to pay into the system as they know it will be bankrupt by the time they retire...hence ballooning underfunded obligations..in the same vein I heard the US are about to allow States to declare bankruptcy so that all legacy pension obligations can be reset lower.
You work your whole life then get screwed in the end...

 

[burglar]

Honestly, the Aussie system is world class - ...

World class?
You could not have bought the same one as me!!

Hi Julia,
Thanks for the hot tip!

 

[doctorj]

World class?
You could not have bought the same one as me!!

The Australian system is far from perfect, but having worked with pension funds in Australia and a dozen or so other countries, it's one of the better ones in the world. Tax deductible contributions, mandatory employer contributions at a meaningful rate, separate accounts for individuals, relatively low fees, defined contribution schemes, broad investment options, good governance, flexibility to have a smsf...
None of these things should be taken for granted. A lot of countries that are pretty well developed don't have a superannuation programme at all - and many of those that do are pretty rubbish (think 2-3% contributions, no tax impact, no separate accounts, limited to a very small range of investment instruments etc etc).

 

[burglar]

The Australian system is far from perfect, ...

Ok. I admit this is my all time, biggest whinge (grizzle, gripe whatever)

Let me explain:

I did not choose the worst Super in Australia.

I chose "Scottish Eagle Australia"
They chose to sell to a third party.
Eventually it ended up with MLC.
MLC was in turn swallowed whole by NAB.

Now I have the worst Super in Australia.

 

[awg]

A neccesary evil

a replacement for age pension

make no mistake, simple maths expain what will happen to the real value of the pension within a generation.

I anticipate regulations will be put in place to cap the tax-free amount for income and withdrawls.

nothing is sure, so who knows what will happen with investment returns, but I continue to run my SMSF with a view to being non-qualified for pension, due to assets and income.

I dont believe that this ( mucking about every damm year) would offer sufficient incentive for people under 50 to contribute as much as they need.

I took a big risk placing my money in super, even though it was an obvious decision, legislative risk is very real.

The saving grace afaic is, as I mentioned, it is a defacto pension, and were the govt to undermine it too much, that would be couterproductive for the budget.

I reiterate that if you are reliant on welfare in twenty years, you will be in the poorhouse

 

[Julia]

A neccesary evil

a replacement for age pension

make no mistake, simple maths expain what will happen to the real value of the pension within a generation.

But politically simple maths isn't going to cut it, is it? The government old age pension has to continually be adjusted to provide the most basic safety net or the government of the day will be leaving themselves wide open to charges of ignoring our much valued elderly who have paid into the tax system all their lives, yada yada.
There are important votes here, not just with the aged, but with their children who do not want to be subsidising their parents.

I anticipate regulations will be put in place to cap the tax-free amount for income and withdrawls.

Probably right. It's very generous at present, especially with the 50% reduction in the obligatory amount drawn annually since the GFC.

nothing is sure, so who knows what will happen with investment returns, but I continue to run my SMSF with a view to being non-qualified for pension, due to assets and income.

Yes, and I'd say most people who have SMSF's will be in this position.
But unless the compulsory levy is increased, at least in the next couple of generations, many will still not be self funded.

I took a big risk placing my money in super, even though it was an obvious decision, legislative risk is very real.

Yes it is, especially with a government such as the present one who - the way they're going - could be desperate enough to plunder Super savings.
You'd have to hope having a SMSF would be some protection, but even then it is not impossible that e.g. taking out a government based annuity will be a requirement at some stage.

The saving grace afaic is, as I mentioned, it is a defacto pension, and were the govt to undermine it too much, that would be couterproductive for the budget.

Exactly and this is all the more reason to increase the levy.

I reiterate that if you are reliant on welfare in twenty years, you will be in the poorhouse

Not quite sure about this for reason offered above but I'm interested in the views of others on this, i.e. does the political outweigh the financial here?

 

[Intrinsic Value]

Predicting what might happen in twenty years time is too hard for me.

However I think it is almost impossible to live on the government pension right now.

It is probably only going to get more difficult with time.

Many people will inevitably have to work longer and personally i dont think this is such a bad thing.

THere is too much of a dependence mentality by too many in the Australian community.

There needs to be a shift to more personal accountability about retirement savings and investments.

Of course I think we will always have a sort of safety net for those that fall through the cracks and that is fair and just as I would not like to see society degenerate where those that are unfortunate are not take care of to some extent.

But far too many people in the past have seen it as their god given right to not plan for retirement and then expect the taxpayer to foot the bill for their retirement and of course for all their health care costs.

This is not sustainable in the long run especially with the growing aged population and of course a younger generation forced to work harder and longer to support them.

 

[c-unit]

I don't particularly like super either because I don't trust governments and am expecting one day to find that the Gov are raiding our super to pay for their splending splurges.

Unfortunately however, we are stuck with it unless pensions no longer exist. I would agree entirely with a no pension, no superannuation environment because I am responsible enough to save for my retirement myself. However, most people are idiots and would end up broke, unemployed, and starving by 60 and forced into crime or begging on the street.

It is a system catered for the lowest common denominator, but it is necessary. Just look at the US.

 

[awg]

There is an article today p30 Sunday Telegraph detailing costings for Age Pension and Aged Care out till 2030..costs to more than double, due to baby boomers retiring.

Points out immigration and tax policy would need to radically change to sustain this.

There will inevitably be huge generational/political friction on this matter.

I dont have the figures to hand, but the cost of tax concessions for super contributions alone is a very high figure that periodically is mentioned as being an area that could be trimmed.

imo, it was politics by John Howard that allowed an entirely tax-free environment for over a 60s, a ludicrous situation that makes no sense to me whatsoever
( nothwithstanding consumption taxes)..but very hard to reverse from a political perspective.

my one real change, introduce a
" reasonable" indexed threshold/cap for tax free status.

I do think we have a good system, compared to almost every other country

to me the biggest concern is "black swan" events, that can really mess with your super, ie long-term systemic issues based upon drawing down against your diminuishing capital (natural resources) but using an expansionary monetary system.

I cant figure a way around that one, in the meantime, keep ticking away

 

[Knobby22]

imo, it was politics by John Howard that allowed an entirely tax-free environment for over a 60s, a ludicrous situation that makes no sense to me whatsoever
( nothwithstanding consumption taxes)..but very hard to reverse from a political perspective.

You can expect the baby boomers to keep screwing us, they have too many votes and governments listen to that.

 

[Julia]

You can expect the baby boomers to keep screwing us, they have too many votes and governments listen to that.

Ah, of course. We baby boomers are the cause of everything bad.
Ignore, naturally, that the majority of baby boomers have made the most of their times and saved and invested so as to be able to be as self sufficient as possible.

I so hate these total generalisations of whole generations.

Take your dislike out on governments who make the rules, not the individuals.
I personally resent the suggestion that I'm 'screwing' you or anyone else.

 

[Bill M]

You can expect the baby boomers to keep screwing us, they have too many votes and governments listen to that.

My wife and I are baby boomers and we aren't screwing anybody! We provide for ourselves through all of our investments, we get nothing from the government or from our super yet and pay our taxes. How can that be a bad thing

 

[Bill M]

my one real change, introduce a
" reasonable" indexed threshold/cap for tax free status.

How much brother???

If they start tinkering with it too much people will just stop putting in. That is what we have to be careful of as we could end up at square 1. Some will not want to contribute and they could blow their money same as before and end up on the gov pension.

 

[GumbyLearner]

We pay billions for no benefit

by Terry McCrann
Sunday Herald Sun
March 20, 2011 12:00AM

http://www.heraldsun.com.au/busines...s-for-no-benefit/story-e6frfig6-1226024688609

INVESTORS got hit by two bombshells last week. The one they almost certainly didn't notice was actually far more - damagingly - significant to their financial health.

The obvious bombshell was the plunge in the market as a result of the disaster in Japan. That topped off a slide that has taken over $100 billion off the value of Australian shares and set back the long slow recovery in superannuation balances.

Unpleasant as that might be, it's just another part of the ups and downs in the life of any investor in the share market. Arguably, the worst of the news and so its impact on share values is now priced into the market.

Further, Down Under investors should take comfort in the fact that whatever happens going forward they will be in better shape than the shattered communities in Japan.

The other bombshell was more like a silent thief in the night. The disclosure that most Australian savers are paying the investment management community billions of dollars in fees every year to lose them, the investors, money!

Disturbing. And a stunning and irrefutable endorsement of Jeremy Cooper's proposed reforms to super management.

Unsurprisingly, the disclosure came not from the investment management community, but S&P (Standard and Poor's), which among other things runs the indices for the Australian Securities Exchange.

What S&P does is measure the change in the S&P/ASX 200 Accumulation Index over various periods against the performance of active Australian Equity General Funds.

That's to say, what you would have got if you had just put your money passively "into the index" (and paid very minor fees) -- against what you got from having your superannuation or other savings actively managed by a professional manager.

Answer: over the past five years, the index "outperformed" about 71 per cent of fund managers. That's to say, with one not exactly unimportant qualification, you would have more money in your superannuation now if you simply put it into the index than if you'd paid a professional to make the choices. The difference in many cases, probably being the fees paid. Unless you happened to be someone who had one of those 29 per cent of fund managers who did outperform the index. Problem is, they are only pickable after the event.

No, that wasn't my qualification. It goes to what's called asset allocation. This S&P exercise is comparing only share performance against share performance and only local shares at that. Any, indeed, every investment portfolio should have a mix of assets -- shares, foreign and local, cash, maybe property etc.

Most ordinary investors are incapable of doing so properly. So an investment professional should add value with asset allocation and could produce a better bottom line even if underperforming on the simple share-to-index comparison.

Even so, the comparison does raise the very real question of what value do both investment managers and financial planners really deliver for their fees.

Investment managers managing the money and planners directing the money to them. I should note that on the positive side, a select group of managers did outperform the index. Those investing in so-called "small-cap" stocks. At least 70 per cent of those managers beat the index over the latest five-year period.

S&P noted that a high proportion of (underperforming) funds continued to "survive" over lengthy time periods. Investors didn't punish bad performance.

All this aside one very big thing is undeniable. Australians overall are paying billions of dollars every year for, in aggregate, absolutely no benefit.