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.
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 ?
Yep, that was exactly my thought when I read that, 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
Basilio, here is a whole thread about them and other options: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 !!
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?
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.
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Julia, Thanks for the link to the esuperfund.
Honestly, the Aussie system is world class - ...
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...World class?
You could not have bought the same one as me!!
The Australian system is far from perfect, ...
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.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.
Probably right. It's very generous at present, especially with the 50% reduction in the obligatory amount drawn annually since the GFC.I anticipate regulations will be put in place to cap the tax-free amount for income and withdrawls.
Yes, and I'd say most people who have SMSF's will be in this position.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 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.I took a big risk placing my money in super, even though it was an obvious decision, legislative risk is very real.
Exactly and this is all the more reason to increase the levy.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.
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?I reiterate that if you are reliant on welfare in twenty years, you will be in the poorhouse
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.
Ah, of course. We baby boomers are the cause of everything bad.You can expect the baby boomers to keep screwing us, they have too many votes and governments listen to that.
You can expect the baby boomers to keep screwing us, they have too many votes and governments listen to that.
How much brother???myone real change, introduce a
" reasonable" indexed threshold/cap for tax free status.
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