Superannuation, the ultimate government cash cow?

[Junior]

To me the issue is, the super funds have never before been placed in this position, where a large number of members require a relatively small amount of money.
It is usually the other way around, with a very small number of retirees wanting a very small amount and a very large number of younger people are putting more money in every week.
Yet when called upon they are suggesting they may struggle to find the cash, well then isn't that a fees for no service situation? They are paid management fees to ensure there is enough liquidity, after all a 20% cash withdrawal isn't huge and it isn't all the members that will be accessing it.
Even the most volatile growth product offering, from the super fund, would be expected to have 20% cash exposure surely.
What it has highlighted IMO, is that the industry actually in all reality probably doesn't have a clue as to its solvency and as has been proven many times in history they are all winners in a rising market.
The next 12 months will be very interesting IMO, as the super funds have to report actual performance and some may have very interesting results.
Also I bet the regulator, is watching very carefully.

Yeah, I mean they have a very valid point here, it is highly unprecedented to suddenly open the floodgates to early withdrawals for so many people. And at the same time, the market has fallen 25%, and unemployment is headed towards 10%+.

However, if you have a huge number of members with small balances, you'd think you'd be running a highly liquid portfolio, primarily consisting shares and bonds. If they have to write-down and sell off part of their Property and Infra assets, I can't fathom how that equates to needing a Government bailout. There's little to no gearing there, they don't have debt issues. They took the strong returns in the good times, now they're going to have to book some losses. Bad luck, that's the game they're in!!

 

[Humid]

Actually I didn't, I posted an article written by a journalist and made the comment that they can actually do with your money, what they see fit.
What Macro business had to apologies about, was it apparently stated that Hostplus had changed their PDS, which is completely different from what I stated.
Macro business didn't have to retract any of the statement about super being a ponzi scheme, which is the thrust of the issue, we are discussing.

Its what you posted earlier ....When you were spreading fake news

 

[sptrawler]

Yeah, I mean they have a very valid point here, it is highly unprecedented to suddenly open the floodgates to early withdrawals for so many people. And at the same time, the market has fallen 25%, and unemployment is headed towards 10%+.

However, if you have a huge number of members with small balances, you'd think you'd be running a highly liquid portfolio, primarily consisting shares and bonds. If they have to write-down and sell off part of their Property and Infra assets, I can't fathom how that equates to needing a Government bailout. There's little to no gearing there, they don't have debt issues. They took the strong returns in the good times, now they're going to have to book some losses. Bad luck, that's the game they're in!!

Spot on Junior, as the article I posted re the 'Ponzi" scheme said, SMSF's carry a large cash component, which is probably the reason the push was on to get it rolled over into Industry Funds.
There is a reason people such as myself carry a high proportion of cash, of it all goes to crap, you still have something left with which to enjoy your retirement.
How many times in the past have retirees, who diligently saved a nest egg, lost it all to some investment company that went belly up?

 

[sptrawler]

Its what you posted earlier ....When you were spreading fake news

I know, that is what I just answered, re read it your post #2170, I made a comment and posted an article from the SMH.
Wasn't it macro business that appologised? I thought i posted an article from the SMH and didn't comment directly to it? Just said it indicated why I started a SMSF, which I stand by.

 

[Humid]

Yeah, I mean they have a very valid point here, it is highly unprecedented to suddenly open the floodgates to early withdrawals for so many people. And at the same time, the market has fallen 25%, and unemployment is headed towards 10%+.

However, if you have a huge number of members with small balances, you'd think you'd be running a highly liquid portfolio, primarily consisting shares and bonds. If they have to write-down and sell off part of their Property and Infra assets, I can't fathom how that equates to needing a Government bailout. There's little to no gearing there, they don't have debt issues. They took the strong returns in the good times, now they're going to have to book some losses. Bad luck, that's the game they're in!!

So if the industry funds are so illiquid why have they outperformed the retail funds who should of been creaming it with the stock market run of the last few years?

 

[Humid]

Spot on Junior, as the article I posted re the 'Ponzi" scheme said, SMSF's carry a large cash component, which is probably the reason the push was on to get it rolled over into Industry Funds.
There is a reason people such as myself carry a high proportion of cash, of it all goes to crap, you still have something left with which to enjoy your retirement.
How many times in the past have retirees, who diligently saved a nest egg, lost it all to some investment company that went belly up?

How many industry funds have gone belly up

 

[sptrawler]

How many industry funds have gone belly up

And, that doesn't mean they are all being run diligently.
That is the issue we are discussing, they approached the RBA for with liquidity issues.

 

[Dona Ferentes]

Lots of straw man arguments in this thread

 

[Betavegeta]

When we apply for early release of our super, does our super fund obtain our bank details automatically from the ATO or will we have to manually provide it to them, assuming they don't have our bank details yet?

 

[Humid]

I know, that is what I just answered, re read it your post #2170, I made a comment and posted an article from the SMH.
Wasn't it macro business that appologised? I thought i posted an article from the SMH and didn't comment directly to it? Just said it indicated why I started a SMSF, which I stand by.

So you started your SMSF on fake news?

 

[sptrawler]

So you started your SMSF on fake news?

You really do struggle with debate, don't you.
I actually started my SMSF in 2007, after the last fiasco.
Retired in 2011 at 55, how are your plans going?

 

[Humid]

You really do struggle with debate, don't you.
I actually started my SMSF in 2007, after the last fiasco.

It’s not easy when your working

 

[sptrawler]

It’s not easy when your working

Been there, done that.

 

[PZ99]

When we apply for early release of our super, does our super fund obtain our bank details automatically from the ATO or will we have to manually provide it to them, assuming they don't have our bank details yet?

Applications for early release of superannuation will be accepted through ATO online services via myGov from 20 April 2020.

You can only submit one application in each financial year:

• year one, between 20 April and 30 June 2020
• year two, between 1 July and 24 September 2020.

This is even if the total amount released is less than $10,000.

The online form on myGov will display all your superannuation accounts, as reported to us by your funds. You can request the release of your super from multiple super accounts. For example, if you want to receive a total of $10,000 you can request $5,000 from one fund and a second $5,000 from another fund. This must be done within one application form.

We encourage you to check your fund's online portal to confirm that there is sufficient money in your account for you to claim.

Make sure you provide your correct bank account details in the application.
https://www.ato.gov.au/Individuals/...rly-release-of-super/#Submittinganapplication

 

[Junior]

So if the industry funds are so illiquid why have they outperformed the retail funds who should of been creaming it with the stock market run of the last few years?

I can't speak for each individual investment decision made by these funds. But my basic understanding is they invest in large commercial property/infrastructure projects in Australia, which have clearly performed very strongly for many years. Primarily due to high immigration and consistently falling interest rates, in my opinion.

As these investments are not listed, they have these re-valued just once or twice a year (rather than daily for listed assets). This may mean there can be some manipulation around the timing of these valuations to make sure their annual performance figures are impressive. With the relentless boom in property and construction in Australia, they've been able to show consistent growth in the value of these assets/investments. They are able to use their size and consistent inflows to access these big projects, and up until now it has paid off.

However, we are now seeing the downside of over-allocating member funds into these assets. They are illiquid, and we could see big write-downs as Australia enters it's first real recession in 30 years and we see an end to new construction activity and potentially low/no immigration in the short/medium term.

 

[sptrawler]

How many industry funds have gone belly up

There have been non that I know of and as you say, they have performed extremely well over recent years and may well do into the future.
All I am saying is, I'm old enough to have been through times, where older mates lost a lot of their retirement money due to adverse market conditions.
Below I have extracted an article that explains a lot of the issues faced in the 1990's, things were going extremely well, untill it fell in a hole.
I'm not saying this reflects any of the situation happening now, but it was this and more recent catastrophes that made me chose to run my own fund.
If history repeats it will be hugely disappointing IMO. But as you say look at the mismanagement by the Banks and AMP, the temptation is always there especially after a long bull run in property and stocks, to take on riskier investment chasing higher returns.
Just my opinion.
https://www.moneymanagement.com.au/features/editorial/funds-management-graveyard:
According to Power, who is a former BT Funds Management director: “It was really a case of a rising tide lifting all ships up until 1987. Property trusts were also very strong, though you had front-end fees as high as 8 per cent and planners, or sales people as they were known in those days, were getting 7 per cent of that.”

AustWide, Armstrong Jones and Growth Equities Mutual (GEM) were the three main listed property players, Power says.

“GEM was successful. However, AustWide and to a lesser extent Armstrong Jones, were disasters and suffered in the property trust collapse.”

The property trust collapse in the 90s hurt a lot of investors and at one stage the Federal Government had to intervene and freeze all assets in the sector.

Estate Mortgages, an aggressive mortgage loan operator, according to Power, is another corporate collapse of note over the past 20 years.

“I think they were running television ads claiming to be safer than banks, so a lot of people put their money into mortgages. But they were lending money for development and when the market fell over they were left fully exposed.”

Some other groups to be found in the industry graveyard include OST Friendly Society — whose investorsIOOFsaved with a bailout deal — and Pyramid — a Geelong-based building society that collapsed and was tied into the collapse of the State Bank of Victoria-owned merchant bank, Tri-Continental, which ultimately fuelled the sale of the State Bank of Victoria to the Commonwealth Bank.

“There has been enormous change in the industry and that change has been precipitated by falls in equity markets and collapses in the listed property market. You then get a shakedown of players, as consolidation sees the weaker players get taken over by stronger ones,” Power says.

One hopes the current situation doesn't precipitate any major financial collapses, as happened in the past and hopefully the Governments huge handouts to workers help avert any issues.
Here is another old article that covers past collapses all good food for debate IMO.
https://www.afr.com/property/the-au...ssons-from-a-life-in-property-20161114-gsowu5

 

[Humid]

https://theconversation.com/the-las...be-doing-right-now-is-paying-dividends-135928

 

[sptrawler]

https://theconversation.com/the-las...be-doing-right-now-is-paying-dividends-135928

Good article Humid, everyone's going to take a haircut, just different barbers. Mine is the dividend trim.
I have already taken my pension for next year, luckily they have reduced the minimum drawdown to 2%, so it will be a tight year.
The second bit of luck for me is, there is no cruises going and they aren't likely to start for a long time, so the wife can't book one.

 

[Humid]

Two weeks ago, Scott Morrison and Josh Frydenberg told Australians that they had formed a committee to save the world.

Their JobKeeper policy (a surprisingly good policy given the circumstances) sounded like an act of charity.

It is anything but.

Like any government spending, JobKeeper is another transfer of wealth from one part of society to another. Like the aged pension, the policy is highly unfair and arbitrary — some people get it, others, like foreign workers, casuals or large companies may not.

However, given the likelihood of businesses and goodwill being destroyed, and the possibility that the epidemic doesn’t actually last that long, providing businesses with bridge cash is a reasonably smart policy.

To really determine the winners and losers it’s not just a question of who gets the cash, but rather: who’s paying the bill?

The immediate costs of the government’s various stimuli (and it isn’t just JobKeeper) is more than $130 billion. This is around a quarter of our annual GDP. There are two ways the government could force Australians to pay for this.

An increase in revenue through higher taxes/levies (or similarly a reduction in exemptions) for the next few years, or it can essentially print money to pay for higher debt/interest payments. This makes everyone poorer but they don’t realise it.

The first option is politically more difficult, the second option is incredibly unfair on younger generations.

How should we pay for this?
Given the stimulus is largely targeted as businesses (which tend to be owned by those who are older and wealthier), it seems fair that they should pay the costs (that is, a targeted option one).

Here is where we can start:

Negative gearing: a classic rort which essentially acts to allow those who own investment properties to reduce immediate income and instead create a deferred capital gain which is taxed at half the level. This costs around $1.6 billion annually and generally benefits the relatively wealthy.

Super concessions: this tax loophole is so large and ingrained that most don’t even think about it. Super allows you to move into a “retirement phase” when you turn 65. This means you pay zero tax on earnings from investments (in the accumulation which comes just before the retirement phases, tax is a still very low 15%).

Meanwhile, the 21-year-old barista who is making your latte each morning is paying a chunk of their tiny income in tax. The original rationale of not taxing super earnings was to ease pressure on the pension. However, super concessions now cost upwards of $40 billion a year. Almost all the benefit goes to the richest quartile of old people.

Get rid of it all and tax superannuation earnings at the marginal rate. Many pensioners would still pay zero tax but very wealth pensioners may, heaven forbid, need to pay something.

Dividend imputation credits: somehow Labor botched the communication of fixing Australia’s most revolting tax policy. In really simple terms, the dividend credit scheme supercharges the superannuation loophole (above) to give old rich people actual cash refunds when they invest in businesses that pay some company tax.

UTS professor Elizabeth Savage determined “the largest average benefits are paid to the wealthiest group. Their wealth measured by superannuation account balance is 20 times that of the group that receives no cash refund. Their superannuation wealth is 76 times their taxable income.”

The cost of this policy is around $5 billion. Even Geoff Wilson, who doggedly fought to retain the loophole for his well-healed clients conceded this disgrace has gotta go.

Principal residence exemption: another forgotten but massively inequitable tax law that has been politically poisonous (largely because so many Australians own their own home). This policy is naturally, hugely favourable to the wealthy.

Case study: The Age recently noted that the Algama family is selling their Kew mansion Ross House with expectations of $25 million (having paid $4.7 million in 2003). A $20 million-plus windfall gain would be taxable at precisely zero.

This exemption costs taxpayers more than $70 billion a year. A middle ground could be to index the cost base of the property to inflation, and then tax any windfall profit at, say, 15% — this could raise around $10 billion. A fairer solution would be to tax the gain like any other capital profit which could raise upwards of $30 billion.

The government needs to urgently find more than $100 billion a year. The above measures might cover 50%-70% of that cost, and create a much fairer tax system going forward.

Sadly, it’s far more likely the Liberal government will make the inequities worse by increasing debt levels and printing money (so the cost is shifted to the young and those not yet born) or by using progressive taxes (such as increasing the GST level or creating an emergency levy) which leaves the poor and middle class to pay a far higher proportion of the bill.

Adam Schwab is a company director and angel investor, and the author of the best-selling Pigs at the Trough: Lessons

 

[sptrawler]

Well we have been through that one a million times Humid.
As per usual all good ideas, and then fall down on the implementation.

Negative gearing- yep get rid of it completely.
Super concessions- yep get rid of them, give everyone the age pension, if you want better than the age pension save for it.
Dividend imputation credits- yep get rid of them completely, don't give them to millionaires and take them of SMSF's, take them off all.
Principal Residence exemption- yep take it off, your PPR is taken into account for any welfare.

There you go Humid, I will vote for that, I bet neither Party will put it up, people are so full of it.
Why do young left wing reporters always want it to be about retirees?,
Why not include them in the mix, they probably get franking credits, own a PPR, get a tax break on their super contributions let them join in and help pay for it now.

As you know my pet hate, taking franking credits off SMSF's but not off millionaires, no one has justified to me why.
If Twiggy Forrest can claim $x off his tax payable for owning shares in FMG, why can't I claim the $ back, we both own the same shares?
He pays a lot less tax because of the credits, so it is money in his pocket from FMG's tax that doesn't go to the ATO.
Well I have FMG shares and I hold it in a SMSF that doesn't have to pay tax by legislation, so why shouldn't the FMG tax go into my pocket instead of the ATO's?
Also no one has explained why Industry super funds should retain the franking credits, while the SMSF's should lose them, take them off everyone problem solved.