Superannuation no good for under 50s, invest the absolute minimum amount into Super; No salary sacrificing, no co-contributions, no non-concessional contributions. Ignore calls to save tax and boost your super
Tweet Topic Started: 7 Feb 2013, 08:25 PM (6,850 Views)
Devious. Most people now think that their super will not pay $100,000 a year, so don't care.
But in 30 years time, $100,000 a year will be the equivalent of $50,000 a year, and a very large percentage of people will have super balances that high, due to the 12% mandatory contribution.
It's a different version of that that old trick of enacting the legislation now, but not to take effect until later, as they know people's brains discount the effect of something in the future - also has the effect of coming into play while another government is likely to be in power, and so they get blamed for higher cost of living/higher tax/etc.
Property speculation is a type of gambling... But everyone knows that in gambling, the house always wins in the end.
Devious. Most people now think that their super will not pay $100,000 a year, so don't care.
But in 30 years time, $100,000 a year will be the equivalent of $50,000 a year, and a very large percentage of people will have super balances that high, due to the 12% mandatory contribution.
It's a different version of that that old trick of enacting the legislation now, but not to take effect until later, as they know people's brains discount the effect of something in the future - also has the effect of coming into play while another government is likely to be in power, and so they get blamed for higher cost of living/higher tax/etc.
Now's your chance. Comment on media articles and email your representatives. Demand indexation of the changes.
Australia boasts what is perhaps the most generous middle-class welfare system in the world, a system where taxpayers shower benefits on executives that are not available to the average worker.
Research conducted for Fairfax Media by actuary Geoff Dunsford has identified at least four ways in which middle-class retirees obtain a benefit from taxpayers; a benefit which is proportionately more generous than the benefit enjoyed by - and he uses this example - a clerk.
Super tax concessions cost the taxpayer about $32 billion a year, according to Treasury. The bulk of this, says Dunsford, goes to middle- and upper-income earners.
Many of these have structured their self-managed super in such a way as to pay very little tax and some actually win a large cheque from the government each year by way of rebate on their excess dividend franking credits.
One such superannuant, who will remain anonymous for obvious reasons, routinely gets a cheque in the order of $400,000 from the government each year as share dividends constitute his only income and there is no other income to offset it against. And so it is, those with $10 million self-managed super funds are underwritten by those without $10 million self-managed super funds. The average taxpayer, in other words, picks up the tab.
This also explains why special dividends are so fashionable. There is a small and sophisticated army of high-net-worthers plundering the system for franking credits, albeit quite legally.
It is via such loopholes, built up over a generation, and created by both major parties, that a large tax leakage accrues to government coffers.
Yet it is the superannuation industry, ironically spawned by government in the first place, which is now pulling its masters' strings.
Frankenstein's monster has been unleashed. So powerful is this lobby that meaningful reform is unlikely for some time, even as funding requirements for the retiring baby boomers swell to stupefying levels.
What the research from Geoff Dunsford highlights, however, is not the immensity of this middle-class welfare but the inequity of it. Simply, it favours the wealthy not merely in size but in proportionality.
I was an investment banker back when the modern superannuation system was devised by Paul Keating in 1985. Behind all the rhetoric, its purpose was quite simple – to protect and enrich the Sydney finance industry by feeding them captive customers!
When the Victorian Liberals ruled Australia from 1949 to 1972 it was Melbourne’s manufacturing industries which were protected – through import tariffs. That may have damaged the country as a whole, but it fulfilled its primary purpose of enriching the friends of those in power.
Manufacturing protection was a system that collapsed under the weight of its own inefficiency. But not before it had done vast damage to the Australian economy.
Unfortunately, rent-seeking is the defining characteristic of Australia. It didn’t go away with the collapse of manufacturing protection. It simply changed industry and moved its base from Melbourne to Sydney.
Superannuation has failed in almost every respect – except that for which it was devised.
It began as a voluntary scheme, but it was soon made compulsory for wage and salary earners.
It was originally a “savings” scheme, but for those born after 1960 the age at which they can access those savings is pushed out ever further. Realistically, young people are never going to see any of the money they believe they are putting into a “savings” scheme. They will die with large balances unaccessed, and the Government will reclaim them on the grounds that “tax-advantaged” savings should not be a windfall to their heirs. It will be a de facto death duty.
It has not increased national savings levels.
Much of the so-called savings has in fact been recycled straight back to government through the sale of government monopolies, through tax-farming arrangements (such as the sale of road-tolling rights), and through hideously expensive public-private “partnerships” to finance government capital expenditure. There is now a campaign to force funds to “invest” a minimum proportion in such projects, in effect a return to the old “30/20 Rule” which prevailed before 1985.
The one and only thing that superannuation has succeeded in doing is the one thing it was set up to do – enriching fund managers and their support industries (mainly in Sydney) by feeding them captive customers who must pay at least 1% pa year-in-and-year-out on – what is it now?? – $1.2 trillion of “savings”.
Like Melbourne manufacturing protection, it is a system that will eventually collapse under the weight of its own inefficiency.
But not before it has done vast damage to the Australian economy.
Australia's pool of retirement savings has overtaken the total value of Australian bank deposits, after superannuation assets swelled to $1.62 trillion in the year to June.
Superannuation assets soared by $217 billion, or 15.5 per cent, last financial year as a result of a buoyant sharemarket and growing member contributions, figures from the financial regulator show.
The surge means the super pool now exceeds the $1.6 trillion that households, businesses and others have on deposit in the banking system, an amount that grew by 6 per cent over the financial year.
It comes after a sharemarket rally helped funds post their best returns in 16 years, but it is also a reflection of super's meteoric rise as the main vehicle for household saving. With its concessional tax treatment, super has established itself as the primary way for people to save for their retirement, creating an enormous pool of money that is projected to expand by trillions more in the coming decades.
The head of research at Rainmaker, Alex Dunnin, said super's rise was a critical long-term change in the economy, with super poised to play a growing role as the home of savings, and therefore source of funding for investment.
''It really is a changing of the guard,'' Mr Dunnin said. ''The economic power is shifting from the traditional banking sector to the owners of the capital and the investors.''
At June 30 self-managed funds held the largest share of super assets, with 31.3 per cent of the total, the Australian Prudential Regulation Authority said.
The next biggest segment was the 26.1 per cent share held by retail funds, which are controlled mainly by the big banks and industry giant AMP.
The increase comes after mandatory super contributions were raised in July from 9 per cent of wages to 9.25 per cent, the first step in a plan to increase the super guarantee to 12 per cent by the end of the decade.
Treasury has projected the value of super will hit $6 trillion within 24 years, and given such growth, it is tipped to play a key role in future economic policy debates, including the review of the financial system promised by the Coalition if it wins the election.
It would be smarter to change super so that none of the contributions, nor the earnings within the fund, were taxed at all, but that any payments coming out of super were simply treated as income.
Set the maximum threshold to say $25k and leave it alone.
If superannuation was intended to help the financially unsophisticated save for retirement, it’s yet to have the desired effect.
Most people retiring now don’t have anywhere near enough saved to live comfortably through their retirement. According to a Deloitte report released earlier this week, they’re off by a factor of about four.
But perhaps that’s to be expected. The system’s only been in place a few decades.
But Deloitte’s report showed even a 30-year-old working at average wages today won’t have enough to retire comfortably in a few decades unless he or she makes significant contributions above the mandated 9.25%.
We’re living longer than ever, and it’s great that superannuation tries to force us to save for that. The state can’t support the elderly as they comprise more and more of the population, and living on handouts would never provide the lifestyle most of us want in our old age anyway.
But by taking superannuation out of the hands of employees and making employers manage it (one more thing for SME business owners to worry about), the system works to build a false sense of security. Most people assume they’ll be fine, because their contributions are what the government has implicitly endorsed as adequate for their retirement. Most people don’t pay too much attention to their fund or to how much is sitting in it, because their employer takes care of that.
But here’s the thing. Sooner or later, everyone has to take control of their super. When you leave a job, you have to actively take it with you, and when you retire, you have to do the sums.
By keeping people in the dark for so long about their super – by legislating a paternalistic attitude where our employers and our government takes care of our retirement savings – people never learn how to plan for their retirement. The system is failing for lack of interest – and most people aren’t even noticing.
It’ll get worse for my generation. I’ve had super paid for me my entire working life – beginning with my first job at McDonald’s. I’ve no idea where the money from that first super account has gone. No doubt it’s since been eaten up by fees. I’ve also got a few hundred dollars sitting in a UniSuper account, and the rest sitting in a bank fund I got talked into joining while applying for a bank account. Every time I talk to a financial adviser they shudder at my choice of fund, telling me its fees are outrageous.
Most Australians don’t use financial advisers in their youth. I’ve no doubt most Gen Ys will wake up in 40 years or so and cringe at the thousands they’ve wasted for not paying attention earlier. My generation will donate billions to Australia’s financiers and fund managers before we realise what’s going on.
Meanwhile, those of us who do want to take control of our superannuation are turning to self-managed super funds. But there seems to be little encouragement from the authorities to do so. This week, we’ve had the RBA echoing long-standing ASIC concerns that SMSFs are to blame for the recent boom in house prices. And we’ve also had new Assistant Treasurer Arthur Sinodinos give a lengthy interview to the Australian Financial Review saying he wants to keep track of SMSFs to make sure they don’t have advantages over other funds. “In the super space we need to make sure it’s a level playing field and that you get appropriate competition between the different funds, the industry funds, the self-managed super funds, and that’s the starting point,” he said.
SMSFs aren’t for everyone. But they’re undoubtedly better than retail or industry funds for one simple reason: their existence allows some Australians to take charge of their retirement instead of leaving it to others to sort out. We should be encouraging more Australians to take up the SMSF mentality, not fewer.
Superannuation would work so much better if we all paid it a bit more attention. But with a system that encourages us to forget about it, it’s little wonder we don’t.
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