ASFA to bust the super myths

Thus says the headline on the rear page of the Australian Financial Review this morning under the Chanticleer column (Michael Smith). A similar uncritical view can be found in Glenda Korporaal’s article in today’s Australian.

Thus is the quality of journalism today – that it would automatically state the view of a superannuation lobby group as ‘busting myths’.

Actually ASFA’s job is to perpetuate myths.

Take this:

Martin Fahy, the chief executive of the Association of Superannuation Funds of Australia, hates to contemplate the doomsday scenario for the $2.3 trillion super industry.

The scenario goes something like this: a populist politician gets elected sometime in the 2020s on the back of a promise to end the super guarantee levy. This simplistic, backwards policy option hands ever Australian an instant cash bonus each week equal to 9.5 per cent of their pay, less tax.

It would mark the destruction of former prime minister Paul Keating’s vision for a privatised savings system that progressively makes an increasing number of Australians self sufficient in retirement while lowering the dependency on the aged [sic] pension. …

“We need to get to 12 per cent …”

Whenever one hears from the super lobby it is to have the super guarantee increased from 9.5 per cent.

Let’s get real. Compulsory super has failed. It has not reduced the dependency on the age pension (Smith can’t even get that right). Compulsory super has increased the budget deficit, with the various subsidies provided to super at all levels of income. It has not increased national saving.

All compulsory super has done is to line the pockets of industry practitioners, unions, and the lobby. The Australian taxpayer, and the average Australian has paid for this with excessive fees with the lazy default super money flowing into their coffers each week.

Compulsory super has failed its primary objectives and should be scrapped. Far from being the doomsday scenario, the scrapping of compulsory super is the correct policy option – we have given it over 25 years to prove itself and it has failed on every count.

We should not wait until the 2020s to abolish compulsory super – it should be done immediately. It is a paternalistic policy that has harmed Australia. Let Australians workers make their own decisions about consumption, savings and investment.

And let’s hope that journalists might actually think and argue rather than uncritically sprouting the words of some lobby group.

However I’m afraid both are unlikely. The super lobby is so powerful that they have captured the body politic. It was a brilliant design by Paul Keating – a guaranteed source of funding for the union movement who in turn props up the Labor Party.

And most Australian journalists have given up on critical thinking.

So I can only dream of that ‘doomsday’ scenario – a day when politicians act in the public interest and sincerely investigate the net benefits of compulsory super.

About Lucius Quinctius Cincinnatus

I'm a retired general who occasionally gets called back to save the republic before returning to my plough.
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29 Responses to ASFA to bust the super myths

  1. mrwashout

    Successive governments – including the current one – have made it harder and harder for people to self fund their retirement. They should be trying to make it easier for people to save extra for their retirement so that they do not rely on the age pension (we cannot afford it). Instead they (like you?) see the 15% super tax rate as some sort of “subsidy”, rather than for what it actually is. I let you keep more of your money now, so that future governments return less to you in the future.

    There should be no concessional cap on super. Governments are simply trying to fleece more and more from taxpayers whilst their spending increases out of control. What will inevitably happen with super is that you will be double taxed. Taxed when you put in super, and taxed again when you spend it in retirement. Superannuation could have been awesome for the long term fiscal health of this country but govt has farked it up, as they are wont to do.

    The super changes by the current govt convinced me never to vote for LNP ever again – viva LDP.

  2. struth

    A forced union due. And a much bigger one than they used to get.
    What could go wrong?

  3. herodotus

    I have some money in an industry fund, now converted to a pension. It accumulated quite well over a relatively short period, and the annual growth except for the GFC year has been way ahead of fixed term interest. Fees are relatively low, and it can now pay me 5% per annum with every prospect of earning 5-7% per annum, since the long-term average is over 7% for that fund.

  4. John Constantine

    Australia is one of the most legally corrupt places on earth.

    The flow of compulsory super money has funded no small amount of the corruption.

    It will all become belonga State anyway.

    The demographic transformation of Australia means those with the biggest super balance are being replaced by imports with smaller super balances and high expectations.
    Funny enough, the old ABC folk that campaigned for the transformation believing their govvie super was untouchable will be the most bemused of all when equality strikes.

  5. Lucius Quinctius Cincinnatus

    Let’s be clear. This is a blog about compulsory superannuation – ie the 9.5% superannuation guarantee. It says nothing about individuals voluntarily putting money into superannuation.

    If I were to write about superannuation generally, I would say it would be better for governments to not subsidise (ie provide incentives) for superannuation – or if so only a little. Let us reduce the general tax rate.

    And I repeat: the superannuation system has not reduced the reliance on the age pension.

    Herodotus – yes you may have earned well from your industry fund but the fees are not low, and the risks are somewhat higher than you imagine – a lot of industry fund money is in unlisted property. This is illiquid and relatively risky. As for the fees, even today’s AFR shows that. For example

    Fahy says that members of super funds have benefited from economies of scale. “Across the whole sector fees have gone from 134 basis points under Nick Sherry (2007-09) down to just below 100 basis points” he says.

    That’s still four times more than can be achieved with an index fund which has fees around 25 basis points. And in turn our index fund fees are a lot more than in the US where they are around 10 basis points. Australian super fees are far from low.

  6. entropy

    What will inevitably happen with super is that you will be double taxed. Taxed when you put in super, and taxed again when you spend it in retirement.

    what will happen is that the funds will be forced to invest in infrastructure. Which infrastructure will be determined by the politicians of course.

    Herodotus: At present people end up on the pension anyway. I can’t see that changing, What is the point of super again?

    It would be more honest and consistent with reality to just make the pension universally available once you hit say, 75, with a more rigorous means test for retirees younger than that.

  7. Rabz

    This is a blog about compulsory superannuation – ie the 9.5% superannuation guarantee.

    Another example – in most cases you’d have been far better off putting the equivalent into your mortgage than frigging super.

  8. Rabz

    What will inevitably happen with super is that you will be double taxed. Taxed when you put in super, and taxed again when you spend it in retirement.

    What will inevitably happen are increased taxes and access restrictions, including an increase in the age at which you can begin to access it and only being allowed a nominal pension (paid over an unrealistic amount of years) determined by the government. I’m also predicting a block on removing superannuation for those planning to emigrate – e.g to flee the glorious Teats Peanuthead/Greenfilth Frankenreich.

  9. Gengis

    What a crap opinion piece. Just when people are starting to accumulate significant amounts to help Australia’s Welfare system along comes an idiot like you to completely destroy Australia, because we can’t balance the books now.
    But I agree we have a shambles of a system.
    Kelly O’Dwyer should hang her head in shame limiting a couple to $3.2m. Did she limit pollies – no thank you. The top should be around $5m. I have heard the limit was introduced because a small number of people put around $40m. an obscene amount.
    Governments have severely limited how much can be put into Super so limiting those individuals like small business owners who realaise their assets on retirement.
    Regards,

  10. Lucius Quinctius Cincinnatus

    Gengis

    What a crap opinion piece. Just when people are starting to accumulate significant amounts to help Australia’s Welfare system along comes an idiot like you to completely destroy Australia, because we can’t balance the books now.

    From the industry are we Gengis. You’re absolutely wrong – without compulsory super we would be able to afford generalised tax cuts (income tax especially) and even increase the pension while balancing the budget. It is a myth that the compulsory super system has delivered net benefits to Australia. It is a millstone and should be abolished.

  11. What will inevitably happen with super is that you will be double taxed. Taxed when you put in super, and taxed again when you spend it in retirement.

    Actually the intent is to tax it three times – going in, coming out, and while it is in the fund. Earlier this year legislation was quietly passed redefining super earnings as income. So now your super nest egg is the sum of two amounts – capital (contributions), and earnings (income). The final steps will be to make the “income” component taxable, just like your other sources of income.

    Separately, there will be a Medicare style levy to fund the NDIS.

    And yes, Entropy is right. The accumulated funds are earmarked to end up being invested in “infrastructure”, which is pollie-speak for their latest, back-of-a-beer-coaster brainfart. In the very, very first media appearance by Joe Hockey as the newly-minted Treasurer, way back in October 2013, he spoke of the “need” to “allow” ordinary Australians to “invest” in public infrastructure, via their super funds.

  12. BorisG

    It has not reduced the dependency on the age pension

    Please explain (TM)

  13. Diogenes

    I have some money in an industry fund, now converted to a pension. It accumulated quite well over a relatively short period, and the annual growth except for the GFC year has been way ahead of fixed term interest. Fees are relatively low, and it can now pay me 5% per annum with every prospect of earning 5-7% per annum, since the long-term average is over 7% for that fund.

    My experience in an Industry Fund is the opposite -as I have my money in the cash option
    annual fees > annual investment income.

    My EOFY statement arrived 2 weeks ago. I can see where the fund is pissing my money up the wall.

    First the “statement” itself . It came printed on 10 sheets of duplex paper – at least 5 of those sheets were taken up by either advertising for the fund, useless graphs or totally unnecessary information.

    Then the glossy 32 page booklet that came with it ;
    2 pages on the thoughts of Chairman Dwyer – lots of waffle other than “aren’t we frikken awesome”
    2 page profile on one the investment analysts – personally I don’t give a flying f**k what she does all day – and why the hell do they bother employing an analyst all the funds are actually managed by others ?
    2 pages on”paying back to the community” – No that is not your job, your job is keep costs low and make ME as much profit as you can. If the employees want to do good works, they can do that on their own time, not during work hours and certainly NOT on my dime.
    2 pages on their new ethically responsible fund –
    2 pages on how they are ethical anyway and won’t invest in tobacco, coal or arms, and have major investment in f***g wind farms. I have emailed asked for a fund where MY money is invested in coal mining & power generation, uranium, tobacco, and arms , where not one red cent of MY money goes towards the climate scam – still have not received a reply.
    Then there are pages on looking after my health – If I want health advice I will go to my Dr.

    Out of the 32 pages – 4 are relevant – how each fund has performed – AND that information was included in the frikken 20 pages of statement !

    Sadly moving my money elsewhere , into either another industry fund or into bank fund or commercial , will not change anything they all do the virtue signalling at my expense, and include the glossy brochures etc etc.

    I have fingers, eyes, toes, legs and arms crossed that the next government (either Lib or Lab) doesn’t fcuk up my getting all my money out in 18 months when I turn 60.

  14. mareeS

    Herodotus at 8.33am,

    You are being short-changed. Our SMSF returns 10-13%, as far back as 2009, and we live well on the minimum withdrawal, which for us is way, way in excess of the public pension and free of personal tax considerations (for the present time).

    Union super fund members who think 5-7% is a good return are being sold a crock of…

  15. mareeS

    Plus, we pay wholesale fees of 0.25%, so not a rip-off by our managers, who are excellent in our dealings. Have you looked at your account charges closely?

  16. I work in the industry and I agree with LQC on this one. I’ve argued several times on my blog that the compulsory SG is bad.

    (LQC, I disagree with you about Trump.)

  17. Bruce of Newcastle

    If ASFA is not by now controlled by the ACTU and their industry (ho ho) superfund arm then Gramsci would be spinning in his grave.

    I wonder if people in the future will actually be able to get at the money in their super accounts when they retire? Or will it all have been stolen?

  18. Roger W

    As mareeS pointed out, SMSF is the way to go. I’m amazed that a site inhabited, I assume, largely by current or former academics, many of whom have an economics background, is not a hotbed of SMSF advocates. Do your own planning, decision making and investing – it’s not difficult! An accountant and auditor for the tax return shouldn’t cost more than $2000 to $3000 pa, end of story. The rest is yours!

  19. mareeS

    Roger W, at 10.15am

    Our Accounting and auditing is a shade below $2000pa, which is a pittance on our fund.

    Plus, we are invested diversely nationally and internationally with reputable, high achieving fund managers and direct shares with full franking.

    I cannot understand how anyone in industry super thinks 5-7% is a reasonable return.

  20. Anthony Park

    Give everyone a choice: If you opt out of compulsory super you also opt out of getting the pension later on.

  21. Tim Neilson

    I wonder if people in the future will actually be able to get at the money in their super accounts when they retire? Or will it all have been stolen?

    It will have been stolen via “infrastructure” investments.

    But “the government” i.e. taxpayers will bail out the members because “compassion”.

    No union-appointed trustee Board member will be required to refund a cent of their director’s fees, nor to contribute a cent in any other way.

  22. Cactus

    Disclosure: I work somewhere within the financial services industry.

    One thing I am concerned about is that the super system is not projected to take people off the age pension in any substantial fashion. I don’t have the numbers but I read somewhere that [50-60]% of people get the pension now and that by [2030-2050] this will reduce to [40-50]%. The numbers I square bracket as they are a bit rubbery. Anyway you get the gist.

    If the purpose is to a) get people off the pension and b) we barely do that task. Then shouldn’t we judge the system as a failure? I am sympathetic to that argument.

    As a counter argument, I think people in general are bad at savings, and many are financially illiterate. Forcing people to save? I think it has merit but only if they don’t then get the pension.

  23. Bruce of Newcastle

    I think people in general are bad at savings, and many are financially illiterate.

    Not so illiterate as you think Cactus.
    Depending on what your marginal income tax rate is, paying off your mortgage has an ROI of about 6-8% pretax even now at the bottom of the interest rate cycle. It is also risk free. Getting that type of return in an investment is difficult and most certainly not risk free. It also is taxable at at least 15% even if you do everything right (like avoid having to pay lump sum tax).
    Then your home isn’t subject to capital gains tax, so that is another implicit several percent ROI.
    And it doesn’t stop you getting the pension, so in effect you are saving then not having to draw upon the savings since you are living in the house. Whereupon you leave it to your kids thereby preserving the capital.

    Thus the government has to force you to contribute to super, and lock it up, because anyone with a brain would instead repay their mortgage as fast as they can.

  24. Rabz

    I wonder if people in the future will actually be able to get at the money in their super accounts when they retire? Or will it all have been stolen?

    The latter – and people are running out of time to prevent it happening.

  25. Cactus

    I genuinely don’t believe the super will be there when I retire. I am 35, so have 30 years or 10-15 governments between now and then.
    1) Tax the income more, tax the balance, tax the withdrawal etc. This has started
    2) Nation-building projects – 10%, then 20% then 30% of your super will have to be invested in Snowy 2.0, the Boomerang Rail project, ruinables energy, batteries etc.
    3) lift the retirement age beyond my life expectancy.
    4) mandate a death duty on super in estates.

    Anything left?

  26. .

    There are two possible major wars coming our way and the government can’t stop spending and is over 500 bn in debt.

    Yes you did leave something out. Supernnuation is legally regarded as tax and the confiscation in the face of a major conflict for munitions or provisions will be lightning quick and most in Parliament, on the bench and who make up the media will be in lock-step priaisng this bold “nation saving” move.

  27. yarpos

    Maree S, both industry and private funds do worse and better than the 5-7% you quote. Just depends on the investment choices you make within the fund. We have enjoyed double digits within an industry fund for quite a few years now. Best thing I ever did was getting out of my employeers fund choice (average returns and 2.5 times the fees)

    The big thing is choice, people have biases and will favour industry or private and wont be persuaded otherwise. Choice of fund , choice on participation

  28. dfd

    Compulsory super is an absolute rort, just given rise to a huge number of useless, ticket clipping rent seekers. Shut. It. Down.

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