It is reported 75% of Australians over the age of 65 receive the full or part pension from the Government.
Compulsory superannuation was introduced into Australia in 1992 (26 years ago) for employees to have a percentage (now 9.5%) of their income invested into a superannuation fund to help fund their retirement years. The desired outcome was for people to be self-funded retirees as opposed to being reliant on government pensions.
The superannuation industry is a $2.6 trillion dollar industry with something like $26B of fees paid annually.
If after 26 years, 75% of Aussies over 65% are still reliant on the government it begs the following questions
1. Is the current superannuation policy working?
2. Who is really benefiting from the compulsory superannuation regulations?
3. Should superannuation be compulsory or voluntary?
We’d love to get your thoughts and opinions.
I am a strong believer in compulsory superannuation. Saving is a task that can at times be beyond some individuals for any number of reasons. If it were to become voluntary I would assume that 90-95% of retirees would be dependent on government assistance - an enormous strain on the economy.
The matter of fees is a separate one. Financial institutions that gouge or do not align their fees with performance should be avoided at all times. Full transparency around this should be mandatory.
Interesting question. The current superannuation policy is working in theory, in that it remains a tax effective investment vehicle for most. This however needs to be weighed up with the flat rate of 15% against the tiered rate for an individual claiming the tax free threshold, perhaps there should be a tax free threshold for superannuation earnings also.
The compulsory contribution regime is supported and should extend further to ensure that it captures the self employed also. It is now too easy to avoid the compulsory contributions by changing employment type to a Contractor under ABN.
The biggest issue with Superannuation is the lack of trust from both the Government and the Administrators (Managers). Governments have demonstrated they cannot resist the temptation of dabbling with taxation policy which reduces trust from mum and dad investors. Combine this with Managers who gouge fees for financial planning, insurance and administration and there is no wonder the majority of the population are disillusioned.
How to fix it ?. I'm unsure, but the issue is about restoring trust. Perhaps a Royal Commission (lol).
Superannuation should remain compulsory but you can’t expect 9.5% of your wages (remember it used to be less than this) to provide you with enough assets to be fully self funded in retirement.
The 9.5% is certainly better than nothing but at that rate most will still be in some form reliant on the age pension. It won’t cover the overseas holidays etc. that most dream of in retirement.
Unfortunately most people pay far to little attention to their superannuation far too late in life. Even just a small addition to what your employer contributes can have a huge impact on your eventual super balance in retirement.
I'd have to agree with the other comments so far, in that I believe Superannuation should remain compulsory. Although 75% is still the majority of people (relying on full or part pension) I agree with Jimmy S that this figure would be even higher without the compulsory Super. I think James Wrigley is spot on when he says that 9.5% is better than nothing but realistically won't be enough to fully self fund retirement for most people who have a particular standard of living i.e. the overseas holidays, entertainment etc. Maybe the Government and/or the financial institutions need to invest in some more Super education activities to make Super more comprehendible...and dare I say 'sexy'...so that people take more notice...and we're not just looking at ads that talk about 'eggs getting bigger'. Through my personal and professional networks, a significant number of people perceive Super as a bit of a mystery...a complex web of fees, investments, funds and information that often ends up in the 'all too hard' basket so they just stick with a default option through their employer. That said, I realise it would just be another expense for the Government and/or institutions to invest in this type of thing and I'm not sure how you can make Super more sexy, even though it is incredibly important.
Super is the
what most people look past is the fact the super is a legal tax haven, right here in Australia. You dont need to fly to the Cayman Islands to park your retirement nest egg.....it can be done here.
I am constantly astounded by the number of people who have no clue what their super is doing. Many cant even tell you what super fund they are even a member of. Whilst lots of people agonise over .01% savings on their homeloans, they dont know how much life and TPD they have in super, who their Death Benefit beneficiaries are, what their super is invested in, what the fees and charges are, etc etcetc
Super is such a large part of the economy now, which means it has power. so much that super funds can influence all sorts of things, like the share market, property market, POLITICAL PARTIES...... (do you know that industry funds are LARGE donators to both major policital parties????) The level of influence wielded by super funds is immense.......and growing.
Its interesting to note that the numbers of people who USED to run trade unions and are now high up in management positions in industry funds........that tells its own story, doesnt it.
soooo, super is great. but because its soo big, it attracts all sorts of characters.......fund managers, planners, accountants, politicians, members, regulators, etc, etc.....they all have an agenda and all have an opinion, and not all of them are there for the benefit of the members......
the biggest thing any person can do to help themselves is to educate themselves to SOME degree about their own super:
- who is managing it
- what is it invested in
- how much insurance cover is there
- what are the costs associated with it
- what risks are there with the investments
- what are the basic rules around super.
GETTING people interested enough when they have kids, jobs, mortgages, school fees, car payments, that bitch up the road who said something nasty about my little Billy, Masterchef, etc etc is a massive challenge. And as much as I bang on about it the trouble is that there really is only 24 hours in a day and people are tired. And lets face it, its sooo complex that most people dont have the head space for it.
If I could get people's attention at (say) 25, before they get wrapped up in life and mortgages, and get them to sit down for long enough to look at what their life is going to be like with or without super, then the question of whether or not super should be compulsory would never even get asked. The question should be "why is the contribution cap so LOW/????"
*brendan gets off soapboax and goes back to work*
Seeing my parents retire a few years ago, and using their superannuation to reduce debt to a nominal level, and move onto the pension had me question the policy - though they only received super for part of their working lives, at lower levels etc..
I would expect a large portion of the over 65's on age pension are those that have used up their super to clear debt, have the overseas holidays etc. while they are still capable, and fall back to the reduced income after that.
With older Australians living longer, and most super only expected to last a maximum of 15 years, a reliance on the age pension will always exist.
Compulsory super should stay, and more flexibility for those in later stage of working life to put more in to allow for the longest timeframe possible to draw it down. Improve the industry for retail and industry funds to protect the members balances and push for advisors to have a compulsory file review and client meeting every two year after say age 50, to make sure the products invested in are still relevant.
Agree with Ken above - need to push for self-employed to contribute as well. Have to be careful there though, as many small businesses have enough cash flow issues, especially early on.
Graham Doessel - CEO - MyCRA (Specialist Credit Repair) Lawyers (LPH)
Current Rating: 4.65 / 5
It is my opinion that it must and should remain voluntary because many folks receive bad investment advice and without the pension they would be homeless and begging for food. Indeed, there would be a lot more homeless without the pension to fall back on. Superannuation only works for a small percentage of people, usually the ones who are already in a certain income bracket. I feel the revisions to the taxation system along with the succession of governments have produced an Australia which is no longer egalitarian as it was in the nineteen eightees. Many (not all) of the revisions favour the private sector or those in upper income brackets but do not pay out wisely or fairly to the poor. Some of the supernannuation giants like the pyramid scheme have collapsed and investors have lost confidence. I feel personally that superannuation is a 'risky business' only for the bold or very well informed.