Super must be protected from the innocent
Call me crazy but I have been working under the assumption that Superannuation was designed to eventually replace the aged pension.
That a generation or more of Australians expect to be able to access both Super, a pension and invest in or purchase property, demonstrates the fragmentation of purpose when it comes to planning for retirement.
The idea that the Prime Minister is seriously considering completely and irrevocably altering the purpose of Superannuation to allow first-home buyers early access to purchase property, should demonstrate his level of concern for the generations of Australians whose financial futures hang in the balance.
“Super must be protected from the innocent,” says Trevor Berryman, a retirement specialist who is, himself, retired, having worked at National Mutual (now AXA) for 20 years.
“Super in Australia is one of the best systems in the world,” he said. “But we have the problem of too many people retiring and not enough working,” he said.
Berryman says a catastrophe is coming.
“No one in government is aware of the implications of the ludicrous proposition of opening up Super for property,” he says.
“Everyone is anti Super at the moment because it is there for a reason and they don’t like the reason. Super is the lifeblood of the future. And it has done more to keep Australia afloat than anyone has given it credit for.” (More on this in Part II).
It is worth adding here that despite the popular rhetoric, the greatest proportion of welfare goes to wealthy retirees and the corporate sector. Low-income earners account for less than 1% of Centrelink payments. About 41.6 billion was spent on aged pensions between 2014-2015, according to Inside Story. Only $10.8 billion went to jobseekers.
“If we go into Super so people can ‘rescue themselves’ for a dream, it will be the death of Australia.”
Berryman said the gross returns of Australian workers are being diminished by fees.
“For a person making $50-$60k, it is not viable to use an advisor with all the regulations and compliance costs around dealing with people,” he said. “That is a big problem.”
“The institutions, financial planners and banks make a lot of money out of clipping the funds on the way through, not only in retirement but now,” he said. “The fund managers charge a platform fee, the managers charge a fee, lenders charge a fee, then financial planners charge a fee. Your gross returns are diminished by all this clipping.”
Not that everyone agrees, as Berryman does, that Super “is the lifeblood of the future”. Modern monetary theorists like Dr Steven Hail of the University of Adelaide and London’s Kingston University’s Professor Steve Keen are pretty much in agreement that Super should be scrapped, or at least non-compulsory.
They (correctly) point out that the problem of providing for an ageing population in the future is primarily one of ensuring that sufficient goods and services are available to meet their needs, and to that extent whether this is financed predominantly through an aged pension or via private super is irrelevant. Moreover, most comparable countries continue to rely on aged pensions which are substantially more generous than Australia’s, and superannuation schemes such as our own remain relatively rare. Spending on the aged pension in Australia is currently running at 3.5% of GDP, while in the OECD as a whole it is 7.9% of GDP, and in Germany, for example, 10.6% of GDP.
Professor Steve Keen says superannuation is a bad replacement for pensions because it favours the wealthy over the poor. “The opportunity to use it for infrastructure investment has been wasted,” he said.
But pensions have their own set of problems that must be dealt with, (and which we shall endeavour to in parts three and four).
Surely figuring out how we’re going to support an ageing population in retirement should be the first question we try to answer before we go dipping into our nest-egg to buy a property. This task is challenging enough without opening up Super for first-home buyers.
“It would only serve to further inflate house prices & hands over yet more assets to financial sector,” said Professor Keen. “It fattens the parasite without curing its disease.”
Dr Hail recommends scrapping compulsory private superannuation and tax concessions on retirement savings, and have employers pay out the 9.5 per cent currently going into super as wages and salaries, and tax it as such.
Professor Keen pretty much concurs that companies and workers should trade-in pay-rises for increases in Super. (Not that most of us have had a pay rise over the last decade or more).
And he should know, Professor Keen benefits from England’s university system which pays 17% of his salary into superannuation. He puts in an additional 7%. Overall 24% of his salary every year goes into Super. But he admits this is only possible because of how much he makes proportionally.
“For somebody earning $60k a year, what’s 9-12% of $60,000 a year? Sweet fuck all.”
“Majority of people are not being provided for through super so you can’t eliminate pensions because you’d have people starving to death.”
Alex Joiner, Chief Economist of IFM Investors agreed there will always be a safety net for people that cannot fund their retirement solely using Super and other savings. However, he says the ageing of population will put more pressure on the government’s finances over time and it simply cannot afford to provide generous pensions for everyone, because it would have to run large budget deficits to do so.
“This would require it to take on debt and it would come under pressure from credit ratings agencies and be downgraded,” he said. “This would make borrowing for it and the banks much more expensive.
“If the government continues to print currency for quantitative easing (where it does not incur debt) that is still inflationary – especially if it is directed at households,” he said.
Professor Emeritus of Economics at Adelaide University and Emeritus Reader in the history of economic theory at Cambridge, Geoffrey Harcourt refuted Joiner’s claims, stating that Australia is letting itself be “bamboozled” by AAA credit ratings.
“Fancy taking any notice of those crooks!”, Professor Harcourt exclaimed.
“They are ones that are partly responsible for the Global Financial Crisis. They were the ones who gave AAA credit ratings to all of that rubbish coming out of the US, subprime bundles, containing completely unviable securities.
“They should be run out of town.”
Personally, I want to be able to invest and earn my own Super, if for no other reason than I’m one less person the government has to find funds for that could be going into infrastructure, schools or hospitals, etc. There are already tax incentives galore to encourage people to put money into Super.
“You can beat the tax man at his own game,” says Trevor Berryman. But this would require people to engage with Super. The urgency of increased participation in Super cannot be understated.
Berryman encourages today’s 30 somethings to rent up until retirement. This would have the effect of levelling off property prices, decrease the peer pressure on property investment and creating a buffer for middle-income Australians to invest for retirement.
He has a point.
Claire Connelly is working on her first book, How The World Really Works, a guide to recognising rhetorical red flags and immunising yourself against bullshit. You should definitely buy it when it comes out. A podcast of the same name will also be launching in the coming months. Stay tuned!