Want to sort out pensions? Then look to super

By ABC's Alan Kohler

Posted March 19, 2015 08:02:25

Photo: Treasurer Joe Hockey should look at the pension problem another way. (AAP: Lukas Cooch)

Rather than cutting pensions, the Government should look at where super funds are investing our billions. An overhaul in this area could help both retirees and the budget, writes Alan Kohler.

The Abbott Government is coming at the problem of the age pension all wrong.

Instead of trying to cut the pension's indexation rate, so that the amount paid reduces over time in real terms, and then not getting that through the Senate and/or losing the next election, Treasurer Joe Hockey should turn his mind to the means test.

The Government could do far more to reduce the burden of the pension on the budget by increasing superannuation returns than by cutting the pension, and it would be a political winner as well.

The real problem with the age pension is that after 20 years of compulsory superannuation, too many people still get it, in full, despite the means test.

When the superannuation guarantee was legislated in 1992 as part of an industrial agreement with the ACTU to preserve the Prices and Incomes Accord, the idea was that Australia would have a "three pillars" approach to retirement incomes.

The pillars were: compulsory private savings moving to 12 per cent of wages, voluntary savings attracted by concessional tax, and the safety net of the means-tested age pension.

It was proposed that as the baby boom population retired from 2010 onwards causing a big demographic hit to the budget, private savings would begin to replace the pension.

In his speech at the Australian Graduate School of Management on July 25, 1991, the then backbencher (briefly), Paul Keating, laid out the design of the system and the reason for it:

When my generation begins to retire after the year 2010, you will be the taxpayers who will have to provide for us.
And let me tell you, my generation does not have the frugal habits of our parents, who remembered the depression. We have lived well. And there are also a lot of us.
Unless we can move - and move rapidly - we will put the Commonwealth Government age pension system under unbearable stress and condemn an entire generation of elderly people to an unsatisfactory and poorly provided retirement.

Fine and true words, but it hasn't worked. The age pension system is under "unbearable stress" and is threatening to engulf the budget: the retirement age has had to be raised and the amount paid reduced over time.

Keating's vision, laid out in the AGSM speech, was for "those workers who stay on to age 65 the level of benefit will reach towards 50 per cent of pre-retirement income on an annuity basis, with full indexation to inflation, and 70 per cent reversion to the surviving spouse".

He proposed a contribution rate of 12 per cent of salary but it's been capped at 9.5 per cent. That's one problem - the other is the rate of return. I'm not sure what Keating assumed, but what has actually been achieved since 1992 is about 6 per cent per annum, on average, in the "balanced option".

A worker on $50,000 who saves 9.5 per cent of his salary ($400 per month) for 40 years at a 6 per cent compound rate of return still qualifies for a full age pension (he or she would get $775,000; the age pension means test cuts in at $800,000).

That's the main problem with the system: the super funds that have been effectively contracted by the Government to run it have taken too conservative an approach to investing the money and the returns have been inadequate for what's needed.

Specifically, they have confused risk with volatility and have invested too much money in fixed-interest assets in order to smooth out the short-term ups and downs, at the cost of long-term returns, and they still do.

The answer lies in infrastructure. If the Government could find some way to encourage or force super funds to invest in infrastructure it could solve two problems at once: reducing the burden of the age pension and improving the nation's infrastructure.

Not long after the super guarantee legislation was passed, the CityLink toll road in Melbourne was built and its owner, Transurban, listed on the ASX.

In those 20 years - which more or less coincides with the life of the superannuation system - Transurban's infrastructure has produced a total annual compound return of 12.7 per cent. Anyone who had invested their super in that company would now not qualify for any age pension at all.

Another infrastructure fund is Utilities Trust of Australia, which was set up at about the same time - 1994. It invests in airports, roads, shipping ports and water and gas utilities, and over its 20-year life UTA has produced a compound return of 11.43 per cent.

Anyone who had invested their super in UTA's collection of infrastructure assets would also not need, or get, the age pension.

As at December 2014, Australia's super funds had 4 per cent of their money invested in infrastructure. There was 51 per cent in equities, 19 per cent in fixed income and 14 per cent in cash.

That means nearly a quarter of the nation's $1.9 trillion retirement savings are invested in assets that are guaranteed to produce returns that are less than the inflation rate (that is, fixed income and cash) since interest rates are currently at record lows.

That is a shocking statistic. Those saving for retirement over the long term do not need the protection from volatility and the low returns that come from investing in cash and fixed income.

If even just half of that money were invested in infrastructure instead, Australia would no longer have a problem with either infrastructure or the age pension.

In 1984, during the Hawke government's great deregulation frenzy, something called the 30/20 rule was abolished.

That rule, introduced in 1961, stated that in order to receive their tax concessions, super funds had to invest 30 per cent of their assets in public securities, including at least 20 per cent in Commonwealth securities.

These days, with the Commonwealth bond rate at 2.47 per cent, that would be disastrous.

But would it be so terrible to reintroduce a form of the 30/20 rule that required a certain investment in infrastructure - perhaps in Government-sponsored infrastructure bonds?

After all, super funds have a very privileged position: their inflows are mandated by law, and they pay a concessional tax rate as well.

Surely they could do something to qualify for that benefit that might also lift their returns and solve the age pension problem.

Alan Kohler is a finance presenter on ABC News. He tweets at @alankohler.

Topics: government-and-politics, federal-government, budget

Comments (153)

Add your comment

lilly:

19 Mar 2015 8:28:19am

I think the horses have already bolted on this one. Even if the super funds did start investing in infrastructure today, it wouldn't make a big change to the retirement incomes of the baby boomers. They will still need the age pension.

A better option may be to provide tax concessions for people over 65 who continue to work. Perhaps an arrangement whereby all the tax these people would have paid to the government would instead go into their super. This will still be a saving for the government because they won't be paying out on age pensions but it will also considerably boost their super.

They should also provide allot of incentives for baby boomers to be active (e.g. go to the gym). Much of the expense of old age relates to treating the health problems people acquire because they cease to be active. People who are active are less likely to get these health problems, will have vastly better quality of life and will be able to remain in their own homes for much longer (staving of the expense of funding old age homes).

Reply Alert moderator
- Anastasios Manolakis:
  
  19 Mar 2015 9:29:20am
  
  Lilly what a great idea and part of a solution but will Labor and Liberal agree?
  
  Reply Alert moderator
- Edward:
  
  19 Mar 2015 9:51:11am
  
  Have a look at the senior's tax offet and mature worker's tax offset. They're already doing it.
  
  Reply Alert moderator
  - lilly:
    
    19 Mar 2015 10:22:09am
    
    The senior's tax offset only provides a marginal savings on tax to increase income levels for low income pensioners. My suggestion is different again. I'm saying that for people over 65 who continue working and meet certain requirements (i.e. those who would have needed to start drawing a pension upon retirement), rather than paying tax to the government, all the money they would have paid to the government instead goes directly into their super. That is, they pay no tax. This will provide a real incentive for people to carry on working and will make a signficant contribution to their super. The government will save on outgoings because they won't be paying a pension.
    
    For example, someone on $75K would be adding an extra $15K onto their super each year they continued working. Add to this the 9% also being contributed by their employer and the boost would be quite significant. In round numbers, you'd be looking at an extra $20k each year or $100k if they worked to the age of 70.
    
    Reply Alert moderator
    - Edward:
      
      19 Mar 2015 11:03:51am
      
      Lilly,
      
      I can see where you're coming from and on the surface it sounds like a good idea.
      
      In the main I don't reject the idea of giving tax concessions to achieve a desired outcome. However, in this instance I do wonder whether the costs would outweigh the benefits. At present we have an increasing problem with youth unemployment and put bluntly I think it would be cheaper in the long run to get a young person in a job rather than delay the retirement of an older worker. The argument here is it would be cheaper as an unemployed younger person's potential welfare bill could be a lot bigger than that for an older person.
      
      In an environment of full employment I would expect the idea to have great merit.
      
      Reply Alert moderator
    - digy:
      
      19 Mar 2015 12:06:03pm
      
      Give it a break Edward, Lilly is advocating wisely. Not only is it financially viable for themselves if they choose so but for the system also not to mention their families by way of extending their "65+ health" and not forgetting they started from a very young age once too and they sure don't need some young bully giving them the heave ho prematurely of the seeds they sowed, "what logic is that"
      
      Reply Alert moderator
    - colin13:
      
      19 Mar 2015 12:37:54pm
      
      First you have to convince employers to keep them on.
      Second when ppl retire it creates employment for someone else we definitely need opportunities for youth.
      Don't forget the age of robots is here.
      
      Reply Alert moderator
    - Edward:
      
      19 Mar 2015 12:39:07pm
      
      Digy, I didn't say that Lilly's idea didn't have merit.
      
      Don't you agree that any weaknesses in a proposal should be discussed or should we just accept everything without thought?
      
      There is a serious problem with youth unemployment in this country. Whether we like it or not if the problem persists for any length of time we will end up with some of them being on welfare for life. A pragmatic view would be that it is preferrable to pay a pension for 30 years than to pay the dole for 40 or more yeears and then the pension on top of that.
      
      With this in mind I see no advantage in encouraging someone to continue working by giving them additional tax incentives. If they want to continue, great, more power to them. But their continuing in the workforce has an offsetting cost somewhere else and as such brings into question the need for a concession.
      
      And no I'm not having a go at Lilly or her idea. It's good and imaginative and valuable and well worth discussing.
      
      Reply Alert moderator
    - Anastasios Manolakis:
      
      19 Mar 2015 2:17:16pm
      
      Full employment is a myth Edward there will never again be 1 or 2 % unemployment as there was in the 60's.
      
      Youth unemployment stems from a lack of experience and training and if an incentive as Lilly suggests is implemented I am certain it would reduce unemployment as the retirees who continue to work would hire people. It is wrong to suggest that someone who works pass retirement age is taking a job away the young unemployed, it is not that simple.
      
      Reply Alert moderator
    - Edward:
      
      19 Mar 2015 4:38:40pm
      
      AM,
      
      I accept things are not that simple.
      
      It strikes me, though, if you were a government with a view to the long term welfare of the nation you would be directing resources toward getting potential long term recipients of welfare into work rather than encouraging a delay in the take up of benefits that would have a relatively short duration.
      
      Or do we simply abandon the young and tell them that they will never have enough experience and training to get a job?
      
      The longer a young person stays out of the workforce the more likely it is that they will become unemployable and ultimately receive the accolade of being a dole bludger.
      
      Reply Alert moderator
    - tom the accountant:
      
      19 Mar 2015 1:05:13pm
      
      I think this is a good starting point but one key issue will be the level of salary many older people are on in the work force. In the professional world where I work those 65 and over are generally earning well over $150k a year and not taxing them on that income would be expensive to say the least.
      
      How about we start bracketing superannuation contributions? Once your income gets to a certain level you are required to contribute more and more to super? So its 9.5% as a base and over 70k its 10%, 80k its 10.5% and so on?
      
      I fully realize this would introduce a gap in terms of those who have privately funded retirement and those who don't as those on low incomes will never be able to have as much squirrelled away but at the same time you would be moving more and more people off the pension, leaving it only to support those who need it most.
      
      I also think the idea that super contributions are not paid for workers over 70 is wrong. Generally if someone has been kept around that long it is for their wealth of knowledge and experience so the burden of having to pay them super won't see employers push them out.
      
      Finally I totally agree with Alan's points, as I often do. A legislated portion of super contributions should be put aside for infrastructure projects. It could take the form of government infrastructure bonds which pay a rate of return based on the performance of the underlying assets; kind of like a hybrid equity investment where the rate of return is variable like a dividend but a payment is always made. We could then also mandate that the super funds reinvest a portion of their earnings like a dividend reinvestment plan, paying any concessional tax rate shortfall from the contributions received that year.
      
      Its obvious we have missed the boat with this generation but super is a 50 year game. We need to make changes now to avoid the next 'big' generation stifling the smaller one that follows it as we have now.
      
      Reply Alert moderator
    - Rae:
      
      19 Mar 2015 1:35:51pm
      
      I disagree on the superannuation bracketing as the best thing I ever did was to only pay the minimum legal super and invest directly outside super with the rest of my savings.
      
      I have advised my kids to do the same and they are.
      
      The funds invested privately have no advisor fees and are available when and if needed.
      
      Sure i pay a bit of tax but my accountant reckons if we are paying tax we are making money and she is so right.
      
      I can control my investment strategy and rebalance within short time frames.
      
      Having control without a bookload of rules and regulations has been priceless.
      
      I have out performed my super fund year after year after year.
      
      The freedom has been worth the taxes.
      
      Reply Alert moderator
    - Rae:
      
      19 Mar 2015 1:39:12pm
      
      Oh! And mandating any sort of investment strategy makes it pretty hard to pull out of the market if you can see a correction coming. This has been one of the very bad things about the superannuation system. You can individually rebalance across sectors but it is much harder to do than with funds invested directly in capital markets.
      
      Reply Alert moderator
    - tom the accountant:
      
      19 Mar 2015 3:28:34pm
      
      Hi Rae
      
      On the issue of pulling out to avoid market dips I would have to say that plan is fraught with danger. Predicting market drops is next to impossible with the 2008 GFC being a perfect example.
      Also investing in infrastructure in some ways is a defense against market dips as these projects are often essential services that are less prone to economic movements (such as rail, ports and airports).
      
      In terms of investing outside of super I partially agree with you on this matter; being an accountant myself I'm only to aware of the benefits of managing your own money. For example parking excess funds in a mortgage offset account (assuming an interest rate of 4.5%) is the equivalent of earning a return before tax of 6.92% with no risk. However there is an overarching need to legislate for the majority, a large portion of which would spend that money on beer, flat screens and jet skis. And while this is good for the economy as a whole, it hurts us when they retire with nothing to their names.
      
      Reply Alert moderator
    - Rae:
      
      20 Mar 2015 9:10:34am
      
      Hi Tom,
      Thanks for replying.
      
      I agree market dips cannot be predicted with any accuracy.
      It isn't what I do exactly.
      
      I was in Athens in August 2007 when the credit crash almost happened. That was actually the beginning of the 2008 crisis.
      Markets were all over the place. We could see something big was going to happen. It was scary.
      
      What I do though is to invest into the dips and sit on the sidelines when a particular asset is over valued.
      
      The principle of value investing has been well explained by Benjamin Graham, Warren Buffett and James Bogle.
      It does require a fair amount of work and the ability to read balance sheets, work out currency conversions etc.
      
      Right now I'm a tad concerned by the number of Australians invested in fixed interest as the bond bubble expands.
      
      These are 'interesting times' indeed with asset bubbles appearing all over due to QE attempts to shore up liquidity.
      
      The few financial advisors I've know seem happy to stick with a formula and appear unsure when questioned specifically especially about bond markets.
      
      There needs to be some security for uneducated investors forced into markets to protect them from timing events.
      
      Those poorer people who retired at the end of 2008/2009 and those who panicked and went to cash or bonds then didn't deserve that at all.Prior to super the savers kept cash or bought a second house to rent with all the tax advantages available.
      
      Infrastructure can provide returns but is a fairly risky investment probably best left to venture capitalists with skin in the game and enough money to manage the losses with the gains or governments with long term abilities to ride out disruptions.
      
      Investment education is sorely lacking in Australia and that needs to be fixed.
      
      I admire accountants greatly and everyone should have a good working relationship with theirs.
      
      Enjoy the day.
      
      Reply Alert moderator
    - BibioHopper:
      
      19 Mar 2015 11:00:37pm
      
      Seriously, $20,000 a year is chickenfeed -- I can't live in a capital city of Australia for anything like that! The interest on this is almost nothing at current rates. The only positive thing about working longer is that I'm not spending the savings. If you really think that people are going to see this as worth not drawing a pension, you are a dreaming!!
      
      Reply Alert moderator
- Vince:
  
  19 Mar 2015 9:51:54am
  
  Absurd. Look: people at age 65 are usually at the peak of their earning capacity. They are already earning a motza and any further incentive to keep working via pumping up their take-home incomes even further will have less effect than you assume. People retire mostly because their businesses want them out of there. They are too expensive. Incentivising people to keep working past 65 will only inflate wages, exacerbate youth unemployment and make Australian businesses even less competitive international than we already are.
  
  Face it: why not accept that if you haven't saved enough for your retirement by 65 than that is tough luck. You've had your whole life to sort it out. It is time to face the consequences of your decisions.
  
  Reply Alert moderator
  - Modus:
    
    19 Mar 2015 10:20:16am
    
    My folks are your blame the baby boomers product, went without and saved all their lives, were well fleeced to zero by GFC 2008 end.
    
    Reply Alert moderator
    - Prime Lemur:
      
      19 Mar 2015 11:36:41am
      
      Hey, yes. I had a work colleague who had to come back to work for three years (three years!) because his super took such a bath after the stock market dived. This fellow didn't have the background, education and opportunity others have had. Still, he nearly made it into super funded retirement.
      
      I think its simply a failure of understanding ... you need to actually look and listen to people's life stories, of the best plans for retirement laid waste because of injury, illness, bad luck, and yes, even stupidity. Add to this a continually changing expectation of those coming into retirement (from being government funded to self funded). This is what is wrong with pure ideology, it rarely reflects reality.
      
      Reply Alert moderator
    - Simple Maths:
      
      19 Mar 2015 2:20:09pm
      
      Nobody is to blame. And I get sick of hearing oh those super rich baby boomers. They must all live somewhere else because I dont see too many around here.
      
      It's simple maths. Super started in 1992. 30 years too late. those retiring in 2010 started work in 1961. 31 years before super started. So unless there are actually earning a mozza and were using super as a tax dodge, they have no super for those 31 working years. It has hit the battler (as usual).
      
      This same group were paying MUCH higher taxes that we do these days. Money pouring into the pension fund. A fund they are now told they are too "rich" to access. A pension they are now being told they are greedy and ruthless and robbing later generations who are so much more deserving.
      
      All rhetoric designed to make us support a huge mistake the govt made. Because we all knew in the late 70s this population bubble was going to be a problem. But WE KEPT PAYING HIGHER TAXES TO THE GOVT ifor pensions INSTEAD of it being put into super!
      
      How were we supposed to pay BOTH those higher pension taxes AND a voluntary super fund?????
      
      We paid it. They blew it. Dont blame the boomers.
      
      Reply Alert moderator
    - bettysteve:
      
      19 Mar 2015 6:57:35pm
      
      yet EVERY parasite politician walks away from its job with a pension for life AND a massive superannuation payout no matter what assets they have. sad world we are living in.
      
      Reply Alert moderator
    - WA Ideas:
      
      19 Mar 2015 1:14:11pm
      
      the funny thing is, had the superfunds not sold out of their shareholdings in the GFC and instead, retained their holdings to ride out the storm, they'd be in a better position than they are now. By selling out of their positions when value was falling they then could only buy back in with less money, so when the value began to rebuild their holding was smaller...
      
      Reply Alert moderator
    - WA Ideas:
      
      19 Mar 2015 1:14:22pm
      
      the funny thing is, had the superfunds not sold out of their shareholdings in the GFC and instead, retained their holdings to ride out the storm, they'd be in a better position than they are now. By selling out of their positions when value was falling they then could only buy back in with less money, so when the value began to rebuild their holding was smaller...
      
      Reply Alert moderator
    - Freddie Frog:
      
      19 Mar 2015 1:48:29pm
      
      If they were fleeced to zero in the GFC they were clearly investing in asset classes that were far too risky for their life stage.
      I'm sure they weren't complaining about the average 15-20% returns in the years before the GFC though right?
      
      Reply Alert moderator
    - zeus:
      
      19 Mar 2015 2:51:31pm
      
      Right on the money.. too many people choosing the high percentage returns and closing their eyes to the risks.. then complaining when it all goes turkey
      
      Reply Alert moderator
    - Prime Lemur:
      
      19 Mar 2015 3:38:17pm
      
      Freddie, Zeus,
      
      Again with the assumptions ... in the case I was speaking about, this poor bloke had the benefit of just nine years of schooling. He came from a rural community, moving to town 20 years ago. I'm pretty sure he didn't make too many decisions about super.
      
      Very nice bloke, absolute gentleman ... just never had the benefit of a good education.
      
      You're assuming he was just a greedy fool. He wasn't ... he just let the fund manage it, probably had no idea how any of it worked.
      
      People seem ever so quick to run their own moral assumptions across large swathes of the population. I'd estimate there are millions of working Australians who have no idea about how super works ... after all, you could argue they don't need to know ... otherwise we wouldn't have super at all, we'd all be investing ourselves directly.
      
      It really is a moral hazard to assume people know what you know, and act out of greed instead of a less innocent position. Mind you, if you thought like that, it'd be impossible to hold the position that everyone is personally to blame for retiring without sufficient funds to support themselves independently, right? After all, isn't that what ideology is? One size fits all ...
      
      Reply Alert moderator
    - Freddie Frog:
      
      19 Mar 2015 6:30:12pm
      
      Firstly, my comment wasn't in response to yours but the one above it. Secondly 'm not assuming anything, just going on exactly what was said.
      
      If you're friend took such a bath in the GFC then he was clearly invested in the wrong asset classes. And the only way he could have got there is by choice. You don't just get to calmly pass that choice off as him letting the fund manage it.
      
      The fact is that the reason he would have had so much money in his super in the first place is because he was invested in riskier assets. Those massive compound gains are what enabled him to be so close to "super funded retirement". You don't get to claim he was hard done by without admitting his previous good fortune in having over a decade of extremely high growth previously.
      
      And if he's left his super alone in the last few years, he would have made his money back. Too many people want to accept the good without the bad that investment risk entails.
      
      Reply Alert moderator
    - Rae:
      
      20 Mar 2015 9:26:12am
      
      The fund managers should ensure enough of a cash position to provide funds without having to sell down shares or bonds, for a year or two, but they don't.
      
      The rules require a certain portion to be withdrawn on retirement.
      The financial advisor fees can be hefty as well.
      
      It is the rules and government messing with them that creates a lot of risk in superannuation. All for a mandated tax minimisation scheme.
      
      Reply Alert moderator
  - Edward:
    
    19 Mar 2015 11:13:03am
    
    "Look: people at age 65 are usually at the peak of their earning capacity."
    
    I'd like to see a reference to back up this assertion. As far as I can tell earning capacity peaks well before age 65 and by that time the downward slope is well underway, especially in the modern labour market where the idea of a job for life is so rare as to be considered non existent.
    
    Reply Alert moderator
    - Vince:
      
      19 Mar 2015 1:18:41pm
      
      No way it peaks that early. You are perhaps thinking about average income over a population. Individual life-cycle earnings continue to increase up until retirement. But hey, it's common sense. On what basis would an employee earn less over time? (Excluding factors such as being made redundant etc because that is not what we are talking about).
      
      Rather, what happens is that people become expensive. Why have a 64 year old performing a role which a 40 year old could do, for twice the cost? The plain truth is: if you want to secure your future, at some stage you need to become an owner in your business, in one form or another. That is the key. To accumulate capital as well as income. If you think the world owes you a retirement because you managed to save only 50% of what it will cost to keep you comfy until your demise, you are kidding yourself.
      
      Reply Alert moderator
    - Edward:
      
      19 Mar 2015 5:10:57pm
      
      I did a little bit of double checking and it appears that what happens is that one's earnings in real terms peaks somewhere between 40 and 50 and thereafter it tends to stick to keeping up with inflation. I am, of course, talking of averages.
      
      What you say about going into business for oneself, as you say, makes a difference. But not everyone has the capacity or desire to take such a path.
      
      Reply Alert moderator
    - DannyS:
      
      19 Mar 2015 6:35:15pm
      
      ....."Why have a 64 year old performing a role which a 40 year old could do, for twice the cost?"....
      
      The plain truth is that just because someone has a couple of decades on the others in the same employ it does NOT necessarily mean that they earn significantly more. Perhaps in some instances this is the case, however when I worked in the finance sector and was retrenched at 47 I was earning perhaps 20% more than my younger colleagues.
      
      Now that I am a Public Servant my pay rate is exactly the same as my colleagues of any age who are doing the same work.
      
      I would dearly love to have a job where I'm being paid double the salary of my thirty-something colleagues!
      
      Reply Alert moderator
- WA Ideas:
  
  19 Mar 2015 12:38:39pm
  
  Lilly:
  
  What about the ability to commence a transition to retirement pension, which provides tax free income from super, whilst salary sacrificing up to the maximum allowable $30kpa and making some non-concessional contributions into super as well to boost your balance.
  
  So you can reduce your tax by salary sacrificing into super and at the same time supplement your income by drawing a small tax free pension.
  
  Reply Alert moderator
- chalkie:
  
  19 Mar 2015 2:02:48pm
  
  "They should also provide allot of incentives for baby boomers to be active (e.g. go to the gym). "
  
  Wouldn't a better financial solution be to forbid life-extending measures?
  
  Reply Alert moderator
  - graazt:
    
    19 Mar 2015 2:48:46pm
    
    I imagine that might be a politically tricky measure to implement.
    
    Reply Alert moderator
    - Edward:
      
      20 Mar 2015 8:44:06am
      
      It might work if it were marketed as "closing the gap". After all there are two sides to that little chestnut!
      
      Reply Alert moderator
din:

19 Mar 2015 8:29:37am

Its not the funds that determines risks. Its the people who decides which fund their superannuation manager should use.

you can tell them to use a 100% risk strategy, or a 0% risk. And if you cannot decide, there is a default policy.

as for investing in infrastructure, how much was lost in the Sydney cross city tunnel ? The original estimates of how many cars would use it was completely wrong, and it failed to generate the expected income. I wouldn't have liked my super to have been invested in that lemon.

Reply Alert moderator
- GJA:
  
  19 Mar 2015 9:12:00am
  
  That's true, up to a point, but the funds do determine which specific stocks, bonds, etc. will constitute each of the choices they offer, with little enough transparency.
  
  Reply Alert moderator
- Bah, humbug:
  
  19 Mar 2015 10:50:06am
  
  din, you make some valid points, however note that:
  
  1. While many people choose, they are doing so from what's available. If each option, including the default fund, had a small mandated percentage to infrastructure, it wouldn't be an issue.
  
  2. Yes, the Sydney tunnel was a disaster, but it was one out of dozens of projects available at most times, and the trustees of each super fund would in any case be conducting their own due diligence before investing and probably wouldn't have invested in that one. Another example is (was?) the East West Link in Melbourne. I doubt many super funds would have touched that one, either.
  
  Reply Alert moderator
pajos:

19 Mar 2015 8:34:35am

"the age pension means test cuts in at $800,00"

Where does this figure come from, and presumably you are talking about assets means test? A single non home owner with with assets of 775,000 would not qualify for an age pension. It cuts out currently at $771,750.

In any event you need to qualify and explain your statement.

Reply Alert moderator
- Leftover:
  
  19 Mar 2015 9:43:23am
  
  $800,000 ?
  
  where did this figure come from?
  
  I have assets which are slightly over $310,000 and I cannot get the pension if I keep them.
  
  Besides there is an ever increasing number of us "unemployable" due to our over qualification and basically age. The Governments push to get us to stay in a job is a nice thought but facts are it is very hard to get a job.
  
  Some of us will never be able to get a job.
  
  Another point is "Restart" Centrelink have to have you on their books before Restart is available to a prospective employer and like me a lot of us old farts will not get the dole.
  
  Reply Alert moderator
  - geo:
    
    19 Mar 2015 10:39:31am
    
    Please, do some mentoring of younger workers.
    
    As the baby boomers retire we are also losing a huge chunk of knowledge and experience. I can see this happening in my own profession. Mentoring would help pass this on, and hopefully provide employment. I'm lucky enough to have a few people to call on. My mother (retired teacher) mentors a few other people to great success. In a year she can take them from struggling to confident.
    
    Reply Alert moderator
- zeus:
  
  19 Mar 2015 2:21:12pm
  
  Yes, this $800,000 reference shows the author just doesnt understand the subject being written on. We have to assume its a reference to assets and if so the deeming percentage from it generates sufficient interest to seriously impact the aged pension via the incomes test. The reality is that the maximum financial assets allowed for a single person before the pension is affected by the deeming rules, is $139,428
  
  Reply Alert moderator
Bobthequill:

19 Mar 2015 8:35:13am

Quite true Mr Kohler.

But you missed out the main problem. The very large group of

so called 'Financial Advisers' who, are ripping the system off big time!

They need to be completely removed from the system.

Industry Super Funds rarely suffer from this blight and are much more profitable.

Some national regulation is certainly required.

Even nationalisation of the Industry!

Oh! perhaps not that, as that would mean, we would have to trust the Government

in power, not to double dip our funds. (Fat chance!).

Reply Alert moderator
- Andrew Rollason:
  
  19 Mar 2015 9:03:37am
  
  Hear hear.
  
  Financial Advisers cream off between 0.5% and 2% of someone's superannuation, even if they haven't actually returned any gains. The problem with this is that superannuation not only needs to beat inflation but it also needs to make sufficient gain to recoup the loss from being managed by an adviser.
  
  This is the rub though. In 2012 Britain's "The Observer" newspaper tested a group of money managers and the winner (I kid the not) was a house cat named Orlando who picked stocks through a more or less random process.
  
  If the random walk hypothesis is seemingly better than financial advisers, then why are we forced to hand our money over to these licensed bandits?
  
  Reply Alert moderator
  - Neil:
    
    19 Mar 2015 1:25:04pm
    
    If you *think* you are better of without a financial adviser then don't use one.
    
    Pretty simple.
    
    Reply Alert moderator
  - Neil:
    
    19 Mar 2015 2:31:21pm
    
    Just another point.
    
    It is not the job of a financial adviser to pick stocks.
    
    This is the job of a stock broker.
    
    Reply Alert moderator
- RayS:
  
  19 Mar 2015 9:21:44am
  
  When Joe Hockey leaves federal Parliament he will be in line for a pension of at least $270,000 a year. Not means tested, no waiting for qualification age, he gets it straight away.
  
  That is obscene. Politicians who receive high salaries (Tony Abbott gets over $500k base salary and around $1 million parliamentary expenses) get a pension immediately on leaving political employment.
  
  Fix that problem before hitting the age pension qualification age or pension of citizens who have paid the taxes which have given us all the public assets which politicans are so keen to sell off at ten cents in the dollar.
  
  Reply Alert moderator
  - blax5:
    
    19 Mar 2015 10:34:31am
    
    I agree, but excessive retirement provisions for politicians exist in many countries. Maybe there's a nest somewhere.
    
    I think Kohler's suggestion of infrastructure investment is a good one, except government legislating how companies invest/spend money may hit a roadblock, ideologically. I also read somewhere that the TPP will outlaw government funds being invested in infrastructure, and in a way mandating infrastructure spending from government enforced savings plans could be regarded as such, because it's government directed not company directed. The TPP is obviously secret, so this info needs to verified.
    
    Reply Alert moderator
    - graazt:
      
      19 Mar 2015 2:52:42pm
      
      Seriously? That's horrifying. A nation can't build stuff from its own taxes anymore?
      
      Surely not.
      
      Reply Alert moderator
  - Jane2:
    
    19 Mar 2015 2:00:04pm
    
    More worrying is a certain 22 yo Green erpresentative from Melbourne who can retire in 4 yrs time (assuming he is elected again) on a pension of $80k pa indexed for life.
    
    Reply Alert moderator
- CJ22:
  
  19 Mar 2015 10:59:06am
  
  The fees paid to financial advisors should NOT be based on a percentage of the size of the investment. The advice offered and charged for is the same regardless of the amount invested. It should be a fixed fee and be subject to refunds if the advice followed results in a loss. The current system of fee determination is the the gift that keeps on giving, for the advisors that is.
  
  Reply Alert moderator
  - Neil:
    
    19 Mar 2015 1:26:31pm
    
    Then simply use a financial adviser who charges fees in this way.
    
    There is no "current system of fee determination."
    
    Pretty simple I would have thought.
    
    Reply Alert moderator
    - zeus:
      
      19 Mar 2015 2:27:06pm
      
      Well Neil, rather than just saying its pretty simple, give us a list of advisors who charge as such.. I will bet there is not one advisor in this country that offers a refund if their projections dont work out..
      
      Reply Alert moderator
    - Neil:
      
      20 Mar 2015 10:26:32am
      
      Unfortunately I cant.
      
      The new FoFA regulations prohibit me from doing this.
      
      Just one of the unintended consequences of the new regs.
      
      There are many others which is a pity for consumers.
      
      Reply Alert moderator
- Neil:
  
  19 Mar 2015 1:24:16pm
  
  If you *think* you are better off without a financial adviser then don't use one.
  
  Pretty simple I would have thought.
  
  Be warned though. You don't know what you don't know.
  
  Reply Alert moderator
the yank:

19 Mar 2015 8:35:24am

Joe Hockey should turn his mind to the means test. ... agreed.

I can see the value of changing the laws to require a certain amount being invested into infrastructure but I don't think that gets at the core of the issue.

For me its a matter of people being allowed to hide assets and still collect the pension.

The entire point of super should be that people end their working life not requiring a government pension. If you are siting on a couple of million in assets and still drawing a pension you are ripping off the system.

Reply Alert moderator
- Peter of Melbourne:
  
  19 Mar 2015 11:40:37am
  
  "Joe Hockey should turn his mind to the means test. ... agreed"
  
  ummm NO! hockey just like swan before him has proven to be a complete incompetent when it comes to managing this nations financial needs.
  
  when we have a competent government this mess like all the other messes that this nation has been saddled with by the liberal and labor parties can be dealt with.
  
  as i said in another post
  "i would rather trust my senile 15 year old dog to devise and implement policy for this nation over the worthless pack of mongrels we have filling our parliaments and senates across the nation"
  
  Reply Alert moderator
- Burhead:
  
  19 Mar 2015 12:34:58pm
  
  The benefits being paid to very wealthy retirees are staggering. If you have $2m in super, and you are over the age of 55, you can start a TTR pension, without stopping work, and your super fund becomes tax free. If your $2m is invested in shares paying a fully franked dividend, you will receive a refund of imputation credits totalling $42k, every year, no means test. Why are we refunding taxes to a wealthy retiree who is paying no tax? It doesn't make sense. My estimate is that there is $10bn refunded to tax free retirees every year.
  
  Reply Alert moderator
  - zeus:
    
    19 Mar 2015 2:30:03pm
    
    Go ask Peter Costello that question.. he was the one who got the title of Best Treasuer Ever by the top end of town.
    
    Reply Alert moderator
    - Peter of Melbourne:
      
      19 Mar 2015 3:02:38pm
      
      costello had billions pouring into the coffers from selling of public assets, that is why he was loved by the big end of town.
      
      as we have seen there is no legacy from previous generations left to sell off, now we are seeing how completely incompetent both of the political parties truly are when it comes to economic management.
      
      Reply Alert moderator
  - Stan:
    
    19 Mar 2015 4:10:31pm
    
    Burhead
    Think you may be confusing what the fund earns with what is paid as a pension. The earnings of the super fund might be tax free however what the fund pays you as a pension is included with any other income and taxed, with some concessions.
    You don't have to be "very wealthy" to start a TTR and if that person is still working then they will be paying tax and if they are a high income earner then guess what, that amount will probably be higher than you by the sounds of it.
    
    Reply Alert moderator
- revitup:
  
  19 Mar 2015 7:45:37pm
  
  Leaners, is the first thought that comes to mind closely followed by entitlement.
  Hockey has indicated that those who can afford to support themselves will not be asked to do so, because it is their money. He did not rule out not paying a government funded retirement to those people.
  
  Reply Alert moderator
- fine artist:
  
  20 Mar 2015 2:15:33am
  
  Yes totally in agreement. Why do those who so well off get so indignant when they see poorer plebs getting the pension. I could only dream of receiving some of the salaries mentioned in this blog and these guys think they are hard done by.
  Keep the private sector out of it. It's too late for me but I think vast assets should not be hidden by the plain greedy, whilst indignation is expressed about the pension bill.
  
  Reply Alert moderator
Meh:

19 Mar 2015 8:45:17am

"The age pension system is under "unbearable stress" and is threatening to engulf the budget..."

It's a shame the superannuation concessions scam that will soon to engulf the budget (and cost more than the age pension within 5 years) is not subjected to "unbearable stress" and scrapped.

But then those controlling the levers would have their snouts ripped from the trough.

How many times must we amateur economists repeat the fact that our budget woes can be solved by raising revenue AND cutting rorts to the rich. If the ruling class/politicians/economists/tax avoisionists won't take a hair cut then we should place them under "unbearable stress" rather than those subsisting on the age pension!

Reply Alert moderator
Regionalgranny:

19 Mar 2015 8:55:29am

Having had no compulsory super for much of my working life and also having taken time out of that paid working life to give birth to and raise four children, I knew my super on retirement was not going to be at the level to allow a high life in retirement. I did, however, start a personal super account and put some funds away early in my working life. This super was not a good investment initially but as time went on I got smarter and rearranged my investment. My super is modest but at least at this point I am drawing more from my super than I am receiving in government pension to allow a modest lifestyle.
Superannuation Funds will evolve as working people become more savvy and will demand improvement. Those Funds which do not respond will eventually not remain.
Governments certainly could so much more in legislating and policing the Funds so that they performed at a higher more ethical level, but not this government. This government seems to have no ideas to improve workers lives neither when they are working nor after they retire. There appears to be a concentration of ideas on how to make us all poorer.

Reply Alert moderator
- Lotus:
  
  19 Mar 2015 9:33:49am
  
  A very salient point about the effect of raising children on women's ability to have adequate super funds. There is going to be a large number of women retiring in the next 15 years who will not have enough superannuation to see them through their retirement years. Women take breaks from the workforce to raise children, and consequently miss out on accumulating enough super. I did not start paying compulsory super until around 1991, and have had to drop down to part time work for several years to care for my younger son. There needs to be a comprehensive review of the pensions system. Those that have adequate assets to live comfortably in retirement should not be drawing a pension.
  
  Reply Alert moderator
- Stan:
  
  19 Mar 2015 4:31:18pm
  
  Gran yes it tougher on women who have a broken working life however there have been options where your partner could contribute to a spouse fund and on return to work you have the foundation to build on. I know as my spouse and I have done that and now the kids are almost gone she is back building on it.
  You state that your super is "not going to be at the level to allow a high life in retirement". Is it supposed to? Unfortunately if you haven't put in then it's hard to expect more out.
  And why are you blaming this government? are they any different regarding superannuation then previous governments?
  
  And Lotus you say you "did not start paying compulsory super until around 1991." It wasn't compulsory for your employer to contribute until 1992
  
  And remember there is nothing to stop anyone from contributing additional to your super (or other savings) even lower income earners. Now that will stir a few possums
  
  Reply Alert moderator
  - Regionalgranny:
    
    19 Mar 2015 5:15:09pm
    
    You are quite right that super was not meant to provide for the high life and I do not think I suggested that it was. Stan, when we had four small children and one fairly modest income we were actually fortunate to be able to purchase a home and feed clothe and educate our children and give them a chance in life.
    It is also amazing how economic challenges presented during the 1970's can make choices made prior to that time to cause a rethink. Difficult when those choices involve dependent children and ill health of a partner.
    Until I resumed my career and both were working there was not enough money to make additional contributions for either my husband or myself.
    I am not blaming the current government for my superannuation balance although I do recall it was not a comservative government which introduced the super guarantee. I am, however, quite sure that policy changes outlined in the 2014 budget and the predictions in the IGR will not improve my financial situation. Blame is an indulgence and is not something that will put food on the table regardless of what I think about political parties.
    
    Reply Alert moderator
David:

19 Mar 2015 8:58:02am

You neglect to mention the other great non-productive sinkhole that superannuation funds invest into - the privatisation of existing assets. These investments do nothing to grow the economy and provide an easy way for fund managers to justify lucrative performance bonuses at the cost of the general public.

Reply Alert moderator
Edward:

19 Mar 2015 9:09:31am

Mr Kohler might do well to investigate the income and assets tests for the aged pension on the Human Services website. If the premis of the article is questionable one wonders about the conclusions.

With regard to the idea of switching to infrastructure I question the validity of pulling out a couple of examples to show how wonderful things are. As Mr Kohler well knows one of the principles of investment is the idea of diversification. You spread your portfolio to reduce the risk of a catastrophic loss. So the principle of investing a bit in each asset class is valid.

Mr Kohler seems to enjoy looking at absolute returns. At the end of the day it is the relative returns that are important. Any actuary when doing a report to a trustee will highlight that wen valuing the liabilities the relationship between wage inflation and assumed returns is one of the most important factors. The absolute returns to some extent is meaningless as a return of 6% with wage inflation of 4% gives similar results to a return of 10% with wage inflation at 8%.

If there is anything wrong with the system it's a failure of the super industry to educate its members on the appropriate investment strategy to follow. For some a less risk averse strategy is appropriate (i.e. later retirees) and for others a more growth oriented strategy is warrented (i.e. younger members). Mandating in the way Mr Kohler suggests ignores this and in fact takes the responsibility away from the member for making choices suitable for their circumstances.

Please, Mr Kohler, look at the entirety of the situation and stop grasping onto single numbers. It's a habit I expect from our politicians and political journalists but not from a "respected" financial guru.

Reply Alert moderator
- graazt:
  
  19 Mar 2015 2:57:25pm
  
  "Mandating in the way Mr Kohler suggests ignores this and in fact takes the responsibility away from the member for making choices suitable for their circumstances."
  
  But that's the whole purpose of compulsory super in the first place. What we're running the moral hazard of an industry full of rent-seekers getting government mandated revenue streams for.
  
  If we're all about encouraing personal responsibility, we'd scrap the scheme.
  
  Reply Alert moderator
  - Edward:
    
    19 Mar 2015 5:55:01pm
    
    Actually the original purpose of the compulsory superannuation system was to reduce the demand on the public purse from the aged pension.
    
    Unfortunately over the years the pollies have lost sight of the original objective and have made alterations that make it more of a wealth generator for the wealthy and a potential retirement holiday bonanza for those with a small amount that think the pension is a good idea for after they've blown the savings.
    
    Just look at how the tax treatment of benefits have changed over the years. In particular note the old conditions related to the taxation of lump sums and the treatment of "excessive benefits" when compared with today.
    
    Mandated investments create a serious potential problem for governments because they in defect take on the risk if the investment fails. Now if something goes wrong their liability is limited to the value of the aged pension. With a mandated investment the liability could theoretically increase to the value of the investment itself.
    
    Reply Alert moderator
    - graazt:
      
      19 Mar 2015 6:55:59pm
      
      I appreciate what you're saying. Good point about the potential liability being higher than merely paying out the pension with respect to mandated investments that go badly.
      
      Cheers for that Edward.
      
      Reply Alert moderator
Oldboilermaker:

19 Mar 2015 9:17:44am

Could not agree more with Bobthequill - Macquarie was known as the millionarie maker amongst it's employees - set a profit margin on super funds for and see then where they invest our funds - I personally do not use them - use my own SMSF

Reply Alert moderator
Unemployable:

19 Mar 2015 9:18:26am

In 4 years time I am due to get a pension, the present rules are allowing the government to not pay me any pension nor the dole.

So I unemployed and not paying tax's and getting no super

thanks Abbott thanks for nothing

Reply Alert moderator
- Relax Now:
  
  19 Mar 2015 11:10:57am
  
  So, you're about 61 worked for say 30 to 40 years accumulated super in the last 20 years of your working life for which you can now retire.
  
  What's your problem then - too much super, too many assets?
  
  Control your future and stop blaming ...
  
  Reply Alert moderator
  - Sue:
    
    19 Mar 2015 1:08:34pm
    
    Relax Now, perhaps you are so relaxed that you missed the words 'getting no super' from the person you were responding to.
    
    Reply Alert moderator
  - Stan:
    
    19 Mar 2015 4:34:30pm
    
    Sue perhaps you didn't read completely or understand what Relaxed Now said. Where is unemployable's super from that interpreted 20 years of working?
    
    Reply Alert moderator
GJA:

19 Mar 2015 9:18:38am

Surely super can be reformed to improve what it delivers: by the time I am retirement age, the life insurance provision is gone, so there's little benefit in all those premiums I will have paid. As for the fees, well, with all those billions of dollars, it seems to me the fees are exorbitant. There's profit enough for the fund managers and financial advisors, who do little to nothing (or nothing worth paying for) for their income, and could stand to take a cut.

Super presently is a trough for people it wasn't meant to provide for. Reform - if such a word has any meaning to our politicians - wouldn't be hard.

Except their mates are running the funds. It won't happen.

Reply Alert moderator
BkDw:

19 Mar 2015 9:18:38am

We had a big investment pipeline in renewable energy which the super funds were happily embracing.

Abbott and Hockey killed it in favour of the big carbon polluters, and gave the big polluters a big windfall in the way the carbon tax was wound up.

Now, Hockey is suggesting that the housing bubble should be blown up by super investment, beyond the existing ridiculous investment by self managed super funds.

Reply Alert moderator
Bullfrog:

19 Mar 2015 9:28:29am

Alan,
I like this idea. Some stick, but maybe add some carrot - for infrastructure projects ticked off by the government body (Infrastructure Australia?), some incentive to focus there.

Not quite sure what the right incentive is - a government backed rate of return (better than balanced, but less than the 12% figure you've been talking about) is one option, although I'm sure there are many others.

Reply Alert moderator
Chris White:

19 Mar 2015 9:42:18am

Having followed several articles from various commentators the super system could largely be interpreted as broken or at best ineffective.

However as soon as there is a mandated requirement ("more regulation" for the free marketers amongst us) to invest a certain proportion of that burgeoning pile of cash (super) into infrastructure assets there will be a rush of money that will overinflate the value of those assets and the returns will fall -at best. In the worse case there will be a whole lot of poorly thought out infrastructure developmemts (think Sydney's cross city tunnel) that sink piles of our cash and go broke .

Awesome idea and I love it but as with everything the devil is in the detail. I am not sure how you could limit the risk of the above scenarios?

Reply Alert moderator
Jim M from Sydney:

19 Mar 2015 9:47:19am

Alan, you give some positive examples of high-return infrastructure projects. What about some negative examples:

Sydney Cross City tunnel
Sydney Airport rail link
The Hills Centre at Castle Hill, badly designed and now demolished after 25 years of under-use

Imagine if your super fund had sunk large amounts into those projects. Infrastructure is not all upside.

On the other hand, allowing people to offset their residential mortgage using their superannuation, enables them all to save immediately on mortgage interest and get out from under the debt burden much earlier in their life. But I suspect that's not what the banks want.

Reply Alert moderator
- buckettea:
  
  19 Mar 2015 10:39:34am
  
  mixing super with housing is a bad idea.
  
  it will only up the prices yet again, no thanks.
  
  Reply Alert moderator
- old bat:
  
  19 Mar 2015 10:48:41am
  
  YES.
  To allow some super to be put toward a deposit on a new/never occupied dwelling earlier in life, could reduce the price and repayments over a period. That bursting of bubble has been mentioned on and off for decades yet we rarely hear popping sounds.
  Allowing this, would give people a feeling of security and permanency that one does not have when renting and waiting for the arrival of yet another letter telling you the rent is increasing, or the landlord is selling and you must vacate.
  It also means you that in retirement you would not qualify for a rent allowance which is something I have not seen mentioned as yet. For the government, this would be a real saving.
  Most pensioners would then be better off as the out goings on a modest property reasonably well maintained, is less then the money paid in rent. It also means peace of mind at an age when often alone, finding new premises, packing up and moving to a new location is very, very difficult
  
  Reply Alert moderator
  - Applaudanum:
    
    19 Mar 2015 11:26:51am
    
    Unfortunately, old bat, giving someone access to more money for a home deposit will push the price up as a competing buyer will also have access to more money. End result: for every 10k extra on the deposit = 50k is added to the sale value.
    
    Gee, you don't think that the people who are putting forward and supporting this plan already own houses, do you?
    
    Reply Alert moderator
    - old bat :
      
      19 Mar 2015 2:09:21pm
      
      Good point.
      However it could also lead to more homes/units being built, and I can assure you this is coming from a renter who in the days before super found that so much of a low wage going on rent the saving of a deposit was just not possible.
      We also should be looking at negative gearing for those entering that scheme. One home to live in and one of no more than say 95 square metres for rental is all one should be entitled to. when negative gearing. It would only apply to new homes/units.
      This is enough for some financial security, provides for the rental market, and is somewhat discouraging for those buying property s in the name of family members. as they are likely to want their bite of the cherry.
      Certainly it is not perfect, however it would help.
      
      Reply Alert moderator
    - Applaudanum:
      
      19 Mar 2015 2:59:43pm
      
      Negative gearing on new builds would be the way to go. Axe NG on existing property.
      
      Reply Alert moderator
    - graazt:
      
      19 Mar 2015 3:03:39pm
      
      It's not like older people aren't using SMSFs for this purpose already.
      
      That's just not really an affordable option if you don't have a critical mass of superannuation already accrued.
      
      Another kick in the guts for young people.
      
      Reply Alert moderator
  - rusty cairns:
    
    19 Mar 2015 12:06:31pm
    
    Gday old bat
    A young fellow asked a question about superannuation being free up to be used as help for this first home on Monday night.
    Chris Bowen answered the question perfectly I think with the statement along the lines of " if you and many people about your age were able to bid on houses at auction buy using your supper funds all that would happen is the price of the house would increase because of the increase of demand"
    Which in essence means the extra money available would go to the vendor or supplier, i.e. it would just drive up the price of your first home.
    In my view the way to help people into their first home would be to wind back negative gearing so that people trying to get that first home aren't competing with investors whom have the advantage of offsetting income paid in tax if the investment is making a profit.
    
    Reply Alert moderator
    - John 13:
      
      19 Mar 2015 1:50:51pm
      
      Exactly, we saw this happen with the "first home owners grant". I am not an economist but I appreciate the connection between demand and price, just go to an auction!
      
      Reply Alert moderator
- FairDinkumMate:
  
  19 Mar 2015 11:28:03am
  
  Jim M, Alan is recommending investing in infrastructure trusts(like UTA) or groups with similar exposure(like Transurban), not individual projects. In the same way that no super fund's manager would expose their fund to an individual companies equities on the sharemarket due to the potential to significantly underperform(or lose it all!), the same would be done with infrastructure.
  
  So even if a superfund invested in the next 'Cross City Tunnel', it's losses would be offset by it's gains on other investments in Newcastle's light rail or a new port in Darwin.
  
  Reply Alert moderator
- chalkie:
  
  19 Mar 2015 2:21:07pm
  
  another way to not have a huge unfunded infrastructure cost is to stop importing so many migrants: why should our super pay for this de facto business subsidy?
  
  Reply Alert moderator
  - Rae:
    
    20 Mar 2015 10:46:02am
    
    Or charge an infrastructure bond on entry of migrants, say $10 000. Those 230000 each year should be contributing to the infrastructure needed to accommodate them. It would raise $2300 000 000 for new infrastructure.
    
    Reply Alert moderator
- Fred Longbottom:
  
  19 Mar 2015 9:04:19pm
  
  Jim, the thing I don't understand about proposals to use accumulated super contributions is how the current structure of super funds could be changed to allow it and why banks would be interested.
  
  Super funds are trusts. Employers, not employees, make compulsory payments into those funds. The legal owners of the trusts' assets are the trustees. Employees have beneficial interests in the trusts' assets. In most cases those beneficial interests crystalise when each employee retires - they get a lump sum or a pension. (In exceptional circumstances employees may be entitled to benefits before minimum retirement age.) Trust deeds require the funds to deal with the assets in the interests of all the beneficiaries.
  
  Trust deeds can be altered, so I can see that it might be possible to make accumulated contributions available to a class of beneficiaries, though I wonder whether that could be done in a way consistent with the duty to act in the interests of all beneficiaries.
  
  More problematic is what the banks get and what it means to have "withdrawn" assets from funds. To call it an "offset" doesn't really make sense because an offset is the offsetting of one debt against another. But here there are 4 parties - the employer who made the compulsory contribution payments, the employee who has a beneficial interest, the trustee with the legal ownership of the trust assets and the bank as mortgagee. That creates a very complicated set of relationships but I'm not sure where there would be an offset.
  
  So are we really talking about a simple payment to the employee of the contributions made by the employer and a recalculation of benefits as if they had never been paid into the fund (with some adjustments for interest earned, etc)? If so, that seems very complicated and probably not in the best interests of other contributors who don't want to "withdraw" funds. Are the withdrawn amounts to be repaid at some time and entitlements recalculated? It just seems to undermine the purpose of having compulsory super.
  
  Reply Alert moderator
micka:

19 Mar 2015 9:47:37am

Thanks for the reminder that a 'concessional tax' for voluntary savings is part of the superannuation package we baby boomers signed up for.

Our voluntary savings go into our superannuation.

It's part of the deal that compulsorily takes 9.5% of our cash income when we could all use that money for our day to day lives.

We won't give the concession up.

We save and we vote.

Reply Alert moderator
wacky43:

19 Mar 2015 9:54:05am

Agree with the thrust of the article. More can and should be done with super to make it capable of supporting people when they have retired. Such broad changes are well and truly overdue. Yes , it will take time for the benefits to flow through.
Unfortunately at present the government is singularly focussed on cutting things rather than thinking about the bigger picture solutions.

Reply Alert moderator
Steve_C:

19 Mar 2015 10:01:15am

Good God Alan!! What are you on about?!!

Encouraging politicians to run their slimy, greed stained fingers through one of the last pieces of "independence" from serfdom that Australians have, is tantamount to handing the lolly jar to the fat kid with saliva dribbling down his fatty jowls as you ask him to not only look after the lollies, but to actually top it up higher than it's currently somewhat depleted state...

And what recourse would anyone have once the fat kid hands back an empty jar? Nada recourse is the answer to that!!

See - here-in lies the problem; namely... when schemes like Superannuation were dreamed up, the people who dreamed them up actually had "morals".

When they said that superannuation "wouldn't be touched", they meant it. Then those people got old, and the 'smart young things' got their chance to 'play' with the challenge of convincing those who shouldn't have been convinced, that making changes to the rules surrounding superannuation was in the best interests of those who actually have super...

And now - we have Mr Kohler jumping on that same bandwagon!!

As if it's not bad enough that the wolves are circling the once healthy super entity that was able to outrun those wanting to rip it to shreds for their own benefit! And here we are with another "ne're do well" 'advising' those looking for whatever excuse they can leverage, what sort of lever they could use to con the unwary into letting even more grubby little fingers into their lolly jar!!

It's up to the individuals who hold super to make the choice/s.

As with so much stuff these days though; asking those who ought to be asked is the last thing those who reckon they know better are going to do!!

The whole super situation is A-about-T! It's super holders who should be telling the pollies and the advisers exactly what is expected of them and holding them to account if things don't work out as 'promised'.

As a super holder, I raise my middle finger high to anyone - even my fellow Aussies, who thinks they have a right to do anything other than respectfully look after my super for me, and with honour and diligence, live up to their promise to protect my super until the age when it will supplement my capacity to survive (without the need for luxury) financially in my old age.

If they cannot look after what they've promised to look after, I then reserve my right to justice if not vengeance.

In the mean time - can we please refrain from encouraging the wide eyed with greed leeches of this world who'd just love to suck such a pool of cash that they see as "just lying around" drier than the Simpson Desert during a two decade drought!!

Reply Alert moderator
- Prime Lemur:
  
  19 Mar 2015 12:02:28pm
  
  Haha, not bad, Steve.
  
  Yes, I was a little concerned about people with plans for "my" super. The issue of underperformance is just that ... the funds are paying themselves mightily handsomely for some mediocre performance. Fair's fair ... cash rates at historic lows ... but that's when they should be earning their keep.
  
  I recall my first six years of employment. It was during the (Keating era) recession. On casualised or contract work, I spent as much time employed as unemployed. And every time I lost work, within months the super funds ate my balance to zero. They helped themselves to thousands of dollars of my money. And the nerve ... the only time they contacted me was to advise that my account was zero. I let them have it, with a CC to my local member. Eventually the law was changed ("more regulation"? Yes, thank God!) ... too late for me, 28 years old and no super *at all*.
  
  Things are better regulated these days, but you're right Steve. Its our retirement fund ... they need to ask us how to invest it.
  
  Reply Alert moderator
Eljay22:

19 Mar 2015 10:16:09am

The Treasurer quoted a report that many retirees who collected a substantial superannuation payout on retiring and still received a part or full pension, left a substantial if not increased estate when they died. The idea of the pension was to provide for those who had insufficient funds to retire on? Retirees should be prepared to spend all of their super payout on self funding their retirement instead of leaving a large estate for others. To me this should be a fair target for the government to look at to recoup its funds. There is a case to justify a reintroduction of "Death Duties".

Reply Alert moderator
- Nova4avr:
  
  19 Mar 2015 11:16:01am
  
  That is a very valid argument & one that should be pursued. We used to have death duties years ago & a lot of countries around the world do as well.
  It is also one way of redistributing wealth & catching some undeclared wealth on the way.
  
  Reply Alert moderator
- New World:
  
  19 Mar 2015 12:34:22pm
  
  You do know that changes have been made for financing aged care, so some money and estate put aside will be used to fund aged care. This cost is factored in by the government. After aged care is paid for some money is left for inheritance, but not as much as there was a few years ago.
  
  Reply Alert moderator
old bat:

19 Mar 2015 10:16:13am

Perhaps one of the problems is that people will 'arrange their affairs ' so they qualify for a few dollars pension and therefore receive a few goodies. If only the very wealthy were denied these goodies the rest, no longer needing to do this 'arranging' would make better finnancial decisions which long term would benifit all.l

Reply Alert moderator
- Bullfrog:
  
  19 Mar 2015 2:49:20pm
  
  People certainly do - especially so you can access the discount cards available to pensioners - worth quite a bit of money having subsidised medications, doctors visits, et al.
  
  Reply Alert moderator
Prime Lemur:

19 Mar 2015 10:20:06am

Super has been a mixed blessing for some. I recall a work colleague retiring at age 64 in 2008. Like many working class people, his super contribs were the bare minimum. When the market plummeted, he had to return to work ... for another 3 years. He didn't have the background to understand how he should have moved to less risk so close to retirement, he just trusted the super fund.

There are so many women out there with pitiful super balances. Governments have repeatedly put off raising compulsory super contrib rates ... in the end, those deferrals will haunt future governments. And yes, those governments who promised to raise the rates never funded it. The anger felt by a generation of super have-nots will turn into incandescent fury when, at age 70, they can't even pay off their mortgage, while the media reports of a small group who retire with super balances of tens of millions (in future dollars) substantially assisted by taxpayer largesse.

How about we remove the $40 billion super concessions, or even most of it, and split it between public debt retirement and funding a means tested increase in the super guarantee? When it comes down to it, no party (except maybe the Greens) will ever put this rort to the knife. Labor had its chance, the Liberals won't dare. Well, be prepared for the cost of the age pension increasing exponentially for as far as anyone dare foresee. At the same time, there will be extreme resistance to any further changes in retirement age, especially when those advocating it intend to retire long before reaching any such age.

Reply Alert moderator
- Brayza:
  
  19 Mar 2015 10:01:06pm
  
  While Allen has made some interesting points,perhaps I can clear up a few misunderstandings?
  First his calculations about peoples future entitlements to the aged pension with super in excess of current asset test limits. I suggest he has applied some indexing factor to future asset test limits.Currently they are indexed to the CPI yearly.This combined with his assumption of low future Super returns gives rise to the result that a single pensioner with $800,000 in super will still get a aged pension in 40 years time? To put these figures in some perspective ,the real value in todays dollars of $800,000 would be about $237,000 in 40 years time assuming 3% per year inflation.
  
  Reply Alert moderator
Lovey:

19 Mar 2015 10:42:26am

6% pa is a pretty fair long term average, and I think above what can be assumed. You would want to change your risk profile as you age.

Of course, if the contribution rate had been raised to 12%, I presume that the sum at retirement would exceed $1 million. This would take great pressure off the age pension, but I still doubt that a single person with $775,000 in assets outside the home, is entitled to a full pension? If so, eligibility is wrong, as I think this would buy a lifetime allocated pension of around $30000 pa. If not an ordinary deeming account would go close.

Reply Alert moderator
Gen X Dissolussioned:

19 Mar 2015 10:52:43am

The problem with many Super funds is that so much money is taken out in "insurance premiums" and it takes such a lot of mucking around to navigate their systems and opt our of this.

Especially if you don't have secure employment - each new job means a new super fund that we need to wrangle with.

Reply Alert moderator
- Prime Lemur:
  
  19 Mar 2015 12:20:50pm
  
  Gen X, I hear you. Presumably we're about the same age.
  
  With my industry super fund, the insurance is a nice little earner for them. Despite being a little cheaper than an independent insurance policy, the super funds have an army of lawyers and tons of disqualifications for claimants. They are notorious for rejecting claims.
  
  As for the second part, the government failed to fulfill its promise of truly portable superannuation. Especially in the situation you describe. At least there's a free Lost Super website run by government.
  
  Thankfully, there is better regulation now. I lost several years worth of superannuation due to being in and out of work. I had to start from scratch at 28. My wife is much, much worse off than me, as well (and not uncommon for women's super).
  
  Reply Alert moderator
- Sue:
  
  19 Mar 2015 1:19:18pm
  
  'each new job means a new super fund that we need to wrangle with' - not any more. For the last couple of years you have been able to choose which super fund you compulsory contribution goes into. Time to speak with your HR people to find out how to change yours.
  
  Reply Alert moderator
writy:

19 Mar 2015 11:09:25am

Keating didn`t set up a Superannuation Vehicle he set up a massive Financial Industry that feeds on the teat of "Superannuation".

How many people are employed by this Industry that leaches from the Compulsory Super Payments without any benefit to the people they "bleed"?

We, baby boomers, paid for our pension entitlements through taxation, successive Governments wasted that on bugger all infrastructure just lining voter pockets to be re-elected, than they set up a Private Industry that again waste our compulsory contributions.

I am a self-funded retiree, I fortunately setup a SMSF long before the Financial Industry stuck their grubby fingers in that sector of Super. I invested myself using the Dartboard Technique, bought a upmarket dartboard for $75, no further Financial Investment Advice costs for life of my Super Fund.

My Dartboard is for sale, second hand but many years of life left, Any bidders?

Reply Alert moderator
The Thinker:

19 Mar 2015 11:14:51am

Two issues raised by Alan deserve comment.

Firstly, I and many others would love to work until 65 (or longer). If you find yourself retrenched at 61, good luck finding a job. We live in an ageist society and despite various commentators publicly vocalising the fact, nothing is changing.

Secondly, having the family home exempted from the means test on old age pensions is absurd. A couple living in a $2 million home still qualify for a full pension providing their other assets are under the threshold. All this does is guarantee a healthy tax payer supported inheritance to the kids. Too many people who don't need a pension are receiving one and too many people who truly need a pension to survive don't receive enough.

Reply Alert moderator
Vaughan:

19 Mar 2015 11:15:07am

I found the article by Alan very interesting although I think the $800k and still getting a full pension is an error. Reading the other comments I'd add a couple of my own.
Firstly, the Abbott govt appears to be attacking pensions as though old people don't deserve them. As pensions currently cost 6% of Australia's GDP I would have thought that quite modest to prevent our oldies starving to death.
I'm sure Super fund balances would be a great deal healthier if it wasn't for the parasite fund managers (sic) who are creaming excessive fees.
I started my own SMSF when I discovered how much a fund manager was planning to charge me. I presented him with a graph showing the decline of my funds (once it was paying me a pension) with and without his cut.
Lets not throw the baby out with the bathwater. Lets increase the contributions to the 12% and legislate to control the ridiculous fees the funds are charging.

Reply Alert moderator
mikemwa:

19 Mar 2015 11:21:34am

Superannuation returns would be vastly improved if excessive fees and charges were not allowed. These are just profit gouging by those in the game and the losers are the contributors.

Reply Alert moderator
Dave:

19 Mar 2015 11:22:01am

There is no transparency about what super funds are investing in. They go up and down and this is claimed to be ok in the long term, which shows they are not actively managed. I review my super regularly, so many so-called different funds have exactly the same unit price graph. How can that be? Just one big account being played around with.

Reply Alert moderator
Geoff Edwards:

19 Mar 2015 11:22:14am

Alan Kohler: You are overlooking fuel security! Past performance is no guarantee of future performance!

The toll roads, airports, shipping ports that you have cited are all based upon consuming petroleum fuels. The current low cost of fuel is masking a deeper problem which is Australia's dependence upon the Middle East for fuel and its declining domestic production. Add to this the inevitability of some form of carbon price and it is logical to describe these forms of hard infrastructure as terminal consumption, not income producing assets.

The financial business cases for recent toll roads, to take just one example, have been built upon assumptions of unending, geometric expansion in traffic numbers. This simply isn't going to happen.

Reply Alert moderator
Freddie Frog:

19 Mar 2015 11:25:31am

I don't think you can blame the super industry for the ignorance of the general public with relation to the investment strategy and fees of their superannuation accounts. People should be paying far more interest to their own retirements and funding them.

And the solution to the strain of the pension problem could be fixed quite easily by toughening the assets and income tests including the value of the family home.

Reply Alert moderator
Nova4avr:

19 Mar 2015 11:26:16am

The Abbott Govt. for some reason think that if you reduce super contributions or hold them at the current rate rather than increasing them will give people more money in their pockets. That is true if you have a very limited view on the future & you surely must realise that in time there will not be enough super saved in funds to offset the demand for the aged pension. This is basic kindergarten maths.
The whole tax system urgently needs a complete overhaul, together with negative gearing, capital gains tax & we need the reintroduction on death duties, commonly referred to these days as estate tax.

Reply Alert moderator
Harquebus:

19 Mar 2015 11:33:09am

The limited resources of our finite planet are not adequate to support a growing population which, is the current solution and is not working. The more of us there are, the more frugal we will have to be.
The GFC MkII will take care of superannuation, permanently.

Reply Alert moderator
- Rae:
  
  20 Mar 2015 11:01:59am
  
  Pity they canned the Carbon tax when we had a fair chance of renewable energy before the reality of resource depletion slams into us.
  
  Reply Alert moderator
Dave:

19 Mar 2015 11:39:00am

not sure where Alan gets his information but I have well under a third of the amount in super that he suggests would be the cutoff point and I only get a part pension

Reply Alert moderator
- brett kitchener:
  
  19 Mar 2015 2:54:29pm
  
  The age pension starts to be whittled away when you have about $160 a fortnight income if you are single and $284 if you are a couple.
  
  The pension cuts out completely when your fortnightly income hits $1868 ($48,568pa) for singles and $2860 ($74,360pa) for couples.
  
  This information is freely available on the Centrelink website.
  
  Clearly many people will get a part pension in retirement and the pension card. But lets talk about this issue with the real facts in front of us.
  
  Mr Kohler should do better than this - or get off the ABC.
  
  Reply Alert moderator
  - Brayza:
    
    19 Mar 2015 9:41:06pm
    
    Thanks for your spot on figures Brett,while Allen didn't say so,(he should have ) I'm sure he was taking the correct figures you have quoted & indexing them by some percentage,perhaps 3%/year for the 40 year period he has used? If so his figures may well be correct? However he should have also pointed out that the real value in todays dollars of $800,000 of Super would be a mere $237,000!! Today a single pensioner with this amount of modest super would get around 90% of the aged pension.
    More misleading is Allens & many other so called experts,suggestion that in future the cost of the aged pension will be unsustainable. As I recall even the current Intergenerational Report suggest that the aged pension will grow from around 2.7% of GDP to 3.9% ? This hardly seems something we should all be "falling off our Chairs" about?
    The IGR suggests that the big costs of an ageing population is in Health & Aged Care ,rather than the aged pension??
    
    Reply Alert moderator
velcro:

19 Mar 2015 11:51:05am

Thanks for the good article Alan.
You present a compelling argument for wise use of the huge pool of superannuation funds which are largely underutilised.

Cheers to whichever government is brave enough to unleash the enormous earning potential of these trillions.

Superfunds for infrastructure, yes.

"........lift their returns and solve the age pension problem........."

Reply Alert moderator
Thin Man:

19 Mar 2015 11:58:44am

I think the "problem" with superannuation and age pensions might easily be solved by restricting access to superannuation benefits at retirement. The system currently allows retirees to access their entire superannuation lump sum and I believe many retirees take this option to buy retirement toys like caravans and 4WD's whilst keeping a close eye on the age pension assets and income tests in order to obtain the best possible outcome. Why not legislate to limit access to superannuation? You might limit cash withdrawals to (say) 20% of the retirement account balance with the remainder to be used only for a pension which is already assessed under the income test. Maybe, over time, as individual superannuation balances grow this might be a solution?

Reply Alert moderator
Maynard:

19 Mar 2015 12:04:29pm

Alan you are one of the regrettably few ABC commentators who has positive ideas for discussion.
In due course maybe the whole corporation may take its lead from you.
Then we would all benefit.

Reply Alert moderator
- brett kitchener:
  
  19 Mar 2015 2:53:36pm
  
  But in this case - as in some others he has written about lately - he is factually wrong.
  
  The age pension starts to be whittled away when you have about $160 a fortnight income if you are single and $284 if you are a couple.
  
  The pension cuts out completely when your fortnightly income hits $1868 ($48,568pa) for singles and $2860 ($74,360pa) for couples.
  
  This information is freely available on the Centrelink website.
  
  Clearly many people will get a part pension in retirement and the pension card. But lets talk about this issue with the real facts in front of us.
  
  Mr Kohler should do better than this - or get off the ABC.
  
  Reply Alert moderator
mmc:

19 Mar 2015 12:29:04pm

How about this. Politicians don't pay tax on their super contributions or their payouts. Why doesn't that apply to everybody else.

If they removed the super tax's then the long term effect is that somebody has more money in their super fund as each year that additional would accumulate interest meaning a higher superfund.

If it's good for the politicians then why isn't it good for everybody else.

At the moment the tax rate is 15% of your employer super gaurantee on amounts up to $30 000 a year and then at your personnal tax rate if the contributions are over $30 000 a year.

That mans that if your employer contributiosn are $10000 you get tax $1500 per year, over 20 years that is $30000 plus interest at 6% compounded which works out at about an extra $58489.09. on the remaining $8500 a year you end up with $331438.2 over 20 years.

So basically you can increase you super by 17.6% by removing the tax.

Something worth thinking about isn't it

Reply Alert moderator
jk22:

19 Mar 2015 12:38:12pm

I like Mr Kohler's style and substance as observed over the years.

While I have no possible idea of how the economics works - [that's almost just mere detail!] I feel that Mr Kohler's suggestion appears virtuous.

Reply Alert moderator
- velcro:
  
  19 Mar 2015 2:41:20pm
  
  "jk22,"
  Like you, I believe Alan Kohler is fundamentally service motivated, hence, his appeal across interest groups and directly to the average citizen.
  
  It's refreshing to have common sense solutions presented for consideration.
  
  Reply Alert moderator
- brett kitchener:
  
  19 Mar 2015 2:52:46pm
  
  But in this case - as in some others he has written about lately - he is factually wrong.
  
  The age pension starts to be whittled away when you have about $160 a fortnight income if you are single and $284 if you are a couple.
  
  The pension cuts out completely when your fortnightly income hits $1868 ($48,568pa) for singles and $2860 ($74,360pa) for couples.
  
  This information is freely available on the Centrelink website.
  
  Clearly many people will get a part pension in retirement and the pension card. But lets talk about this issue with the real facts in front of us.
  
  Mr Kohler should do better than this - or get off the ABC.
  
  Reply Alert moderator
G. Andries:

19 Mar 2015 12:59:13pm

Thanks for an most astute and timely article, Alan Kohler.

Now, I have an acquaintance who lives in 12 million dollar home, has ample superannuation, a billionaire child (a 'self-made' person) and she still has a healthcare card and a part pension - while down the road I know of a mother who has diabetes and arthritis, has difficulty walking and has a child with ausperger syndrome. She doesn't own her house. She was put on NewStart.

While the premise that Australia needs to go into the black is
of course agreed on, it is the method the Coalition must
rethink if they want to keep governing, as you said, as I concur.

Reply Alert moderator
mark longhurst:

19 Mar 2015 1:24:23pm

the real issue with super as shown is the returns generated by a 'balanced ' portfolio, this is because governments and unions have dumbed down the need for advice.most people still don't even know where their super is invested and choice legislation has taken a backburner because of IFS' where they don't want you to get advice.. most literally say where do I sign when getting a new job, they don't take 'ownership' of the investments and then blame everyone else when a 2008 event happens.Pollies actually don't care because of their own ridiculously generous super-but ask them where their money is invested and they will also give you a labour party's dumbed down quizzical look ..

Reply Alert moderator
CF Zero:

19 Mar 2015 1:26:01pm

The trouble with investing in infra structure is the returns are limited by govt policy.
A toll road operator for instance may need to charge $2 a trip to make their debt funded project viable, but a govt needing votes will limit the price to $1 to ensure it is re-elected, the toll operators are not running their business efficiently when their is a price cap so why would i want to invest money in it?

In any event, superannuation funds have a sole purpose test, building the nations infra structure is outside of this.

It wasnt so long ago that I was laughed at when I suggested its only a matter of time before the govt takes your super and uses it for some nation building project, the govt can force people into these sorts of investments by requiring all super funds to hold a particular asset like the "Aussie Infrastructure Bond" they will invent, to retain their concessional tax treatment.

Reply Alert moderator
The Investor:

19 Mar 2015 1:37:48pm

Age Pension income, Disability Pension, Newstart Allowance and other social services benefits / income needs to be dramatically INCREASED to reflect Australia's high cost of living, reduce poverty and homelessness! However, there needs to be a major restructure to our tax system and other rules. Examples are:

1. Estate planning tax: Why should tax payers have to subsidise the lifestyle of retirees so that their children can inherit up to millions of dollars worth of assets - tax free? True example - My parents are both on the Age Pension. When they die, the kids will inherit millions of dollars - tax free.

2. Income claw back: Similar to students who take out a student loan, Age Pension income needs to be clawed back from assets. Newstart allowance and other social services income also needs to be clawed back from future income and assets.

3. The rich and large corporations need to pay a higher income tax rate. The GST mainly hurts the poor and middle class - not the rich.

4. Land / property tax needs to be significantly increased - for both investment properties and houses. Many people live in homes worth over $2M. If they can afford this, why can't they afford to pay land tax to help the poor. Or this money can go towards government housing, safe shelters for women & children who suffer from domestic violence etc.

5. Share ownership needs to be taxed (similar to land tax). There are many investors who have millions in share ownership. It's unfair that property investors are slugged with land tax and share owners are not (but it used to be).

The abovenamed written off the cuff and shouldn't be taken as verbatim. We need strong leadership in this country to ensure the poor / lower class have some form of dignified life. Unfortunately, this will probably not happen in my lifetime.

Reply Alert moderator
A pocketful of wry:

19 Mar 2015 1:52:14pm

A look at that clear, concise, up-front, unvarnished speech from Keating reminds me that whereas today's retirees are super-poor and facing an uncertain pension position, they at least have the dotage-comfort of reminisces from their earlier days of having lived during a golden age when incoherent, spineless simpletons didn't run the show.

The young of today may indeed be able to position themselves in retirement much better than the current mess, but they'll also have to carry the baggage of knowing they spent their best years when cretins strode the Earth.

Having to live to 150 with the scars of being associated with a period in history when the wheels well-and-truly came off is a heavy burden to carry - and I have no doubt their 75 year-old children who will still be living at home with them whilst they save for a house deposit will not be shy about reminding them of it.

Reply Alert moderator
Jane2:

19 Mar 2015 1:53:54pm

On very obviously flaw with your idealogy...government needs to first approve infrustructure for superannuation to invest in and governments have not been approving infrustructure.

Reply Alert moderator
zeus:

19 Mar 2015 2:47:21pm

Reading the comments so far leads me to think there is much confusion between the role of financial advisors and the role of superannuation fund managers.. Personally I will leave my funds in a super fund as they employ people who know a lot more about financial investing than I do and the annual return has been far more than the annual fees charged plus CPI so I am well ahead. But the issue of going to a financial advisor to get advice on where to place funds is the crux of the issue from my perspective. They charge $000s for their advice and you are still left with the annual fees from the super fund anyway. Just do your own research... find a well known fund and check their returns over the years and choose one and then just pay the annual fees and dont complain about them.. Those fees are the price for not having to wake up every day and getting on the web and doing some shares trading every single day and then spending the rest of the day wondering if you made the right decisions..

Reply Alert moderator
Thai:

19 Mar 2015 4:48:44pm

What misguided socalist policy is next?
As a country, we are approaching a tipping point, from which we will be unable to return. Our standard of living will continue to fall and our university drop out population will flood the ranks of the unemployed as they expect everything to be free and as easy as their life has been todate. Sadly the real world is not like that.

When the administrative burden of compliance reaches unsustainable levels and business is taxed beyond the level where consumers can reasonably pay, their margins drop and the incentive to employ evaporates. No jobs, no super. Time is like a river. You cannot touch the water twice, because the flow that has passed will never pass again.

The ability to sustain the Australian Dream ended in May 2007, when Keving Rudd introduced his Mining Tax and killed the golden goose. He then took the last eggs of the goose and made an omlet which he lavished on the Australian population, claiming that without that vote havsting splurge the economy of the country would collapse; he was not clever enough to see that the proposed Mining Tax had caused the collapse and the mining companies could not live on the funds he was throwing on the rest of the population. In a period of record Government reciepts, we spent more than we recieved, promised more that we could ever hope to recieve. Mr Rudds successor, Ms Gillard, then stiffled the second stream of growth income and banned live animal exports, based on a one in 1000 report, in yet another vote harvest. Now the modernday blue collar Union thug running the opposition will be the final nail in the coffin for the legacy of the Christian ethic behind those who discovered, explored, pioneered, settled and developed the greatest free country in the World at present.

A coalition of single ideal narcisists comprised of immigrants approved or other, Feminists, Gays, Government Workers, Union Members, Environmental Extremists, Media, uninformed young people, the "forever needy," the chronically unemployed, illegal aliens and other "fellow travelers" have ended the "If you want it work for it" Australia . The Cocker Spaniel is off the front porch ... The Pit Bull is in the back yard. The American Constitution is being replaced with Union rules and anti soial activisim along with the American international Socialist George Soros will be pulling the strings on their beige puppet to bring us Act 2 of the New World Order.

Once they get in to Government again, as disgraced ex WA Premier Brian Burke claimed of his Government, one more term and you will never again out-vote us. Sadly It will take individual acts of defiance and massive displays of civil disobedience to get back the rights we are allowing them to take away. It will take Zealots, not moderates & shy not reach-across-the-aisle gentle folk to right this ship and restore our beloved country t

Reply Alert moderator
DTH:

19 Mar 2015 5:13:32pm

I am a SMSF retiree who is comfortably off and enjoy the fact that my wife and I are totally independent of the public purse and will be for life.

I do have friends who are much better off than I am but access the social security system. I believe this is wrong despite the comment: "Well, I paid my taxes."

Many print medium print letters to the financial section asking how they can rearrange their financial affairs to maximise their pension and other entitlements and I think this is also wrong.
Sometimes this involves drawing down funds and "hiding" those funds with family.

I believe pensions should be a "safety net".

Not right!!

Reply Alert moderator
Peterputer:

19 Mar 2015 5:58:03pm

There is a second issue of people taking a lump sum, spending it, and then getting on the pension. Baring exceptional circumstances, I believe all super should be taken as an annuity (and I'm retiring in a couple of months and am doing just that).

Reply Alert moderator
bettysteve:

19 Mar 2015 6:54:15pm

The country never had such a financial problem as it has now, since our first female Prime Minister decided that that office needed to attract a higher pay scale, so she gave herself a pay rise, to which that office is now one of the highest paid public jobs in the world. The flow on from the trippling of this wage from over 300K per year to almost 1 million per year, plus superannuation co contributions, meant that ALL of her colleagues had all of THEIR wages tripled as well, and their superannuation co contributions tripled as well, this is Federal, State AND Local politicians, (the Lord Mayor of Adelaide retired with a 400K per year pension for life). We as a country can no longer afford to keep these people in the lifestyles they wish to maintain, and the whole time, they are just selling off the family silver to keep their party party lifestyles running.

Reply Alert moderator
Waterloo Sunset 2016dd:

19 Mar 2015 8:00:52pm

Can I just plead with people to stop having babies that 'we' can't afford?

How about a 'no baby year'?

Reply Alert moderator
Don:

19 Mar 2015 8:52:38pm

Alan,
I agree with your sentiment that superannuation should be used. For infrastructure investment - which would improve super returns as well as provide funding for these wealth creating projects.
This could be done without the need for any super fund rules. The solution is to replace the 15 percent tax rates for super contributions and earnings by each persons overall tax rate ie 2 percent for someone on $20k, 10 percent for someone on about $38k, etc. this would raise an additional 10 to 15 billion in revenue each year. The government could set up a Retirement Fund ( similar to the Future Fund) an equal amount to everyone aged between 20 and 65, I.e. about $1k per person per year, and invest this money in productive infrastructure. Then everyone would receive the full pension, and the 'Retirement Fund' earnings would Fund about half the pension budget.
Another method to improve superannuation performance is, of course, to reform and reduce fees. I understand that Chile has reduced super fees by 90 percent and New Zealand by 50 percent by reforming fees. Also Industry Super Funds seem to return considerably more than Retail Super Funds - I wonder if fees explain this given they use essentially the same investment strategies. In any case, halving fees for high fee Super Funds would not only benefit members, but would mean that Government would need less money for Pensions to top up super income streams.
It's all too simple really - makes you wonder why nothing seems to be done.

Reply Alert moderator
BibioHopper:

19 Mar 2015 10:45:45pm

The ABC would be much more credible if they could, at least just once in awhile, come out it agreement with a good idea by the Liberals. It is just impossible that ALL of their ideas are bad, but you would never know it by reading this site or watching their newscast. Do they honestly think we are that stupid?

Reply Alert moderator
mick:

20 Mar 2015 5:28:30am

the problem is the lnp have no idea
the abuts and hockny mob have stuffed up the last budget and now the usual backflips
we have seen the lies on the debt they said labor left

also the lnp abuts and hockny are out to drain every cent they can out of pensioners poor and workers
so abuts and hockny can give it to the rich

Reply Alert moderator
mick:

20 Mar 2015 5:35:57am

its the job of abuts and hockny to attack the workers the poor and pensioners

wat they need to do is find out were all the cash has gone from the likes of lowy etc
and bring it back from Switzerland and like minding countries

Reply Alert moderator
Michael from Hobart:

20 Mar 2015 8:31:46am

Well written Alan. I do believe, however, that you have missed the 3 biggest problems with Australian super; 9.5% is way too low, it should only be available as an annuity, and brokerage fees are disgracefully high.

Had those problems been addressed at the get go, the unbearable stress on the old age pension would be a lot less acute presently.
Any tinkering at the edges now will have little impact on the fiscal difficulties Australia will face until us baby boomers have expired.

In that so very Australian way, we are trying to close the gate after the horse has bolted.

Reply Alert moderator
Manimunak:

20 Mar 2015 10:56:35am

Too many comments by upper middle class educated experts.
Superannuation is just another word for pension. But in Australia this pension fund is controlled by private industry hence subject to the influences and risks of the financial markets.
While Kohler is right about investment in infrastructure all super should be controlled by government where the government takes to risk of investment and guarantee a reasonable rate of return at retirement, without any part of the super becoming a transferrable asset. Like the old buying tax pension stamps.
Pensions as a welfare payment to continue only as a welfare payment for the destitute.
We rely far too much on the integrity of free (or semi-controlled) market mechanisms.
Too many times people have taken super as a lump sum, spent it on whatever then went back onto the government pension. Not on in my opinion.
Superannuation is a misnomer and should be renamed compulsory pension saving.

Reply Alert moderator
BT:

20 Mar 2015 11:32:01am

I disagree. The government ought not to be able to dictate where super funds invest their member's money. Whilst infrastructure may be a sound investment now, the temptation for a government to funnel the money into its own high-profile "nation-building" white elephants would be overwhelming. Anyone care for a new dam perhaps?

Reply Alert moderator
Paul Taylor:

20 Mar 2015 12:09:32pm

Good idea, good lateral thinking, Alan.

Given the volatility of current economic times in the aftermath of the GST government needs to be pragmatic, bold and looking outside the box rather than act to pre set economic dogma and ideology prescriptions if it wants to retain voter support. Indeed, government should be looking at where super funds are investing our billions rather than cutting pensions while working around the current contribution rate cap of 9.5 per cent cap rather than the initial 12 per cent cap.

As you intimate, Ian, government should be legislating to raise super fund allocations to higher returning infrastructure to 20 per cent, up from 4 per cent as at December 2014, while the combined percentage of interest bearing fixed income and cash falls closer to 10 per cent. I believe this could be phased in over 4 to 5 years and include infrastructure foreign investment as part of the mix in conjunction with a more resilient, diversified and high performing equity base of 51 per as at December 2014, brought about by enhanced commercialisation of Australian science, innovation, R&D and associated creation of niche industry public listings.

Record low interest rates may not be good interest bearing investments but they are for the ongoing and enhanced commercialisation of Australian science, innovation and R&D if an additional $11 to $12 billion was raised in commonwealth bonds and added to that already loaned to the Reserve Bank Of Australia (RBA) to form a joint institutional fund of $20B. When domestic interest rates eventually rise the RBA adds increased revenue returns, the CSIRO in the normal course of business contributes royalties, a share of profits in collaborating with industry and foreign countries.... which could be in the form of share dividends or sale of shares in new diversified, high performing, value add industry listings on the Australian stock exchange. The RBA , CSIRO and affiliates would pay off interest and debt principal independent from the government.

In addition the introduction, over the next 4 to 5 years, of a modest financial transaction tax (Tobin Tax) of variable .01 per cent to .05 percent on transactions for banking, shares, derivatives and bonds and currency exchange as opposed to changes to the GST....a tax for volatile economic times more amenable to adjustment; a hedge against EU quantitative easing ( cheap money looking for a home pushing the Australian Dollar higher against the US dollar than it would otherwise be while destroying Australian international business competitiveness)...and a tax which would encourage longer term super investment in infrastructure and new emerging, high value add industry not subjected to regular turnover of funds for both super and equity investments.

Web search ewlp in ABC search engine, above, for practical infrastructure projects in comments section by Paul Taylor on THE DRUM blogs.

Reply Alert moderator
Paul Taylor:

20 Mar 2015 12:18:25pm

Good idea, good lateral thinking, Alan.

Given the volatility of current economic times in the aftermath of the GST government needs to be pragmatic, bold and looking outside the box rather than act to pre set economic dogma and ideology prescriptions if it wants to retain voter support. Indeed, government should be looking at where super funds are investing our billions rather than cutting pensions while working around the current contribution rate cap of 9.5 per cent cap rather than the initial 12 per cent cap.

As you intimate, Alan, government should be legislating to raise super fund allocations to higher returning infrastructure to 20 per cent, up from 4 per cent as at December 2014, while the combined percentage of interest bearing fixed income and cash falls closer to 10 per cent. I believe this could be phased in over 4 to 5 years and include infrastructure foreign investment as part of the mix in conjunction with a more resilient, diversified and high performing equity base of 51 per as at December 2014, brought about by enhanced commercialisation of Australian science, innovation, R&D and associated creation of niche industry public listings.

Record low interest rates may not be good for interest bearing investments but they are for the ongoing and enhanced commercialisation of Australian science, innovation and R&D if an additional $11 to $12 billion was raised in commonwealth bonds and added to that already loaned to the Reserve Bank Of Australia (RBA) to form a joint institutional fund of $20B. When domestic interest rates eventually rise the RBA adds increased revenue returns, the CSIRO in the normal course of business contributes royalties, a share of profits in collaborating with industry and foreign countries.... which could be in the form of share dividends or sale of shares in new diversified, high performing, value add industry listings on the Australian stock exchange. The RBA , CSIRO and affiliates would pay off interest and debt principal independent from the government.

In addition the introduction, over the next 4 to 5 years, of a modest financial transaction tax (Tobin Tax) of variable .01 per cent to .05 percent on transactions for banking, shares, derivatives and bonds and currency exchange as opposed to changes to the GST....a tax for volatile economic times more amenable to adjustment; a hedge against EU quantitative easing ( cheap money looking for a home pushing the Australian Dollar higher against the US dollar than it would otherwise be while destroying Australian international business competitiveness)...and a tax which would encourage longer term super investment in infrastructure and new emerging, high value add industry not subjected to regular turnover of funds for both super and equity investments.

Reply Alert moderator