Australian superannuation – for the benefit of Canberra, Collins Street or Struggletown?
Australians have more money invested in managed funds per capita than any other economy in the world. But Fergus Neilson wonders if we are making the most of it.
Superannuation is like insurance. We all expect to retire. We know we need super, but we are not so willing to sacrifice current lifestyle to pay for it. Nor do we necessarily believe that the government and investment managers charged with care and maintenance of our retirement nest egg actually have our best interests at heart.
At least compulsory super, introduced in 1992, means that the average super balance is now over $60k. This is not enough to last 20 or 30 years, but that will change as the contribution rate increases from nine percent to 12 percent over the next seven years. By 2020, the pool of investable superannuation assets is expected to have risen to around A$2.5 trillion. Australia will be well on its way to ensuring that pensions no longer constitute an unfunded government liability. This is in marked positive contrast to countries such as France and Italy that have unfunded pension liabilities exceeding 200 percent of GDP.
Although it isn’t perfect, the Australian system by design and culture has fewer losers than most other national systems. So there should be little cause for concern. Yet, the future is unclear. Superannuants are confused by what seems to be an ever-changing set of rules about what can and can’t be done. Investors of all categories are still gun-shy after the GFC and are understandably nervous about the possibility of a slow down in China, collapse of the Euro and economic stagnation in the US.
Scenarios for the near future
This look at superannuation in Australia presents four scenarios to stimulate discussion on the best way to ensure that superannuation can meet the needs of Australian retirees over the next ten to twenty years. We seek your feedback on which scenario represents the best outcome for Australian retirees? Score each scenario from 1 (least beneficial) through 5 (most beneficial). And suggest those actions that can be taken today to enhance the probability of adoption and application of your preferred outcome in the near future.
SCENARIO 1: Personal Wealth Platform – It’s my money and I’ll manage it and access it when and how I want. There are now 439,000 Self Managed Super Funds in Australia with an average balance of over A$1 million. SMS represents 32 percent of the national superannuation pool. SMS fund holders want more flexibility in how they invest, easier access to their money and simpler transition to and through retirement. Super being just one element in a ‘package’ of personal assets to be managed as a whole.
SCENARIO 2: Sovereign Wealth Fund – It’s part of the nation’s infrastructure and should be used for nation building. There is a view that superannuation exists only because the Super Guarantee Charge was introduced by legislation in 1992 and that it represents a significant tax advantage to the superannuant. By extension, therefore, the superannuant owes a reciprocal obligation to make his or her assets available to the government for use in nation building – roads, rails and universities – for the long-term future of Australia.
SCENARIO 3: Social Safety Net – It’s there to ensure modest comfort in retirement. The average age of retirement age in Australia is now around 58. The average life expectation in Australia is now close to 80 for men, 83 for women. Super can be seen as having one, and only one, purpose. Which is to ensure that the last 20+ years of life can be lived in reasonable comfort. This requires that super is compulsory, starts early, continues uninterrupted through a working life and is assigned to reliable and trustworthy managers for the duration. Perhaps, most importantly, this means that superannuation needs to spread its benefits (tax breaks, etc) fairly, rather than regressively.
SCENARIO 4: Industry Building – It’s there to create a publicly funded wealth management sector. Economies of scale can have real benefits. However, the risk generated by the weight of money flowing into superannuation is the power that it gives to the investment management industry (including the industry super funds) to pressure for changes and for a (minimal) oversight regimen that benefits the industry rather than the superannuant.
Correspondent feedback
Your comments and scoring on these four near future scenarios and your suggestions for action NOW will be used to refine The Future Project’s proposed ‘issue & scenarios posting’ on superannuation futures. With that posting aimed at a wider spectrum of social networks and the aggregation of ‘crowd wisdom’ into public debate on this crucial issue.
The Futures Project
The Futures Project is focused on a single ambition: using social networks to access the wisdom of crowds and directing that aggregated wisdom at encouraging government and business clients to shift their emphasis from hindsight and daily ‘fire fighting’ to the application of insight and foresight in preparing society now for better outcomes in the near future.
Fergus Neilson is Co-Founder of The Futures Project. Fergus brings a wide range of business and life skills gathered from a career in the armed forces, investment banking, the United Nations, McKinsey & Company and private equity investment. Always sceptical of solutions imposed ‘top-down’ and increasingly frustrated by the default position that invariably sees cleaning equipment bought in only after the proverbial has hit the fan. Fergus can be contacted at fergus.neilson@thefuturesproject.com
Fergus Neilson has a wide range of business and life skills gathered from a career in the armed forces, investment banking, the United Nations, McKinsey & Company and private equity investment.
hawil
October 25, 2012 at 1:40 am
super and pension.
The Australian super seems to benefit only the top 30% of the people, while the other 70%’s super is being managed by financial managers, and even in the industrial funds, most managers are paid in excess of $500,000 per annum, while, as you state the average member has $60k of super.
According to a select committee 2003, Australia is the only country which means-test the basic pension, and according to them, the means test is, mean.