Today’s article tips its hat to our guiding philosophy here at Fat Tail Investment Research of personal freedom and responsibility.
We can’t help but object to the fact that the so-called ‘Super Guarantee’ rose from 10% to 10.5% on 1 July 2022.
It will rise to 11% next financial year. By 2025, it will be 12%.
The finance industry pitches this as a way to secure a healthy retirement for Australia’s workers.
The reality is the government forces you, me, and everyone else to hand our money over to the financial markets, usually via fund managers that rip out billions in fees.
Even if super ‘worked’, philosophically we take issue with the government not only fleecing our wealth through taxes but then telling us what we can do with another 10% it doesn’t steal in the first place.
‘But, but’, some say, ‘super keeps people off the age pension’.
The Australian Financial Review cited a report on this issue released this year:
‘The PBO modelled a handful scenarios in which superannuation never existed. In most situations, the Commonwealth government would have saved more money if it had never introduced superannuation.’
The tax breaks to the super industry are nearly $40 billion a year.
Mostly due to this, super doesn’t save the government money on funding the pension.
Note too that last financial year, about 50% of super balances were paid out as lump sums.
In other words, as soon as people got access to the money, they grabbed and spent it, probably paying off their remaining mortgage balance, therefore getting the age pension, or part of it, anyway.
$141 billion flowed into assets under management within super last financial year.
Economist Cameron Murray cites that Australians pay $30 billion in fees per year to the financial industry.
Put that together with the $40 billion in tax breaks, he says, and fees and lost taxes are greater than the age pension.
And what did you get for your money?
In the last financial year, the average super fund returned -3%. Adjusted for 5% inflation, this result was even worse.
Just three funds made money.
Thank God for Self-Managed Super Funds — one avenue of escape from an absurd system.
Let’s be blunt: Super robs people of the right to access and spend their own money.
Apparently, the government and the financial industry are full of Thomas Jeffersons and Albert Einsteins that know better than you and me on how to allocate the wealth we create.
Why, then, did we need to have a Royal Commission into Misconduct in the Banking, Superannuation, and Financial Services Industry?
One of the few decent decisions from Scott Morrison was to allow people to access their own money during the COVID crisis — and offset the contraction in spending otherwise.
That reminds me…that decision was criticised by some who said anyone withdrawing money would lose thousands from the lost compounding effect.
I guess those critics didn’t expect the financial markets to take a hiding in 2022.
And who knows?
Maybe the money that escaped the super system financed an education course, a small business, or a move to a higher paying job in another part of the country?
I’m sure some of it was squandered too, but there’s plenty of that going on in super as well.
One of my friends is billed $500 a month for his managed fund for ‘advice’. He gets the bill every 30 days, but the advice…never.
Why bring this up? It’s not just to rant.
You and I know that one fear stalking the markets right now is rising interest rates choking some of Australia’s overleveraged homeowners.
Wouldn’t it make sense to relieve the pressure on their living expenses by letting them keep what they earn, or, if you must, at least let them pay off the damn house with it?
Why would we have the absurdity that an Aussie citizen can’t pay down their mortgage loan (with their own money) but it’s OK for a fund manager to buy property trusts for them (for a fee, of course).
Both are assets, just in different structures.
One is a lot more helpful when you have a big mortgage, and likely, high childcare or living expenses.
This debate is going to become more acute as we go forward. The money amassing in super is gigantic…and everybody has their oar in the water about what to do with it.
Lost in this debate is that it belongs to the people who created it in the first place…who should be able to do what they damn well please with it.
Editor, The Daily Reckoning Australia