How many working class people actually question the usefulness and efficacy of their retirement fund(s)? The answer is that everyone does to a certain degree. This question always pops up in people's minds when they get their end-of-year statement, look at it, and realize that even though they have put in $15,000 over the year, they are actually down $10,000 compared to last year - a total loss of $25,000! This example is all too common for the majority of people who received their statement for the 2008-09 financial year (due to the Global Financial Crisis and all).
Some people (tired after a hard day at work) just shake their heads and grumble "useless fund managers," or something along those lines and then file away the statement and get back to watching TV. Understandably irate, others call their super company and demand answers to why this happened to them. They were probably told either one of the following:
• "our fund actually outperformed the market" or
• "everyone else is in the same boat as you" or
• "you can change the risk profile of your investments if you'd like" or even simply
• "you signed the contract and knew where your money was being invested."
Well fair enough Mr. Fund Manager, but some people out there are not irresponsible children and have the foresight to plan for retirement better than you can. What option do they have? Well, so long as you have a paid job in Australia, you have no choice. Here's a Wikipedia snippet that explains it.
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The compulsory "Superannuation Guarantee" system was introduced [in 1992 by the Keating Labor government] as part of a major reform package addressing Australia's retirement income policies. It was anticipated that Australia, along with many other Western nations, would experience a major demographic shift in the coming decades, resulting in the anticipated increase in age pension payments placing an unaffordable strain on the Australian economy. The proposed solution was a "three pillars" approach to retirement income:
• A safety net consisting of a means-tested Government age pension system
• Private savings generated through compulsory contributions to superannuation
• Voluntary savings through superannuation and other investments
Since its introduction, employers have been required to make compulsory contributions to superannuation on behalf of most of their employees. This contribution was originally set at 3% of the employees' income, and has been incrementally increased by the Australian government. Since 1 July 2002, the minimum contribution has been set at 9% of an employee's ordinary time earnings. The 9% is thus not payable on overtime rates but is payable on remuneration items such as bonuses, commissions, shift loading and casual loadings.
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Source:
http://en.wikipedia.org/wiki/Superannuation_in_AustraliaOk, so it seems that there is no choice. Bummer. Here is some more food for thought from the Wikipedia page:
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The Howard government was criticised for its reluctance to increase the compulsory rate of superannuation. Had the compulsory rate been 15% since 1996, rather than the current 9%, total superannuation assets in Australia would be approaching $2 trillion - almost double the current level.
After more than a decade of compulsory contributions, Australian workers have over $1.177 trillion in superannuation assets. Australians now have more money invested in managed funds per capita than any other economy.
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Source:
http://en.wikipedia.org/wiki/Superannuation_in_AustraliaWhat is important to think about here is where the other $1 trillion AUD went. Did they go into property, the stock market, into starting new businesses, or were they "wasted" on new TV's and other goods? Theoretically speaking, if people had invested that extra 6% [15% - 9%] from 1996 onwards into property, or even the ASX200, how well would they have done compared to the super funds?
This is a question which I will explore in my next blog.But following from this, here is an article snippet [from Mercer Australia, a human resource and related financial services consulting firm] showing us that people are clearly in favour of an increase in the SG (Superannuation Guarantee).
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Mercer’s Outsourcing business leader for Asia Pacific, David Anderson, said we believe increasing superannuation savings via soft compulsion is an important step in ensuring all working Australians have an adequate retirement income.
“It seems most people, including the industry and Government, accept that a 9 per cent contribution rate is not enough to provide an adequate and sustainable retirement income, but the recommendation from the Henry Tax Review is to rely on the Age Pension to underpin retirement incomes, particularly for low to middle income earners.
Summary of key findings from Mercer’s SG Opinion Poll
• 69% of respondents either strongly agreed or agreed to supporting increasing the minimum SG rate from 9% to 15%
• A further 17% were neutral (but did not disagree)
• Less than one in eight (13%) would not support an increase in the minimum SG rate to 15%
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Source:
http://www.mercer.com/summary.htm?siteLanguage=100&idContent=1347935So maybe I am wrong, or maybe I am 13% correct, as the above poll would suggest. After all, I am not saying that super contributions should be abolished - just that the system needs to evolve into something else because currently it is not "one-size-fits-all." The government needs to realize this and that some people are actually responsible at managing money for their future.
Still, with no better options or ideas out there, it is understandable what the Rudd government will most likely do. Especially with the issue of an ageing population looming:
http://www.bloomberg.com/apps/news?pid=20601081&sid=aeLOtBUSVHyg Perhaps we need to look at what other countries are doing and how they are succeeding where we are not. Still, for what it's worth, I think that everyday working class people in Australia place too much trust in their super funds when they should be looking at other options to secure a comfortable retirement.
Remember,
Australians now have more money invested in managed funds per capita than any other economy.K
