The Superannuation Gravy Train
Did you see former Treasurer Peter Costello's article in yesterday's Age? He gets stuck into fund managers and all the other travellers on the superannuation gravy train. The 'super system' holds around $1.3 trillion in assets, so it's no surprise it's attracting plenty of hangers on.
Ironically, Costello played a strong role in shaping the system. If we remember correctly, he gave a tax break to large super contributions in 2006, encouraging retirement savings into equities in the blow-off top phase of the boom.
But now he's no longer a politician, he can write articles that resemble reality far more than his utterances as the nations' Treasurer (just listen to the quality of Wayne's Swan's current ramblings...we can't wait for him to retire so we might hear some common sense)
Anyway, Costello pointed out how hard done by young workers are, as fees, taxes and life insurance deductions obliterate their meagre super contributions. He then goes on to say...
'The reason there is no great outcry about this system is that so many well-paid people profit from it. The people who do the best are the funds managers. They are allocated money by the super funds to invest in stocks and bonds. The more money they manage, the more they get paid. They also get bonuses if they ''outperform'' the industry average.'
He then gets on his political high horse and has a go at industry super funds for their lacklustre recent performance, while ignoring the poor performance (and continued high fees) of the 'private' funds management industry.
But fund managers aren't the only ones benefitting from the system. It sustains a whole industry, many of whom are just very well paid paper shufflers and box tickers.
And then you have the sales people. These people are incentivised to capture some of the torrential flow of super for their own organisations. They're supported by millions of dollars of advertising and legions of admin staff.
Now, if you want to get way from this circus you can open a self-managed super fund (SMSF) and do things yourself. But reams of government red tape are at work here too. Soon to come into effect legislation will increase the auditing requirements of SMSFs, which will no doubt push costs up for those trying to do it themselves...which keep the super industry gravy train chugging along nicely.
The bottom line is that the superannuation system is beginning to feed on itself. We will see more fee and tax grabs in the years ahead as a cash strapped government slowly chips away at the money you've saved for your retirement.
There's not a great deal you can do about this...after all, we don't know when the changes will come. But if you're looking for ideas that will make your retirement years more pleasurable, check out Nick Hubble's new Money for Life, Port Phillip Publishing's exclusively retirement focussed newsletter.
Nick's letter focuses on both monetary and non-monetary retirement issues. He explores unconventional topics that provide food for thought in a world heading towards more regulation, less freedom and ongoing monetary debasement. When you really think about it, managing wealth throughout the long accumulation phase and coming out the other end (retirement) with most of it intact is a huge challenge.
Up until 2008, the super industry never knew what a bear market looked like. Even now, four years later, we hear regular proclamations that a new bull market is underway. That's because the whole system is a bull market industry...with a bull market cost base.
But the problem with this is that we're in the middle of a major bear market. As a result, your retirement savings are a victim of the good ole pincer movement...high costs and poor returns.
This is the new post-2008 reality...plan accordingly.
Regards,
Greg Canavan
for The Daily Reckoning Australia