Superannuation: Time to go back to basics?
It is a sad reality that from a great concept, Australia's superannuation system, much admired by many governments around the world, has become a dog's breakfast - complicated, messy and not really recognisable from its origins. And without going into graphic details of what happens to a dog's breakfast when it is repeatedly consumed, and then regurgitated - well, I think you understand the picture.
Our understanding of the original concept of superannuation was that the government of the day recognised that looking into the future, funding the ageing population was going to impose significant budgetary issues.
By forcing either employees or their employers to pay a proportion of all wages into a compulsory retirement scheme the intention was that, coupled with the magic of compounding returns, after 40 years a large proportion of the population would be self-sufficient in their retirement, thereby reducing the drain on the public purse.
Understanding that there are two sure ways to try to alter behaviour - generally known as the carrot or the stick approach - Keating's concept was quite simple: Legislate to enforce a basic level of compulsory contribution (the stick) and then provide attractive taxation benefits (the carrot) to encourage those able to do so to make additional contributions.
To gain acceptance, and to ensure both individuals and their employers could get used to the process, the Superannuation Guarantee Levy or SGL commenced at 3%, and has steadily risen since to 9.5%. Most economists understand that to be really effective the SGL should be 15%, but at least at 9.5% it is getting there.
So far so good.
Unfortunately for whatever reason successive governments have comprehensively tinkered around the edges, making the taxation rules, processes and conditions associated with superannuation unbelievably complicated. At the same time they have created an uneven playing field, making superannuation significantly more attractive for some in the community than others.
This is probably par for the course for all governments and bureaucrats, and it may well be far-fetched to think that this or any other government will return to the basic concepts while making superannuation simpler fairer and as a result more economical for both retirees and the country as a whole.
By all means provide the carrot of a concessional tax rate for super contributions, and to encourage people to make additional contributions, but either at the time of making a contribution or when eventually in retirement. However having a concessional tax rate when making the contribution and a zero tax rate in retirement seems unnecessarily generous.
Equally allowing retirees to take 100% of their superannuation as a lump sum on retirement, rather than as an annuity to replace or supplement the aged pension defies logic.
While Australia has a poor record when it comes to the complexity of its taxation system, it is disappointing that when introducing something as well-meaning and logical as self-funded retirement they didn't take the opportunity of making it both effective and simple. Added to the problem of complexity (as noted above)is the constant change introduced by successive governments, each in turn further complicating the system.
And in case you think this is just Hedge Clippings having a typical Friday afternoon whinge, here's a link to the Charter of Superannuation Adequacy and Sustainability and Counsellors Superannuation Custodians (itself a monumental mouthful) report to the government in 2013, Chapter 3, entitled Constant Change.
Specific results received this week include the following MARCH PERFORMANCE UPDATES:
The Aurora Fortitude Absolute Return Fund returned 0.55% to bring its annual performance since inception to 7.32%.
Avenir Value Fund rose 0.78% in a down equities market (-0.09%).
The Bennelong Kardinia Absolute Return Fund returned 1.24% bringing the Fund's annual performance since inception to 13.29% compared to the ASX200 Accumulation benchmark's 5.87%.
Morphic Global Opportunities Fund rose 1.61% in March as its benchmark (MSCI AC World Total Return in AUD) rose 0.87%, resulting in out-performance of 0.74%.
Totus Alpha Fund had a strong performance in March of 5.50%, compared to the ASX200 Accumulation Index of -0.09%.
FUND REVIEWS released this week, with the potential for earning CPD points: Monash Absolute Investment Fund; Bennelong Long Short Equity Fund
25-27 May 2015 - Digital Marketing for Banking and Financial Services Summit
15 September 2015 - AIMA Australia Hedge Fund Forum 2015
This year marks the 100th anniversary of the landings at Gallipoli, an event now seared into Australia's national identity and psyche. Given the media bombardment of Gallipoli over the past couple of months, which figuratively speaking has risked being as saturated as the shelling which took place at the time, And Now for Something Completely Different was reluctant to join in.
However that would not allow us to pay tribute to the memory of the 46,000 allied soldiers*, killed over the nine months of the campaign, nor the 65,000 Turkish soldiers* killed defending their homeland, nor all those killed in various campaigns since.
Lest We Forget.
On that note, I hope you have a happy and safe week-end.
Kind regards,
Chris
CEO, AUSTRALIAN FUND MONITORS
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*estimated
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