The Australian

22 December 2017

Robert Gottliebsen – Business columnist

One of the most important issues of 2018 is going to the management and behaviour of our non self-managed superannuation funds.

And there is no better time to get it right than when the share market is rising and there are good news stories to tell.

As things now stand what is happening is a national disgrace. So let’s put four items on the agenda for superannuation change in the year ahead.

• Total disclosure of all fees paid to employers and unions in the case of industry funds and all fees paid to banks, AMP and other retail fund owners, plus all other management fees
• An end to the current racket that stops people choosing funds and being ripped off with multiple fees as a
• The unravelling of the “Great Investment Fee Mystery” where it looks like some of the wealthiest investment managers and advisers in Sydney are donating their services to superannuation for no That can’t be right. This smells of yet another bank scandal for the banking royal commission to look at.
• At least make a start on getting investment managers to think about the long-term interests of members rather than short-term profit forecasts. I will elaborate on this theme during 2018 because it’s vital to members of non-self managed funds and the nation.
• An end to the racket where those who chose funds see their money held by the so-called “manager of choice” for one or two months and then passed onto the fund of This certainly happens in the retail area and may happen in industry funds. The money should go straight from the employer to the fund of choice. It’s just another racket that reflects a sector that is lazy in protecting members’ interests.

During 2017 I wrote many commentaries demanding that industry superannuation funds disclose all direct and indirect payments to employer groups and unions. It’s important that fees disclosed cover situations where money is drafted into low cost so-called “my super” funds and where members make a choice of fund. If I make a choice I need to know the fees, including owner fees, being charged on my money. To me that’s elementary and I can’t believe we are debating this.

Somehow under the proposed and ill-fated legislation the government required fee disclosures on the so-called “my super” funds, but nowhere nearer the same level of disclosure in the “choice funds”. It made no sense.

Now it so happens that 80 per cent of industry funds were based on the “my super” schemes (where there must be backer disclosure) whereas in the retail area it was the reverse— roughly 80 per cent were “choice” funds (no disclosure) and 20 per cent “my super”.

The industry funds tell me that they are happy for full disclosure of all direct and indirect payments to their backer, but it must apply industry-wide to both the “my super” and “choice” sectors, not just the sector where they dominate. And they are absolutely right. The minister, APRA or the royal commission need to fix it. Frankly the retail funds and the industry funds should together volunteer full disclosure.

It so happens that overall costs of industry funds are much lower than in retail funds so full disclosure in the retail sector is very important.

But the industry sector has its own set of bad practices.

People, usually on low incomes, are forced or shepherded into different industry funds when they work for, say, a pub and a retailer. The low income earners with two or more funds are then slugged multiple fees. There must be an ability to chose your fund so that retail workers who have a fund from their work in the pub can easily stay with one fund. The industry funds are proposing a scheme that will help reduce this fee racket and that’s good but fund choice is vital.

Now to the “Great Investment Fee Mystery”.

What makes it such an enthralling saga is that by reputation the characters in our tale have magnificent houses and drive fast luxury cars. How do they get this money? Either the investment managers have family money, a generous banker lending them vast sums, or they are on a high income. Clearly I am jesting but it’s a joke with a serious twist.

In the superannuation figures required by APRA there is a column called “investment fees” and that’s where we should look for clues as to the source of this well-displayed wealth.

In the industry funds there are some very large disclosed sums. For example, Australian Super public offer funds paid $418 million in investment expenses but to be fair this represented only 0.4 per cent of their assets. The health employees paid $101 million in investment fees but the ratio was only 0.28 per cent. All the funds have disclosed a figure and while there are percentage charges above and below, most fall into those brackets.

The point is that there is disclosure.

Now we go to the public offer retail funds. It looks like there are roughly about 80 retail funds. But about half of them have what looks like the deal of a lifetime because they pay no or token investment fees. Among those who do not pay investment fees are the heavy hitters like AMP, Commonwealth Bank’s Colonial, and NAB’s MLC, while Macquarie’s costs are 0.03 per cent of assets.

And so where do those fast cars and luxury houses come from?

Clearly there are side deals and somehow, some way, in parts of the retail sector investment charges are contracted out to others and not disclosed. I am sure the industry funds contract out as well but at least on the surface it would seem they and many of the retail funds include those costs in investment fees. But let’s get it all out in the open.

Remember this is not employer body, union or bank money — we are looking at funds owned by ordinary Australians who are members of non self-managed funds. Self-managed funds know exactly what they pay and APRA should want the same privilege for non self-managed funds. APRA needs to stop turning a blind eye to those funds showing no or token investment fees.

The head of the bank industry body, Anna Bligh, proudly has set out new rules for bank conduct. That’s good. But let’s start by disclosing what is really being paid in investment expenses.

When people say the cost is “nil” when it is clearly not “nil”, it usually means there is something to hide. Let’s get it out into the open.

Have a wonderful Christmas and see you in the New Year.

Robert Gottliebsen has spent more than 30 years writing and commentating about business and investment in Australia. He has won the Walkley award and Australian Journalist of the Year Award, two of journalism’s highest honours. He is an economic writer at The Australian, and he appears on television and various radio stations.

The Australian

16 December 2017

James Kirby

Looking out 12 months is never easy, but most investors would agree conditions are as promising as we have seen them in many years. As an active investor the summer break is a good time to review what you have been doing in the last 12 months and, importantly, make some key decisions for the year ahead.

Here’s my checklist for 2018.

Explore borrowing at low rates

Official rates remain at 1.5 per cent. In order to reach levels that central bankers regard as “normal” they would have to double to 3 per cent. In reality banks have tried everything to push the actual rates borrowers pay in the market higher. Home mortgage rates are close to 4 per cent or higher if you are an investor or interested in interest-only loans. Nonetheless, this extended era of low rates means that many investors can remain comfortable with borrowing to leverage their performance in any investment class, and that includes shares. (Remember negative gearing is not just for property).

ETFs remain market darlings

With the majority of brokers forecasting strongly positive returns on the ASX for 2018, it is a year which may very well suit index funds, or exchange traded funds. Brokers are looking at stock price increases across the market of 9 per cent with an additional 4 per cent from dividends. If the market is going to offer on average 13 per cent or anything near it, then there is a very compelling argument for ETFs, which simply reflect the performance of the index. Certainly, there are flaws in non-discerning approach of  ETFs, but for the year ahead they would seem to answer a lot of questions.

Don’t miss a mining a rebound

It’s been a while since the miners were front and centre of the investment scene — last year the mining index outpaced the wider market: The mining index returned close to 17 per cent against around 10 per cent for the wider market. What’s more, there is every reason to believe the miners can do it again in 2018 with synchronised 3 per cent-plus global growth expected to push all resources higher.

Under this scenario household names such BHP and Rio are perfectly placed. On top of that there is the dramatic requirements that EVs (electric cars) are expected to place on selected resources: nickel, lithium, cobalt and graphite. Junior miners that supply into the EV battery market such as Syrah, Orocobre, Iluka and Galaxy are expected to benefit as electric cars move towards representing one in five cars by 2020.

Stick with residential property

Is it a soft patch or the long-anticipated disaster gloom merchants would have us believe? It looks for all the world like a soft patch engineered by the macroprudential restrictions regulators imposed on the banks this year. Yes, house prices are expected to be flat in 2018, but that is not a signal to sell property, rather it is a signal to hold on.

There is undoubtedly weakness in Sydney market and risks of further weakening in Melbourne. At the same time there are convincing signs that Perth will have a better year in 2018 than it did in 2017. There will be problems in inner city apartment projects and second-grade properties across all cities, particularly Brisbane. But with low interest rates and unemployment levels at less than 5.5 per cent, it does not represent a threat to mortgage servicing patterns … that’s the heart of the housing market.

Know your retirement sweet spot

Earlier this year the government announced major changes to superannuation which included new contribution caps coupled with subtle but severe restrictions on pension access. These changes have changed the dynamics of retirement savings. The system is absurd and now so poorly structured that you can quite literally get more income by saving less. Put simply in terms of annual income don’t be in the middle zone! Wealth writer James Gerrard has estimated that the annual income of a couple who own their home with $400,000 get an income $52,395 a year thanks to Centrelink, a couple in the same position with $800,000 get $42,251.

Yes, of course it is better to have your own savings, but it is surely galling to know you can have a higher income if you save less.

Find your non-correlated assets

This is a bull market — know it when you see it. US and Australian shares are expected to return 10 per cent-plus in the year ahead. Tech stocks are selling at remarkable prices and then there is the unprecedented excitement around bitcoin. Sooner or later we will get a correction and eventually we will get a sharemarket crash. Non-correlated assets are assets that are expected to “perform well” when this happens. The last time the markets crashed in 2008 we found out the hard way that many of the newer breed non- correlated assets did not work — this would include hedge funds and a variety of products which are exposed to weakness in securities markets. There are two enduring non-correlated assets which have proved themselves in all weather: cash and gold.

• Cash: In Australia cash deposits have the exceptional advantage that they are guaranteed by the government at up to $250,000 (per person, per bank). Moreover, cash rates though historically low are inching
• Gold now has a rival in bitcoin but it would be a brave investor who would depend on cryptocurrency when the RBA deputy governor Guy Debelle just this week blasted the cryptocurrency craze warning it was “a speculative mania”.

Gold — the bullion not gold shares — proved to be a very effective non-correlated asset after the GFC and it will no doubt do it again in the future.

(Emphasis added by Save Our Super)

Joseph Cheung (jcheung@dbalawyers.com.au), Lawyer and Bryce Figot (bfigot@dbalawyers.com.au), Special Counsel, DBA Lawyers 

Payments above the account-based pension (‘ABP’) minimum annual payment have the potential to become a trap. The June 2017 SMSF Benchmark Report by Class Super states that ‘the average SMSF pensioner withdraws about $74,000 annually on their pension over a series of 12 transactions and overdraws $24,000 above their minimum’. This means that the average pensioner is withdrawing more than 32% above their relevant ABP minimum and could miss out on significant opportunities unless timely action is undertaken! This article summarises the trap and examines the main reasons to prospectively document a strategy as soon as possible.

What is the trap?

For pensioners who receive payments above the ABP minimum for their ABP(s), the capital supporting the ABP(s) is reduced by the amount of pension payment(s). However, there is no corresponding debit to the pensioner’s transfer balance account (‘TBA’)!

Where the pensioner had ‘maxed out’ their transfer balance cap, they cannot add any further capital to start a new pension that is in the retirement phase (ie, a pension that will obtain a pension exemption). Therefore, drawing more than the minimum payment will exhaust the capital supporting the ABP(s) significantly faster than would otherwise be the case. Where the pensioner had not ‘maxed out’ their transfer balance cap, there will be limited capacity to add further capital to commence a new ABP.

What is a strategy to avoid this trap?

DBA Lawyers understands that many advisers in the SMSF industry have been contemplating various strategies to avoid this trap. A common theme in the strategies involves partially commuting some or all of the amounts above the relevant ABP minimum(s). The following is an example of one of the strategies:

• Pay all amounts above the relevant ABP minimum(s) as a lump sum payment from the pensioner’s accumulation interest.
• Where there is no accumulation superannuation interest or the accumulation superannuation interest is insufficient to pay the amounts in excess of the relevant minimum ABP amount(s), these excess amounts are to be paid as a partial commutation of the relevant ABP.

What are the main reasons to prospectively documenting a strategy as soon as possible?

Compliance with the Australian Taxation Office’s (ATO’s) view

In relation to the partial commutation of pensions, the ATO‘s view (as expressed in SMSFD 2013/2 and TR 2013/5) is that the pensioner must consciously exercise their right to exchange something less than their full entitlement to receive future pension payments for an entitlement to be paid a lump sum. Where no documentation exists either before or at the time of payment, it is hard to prove that the pensioner consciously exercised their right. The ATO could decide that there was no partial commutation and that the amount was just paid as a pension payment in excess of the relevant ABP minimum(s).

Similarly, where the payments are allocated and the strategy documented ‘after the fact’, the ATO might take the view that that the payments did not come from an accumulation superannuation interest as it could not be proven that this was the parties’ intention at the time of payment, and it was not a valid partial commutation. Accordingly, a conservative approach is to have relevant documentation completed and signed before the payment of the amounts in excess of the ABP minimum payment.

The onus of proof rests with the taxpayer. Also, the ATO may allege false and misleading disclosure and, in addition to winding back any tax benefit from the ‘fabrication’ of any documents that did not exist before the relevant commutation, may impose penalties of up to 75% plus the general interest charge.

Achieving administrative efficiency and certainty under ATO reporting requirements — Transfer Balance Account Report (‘TBAR’)  

The ATO new reporting regime associated with the transfer balance cap commenced on 28 September 2017 and applies from 1 October 2017. Broadly, the TBAR regime will involve a need to report on an events basis regarding events since 1 July 2017 that have an impact on the pensioner’s TBA. (TBAR also extends to reporting where further information is required to calculate a member’s total super balance or concessional contributions averaging amount from 1 July 2018.) For example, all ABP commutations will need to be reported. Reporting will be required whenever there are events that result in a debit or credit to the pensioner’s TBA. SMSFs will not be required to report until 1 July 2018 due to an administrative concession. However, it is best practice for SMSFs to start reporting from 1 October 2017.

The ATO’s rationale for the introduction of TBAR is to enhance visibility of each pensioner’s TBA. There will be time limits for reporting events. TBAR is relevant for strategies to avoid the trap described above. Amounts that are paid directly from a pensioner’s accumulation interest will not need to be reported. However, amounts that are paid as a partial commutation of the pensioner’s relevant pension will need to be reported.

To the extent that pensioners (and their advisers/SMSF trustees) are not aware of their TBA, the TBAR regime could exacerbate this trap. For example, a late lodgement penalty may be imposed by the ATO if a pensioner’s partial commutation in relation to the amount above the relevant ABP minimum is not reported on time.

The introduction of the TBAR regime is also likely to increase the administrative costs for SMSFs. If a strategy was not prospectively documented for all future payments above ABP minimums, the adviser/SMSF trustee may have to liaise with the pensioner prior to each payment regarding the treatment of any amount above ABP minimums. For example, they would have to decide on which pension account the payment is to come from, and whether the amount above the ABP minimum was to be treated as coming from the pensioner’s accumulation interest or as a partial commutation. After making this decision, the SMSF trustee would then have to document each decision. The more payments there are during the year that are in excess of the relevant ABP minimums, the greater the frequency of the attendances and liaising required. Where an adviser is assisting the pensioner with the TBAR reporting, the extra attendances and liaising may translate to increased costs for the SMSF. The pensioner may also feel burdened by the extra amount of time needed to liaise with the adviser.

Moreover, advisers need to ensure their advice and services comply with the Australian financial services licence (‘AFSL’) regime. Where a strategy was not prospectively documented for all future payments above ABP minimums, advisers without an AFSL would be at further risk of attending on multiple occasions a ‘restructure’ of the pensioner’s payments. We would generally recommend that pensioners be provided advice from a licensed adviser prior to the commencement or commutation of an ABP.

One way to achieve administrative efficiency is to prospectively document a detailed strategy for all future payments above ABP minimums. Less documents are involved provided that the strategy is applied consistently to all future pension payments. Less attendances are required from advisers — this should hopefully translate to reduced costs for the SMSF and more time and resources for advisers to perform other tasks. Prospectively documenting a strategy also adds certainty to the treatment of future payments. The adviser/SMSF trustee could then follow the documented strategy when reporting under the TBAR regime.

Conclusion

Unless SMSF pensioners take timely action and prospectively record a strategy for payments above ABP minimums, they may be at risk of falling into an inescapable trap. Naturally, developing a strategy to cover all future payments above ABP minimums is no easy task!

DBA Lawyers offers documentation to prospectively record a strategy for all future payments above ABP minimums for any pensioner who wishes to protect the capital supporting their ABP(s) from being exhausted beyond the relevant minimum pension amount. For more information, please visit http://www.dbalawyers.com.au/payments-abp-minimum-documentation/.

*        *        *

Note: DBA Lawyers hold SMSF CPD training at venues all around. For more details or to register, visit www.dbanetwork.com.au or call 03 9092 9400.

For more information regarding how DBA Lawyers can assist in your SMSF practice, visit

www.dbalawyers.com.au.

24 October 2017

We disclaim all liability howsoever arising from reliance on any information herein unless you are a client of DBA that has specifically requested our advice. No unauthorised copying of any material produced by DBA should be made unless you have our prior written consent.

Australian Financial Review

14 December 2017

Alice Uribe and Sally Patten

The Australian

3 December 2017

Judith Sloan – Contributing Economics Editor

This week in Sydney, the Association of Superannuation Funds of Australia held its national conference. There were nearly 2000 attendees, which tells you a lot.

There is no doubt that superannuation is one of the biggest gravy trains in Australia. With more than $2 trillion under management, the industry supports an army of fund managers, administrators, trustees, lawyers, accountants and executives.

It’s a truly beautiful industry, with guaranteed cashflows coming in like the tide courtesy of the superannuation guarantee charge, now set at 9.5 per cent of earnings. The industry is wont to slap itself on the back. Australia’s superannuation arrangement is among the best in the world, if not the best. Mind you, this assessment tends to be from the point of view of the providers rather than the beneficiaries. But what’s not to love about a privatised industry based on obligatory saving on the part of the vast majority of workers?

There is a lot of ex post rationalisation that goes on about superannuation in Australia, and there was plenty going on at the conference. The reality is that compulsory superannuation began in this country as a result of a high-level industrial relations stitch-up that had nothing to do with rational retirement incomes policy.

In exchange for forgoing a pay rise, workers were awarded 3 per cent of their pay in the form of superannuation. It had always stuck in the craw of then treasurer Paul Keating that only better-paid workers and public servants received the benefit of superannuation while lower-paid blue-collar workers received nothing. In the context of what was a relatively derisory Age Pension, it was not difficult to appreciate his concern. (The Age Pension is now much more generous.)

There was also some economic nonsense put out at the time that superannuation was a means of solving Australia’s saving problem. The Labor government even commissioned a report on the issue by economist Vince FitzGerald. It turned out that in the context of a floating exchange rate, the argument that there was a need for government policy to boost saving (to finance the current account deficit) evaporated. We don’t hear any more about the role of superannuation in promoting saving.

And let’s not forget that while superannuation may promote saving in the form of superannuation, it also can encourage offsetting incentives for people to take out bigger house mortgages than would otherwise be the case, for instance. The argument is that because people know they will receive a hefty lump sum from superannuation on retirement, they can use this, or part of it, to pay down the mortgage. There is clear evidence that more and more people have outstanding mortgages into their 60s. Of course, this
partly undermines the principal purpose of superannuation, which is to fund retirement incomes.

The development of the superannuation industry in this country has been essentially chaotic and ad hoc. Few details were worked out initially, particularly in relation to who would manage the funds, how they would be managed and taxation arrangements.

The union movement clearly saw an alternative business model and pushed the industry super funds to have pole position. This was achieved by virtue of the default fund status given to them in industry awards and enterprise agreements. This protected position continues although self-managed superannuation has eroded their dominance.

The changes that have occurred through the years are almost impossible to track. We have moved from the 3 per cent contribution rate to 9.5 per cent. The industry — as opposed to the members — is desperate to see that figure lifted to 12 per cent, a move that was delayed by Joe Hockey as treasurer. The full 12 per cent is not slated to become compulsory until July 2025.

Aghast at this prospect, ASFA chief executive Martin Fahy told the conference that “all the vocal criticisms of financial services, and within that superannuation, means that superannuation is vulnerable to short-term populist thinking, where somebody would try to appeal to people with an offer to have a sudden increase in take-home pay at the cost of long-term retirement funding. We need to be conscious of that because the 9.5 per cent super guarantee levy won’t get us there. We need to get to 12 per cent.”

This raises the question about where we are going when it comes to superannuation. It was only after more than two decades of compulsory superannuation that the government decided to legislate the purpose of superannuation “to provide income in retirement to substitute or supplement the Age Pension”.
Whether this objective really gets us anyway is unclear because a dollar supplement to the Age Pension would meet the test. The government is forcing people to give up 9.5 per cent of their current pay (and the industry wants this to rise — good luck with that in the context of low wage growth) to provide a potentially meagre supplement to the Age Pension. It is understandable why people may be querying the whole basis of superannuation.

The industry is also frightened at the prospect of being dragged into the banking royal commission. But superannuation is, after all, providing financial services, banks are involved in superannuation and there is even talk of superannuation funds providing debt finance for companies and home buyers. It would be an artificial distinction to exclude the broader superannuation funds from the inquiry.

One useful line of inquiry would be to examine the excessive fees and charges that the superannuation funds impose on members, thereby limiting their final payouts and incomes in retirement. By international standards, these fees and charges remain extremely high even though they have come down slightly with the rise in funds under management.

And let’s not forget superannuation’s role in insurance where members are forced to take out death and disability cover unless they undertake the laborious process of opting out. This arrangement was a clear favour given to the industry by the previous Labor government — thanks, Bill Shorten — but creates a clear distribution of benefits to older, better-paid workers from young, low-paid workers who really don’t need insurance in most cases.

Then there are the complex arrangements in relation to taxation and contribution limits that this government has made much worse. By lowering the concessional contribution cap to $25,000 a year, the proportion of the population who will be totally self-reliant in retirement in the future will probably drop even further from its modest projected figure of 20 per cent.

In combination with other restrictions, superannuation has clearly lost its allure as an investment vehicle for many individuals. And the clear message is that the government is not to be trusted in this area. After all, Financial Services Minister Kelly O’Dwyer, speaking at a previous ASFA conference, described superannuation tax concessions as a gift from the government.

There was a strong message in this statement and it raised fears that future governments would seek to impose higher taxes on present and future superannuation members.

The bottom line is that superannuation in Australia has grown like Topsy but with little rhyme or reason. It’s the best game in town for those who are employed directly or indirectly in the industry, and it’s a great arrangement for trade unions, which continue to haemorrhage paid-up members. Whether it’s a boon to present and retired superannuants is an open question.

(emphasis by Save Our Super)

The Australian

2 December 2017

James Gerrard

It shouldn’t be this way but our new superannuation system with its series of caps and reduction in pension access has thrown up some unlikely outcomes — the contradiction that you may be better off having less money saved if you want a more comfortable retirement.

If you play your cards right and work the rules, you can hit a savings sweet spot and maximise your retirement income through a mix of private savings and age pension. Not only that, but you also may be able to retire seven years earlier than you thought.

In 2006, the super changes brought in by the Howard government simplified the retirement system that over time had built up a large number of complexities such as reasonable benefit limits.

Save Our Super head Jack Hammond, a retired QC, says: “The rules were set in a strategic framework of lengthening life expectancies, rising incomes and expectations of higher retirement living standards, so that people could save for themselves, with declining reliance on the age pension.”

The more you saved, the more you would have in retirement. The age pension would kick in to supplement your base level of income but wasn’t designed to replace the incentive to save and become self-funded.

Today, Hammond believes super and Centrelink changes are counter-intuitive and “short-sighted, lacking proper long-term modelling, and have resulted in the odd way we have with the way retirement income is received”.

“It’s been a race to the bottom as both major political parties turn superannuation at best into a budget proposition rather than a longterm savings policy that it was designed to be,” he says.

From January 1 this year, the means testing of pension benefits was changed. The government reduced the maximum amount of assets you can have while still receiving a part age pension. In addition, it accelerated the rate of reduction in pension entitlement for those with assets over the cap for a full age pension. They changed from $1.50 reduction in fortnightly pension for every $1000 of assets over the cap to $3 reduction for every $1000 over.

People in retirement usually generate income from two sources. The first is accumulated savings, such as investment property, term deposits and super accounts; the second is the age pension. For a homeowner couple who meet all other eligibility rules, assets below $380,500 (excluding the family home) result in a full age pension, while a part age pension is received with asset levels up to $830,000. Previously, up to $1,178,500 in assets could be held before the pension was cut off completely.

The result: retirees who have reached age pension age are caught in a trap where they are penalised for having built up more savings by having their age pension cut off much faster, and at much lower asset levels.

Save Our Super, with the help of Sean Corbett, an economist with more than 20 years’ experience in the super industry, has modelled retirement income levels based on a mix of age pension benefits and drawdown of super at a rate of 5 per cent a year, the legislated annual minimum drawdown percentage for those 65 and older.

They found that depending on your marital status and housing situation, there were optimal levels of savings to maximise retirement income via a mix of super and age pension benefits.

● Single person with home — no more than $300,000 in super to get $33,958 a year income.

● Single person renting — no more than $550,000 in super to get $42,549 a year income.

● Couple with home — no more than $400,000 in super to get $52,395 a year income.

● Couple renting — no more than $650,000 in super to get $60,833 a year income.

To highlight the disadvantage of having more assets: for a couple who own their house and have $800,000 in super, their estimated annual income is $41,251, whereas if they have only $400,000 in super their estimated annual income increases to $52,395. This is because a couple with $400,000 in super would get 94 per cent of the full age pension payment, while a couple with $800,000 in super would get just over 1 per cent of the full age pension payment.

So here is a legitimate strategy: to access super tax free, you must be over 60, fully retired and receive a super pension, technically known as an account-based pension. But to receive the age pension, for those born after January 1, 1957, you must be 67.

Knowing where your savings sweet spot is likely to be at 67 allows you to plan early and potentially have an early retirement, drawing down on super in those earlier years of retirement to hit the sweet spot by 67. In other words, if you had $800,000 in super at 60, you potentially could retire at 60, spend $400,000 on living expenses, travel and renovating your home. When you reach 67, you have worked your super balance down to $400,000, which is the savings level sweet spot for a couple who own their home.

Crucially, this is if you’re happy with the sweet spot income, which is $52,395, you are willing to rely on the government not changing the rules again, and you do not aspire to having substantial savings that you can dispose of as you like.

There is also a breakthrough point on the upper end whereby you can generate more than the savings sweet spot level of income, but the wealth needed is quite a jump. For a homeowner couple, to generate more than $52,395 a year income you are estimated to require at least $1,050,000 in super.

James Gerrard is the principal and director of Sydney financial planning firm FinancialAdvisor.com.au.

(emphasis by Save Our Super)

The Australian

29 November 2017

Glenda Korporaal

When leaders of the $2.5 trillion superannuation industry gather in Sydney today for the Association of Superannuation Funds of Australia’s annual conference, the increasing regulation of the industry will be a key theme.

Australia has one of the best retirement savings systems in the world — a compulsory superannuation regime that is widely accepted and has increasingly focused ordinary people on the importance of putting money away for their future. But the danger is that constant regulatory changes, the progressive cutting back of tax concessions, criticisms of the system and now the prospect of another round of politically generated inquiries will erode confidence in a system working well.

There is always room for improvement. The compulsory 9.5 per cent needs to move up to 12 per cent to generate more adequate levels of savings, and there needs to be more focus on generating post-retirement income products.

But the system that has built up in the past 30 years has generated an impressive capital pool of $2.5 trillion and meant that Australians have been far more focused on saving for their retirement than they have ever been before.

Superannuation is an industry that involves a high level of public trust and needs good regulation.

But the unexpected tax changes under the Turnbull government announced in the 2016 budget and that came into force this year have shaken the confidence of many people about making extra voluntary contributions.

There is also uncertainty about what might come out of the Productivity Commission’s review of the efficiency of the superannuation system.

The commission is expected to deliver an interim report early next year and a final report later in the year. That report has the potential to deliver recommendations for more regulation and changes.

As ASFA chief executive Martin Fahy points out, there has been much criticism that the super system is not working because the government is still spending significantly on the aged pension.

But the fact is that compulsory superannuation — and the broader savings culture it has generated — is resulting in more people moving from the full aged pension to a part pension and, over time, to becoming self-funded retirees.

As Fahy points out, while the amount being paid in pensions is large as a percentage of the economy, particularly going into the future, it is set to be far less than in many other OECD countries.
The new level of concern is that superannuation is in danger of being drawn into the attacks on the banking system.

What started out as a criticism of the activities of the big banks is in danger of producing yet another layer of regulation and control of the superannuation system.

There is a danger that Trump-like populism will not only erode confidence in the system but lead to more regulation that could inhibit the growth of the industry and its potential to play a more effective role in the economy.

In a surprise move in this year’s budget — particularly for a conservative government — the Coalition announced the banking executive accountability regime, which will give the Australian Prudential Regulation Authority the ability to review the appointment of bank executives and their remuneration packages.

There is increasing concern that this will all too easily roll over into the superannuation and insurance industries. And increasing anti-bank sentiment, which is playing into political uncertainty in Canberra, now seems almost certain to draw in the superannuation industry in any inquiry to be announced.

It is one thing to question the banks’ role in Storm Financial, or to raise questions around practices adopted by CommInsure, or the bank bill swap rate allegations, or bank ATM fees, or the allegations made by anti-money laundering agency Austrac against CBA.

But just how this should lead to an inquiry or even a royal commission that takes in the superannuation industry, which has already been subject to a raft of reviews and regulatory tightening over the past decade, defies logic.

There is also a difference between banking and superannuation at the grassroots level. While Australians may have complaints with their banks — from fees to issues around loans, and concerns over the financial planning industry — there has not been a groundswell of member complaints about super funds per se.

The superannuation system is not broke and there is a danger that the rank populism we are now seeing amid the increasing political uncertainty in Canberra can add to an erosion of confidence in the system that is already occurring as a result of the constant government changes to the super tax regime.

Super industry leaders argue that reviews of the super system be linked to the five-yearly intergenerational report. This would provide some consistency in the logic around any changes to the system.

Fahy argues that the super industry needs to redefine itself as a retirement savings industry with a broader focus on issues such as aged care and how people manage their finances while in retirement.

The increasing longevity of the population has created big issues to deal with.
What is needed is an approach that takes a broad look at the challenge of our ageing population and our retirement system.

The issue needs long-term thinking that builds on the bones of the good system we already have in place — not short-term populism where various political agendas might undermine confidence in the system.

(emphasis by Save Our Super)

Spectator  Australia

4 November 2017

Michael Baume – Former NSW Liberal Federal Parliamentarian

There was no cost/benefit analysis; it was opposed by the government’s financial advisor, the Treasury; it has ballooned over 25 years into a $2.3 trillion industry with serious systemic problems. But compulsory superannuation is a Labor sacred cow – and is being milked for billions of dollars. It was Paul Keating’s gift to the ACTU’s Bill Kelty and was more about union power and keeping Kelty on side with the Accord than its stated welfare and budgetary objectives. Labor governments have certainly delivered on this key political promise to offset the loss of union power resulting from collapsing membership numbers by delivering increasing financial power to the union movement. As Keating told the 1992 ACTU Congress as his government was introducing his compulsory superannuation legislation: ‘You are losing your industrial muscle; I have given you the opportunity to take on financial muscle. You will get that through your superannuation funds. It is time you entered self-management’. This was consistent with the 1981 ALP Special National Conference paper that: ‘We must recognise at this early stage of union involvement in the superannuation issue that control over the funds will provide unions with considerable financial leverage… to be used to advance the cause of Socialism’. Labor super policy since then has consistently been built around that key pro-union objective, resulting in the phenomenal growth of assets managed by the union dominated Industry Superannuation Funds to $545 billion – most of it coming from non-union members.

As for the stated objective of improving retirement incomes, particularly at the lower end, and cutting the rapidly rising future cost to governments of pensions, Keating eventually admitted four years ago that compulsory superannuation ‘was not introduced as a welfare measure to supplement the incomes of the low paid. It was principally designed for middle Australia, those earning $65,000 to $130,000 a year. This is not to say that those [on lower incomes] should not benefit equitably from the super provisions. They should. But for middle Australia, compulsory super and salary sacrifice was and is the way forward’. And it would also provide a far more rewarding source of the billions of dollars the unions would get to manage than a scheme aimed at low income earners. So much for the need to ensure pensioners are not in poverty; welfare organisations have objected, calling for the cancelling of tax concessions to fund necessary rises in pensions.

So Labor will determinedly block (or repeal) any substantial reform proposals that may emerge from the current enquiry by the Productivity Commission that would damage the present preferred position of union-dominated ISFs – and especially the default arrangements that give them the inside running for the $117 billion dollars a year contributed to APRA super accounts. Meanwhile, widespread concern about the present super system is being expressed across the political, academic and economic spectrum; it is inefficient, too costly, has failed to achieve its social objectives (there has been no marked reduction in retirees receiving the age pension) and has become a monster that is sucking up to an estimated $30 billion a year in expenses out of Australian retirement savings. But repeated and unsettling governmental fiddling with super over the last 25 years has not addressed the basic question: Is the present system in Australia’s best interests; do the benefits to retirees justify the $38 billion dollar a year costs to revenue of super tax concessions plus the consequences of a $117 billion a year reduction in current workers’ household incomes through compulsory super instead of higher wages. 25 years of Keating’s compulsory super has yet to demonstrate that its benefits to retirees and welfare savings are ever likely to exceed its costs. Headlines like ‘A super fail: 80 per cent retire on benefits’ and ‘Why do we have the world’s most expensive super?’ have been followed by Peter Costello’s public attack on the ‘gross inefficiency’ of the Australian super system, recommending that the union-friendly default arrangements should, instead, go to a government-administered fund; the very successful Future Fund, which he chairs, costs far less to run than the rest of the industry. Don’t hold your breath.

The Weekend Australian

30 October 2017

Dennis Shanahan – Political Editor

The Coalition can’t rely on assumptions it will be seen as the better economic manager

The swearing-in this week of Labour’s Jacinda Ardern and New Zealand First’s Winston Peters as Prime Minister and Deputy Prime Minister to replace one of the most economically successful New Zealand governments generally has been ascribed to the global politics of the new and  disruptive.

Although Ardern did not win the election, her remarkable success and the continuing success of the nationalistic Peters were built on a campaign against a failure of capitalism in New Zealand, where economic transformation under John Key’s National Party had “not delivered” for all New Zealanders.

Ardern’s priority is addressing the high level of homelessness in a prosperous New Zealand and she has already banned foreigners buying more residential property.

Peters’s campaign was typically protectionist, with one of his first demands being for New Zealand to abandon attempts to keep alive the Trans-Pacific Partnership trade pact, cut to ribbons by Donald Trump’s US withdrawal.

As with Trump’s election, the British votes to leave the EU and hammer Theresa May’s Conservatives, the election of France’s youngest president, Emmanuel Macron, and Malcolm Turnbull’s one-seat escape from defeat, the rise of Ardern was unexpected and viewed as an “outsider” phenomenon. But clear evidence is emerging in Australia that Labour’s victory in New Zealand and Bill Shorten’s success against the Coalition in last year’s election are the result of more fundamental and longstanding electoral changes.

Apart from all the third-way populism of the newcomers there is a structural change stalking the Liberals and Nationals in Australia that requires a rethink of the Coalition’s electoral strategy of simply relying on being “better economic managers”.

The turfing out of Bill English, Key’s partner in rebuilding the New Zealand economy, could be seen as a parallel to the defeat of John Howard in 2007 after Howard and Peter Costello applied traditional Coalition principles and policies of economic management to debt and deficit.

Essentially, voters had become complacent about the economy and decided a new fresh face — Kevin Rudd — deserved a turn.

Yet, according to new electoral analysis at the Australian National University, Rudd’s success in 2007 and Shorten’s near-miss last year are linked to long-term changes of circumstances and attitudes among Australian voters.

The study suggests centre-right parties such as Liberal and Nationals may be facing institutional changes that give centre-left parties such as Labor and the Greens permanent political and strategic advantages in winning elections.

Ironically, these emerging advantages are sourced in decades of Coalition policies encouraging home ownership, share ownership, property investment and selfmanaged superannuation funds. The efforts to make individuals responsible for creating their own wealth and managing their investments has succeeded to such an extent in Australia that it is changing the voting dynamic
(emphasis added).

In short, asset ownership and specific policies relating to those assets are beginning to be more important factors in how key people vote than the overall health of the economy. The Coalition can no longer depend on its historical advantage in being seen as a better economic manager than Labor.

Analysis by the ANU’s Ian McAllister with Indiana University’s Timothy Hellwig on the effect of   asset ownership on voting shows Labor is best placed to take advantage of the rising importance of assets in economic voting.

The traditional political and academic arguments are that parties of the centre-right will favour free-market economic policies that suit homeowners, property investors, shareholders and selffunded superannuants as part of economic policy and those people will vote for the “economic managers”. The other side is that the centre-left will favour intervention to help those without assets and will be supported by those without assets. But after analysis of last year’s Australian election study and elections going back to 2001, the ANU conclusion is that these assumptions are flawed because asset ownership in Australia has ballooned since the 1990s and voters see little difference in the economic aims of the main parties.

Asset ownership, coupled with a tendency for more Australians to make up their minds about how to vote later in a campaign, are combining to give Labor an advantage.

According to McAllister, the assumptions on economic management and previous views on asset ownership “ignores how parties can shift their positions on these issues”. This shift on specific policies affecting asset ownership changes the reaction of “economic” voters and, according to   the ANU study, there is a more pronounced effect as a result of “the centre-left’s decision to oppose free market policies in  particular”.

“Our emphasis on party politics indicates that the electoral payoff of an ‘ownership society’, often cultivated by the centre-right, depends on the policies advanced by their competitors on the centreleft,” the study concludes. “We find that asset owners are more likely to support the centre- right. The magnitude of this effect, however, depends on the relative policy positions advertised   by parties.”

The conclusion is that when party economic policies converge “the strategies of the left-leaning parties carry greater weight” in economic voting. Essentially, Labor has the ability to attract more economic voters when it adopts “centrist policies” and offers specific policies on asset ownership.

In 2007 Rudd as opposition leader cleverly described himself as an “economic conservative” and revelled in the criticism that he was “John Howard-lite”. Being equated with the Howard government on economic management while offering a softer edge on social issues was what Rudd wanted.

Since the 1950s all major parties have encouraged home ownership and property investment, and the vast privatisation schemes of the Hawke-Keating and Howard-Costello governments lifted Australians into global-scale shareholders as superannuation became the second most important investment after the family home. The ANU study says “Australia represents an ideal case study to examine the impact of assets on the vote” and the parties have not stuck to a simple left-right position on the treatment of those assets (emphasis added).

“The role of the political parties is crucial to evaluating the effect of ownership of these assets on vote choice,” the study says.

At the election last year the Coalition and Labor adopted policies on the treatment of superannuation and negative gearing on investment properties that had a big effect on voting.   For the Coalition the changes to high-end superannuation — where voters are susceptible to   high risks to their assets — and the retrospective nature of the changes had an adverse effect on votes (emphasis added). For Labor the decision to limit negative gearing tax advantages for investment properties   to new housing was seen as a great political risk and portrayed by Turnbull as “destroying the housing market in Sydney and Melbourne”. But Labor ensured there was no retrospectivity, so existing investment properties were not affected, and linked the changes to making housing   more affordable by limiting investors in the housing market.

The ANU analysis shows Labor’s position on negative gearing is a positive overall because it does not turn away existing investors and appeals to those who don’t own a home because they think   it will help renters or aid them in getting a home.

“When the Liberal and Labor parties are perceived to be far apart, then asset ownership strongly influences party choice,” the study found. “But when the parties converge in policy space, ownership has little or no effect. We further show that this party system effect is driven not by the position-taking strategies of the Liberals on the right, as most stories of policy reform would have it, but of Labor’s position on the left.”

The Coalition can no longer rely on general economic management to deliver an electoral advantage and needs to understand that individual policies can have a broad effect on the vote. Labor’s ability to align with economic policy and not frighten investors gives it a strategic advantage.

Quadrant

27 October 2017

James Allan

Prognostications about the mind of the High Court and the fate of Barnaby Joyce having joined the long list of his failures, one might think the party of Malcolm Turnbull would be mulling a new leader. Alas, common sense and the survival instinct, like principle, are alien to the Liberal In Name Only crew

The last few days have brought Team Turnbull yet another bad poll. Tick-tock, tick- tock. In terms of calendar months, rather than number of polls, Prime Minister Turnbull’s government has now been behind Labor for pretty much as long as Prime Minister Abbott had been when Turnbull and the 54 bedwetters defenestrated a first-term Liberal PM – giving as their reason that he had been too long behind in the polls. A truly pathetic rationale, I know, for any political party that thinks about long-term party unity.  Or medium term for that matter.  Heck, that thinks past the end of the calendar year. 

But there you have it. And an eternal truth about human nature, what all the Niki Savva-like critics of us Delcons try to wish away but never will, is that what’s good for the goose is good for the gander. Turnbull will be without any legitimacy inside his own party once bad poll 30 arrives.  Indeed, as I noted above, Malcolm has already served as much consecutive ‘bad poll’ time as Abbott had when the George Brandis and Christopher Pyne wing of ‘Labor-lite Libs R Us’ decided to appease the ABC, defenestrate Tony and install a man who seems to lack a single conservative view. It is only by the grace of Newscorp, and the much slower and less frequent rate at which they are conducting polls, that Team Turnbull has not already suffered some 30 bad polls in a row.

Other than the usual suspects of Niki Savva, PVO, David Crowe, Paul Kelly and those in paid employment with the Liberal Party, is there anyone who does not recognise Malcolm as a dead man walking? You can’t even pretend Turnbull’s unpopularity has anything to do with forcing through needed tough medicine.  This is a government that has thrown billions of dollars at an idiotic submarine contract in a bid (hopefully unsuccessfully) to retain Christopher Pyne’s seat and that has attacked the superannuation system in a way that means spending a working life’s saving $1 million puts you in the equivalent net position as someone saving $400,000 (once you account for the Age Pension) which cuts to the heart of, well, thrift, hard work and basic Liberal Party beliefs while making all Kelly O’Dwyer’s recent assurances that the government won’t attack superannuation again simultaneously pathetic and unbelievable
(emphasis added).

Oh, and this is a government that can’t get the budget to surplus in any realistic way (as opposed to ‘we’ll grow our way to surplus’ platitudes), even with ever more taxes – sorry, ‘budget savings’ as our Big Government Treasurer Scott Morrison, a la Wayne Swann, likes to call them – and can’t rid us of the impoverishing RET, and does nothing about the patently leftward biased ABC nor the various inroads that have been made into free speech in this country. Indeed, this government is authoring some of those speech-stifling inroad! And that’s just the start of the list of ineptitudes and Labor-lite decisions emanating from this most leftist of Liberal governments. Hey, but they’re a millimetre better than Shorten right?

Yet still there are no murmurs of a spill or a ‘give to Turnbull what he himself dished out’ within the Liberal partyroom. Why?

1. 1. Is it because too many Coalition MPs have resigned themselves to defeat and figure another year and a bit with all these perks is better than rocking the boat?
   2. Is it because it turns out that the Liberal partyroom is chock full of Labor-lite MPs who hate conservatives at least as much as they hate Labor, possibly more, and don’t really want to protect free speech, cut spending, shrink government, encourage thrift or challenge the perverse consequences of unthinking global warming hysteria
   3. Is it a function of the fact that far too many Liberal candidates are pre-selected from the narrowest of gene pools – political staffers, no successful career in anything else beforehand, think tanks, and of course lawyers – and don’t really hold any principles as sufficiently important to imperil their own positions by speaking out against bad government policy or, heaven forbid, crossing the floor?
   4. Is it sheer cowardice, or stupidity?
   5. Is it all of the above?

Lest you be tempted to put this woeful policy record down solely to our puffed-up and comparatively democratically deficient Senate (and I put myself second to none in thinking our Upper House is a big, big problem), let me disabuse you of that conceit. You see, when it comes to appointments to key positions – the ABC, the Human Rights Commission (‘HRC’), the judiciary, the list goes on – this Team Turnbull government is wholly unconstrained by the Senate. It was this supposedly Liberal government that appointed Ed Santow to the HRC as the so-called ‘Freedom Commissioner’, with no veto or input from the Senate – a man who has said not a word in defence of Bill Leak or the QUT students. Ditto Herr Turnbull’s unconstrained-by-the-Senate choices of Michelle Guthrie and Justin Milne to run the Green-Left TV Collective, aka ‘our’ ABC (when Guthrie bags the mooted media reforms and sees no bias anywhere one can only smile.)

Again, the same goes for picking Alan Finkel and David Gonski to deliver reports. It makes you wonder if Brandis and Turnbull actually know any conservatives, or least any they don’t hold in evident contempt. Because they sure don’t appoint any to anything important. (Note: The Abbott government wasn’t great on this front either, Lord knows why, but it was better than the current mob of ‘Liberals in Name Only’.) And on the same theme, if after what happened to Bill Leak and the three QUT students you can’t even bring yourself to close down the HRC and put “Call-me-and- complain-Tim” out of work, or even try to do so, then you might at least pick a president more obviously supportive of free speech and less in thrall to international, judge-driven, democracy-enervating human rights ideas than Rosalind Croucher!

Run your eye over those names above and tell me which ones Labor couldn’t have appointed.  Good luck.  And that had nothing to do with the Senate.

So if someone claims that this is the worst collection of Liberal Party politicians in Australian history, what would you say in response? Meanwhile the bad polls keep coming.