Your super is supposed to be something that slowly grows with steady returns year after year until you finally get old enough to access it.
You shouldn’t think too much about it, and it should just be there and be large enough to keep you living in the way you are accustomed to living – from the time that you retire until the time that you shake off your mortal coil.
It is not supposed to be a punting account for you to make tax effective gains on high-risk trades. But now it seems it is being moved in that direction in the name of ‘cool’ and somehow, implausibly, ‘democracy’.
Because superannuation is so ‘boring’, I’m just going to pick some fights to keep things interesting…
Fight-starter #1 – Superannuation was a government response to another problem caused by those damn baby boomers.
Fight-starter #2 – They shouldn’t have let anyone withdraw any of it at the start of Covid.
Fight-starter #3 – There should be a strict skills & education-based test for anyone who wants to manage super investments. Including you!
So, with just those three simple statements I think I have managed to encompass and alienate everyone in Australia aged 18 to 80. I call it the ‘Jimmy Carr manoeuvre’, where I say some outrageous things and then, as with Jimmy’s stand-up, I then explain it in such a way that you learn something about yourself… or that’s certainly what I hope!
Let’s start by getting all the boomers back onside.
It wasn’t their fault. Any of it. Their parents were born in the Great Depression and then there was a World War, not the best conditions for rearing some young’uns. Once the war was over (and the Japanese/German languages would remain optional) they set about having babies. Hard and fast!
Someone in the government economics department then realised that due to the large spike in that season’s baby yield that the government could not afford to cover the aged care and pensions once they all reached retirement age at roughly the same time.
(FYI – This is where I start taking some serious ‘literary licence’, as super is very boring and I did not fully research its history. However…continuing on…)
Then they whacked a percentage on top of your wage for your employer to pay, to fund your retirement. It was like a tax on your employer to be used for a specific purpose, to better your retirement, just as the cigarette tax is supposed to make cigarettes better (note: that’s literary licence, not ‘for-reals’).
They even turned super into a legal (and mandated) tax haven to rival the Cayman Islands or Facebook HQ, such was their fear of the wave of retiring boomers. They were hoping that the tax haven status of super would then incentivise you to add your own savings on top, which it did, and they did.
In my opinion, this is where it started to go off track.
I’m not sure if it happened in this way, but by tempting people to make tax effective contributions to ‘their’ retirement fund co-mingled the semi-public sort-of-tax investment pool (held in your name for your retirement) with your personal investments. And muddied the water on its ownership and who was liable for its returns.
What they should have done is build a sovereign wealth fund that could then be equitably distributed upon retirement, but Kerry Packer didn’t think that they had the skills to manage something like that (or something like that…).
Had they done that instead, none of what was to come would have occurred… but I’d just be bleating about something else.
So the pool of money in superannuation grew and grew. As did the power and importance of the industry super funds, who were now buying shopping centres and airports and building (toll) roads. What a fantastic system, a democratised sovereign wealth fund! Well, sort of…
Then each subsequent government changed the rules, a bit here and a bit there, making it too confusing for the person in the street to understand. And the government couldn’t explain it very well either, so we saw the rise of the financial planner and fund managers offering advice on superannuation, and even their own superannuation products.
Whole empires were built around the bank of superannuation, or more specifically the fees for managing it.
The financial planners and the fund managers sprung up and raced en-masse towards this fee-paying free-for-all! Everyone had super, no-one understood it, no matter what the management cost it would still outperform a non-super asset as the tax breaks were enormous. So they could scrape a deposit fee and a management fee and an advice fee and a trailing fee and a withdrawal fee and still perform better than non-super assets!
Self-managed funds popped up, where you could then be the trustee of your own fund (which is where things went further off the track). Or if you had a bit less in super you could put it into a small APRA fund, similar to the ones that are being bandied around by ‘disrupters’ today.
Effectively, these small APRA funds just have some cookie-cutter trustee rules in which you can make ‘some’ investment decisions. They have been around for donkeys, and just come along each cycle with a new marketing campaign to move your new-found love of easy share-trading returns in a bull market from a transactional brokerage revenue stream to a stickier long term fee-paying revenue stream. And brokerage.
Same ‘democracy’ with a different brand, targeting the super funds of new consumers who don’t remember a bad market.
So, then, after creating this mess and blaming it on the boomers, the government thought they’d better look into it and try to shift some blame. They had industry super funds on their backs, and it was far enough past the GFC that they could start bagging out banks again without putting their solvency at risk.
“A Royal Commission ought to sort that all out,” they said, and then – “Let’s all point at the evil financial planners and stockbrokers who have gouged the superannuation system,” and, “Noooo… it’s got nothing to do with the pressure applied on us by the industry super funds who now control more wealth than the Double Bay Illuminati ever did”…
So the Hayne Royal Commission came out and said something like the fees were too high, and recommendations were too conflicted as some bad eggs were shifting funds around to get better fees, not to get better returns.
To summarise, we had a government that made a messy sovereign wealth system to deal with a real problem caused by a World War, forced money into it, kept making changes to it, convinced Joe and Jo Public that they should look after it and co-contribute to it, which meant we needed advice. And then, finally, they publicly shamed all of the people who went to Uni specifically to learn how to explain it to you!
So it wasn’t the boomers’ fault. They did what they were told to do – work hard, save money, buy property, get proper advice, top up your super. Retire, buy a caravan and go to bowls and then, finally, move into a (private) retirement home, never once asking for a government pension.
I think that fight is over. Phew. (Boomers don’t care what I say anyway, they’re rich!)
So to the second fight.
When the pandemic hit, the government panicked. That’s cool… we all did! While everybody was out buying toilet paper, they were trapped in a ‘WTF now?’ moment, having never dealt with an invisible threat of this scale, and enhanced by social media where the crazy people could try to convince you it wasn’t real.
So, just as Kevin did during the GFC, they ran to the government coffers, nervously screeching, “Cash fixes everything!”
Kevin had bulging government bank accounts on the back of the mining boom, so he just loaded it all into a proverbial helicopter and dumped it like a lazy Santa. Morrison wasn’t so lucky, we still hadn’t recovered from Kevin ‘08 so interest rates were already very low, the mining boom was only just restarting and Neville ‘Effing’ Bartos was standing out the front of the government bank vaults saying “There’s no cash here. Here there’s no cash, alright?”
So they let people dip into the sort-of sovereign wealth fund.
The End. No apology. That was a mistake that we’ll regret for, oh, about another 70 years. Now there’s a good chance we’ll have issues with underfunded government aged pensions down the road.
And finally, to address the last ‘fight-point’, which was that there should be skills & education-based testing before you can help make investment decisions on your share of Australia’s biggest and most important asset.
Because individual people managing their money are ruled by fear and greed, and professional money managers are ruled by the scrutiny of industry comparisons (and therefore focus on steady growth and protection from downside, not quick pay-offs and panic selling) there is a very good likelihood that a re-badged small APRA fund targeting kids fresh out of school who think they know it all (I know I did!), with the same advertorials of ‘freedom and low-fees and democracy’ will seriously underperform the long term returns of a professional money manager.
And, according to the more balanced media reporting, even a great percentage of the larger self-managed super funds will struggle (honestly, mine is awful), because we somehow convinced people that we shouldn’t pay for advice and people are now sorting their financial products according to lowest-cost, not ‘best’!
And they are allowed to invest in geared property schemes, speculative shares and made-up crypto things, which greatly increase the risk of performing very poorly in comparison. And therefore, having a less than salubrious retirement.
So, I guess that this is also not an apology. Actually, I’m unapologetically unapologetic. The superannuation pool is designed to support an ageing population that we cannot afford to support through the government. Its designed to act like a sovereign wealth fund, and build the assets of the country as a whole. Now it’s a different kind of free-for-all where everyone thinks they know best.
Blaming the boomers isn’t the answer, letting people draw their money out of it early only makes their eventual retirement look more like a future ‘tent-life’ than ‘van-life’, and people who don’t know what they are doing should not be allowed to make the investment decisions in it – in the name of democracy – because we won’t be able to bail them out when they too get old.
But they can. That’s the downside of democracy.
At least we have built Marketech Focus with your own individual HIN per account, your own award winning Macquarie CMA, high levels of market data and portfolio data granularity, and even connected it to Sharesight so you could run your tax reports (if you want them). And you can connect your SMSF, Family Trust and personal accounts all to the one log-in, with ultra-low brokerage rates to boot.
So even if I can’t talk you out of making bad investment decisions, at least we made the right thing for you to trade them on…
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