The
Cooper review into superannuation has
been well received. What do the changes
mean for you?
With $1.3 trillion in superannuation
savings, Australians might feel they have
a treasure trove in store for when they
retire.
The reality is very different, with 9
out of every 10 Australians retiring into
circumstances that are anything but comfortable.
Why is this the case? What are some of
the facts about super, and what is the
Cooper review all about?
The first point is that many people’s
eyes just glaze over when you mention
super. It seems so confusing, and is not
transparent. Everyone who is accumulating
the compulsory 9 per cent contribution
each pay cheque feels that this will lead
somewhere, but in reality, for most it
is all too little.
A few key issues why super ends up being
far too little are:
- The 15 per cent government tax “contributions
tax” that is deducted from each
month's contribution.
- The management fees that are applied
by the managers who run the funds are
charged irrespective of performance.
- The steady increase in fees collected,
as they are linked to the size of the
funds.
- The lack of competition amongst the
funds- there is no real need, given
the river of money flows in each month
anyway. Simply performing as well as
'the market' is seen to be enough.
- The complexity of the super system
and the historical and somewhat confusing
reporting, which make most people avoid
looking too closely into their fund
details.
The size and growth of the national super
funds under management make for staggering
reading:
- 1996 total - $245 billion
- 2010 total - $1.3 trillion
- 2035 forecast - $6.1 trillion
The biggest single recommendation in
the Cooper review is the establishment
of MySuper, which will be a 'default'
fund that would suit most people that
is far cheaper to manage, and offers simple
financial advice and a retirement product.
Commissions will be banned on investment
advice, and steps will be implemented
to improve the transparency of fund performance.
The federal Government has also announced
plans to increase compulsory super from
9 per cent to 12 per cent over time.
What are we to make of all this?
Firstly, the changes are positive, as
they will lead to increased savings, a
far simpler and cheaper fund for most
Australians, and a big reduction in the
fees and commissions charged. The downside
is that the average person will be even
more inclined to think "she'll be
right mate" in terms of retirement
planning, believing that the Cooper review
changes will have solved all the issues.
The bottom line is that even with all
these changes, the amount of super savings
that will be available will still be far
too little for a comfortable retirement.
Our own studies show us that most people’s
shortfall or retirement gap will be approximately
80 per cent. That is, superannuation will
only provide 20 per cent of the current
income needs.
Therefore, other investment strategies
are needed in addition to superannuation.
Investment property is one clear option.
Our best advice therefore is not to be
lured into a false sense of security by
the changes to superannuation, but to
become actively involved in building a
complete strategy for retirement, rather
than relying on super to do the job for
the next three or four decades for retirement
that await you.
In summary, despite all the positive
changes, super can never be enough on
its own. Additional investments are needed
to enable you to be financially comfortable
in retirement.
Source: "Super size me", The
Sydney Morning Herald, Weekend Business,
July 10-11, 2010, by Annette Sampson
If you would like to see if your superannuation
is adequate, work it out for yourself
on our Calculator
Toolbox on our website or to learn
more and discuss how McCarthy Group can
assist you, click
here.
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