Superannuation Discussion + market volatility

[Renato1]

Re: The totally off-topic thread

Just a note to those reading this thread who are in Defined Benefits Schemes - especially to any that still enable you to take the benefit as a lump sum - make sure that you at least once visit the financial advisors at Stateplus (Formerly State Super Financial Services) and hear what they have to say.
https://www.stateplus.com.au/

They were set up by the NSW Government decades ago, when it became clear that a huge number of people were blowing away their pension benefits by listening to the ill-informed advice of private sector financial advisors to go for lump sums (which would then be invested with the latter).

I recollect back in 2000 when one of my former staff was being advised to take a lump sum by private sector advisors, and I spent an hour showing him how he would likely be destitute in eight years time, instead of comfortably well off. He is still extremely appreciative that he listened to the engineer rather than to the financial advisors.
Regards,
Renato

 

[deebens]

Re: The totally off-topic thread

After adviser fee and platform fee, OP probably also should have checked the fees on the funds he was in. Given it was started in 2003 there were probably a lot of actively managed in house trash that made things even worse.

 

[Renato1]

Re: The totally off-topic thread

Senator David Leyonhjelm has an interesting perspective on the recently agreed to Superannuation changes. I like David because he seems to be one of the few in Canberra who doesn't want to take my money. See below.
Regards,
Renato.


David Leyonhjelm - Liberal Democrats Senator NSW explains how the government has conned us on super in his latest op-ed for the AFR.
"The government has pulled a swiftie on superannuation. In the May budget it proposed to increase tax on super by nearly $3 billion by 2020. Labor sniped at some design features but offered no real opposition and proposed its own increases of a similar amount.
The only opposition came from me and some Liberal Party backbenchers, encouraged by thousands of older Australians. Our pressure led the government to revise its proposals. The effect of these revisions will be to increase tax on super even further, raising more than $3 billion by 2020.
The Liberal backbenchers have declared the revised plan a great victory. Let's hope they realise their mistake, because with a few more "victories" like that everyone will be living on the pension in retirement.
The revised plan not only retains the cap of $1.6 million on funds in a pension account, in which earnings are tax free and no tax is paid on withdrawals, but makes it more difficult for anyone to reach that amount.
Those earning more than $250,000 in combined salary and super will now pay 30 per cent tax on their super contributions up to $25,000, while anyone making a contribution over $25,000 will see these contributions taxed at marginal tax rates. And in case you haven't done the arithmetic, you'd need to contribute $25,000 every year for 64 years to reach $1.6 million.
The ban on lifetime post-tax contributions in excess of $500,000 has been dropped, replaced by a new ban on annual post-tax contributions in excess of $100,000, or $300,000 over three years for those under 65. Thus, anyone who comes into some money in excess of this, via an inheritance for example, will be unable to move it into super.
The plan to enable couples in their seventies to level their super accounts by allowing a husband to make contributions on his wife's behalf is gone, as is the plan to allow non-salary superannuation contributions by people aged 65 to 74. Retirees will continue to be prevented from downsizing their home to put more of their wealth into super.
The plan to reduce the tax on catch-up contributions by mothers and carers returning to the workforce has been deferred. The earliest you could see a benefit from this is three years from now.
Enough for retirement:
And to top it all off, there will now be a ban on putting any post‑tax money into super once your total balance exceeds $1.6 million. The previous plan was to allow such contributions but tax the earnings at 15 per cent, so people would continue to invest in their retirement.
The underlying problem is that, while a superannuation balance of $1.6 million might sound like a lot, it is not enough to retire on without the age pension. With low interest rates and the increased possibility of living for at least 30 years in retirement, $1.6 million might only buy an annuity starting around $50,000, rising with inflation.
You could therefore go into retirement eligible for the age pension, which currently cuts out at income levels over $50,000. And even if you don't start that way, you'll become eligible for the age pension soon enough because the upper income limit for the age pension rises in line with wages growth, which is faster than inflation.
Unless interest rates increase substantially or we start dying earlier, a much higher super balance will be needed to ensure permanent ineligibility for the age pension. If there is no benefit in accumulating a super balance in excess of $1.6 million, there will be no incentive to become independent of the age pension.
That means the self-funded retiree will become a distant memory while the working age population will bear a crushing tax burden to pay for pensions.
The government intends to legislate the objective of superannuation as, "to provide income in retirement to substitute or supplement the Age Pension", with all subsequent legislation assessed against this.
The problem is, its own plan fails the test. Private funds put aside for retirement should be seen as deferred consumption, not a honeypot for a tax-hungry government that cannot control its spending. If it was serious, the government would abandon its $3 billion super tax grab and boost incentives to save money for retirement, so more people were financially independent.
Raising taxes and promoting dependency is not the kind of swiftie we need."

 

[burmans]

Re: The totally off-topic thread

Thanks John, but the legislation dictates what can be done. And financial advisors advise on what can be done within the dictates of the legislation. And lots of people decide to contribute to Superannuation, and then change their mind the following financial year about leaving the money there.
Regards,
Renato

In the context of advisors vs the ATO I wouldn't want to be on the advisors side! Particularly given the disclaimers those advisors make.

 

[penegal]

Re: The totally off-topic thread

It is interesting to read that more people are starting to worry about sovereign risk with Super. At the end of the day, there is a very large amount of money in Super, which governments will continue to look at while they lick their lips in anticipating of their next policy decision.

We can hope our governments (on both sides) make sensible policy decisions.



Here's a small insight to my position.

I made a couple of small-ish voluntary contributions to Super a few years ago. I am now not sure if that was a great investment decision or a horrible one. The performance of my fund means these contributions have grown, and the growth will hopefully continue to compound (which is generally regarded as a good thing). But longer term I am not so sure. I could have invested that money outside of Super, or spend it on fun things.

In any case, I haven't made a voluntary contribution to Super for several years. I am just too worried, that any "benefit" will be completely eroded before I see the money. I am happy to have some other money saved outside of Super as it gives me much more flexibility in terms of how I invest (or consume) it.

 

[lovetravellingoz]

Re: The totally off-topic thread

My husband has always had regular meetings with his fund manager/rep with a retire at 55 goal & a 30yr retirement plan.

He finishes work in Jan at 56 and wants to KDR our house (God save me on both counts)

Like anything, I wish I was smarter when I was in my 20s

On your choice of investment or husband or both?

 

[cove]

Re: The totally off-topic thread

Being retired for 44 years is a long time not working if that is the plan Denali.

 

[Flying mermaid]

Re: The totally off-topic thread

You might want to check out an Industry Fund to see if that performs better for you.

I second this. Things might have changed but when the kids needed super funds, I ended up putting them into industry funds. They are open to anyone these days and Dr FM is able to get NSW Health to pay in to hers and Miss Fm as a teacher can get contributions paid in to hers. Fees are low and their performance seems fine.

 

[Flying mermaid]

Re: The totally off-topic thread

We have recommended to our two sons that they increase their employer sponsored superannuation contributions to a combined 20% using salary sacrifice.By starting at a young age the compounding of money will assist in getting to that current $1.6 million target. It is tax effective if you can afford to do this.
Getting all the funds into one superannuation account is the other biggie to avoid extra admin charges.

we have actually gone the other way and told our kids to not put any extra into super. We started our own super fund in 1984 and SMSFs went in and out of fashion, but we stuck with it and it has been very good for us. However I think the risks are too great now - treasury can't keep their paws off it and I also think there is a big risk of not being able to access your super until much later in life than we have been able to. If most of your saving have gone into super and you want to retire at 60, but the preservation age has been changed to 70, then you are a bit stuck. Better to hedge your bets and have investments both in and out of super, so you have more freedom to choose. Of course if you have enough money to maximise super, while still creating investments outside, then that is a different story.

 

[cove]

Re: The totally off-topic thread

I hear a number of stories where folks who have bugger all in superannuation are accessing $10,000 of it for emergencies.

 

[cove]

Re: The totally off-topic thread

Sure you could retire at 60 but you may not be able to access the employer sponsored portion of the superannuation until you are 70. Figuring out how to live from 60 to 70 without Government assistance would test quite a few folks.

 

[Gold60]

Re: The totally off-topic thread

Depending on your circumstances, Newstart might be an option/help out?

Sure you could retire at 60 but you may not be able to access the employer sponsored portion of the superannuation until you are 70. Figuring out how to live from 60 to 70 without Government assistance would test quite a few folks.

 

[cove]

Re: The totally off-topic thread

At the rate my generation is retiring I doubt that 50% of Australians will be able to get assistance from our Federal Government. You may have to use your own money first as the social security budget may not be able to handle the hit.
This is not financial advice!

 

[whatmeworry]

Re: The totally off-topic thread

Meanwhile our top public servants to avoid most super changes.

High-ranking public servants not only enjoy employer contributions of 15.4 per cent on their salaries, but they are nearly all in the coveted defined benefits schemes which have been closed to new members for more than 10 years.
The only loss this group faces, under Treasurer Scott Morrison's draft legislation, is the ability to make tax-free contributions to a second super fund.

Elite public servants to escape Morrison's super axe

 

[JohnK]

Re: The totally off-topic thread

Seems to me thta thers a discrepancy here between expectation and actual performance

Super funds gain 3% for 2015/2016 financial year - SuperGuide
Super funds gain 5.8% for 2015 calendar year - SuperGuide

On top of this JohnK also seems to want consistency of performance.

I made a mistake. The super fund earned 0.45% return (not 0.28%) for the year. I just feel that's a little too low for conservative superannuation fund. Consistency would be desirable. It takes a long time to recover from losses.

 

[serfty]

TBH with 18K the nett/relative losses are not that much.

Amalgamate - there's generally no sensible reason to pay multiple management fees ... if you are stuck with one then move any other to that one ... and look to move that one when you can.

 

[ComeFlyWithMe]

It seems a lot of people want to blame others for poor financial decisions. Super is your money. You should invest it wisely. You should get advice if you don't know what to do with it. It may be appropriate for younger people to take higher risk due to more time to ride out the lows with the compounding benefits, then reducing risk portfolio over a lifetime, but YMMV.
If you leave money in a fund with a poor return, to be honest, you deserve a poor return. There are so many options. Nothing is keeping you there.
The other big mistake is just to take your employer's default fund. Many large employers use big corporate funds like AMP, MLC, etc due to the benefits for the company, not for the staff.

 

[whatmeworry]

Calls for SMSF to be excluded from buying properties.

[h=1]Warnings that self managed super is pumping up the property market[/h] Updated about 5 hours ago
A new report from Credit Suisse suggests self managed super is the shadow banker behind Australia's property price boom.
Now the former Chair of the Financial Services Inquiry, David Murray, has repeated his call to ban borrowing to invest in super.

Warnings that self managed super is pumping up the property market - Business - ABC News (Australian Broadcasting Corporation)

 

[JohnK]

It seems a lot of people want to blame others for poor financial decisions. Super is your money. You should invest it wisely. You should get advice if you don't know what to do with it. It may be appropriate for younger people to take higher risk due to more time to ride out the lows with the compounding benefits, then reducing risk portfolio over a lifetime, but YMMV.

I don't agree with your statement.

Super is not my money. Way too many hands in the pie now without adding a financial advisor. And for the record my "financial advisor" has been taking a cut of the pie but has not offered a single piece of advice in over 10 years. Actually that's a lie. They have never offered any advice.

Looks like moderate growth is too difficult for the highly paid incompetent fund managers to manage. Hope no drastic changes to super laws and I can still get payout at 59 years of age. May have to tone it down another level to ensure no further losses and ride out the next 6 and a bit years until I can take a payout.

 

[CaptJCool]

Re: The totally off-topic thread

Sure you could retire at 60 but you may not be able to access the employer sponsored portion of the superannuation until you are 70. Figuring out how to live from 60 to 70 without Government assistance would test quite a few folks.

There seems to be a lot of misconceptions about public service DB super & Fees SO This article endeavours to simplify it. https://www.dixon.com.au/insights/2015-10/what-to-do-with-public-service-super

In addition to that article.....


Key points
Long term net return is 6% per annum


Gross earnings of course are pre-tax and fees can be upto 6 different types (investment advice fee, investment performance bonus, account keeping fee, annual fee which is 0.8% of balance, insurances of multiple forms).


Access to pension stream is available from 55 (or even younger if made redundant at any age from 30-54. Access to lump sum is based on preservation age (now 56-60)


Superannuation reverts to "spouse" on death for their rest of life or children until age 25.


Many changes have happened like


These were traditionally cash-based until the Trust deeds changed in the late 80s to allow shares to be included in the portfolio.

Losses are now at the employees risk (since 2002)


Cash rate introduced but is terribly low


Employees now have optional contributions but originally a mandatory minimum of 5%

Strong push to have employees in this scheme to take the cash rate or stop making contributions or to take a part lump sum to reduce government exposure


Wages rose at extraordinary rates pushing up contribution value


Recent change from 1 Jan 2016 deems 50% as income instead of 10%. Over 300,000 lost their age pension (At least one third is your own contribution (roughly exhausted after 11 years), another 3rd is the employer contribution - think of these as capital in a bank account which is now deemed income ! )


Unlike the rest of the post 60 age group who pay zero tax in pension phase, tax is paid on 1/3 of the superannuation, the reduction is sufficient to fund a first class airfare every year




DB EMPLOYER risk are the traditional public service super schemes closed by the late 90s where most fees are paid by the employer.


Must take part or all pension - there is no way to "take it only as a lump sum" and only a fool with do so.


Late career promotions can result in a better pension option post 55, in the main 54/11 is a major high-spot.


The average annual CSS Pension is around 35,000 pa but recent maximum results are well north of $80,000 gross pa
but super Pension stream based only on basic contributions and interest (and not productivity components) great for maximum annual stream at 54/11 or redundancy after 55.




DB EMPLOYEE RISK 1990-2005 now closed


The sweet spot is 58 but with most of these employees contributing 10% after the long service period is achieved.

Allows full lump sum


80% of senior Australians access full or part age pension. It's the social safety net and it gets worse
https://www.dixon.com.au/news/news-article/14-08-16/age-pension-may-beat-1m-in-super



Now today, the forward trajectory is alarming. it's an income-tax free life for all those over 60 who no longer work (except former public servants)

This study gives the best insight as to how this situation is affecting government expenditure especially for those who already are on superannuation. Superannuation Policy for Post-Retirement - Productivity Commission