Super fees frenzy equals a retirement nightmare

[redwing]

An interesting article

WHEN Jeremy Cooper was tasked with examining Australia’s superannuation system almost three years ago, he and his fellow committee members were stunned with what they discovered.

Almost 20 years after the introduction of compulsory superannuation, the Cooper Review once and for all debunked the myth that Australia’s superannuation scheme was a world beater.

‘’It was a fabulous idea by Paul Keating to introduce it,’’ one of the Cooper Review’s seven panel members told Eureka. “But the government was hugely naïve in just handing the whole thing over to the private sector to run.’’

What the Cooper panel discovered was an industry riddled with conflicts of interest, focussed almost entirely on enriching itself and a woefully inadequate back-office structure.

“There were literally billions of dollars floating about the system that were simply unaccounted for. All these super accounts were just missing. This was people’s retirement savings. I mean, how often does a bank lose your mortgage?”

The Cooper Review’s final report was delivered to the Federal Government more than two years ago. And while it managed to outlaw some of the blatant rip-offs that had infected the system, improved regulation, and created a low-cost default option for those disinterested in taking an active role in their superannuation, many of the problems remain.

Fees are still way too high. Performance has been woeful. The system isn’t a retirement or pension plan but rather a badly designed investment scheme. And governments continue to tinker with the system, particularly its tax treatment.

Despite the abysmal performance of most super funds in the past five years, the fee take for the industry has continued to grow.

According to research by superannuation intelligence group Rainmaker, the fee take by the superannuation industry has outpaced inflation, even in the years since the 2008 meltdown on financial markets that has seen most account holders watch their retirement balances retreat.

Cont...

More than 30 per cent of the $1.4 trillion in funds under management in the Australian superannuation industry is now in self-managed super funds. Given those funds are controlled by just 10 per cent of account holders, it is clear that it is the richest Australians, disillusioned with the performance of the industry, who have opted out of the system and elected to take matters into their own hands.

That leaves the vast majority of the population – middle and low income earners who were supposed to be protected by the system – at its mercy.

Cont..

Food for thought if you read the whole story

 

[Trogdor]

Start a SMSF.

Or go an industry fund, and pick whatever asset class suits you best.

I disagree - since going SMSF our super has been ramping up greatly.

Compounding at 15% tax for decades is such a free kick (as well as 15% voluntary contributions on the way in).

 

[lizzie]

Agree - our SMSF made more in 3 months (10% in 3 months) than the industry fund made in 3 years ... and that is with only half the money yet invested in shares.

The other half is in a high interest account waiting to pounce when the time is right.

Shud've done it years ago!

 

[redwing]

We use a SMSF nowadays also

Paying these large corporations to lose the money on my behalf wasn't as enjoyable a journey as I'd hoped for our retirement savings

At least this way, costs are lower and we've no one to blame but ourselves

 

[Player]

AK has his say:

http://www.businessspectator.com.au...ent=125119&utm_campaign=kgb&modapt=commentary

 

[HotRod]

This is one of the reasons the I've invested in IPs.

SMSF aside, you have little control over your money, fees can eat away at it and rules can change each year (and not in your favour).

I might set up a SMSF once my IPs are truly set and forgotten and start to actively maximise that, but my IP will provide a return that will dwarf any super returns by a factor of 10 to 20. I view super as a back up plan if things go pear shape (very doubtful) with my IPs.

 

[monty python]

Looking forward to continuing our IP adventure in our new SMSF

 

[hysterical]

For those with SMSF, care to share what was the balance on your super when you set up your SMSF ?

ATO recommended $200k and above.

Cheers

 

[lizzie]

above .....

 

[SENIOR]

I am a control freak with our finances, and a SMSF has given me great returns
I am over 60 and went to a pension mode and all my capital gains are tax free including franking credits
Thankyou Mr Costallo

 

[redwing]

Below.....

 

[starter]

SMSF is definitely the way to go.

The good thing about working overseas is that I get effectively this without the hassle of setting up a SMSF, the company just pay me the amount that was supposed to be super and I do with it what I want.

 

[six20aus]

I have about 120k in Super.

Is a SMSF worth the effort at that level ?

 

[VYBerlinaV8]

I'm just coming up to SMSF viability in the next year or so. I'm thinking I'll do something mid next year, and use the money to buy shares.

 

[geoffw]

I went in years ago when $50k was viable. Then a few events saw some large losses- now realising capital losses would cost me more than the upkeep.

Of course, like many here, my super fund is not my biggest super fund.

 

[buster]

I have about 120k in Super.

Is a SMSF worth the effort at that level ?

A full blown SMSF isnt worth it, a mini SMSF wrap account or platform account maybe woth it if you want to get some gearing as you wont have to pay the auditing fees, and as much for set up fees.

 

[redwing]

An interesting piece on Super by Vanguard and Rice Warner

Rice Warner argues the tax concessions on super cannot be considered in isolation - for example existing taxes on super this year are expected to raise about $16 billion a year.

One thing in the debate that is certain is that retirement benefits have been reduced by that tax cost.

The super fund association ASFA has weighed into the debate and also disputes the Treasury tax cost figure of $33 billion.

ASFA's analysis of the tax concession cost is that "once you take into account that the government is currently saving $7 billion annually in age pension expenditures as a result of super, this figure drops substantially. When you also deduct the leakage of savings into other tax-advantaged areas such as negative gearing which would occur with any decrease in tax concessions, a true estimate of the aggregate tax concession for superannuation on an ongoing basis would be around $16 billion".

The Rice Warner report also argues that to see the full financial picture the true cost of the age pension needs to be reflected as a liability on the national balance sheet so that any tax concessions on super can be measured against likely long-term cost savings. A paper presented to the Institute of Actuaries in 2004 estimated the present value of age pension at that time as almost $600 billion.

Vanguard Counting the cost of constant super change

Rice Warner

Taxing Long-Term Savings

Superannuation members have not been happy since the Global Financial Crisis - there is a general perception of poor value, uncertain retirement outcomes and obfuscation. This view reflects that most members get their main message from the media, where there is a focus on fees, (meaningless) short-term investment performance and continual legislative and tax changes.

Read More

 

[austini]

Control, flexibility, ability to manage tax much more effectively and most importantly the ability to keep fees very low as the balance grows.

The Super industry and those with vested interests are constantly trying to make out it is difficult and time consuming to run a SMSF. Once the fund is up and running it takes bugger all time to manage a SMSF especially if you keep your investments simple.

We started with much less than $200K but were intending to add aggressively to that in the medium term. Also made sure we used an accountant who charged a realistic fee for service so hence despite the lower balance the fees percentage wise were not excessive. Of course overtime the fees stay relatively fixed as the balance grows resulting in much cheaper running costs compared to retail and industry funds etc.

 

[Sean M]

A very interesting read. I find that a lot more people are moving towards SMSF which is fine. At the end of the day its your money and you want to be able to sleep at night. Some people want others to look after it and some people want to look after it themselves.

The main question to ask your self is do you have the skills required to do it yourself. Its like property renovation to some degree in that if your not prepared to do that time i.e. learn the asset classes, how to invest and how it all works, etc then your going to have some major stuff ups and your playing with your retirement funds.

At the very least like you have an accountant to help you set up your SMSF, have a Financial Advisor to help you setup your SMSF Investment strategy and help you review your decisions or help you set the investments up. This gives you the sounding board to make sure you are on the right path. At the very least it prevents you from having a disaster and loosing all your funds because you have run it past a professional who does it day in and day out.

Some of my clients do this because they have nothing else they would rather do and are passionate about it! Which is fantastic.

I am happy to see more people paying more attention to it. It is very important.

 

[redwing]

From ABC's "The Business"

The great super fee grab, billions poached from nest eggs


New research shows that the superannuation industry raked in 18 billion dollars in fees last financial year, that is more than 1% of Australia's GDP. Even industry insiders admit that is too much and they are finding new ways to cut out the middle men. But as the industry fails to show any great cost reductions from its growing scale savers are voting with their feet to seek out better deals.

Further info here

As someone else commented

Sometimes people get frustrated with the money politicians spend on travel, clothes or prostitutes, but those items are nothing compared with the big-ticket thefts like compulsory superannuation, NBN, roof insulation, foreign 'aid', and various pork barrel projects in the billions.