PORTFOLIO POINT: Your superannuation is up for grabs as part of the federal government’s budget surplus program ... and we need your help.
It’s official. Superannuation is under attack. Bill Shorten, the minister directly responsible for administering the system, told senior financial planners recently that “nothing would be off the table” in the coming months as the Gillard regime seeks savings from the $1.4 trillion funds under management in Australia.
For investors the confirmation by Minister Shorten that a much-anticipated squeeze on superannuation is now to become a reality caps a year of trepidation within financial planning.
Many planners had feared this government did not actually believe in the principles of the system after a policy u-turn in last year’s Budget, which many feared might be a taste of things to come. (In the 2012 Budget a planned reprieve on the $25,000 contribution cap for over 50s was postponed – a move that saved $1.5 billion).
Already senior figures have expressed alarm at the plans: Nick Sherry, a former Labor superannuation minister, has pointed out that the generous defined benefit schemes still enjoyed by senior politicians, judges and army personnel should be targeted rather than ordinary savers.
The federal opposition, for the moment, has had little to say on the matter.
At risk now is the worst sort of short termism Australian investors have witnessed in many years. The Gillard regime’s appetite for draining the superannuation system has been intensifying in recent times – it is estimated this government has cut more than $7 billion from superannuation since it took office.
The urgency comes from the government’s pledge to create a budget surplus in the year ahead. This public commitment has been caught short because of over-ambitous forecasts on commodity prices.
With an estimated $5 billion needed to fund a one-year surplus of $1.5 billion, a remarkable multi-generational public policy success is to be attacked to achieve a surplus so small, it is little more than a rounding error in national accounts.
Today Eureka Report is “calling out” to our subscribers ... what do you think of the planned changes? What might Eureka Report do for you in the months ahead?
What is at risk? For Eureka Report readers there is not just a risk that the broader superannuation system is diluted but that the specific advantages of DIY superannuation also will be damaged.
We know from recent surveys the majority of our subscribers already use DIY superannuation and we are firmly convinced that in the near future DIY savers – already representing nearly a third of all assets in the system – could become the most powerful faction in superannuation.
But this will not happen if there is not some representation in Canberra to counter-balance the immense power of institutional investors such as retail and industry superannuation funds which continue to run a flawed system with poor returns and flawed performance systems.
In our Inside Line video today (see above) Alan Kohler and I discuss the risks that are now looming large for our superannuation.
The DIY system must be saved, because we know just how bad our interests are being served by institutional investors ... if you need some evidence read this recent article from Eureka Report (Abysmal returns are a super shame).
Why is Minister Shorten preparing to attack the system? The ostensible reasons put forward by government is that there is an alleged inequality in the system. The core argument is that a large volume of the tax breaks in superannuation go to people who have the largest savings. Eureka Report does not dispute this point: It is an inevitable consequence of a merit-based system where, at best, those who work and save the most get more from the system.
But surely this issue is vastly outweighed by the fact that already nearly 1 million people are in the DIY system, and this takes almost one in 21 people off government pensions – or more importantly ... the waiting lists for government pensions.
With one of the oldest demographic profiles in the western world, every Australian government – whatever its politics – must run a superannuation system where the emphasis is on self-funding. Indeed, this is why a superannuation system largely conceived by a Labor prime minister, Paul Keating, was later enhanced by a Liberal prime minister, John Howard.
Elsewhere in today’s issue, Bruce Brammall looks at the specific areas where Bill Shorten might strike. Bruce also suggests what you can do now with your investments to prepare for change.
But, most importantly, you must tell us what you think. What should be done? Can the system be improved without damage? Could the government increase revenue from the system without wrecking it?
Write to us at by sending a letter to the editor (click here) Remember, all the powerful factions within superannuation have representation in Canberra but nobody is looking after your superannuation.