Be well endowed to beat super's flaw

For what's supposed to be a gold-plated super system - setting aside the question of exactly which version since it changes so much - there's a gaping hole because you don't know what you're going to get when you retire. Pretty basic flaw, you'd think.

For what's supposed to be a gold-plated super system - setting aside the question of exactly which version since it changes so much - there's a gaping hole because you don't know what you're going to get when you retire. Pretty basic flaw, you'd think.

While you might have a rough idea of what your super pension will be on the eve of R-Day, you still can't count on it, as the global financial crisis proved.

Even if you put all your super in a safe fixed-interest fund you won't know what the returns will be each year.

All you could be sure of is that you wouldn't have enough money to be self-sufficient, unless you'd built up a nest egg elsewhere.

Australia has one of the biggest super pools in the world, yet there are only two providers of annuities, or income streams, with a guaranteed income each year: Challenger and CommInsure.

Compare that with how many providers there are of managed funds for super. No point counting because a new one seems to start up every other day.

That's another thing. There are any number of funds promising to build your super up, but once you retire you're pretty much on your own.

Anyway, there is an investment that will tell you what you'll have when you stop working, no thanks to the super industry, mind you. After all, molly-coddled funds feasting on the 9 per cent (9.25 per cent from July 1) of your salary put into super by your boss aren't going to jeopardise their juicy fees from such easy money.

They aren't interested in giving you a guaranteed income each year, though you'd think that would be the name of the game.

Which brings me to the new endowment bonds. These are a cross between an annuity and a bond. Their attraction is they cost less and pay more than either of them.

Each one is like a $10,000 banknote, except you choose the year you want the money, and buy it in advance at a discount.

So about $3800 today - the prices change each day - would provide a $10,000 one-off payment in 20 years. Think of it as a term deposit (though you lose the government guarantee) without having to invest it all upfront.

Strictly speaking, you aren't paid interest, either, though the return works out at about 4.5 per cent a year for 10 years and 5 per cent for 20 years, about 0.5 per cent more than an annuity. The more endowment bonds you buy, the more multiples of $10,000 you'd have. The idea is to buy one or more for each year you'll be retired.

Ah, but what about inflation? Good question, because an obvious shortcoming is they're not indexed, though buying extra lots would cover it, I guess.

The investment is in either a state government bond or a deposit with Rabo Bank and the $10,000 payout is after a 0.37 per cent annual fee.

Either way, you get the better wholesale rather than the rate for the plebs.

They're sold on ebx.com.au and are held on your behalf by a trustee, a bit like super. Indeed, they work better in a super fund, otherwise you'd be paying tax on interest you're not really getting - it's part of the $10,000 at the end. At least that won't be taxed.

But they don't have the same protection or guarantee as annuities, which are issued by life insurance companies with regulated statutory accounts.

Still, it's a start.

Twitter @moneypotts