In Praise of Super

Michael Pascoe: What is your view of the superannuation system at the moment?
Daryl Dixon: Well it’s as good as it’s ever going to get. For the past couple of years the change has been coming and they’ve all been major improvements. So the abolition of the surcharge; allowing people to start pensions while still working; high rates of investment return; markets have been performing well so there’s good returns from investment; and, most recently, allowing new contributions after the January 1, 2006, to be converted to a spouse account for couples who have stayed together '” divorcing couples can split their super '” but couples who stay together will be able to split their future contributions.

Are you surprised at the amount of reform that has gone through under this Government?

Well top marks to Mal Brough as the current [Revenue] minister. The previous ministers tried hard. The policy had been set in train by Rod Kemp when he was minister. Helen Coonan didn’t have much luck at all mainly because of opposition in the Senate, but with the control of the Government of the Senate there’s been a renewed emphasis on getting people to save for their own retirement.

Do you expect any more reforms or is that it?

There aren’t too many more items they could reform. One possibility is that currently you have to wait until age 50 to be able to put a large amount of money into super. I think I’d be making representations to the Government that they bring that down to age 45 to give people a longer period there and that would be a big help but apart from those age based limits the rules are very hospitable and favourable.

You obviously have a vested in saying that superannuation is the best form of investment.

Well I’ve always had a high regard for it, even when the surcharge was there, because it’s a nice easy way of investing and ever since the introduction of the imputation credit system where dividends on shares, Australian shares, bring with them a tax credit, super has been really the best way to own shares. The success of most of the Australian super funds has largely been due to Paul Keating’s imputation credit system. The Howard Government actually allowed, I think it’s since about 2000, funds to get a cash refund of those franking credits, so if you get a dividend of 5% that’s really equivalent to 7% pretax, and a super fund '” if it’s in the pension phase '” gets a full refund of that tax and is yielding 7% rather than the 5% nominal dividend.

Do you think the average retail level investor appreciates that?

No. And super is one of those things. This country would be a lot better off if people understood super but at the same time the Government might not be able to afford such a generous attitude to salary-sacrificed super. I was talking to 100 people last week and only 15 of them were salary sacrificing to super and I thanked them for paying more tax than they needed to. Why has Peter Costello got such a large surplus? Super really is a great way [to invest], particularly for older people and by that I mean people over the age of 45. The money is always there. In a super fund you can change your investment options. Super’s just a way of investing money and it’s a tax haven. It’s a beaut way of accumulating a lot of money. A lot of people think negative gearing is a far superior option. Well, it can be as long as you can be certain that you’re going to get capital gains, but the difficulty is that the days of getting good, quick certain capital gains have disappeared or it’s a much more difficult exercise. Suddenly the people I’ve seen in negative gearing haven’t really made money when you allow for the fact that they’ve had losses every year and you can’t turn on or off a negatively geared property, for example. With super, if your current cash flow is too short, you can stop your salary sacrifice for a short period of time and then restart it.

Would Dixon Advisory be the largest independent financial planning superannuation and self-managed super outfit?

I would think so, but I don’t go around comparing. We do have a large number of funds and we’re quite happy for people to make their own investment decisions. There’s no vested interest. Well there are things that we offer. We’re quite happy for people to take up those offers and effectively what our service does is allow people who want to control their own investments and control their own strategies to actually do it in the superannuation framework. For large amounts of money, it virtually amounts to a flat fee and you can use your own broker or you can use your own managed funds to do your investing for you. We do help with strategies, and I think with super it’s a way of investing that you need to have a clearly identified strategy. For example, you might say, 'I just want to use my super to accumulate a large amount of money to convert to a pension when I hit 55, to give me the ability to work part-time or slow down or take a year off', and self-managed super does give you that sort of flexibility.

There’s a lot of focus on picking the right fund in financial planning, but is that strategic advice '” the strategic investment '” vastly more important than a percentage point here or there on a fund?

I think picking the right strategy is the first thing: get the right strategy then concentrate on the investments. I’ve found over the years that conservative investors on the whole have done as well or even better than higher-risk investors because the losses when some of the higher-risk strategies fail can eat away the profits and if you look at any of the major professional funds managers you’ll find.

Well in one recently, the Capital Stable Fund over a 10-year period, so that was a relatively conservative mix, was a far better performer than the Balanced Fund. Part of that was due to the fact that the Capital Stable Fund had a much smaller percentage of overseas assets and I’d be saying to people the secret of my success is having very little overseas assets. If you look at the performance, for example, of Australian listed investment companies such as Argo and some of the others. I won’t mention the ones that I own personally, but effectively they in many cases far outperformed the fund managers and they haven’t had the risk of overseas assets. They’ve had the benefits of the imputation credit system and if you just had your superannuation say 70–80% Australian shares, 20% property '” or a mix like that '” you would have had a very good 20 years.