In formulating a new set of rules and principles for retirement saving the Murray inquiry will hit some hidden snags below the superannuation surface. The two biggest of these are: the problems with linking infrastructure and superannuation, and what will happen to bank shares.
Let’s start with bank shares: More than 50 per cent of Australians whose superannuation fund is in pension mode are in self-managed super funds. They have performed well partly because a large portion of their self-managed fund equity investment has been directed towards high-yielding bank shares, which have performed well.
But in the next three or four years banks face new challenges. Groups like PayPal, Google and eBay are going to eat away at part of the banks’ market and operations like Coles’ mobile wallet will do likewise (The big four banks can't afford any more IT mistakes, July 4).
Up to 30 per cent of bank revenue could be challenged by these new rivals and only the Commonwealth Bank of Australia has the technology ready for action. At the same time the Murray committee is looking at the bank capital rules and is concerned that too much of the banks’ risk is in the housing sector.
These two developments will make life that much more difficult for banks and lower the performance of superannuation funds in retirement. Murray sees infrastructure as the natural investment home for part of superannuation funds in pension mode, but there are several problems here.
First, Australians think that infrastructure should be funded by government revenue and not via tolls, fares or some other form of user-pay charges. That reduces the amount of new revenue-producing infrastructure being built and therefore superannuation funding opportunities.
Second, when governments sell off infrastructure assets, overseas pension funds -- led by the Canadians -- bid the prices very high. And the current rules make it impossible for self-managed funds to participate because the minimum investment is too high. It needs to be slashed (Unlocking the wealth of Australia’s self-managed funds, June 30).
In my view, the way around the problem is for communities (towns or cities) to promote infrastructure that is funded by retirees in their community. In some places there will need to be government help in securing the income of the securities at the early stage. Murray bemoans the fact that there is not an advisory structure for retirement. Most institutions undertake limited work in this area and, in any event, many have fees that are too high.
As a result, Australians have taken control of the funding of their retirement and are performing well.