Letters of the Week

Addressing the super cap, understanding fees and the positives of our super system.

Addressing the contributions cap

I think it is a great idea that Alan has and will be learning more, but one thing that needs to be addressed is the $25,000 per annum limit on super contributions and if it is exceeded you are taxed at the highest rate. What hope does one have to save for our retirement when you are taxed beyond belief if you exceed the threshold? Also the government wants to do away with “transition to retirement” as a tax lurk . This Green-based Labor government is all about re-distribution of wealth, and it does not matter how hard one works to be financially independent in retirement, the government is going to nobble us. A lot is to be said for the jam tin in the backyard.

I would appreciate your thoughts and what can be done if anything.

G Phillips

Editor's response: The $25,000 annual cap on superannuation contributions is a serious roadblock in our system. It is viewed by Treasury as a rort because it simply looks at one side of the ledger - how much tax revenue is foregone each year by handing out benefits to middle and higher income earners. It estimates the cost of the concessional tax rates at about $30 billion, much bigger than the defence budget. So you can see why politicians and bureaucrats jealously eye ways of clawing back some of those funds each time there is a threat to the Budget Surplus. What they don't take into account is the potential costs to the state of an ageing population that will not be able to support itself upon retirement. That's why we have taken up the campaign, to dispel the notion that our super system is a rolled gold world beater – it isn't.

Understanding the super fees

The article A cry to save our super by Alan Kohler and Ian Verrender states in part:

“In the 12 months to the end of June, $135 billion in worker’ contributions flowed into the coffers of those looking after our retirement savings. Of that, $17 billion was skimmed straight off the top in fees.”

I’m intrigued by the maths – 12.59% fees deducted from contributions to super. Can you give a breakdown of the fees so I can get my head around the statement made, as I’m sure I will spend much of the next few weeks answering clients’ enquiries on the matter, and at this stage I’m completely in the dark on how such a quantum of fees on contributions could possibly be charged?

R Moore

Editor's response: Amazing as it may seem, those figures are spot on. And it all has to do with the outrageous manner in which the industry levies its fees. There are no fees for performance. It is a fee that is based on the amount of money under management. Given 9 per cent of every working Australian's wages - apart from entrepreneurs and small business owners - flows into that pool each week, the fee take just naturally increases. So those fees are levied over the entire $1.3 trillion pool, which has gone backwards in the past five years. It is a far more chilling figure when you put it as a percentage of the money flowing in during the past year.

The positives of our super system

Alan, no, the Australian system is not a “national disgrace”. The promised end benefit arrangements in England is a national disgrace. It's unfunded and it’s uncontrolled escalating financial obligations are sinking many great UK companies and their government. The GFC exposed these serious issues.

The are many positives in what Paul Keating introduced here in Australia, including:

1. Some relief for the public purse from funding retirees

2. The switch from promise end benefit to accumulation funds, removed from employers the long term unfunded pension obligations that have burdened so many great companies and the public purse in the US and in the EU

3. A substantial improvement in the Australian capital markets and the Australian savings rate

That said, you make some great points that need to be addressed. Without advocating more regulation and a "nanny State", there is a good case for tightening up the more obvious weaknesses in both the professional and SMSF fund management governance arrangements in Australia.

Wasn't that what the recent Cooper Review was meant to address?

K Roxburgh

Editor's response: You make some valid points about the shift in responsibility from government and corporates to individuals. It certainly has benefitted the budgets of public and private sector organisations. But we've simply shifted the problem and created the opportunity for the financial sector to earn greater profits for itself at the expense of the Australian public. We're not suggesting that unfunded liabilities are the way to go. That is a recipe for disaster. But the current system has serious shortcomings that few are willing to even recognise let alone address. There is simply not enough money in the system to fund the retirement needs of an ageing population.

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