Australians are rapidly moving past  full reliance on the Age pension in retirement.

The compulsory superannuation regime, introduced by Paul Keating, is providing better results, on several fronts.

A senior Federal Minister, Chris Bowen, spelt that out in a speech he delivered in Melbourne.

He said the introduction of compulsory superannuation “…has meant we are all, collectively, saving more.

“The resultant national pool of wealth – which is available for investment in Australian companies, property and infrastructure – has been a crucial source of funds for our economy,” he added.

That had helped Australian industry, in the wake of the global financial crisis.

Mr Bowen, who is minister for Financial Services, Superannuation and Corporate Law, also said “The Age pension will inevitably continue to supplement retirement incomes in future.

“But a far lower proportion of retired Australians will be full pensioners,” he said .

“And a far higher proportion will be part pensioners,” Mr Bowen added.

He also quoted lines from Tony Abbott’s book, Battlelines, which Mr Bowen said  suggest that a Coalition government might slash the present tax concessions on superannuation, to fund abolition of the means test on Age pensions.

“That “would be a very retrograde step.”

“We rule it out,” Mr Bowen said.

“Mr Abbott should  as well,” he added.

So far there has been no response from the Opposition Leader.

The weekly expenses that older Australians face rose much faster than those of other people over the past year.

This is confirmed in research that the Australian Bureau of Statistics has just published.

The main reason for this is that rapidly rising food and health care bills take bigger slices of the incomes of older people than from those of the general public.

Age pensioners were  hit hardest.

The bureau reports that their costs rose by no less than 3.2 per cent, over the 12 months to the end of December.

The Consumer Price Index, which measures the costs faced by the general public, rose by just 2.1 per cent over the same time.

Self funded retirees, whose incomes are mostly higher than the age pension, did a little better than age pensioners.

The bureau reported that the cost of living, for this group as a whole, rose by 2.8 per cent over 2009.

The Bureau also reported that the living costs of both age pensioners and self funded retirees rose by 0.6 per cent in the December quarter of last year.

In this area, they did slightly better than Australia’s employees households, which saw their cost of living rise by 0.7 per cent in the final three months of last year.

The CPI rise, for the quarter, was 0.5 per cent.

Remarkably, the bureau’s “employee households” saw their living costs rise by just 0.4 per cent last year.

The bureau noted that their electricity prices, rents, insurance charges, hospital and medical fees and beer prices had all risen in this time.

However, those rises had been offset by reduced interest charges, cheaper petrol, lower audio and television prices and lower insurance costs.

The Bureau’s report strongly suggests that all Australians would be wise to review their retirement plans, to provide for the bigger health bills Australians, generally, are facing in their later years.

John Howard came to power, many years ago, promising that  red tape for small business would be cut in half..

At that time, though,  small business operators were generally filing just two tax returns a year. One for their business and a second for personal income.

By the time Mr Howard left office, though,  thousands were preparing no less than six tax returns a year, five for their businesses and one personal return.

While most could prepare their own quarterly Business Activity Statements themselves, many sought professional help with their annual returns – both business and private -  because of their perceived complexity.

The cost of getting their accountants to fill in those annual returns, though, was high.  Accountancy firms thought nothing of charging as much as $2,500, and sometimes more, for this small service.

Predictably, accountants protested loudly, in submissions to the Federal government’s tax review, at a proposal to make annual tax returns not only simpler, but also  voluntary in many cases.

The details are not yet clear, as the review’s report, which the Treasury Secretary Ken Henry handed to the government just before Christmas, has not yet been made public.

We can, however, expect the present arrangements for taxing superannuation to be comprehensively overhauled.

At present, superannuation money is taxed at a flat rate of 15 per cent, on its way into a fund.

So people, on very high incomes, can get much bigger tax breaks on super, than others on middle and low incomes.

The government, though, is not likely to agree to the superannuation industry’s request to increase compulsory super contributions from 9 to 12 per cent of salary, in this year’s Federal budget.

The Henry Review is understood to have concluded that the present rate of 9 per cent will provide an adequate retirement income, at least for younger Australians who are now coming up through the system.

It also favours a profit tax, of perhaps 40 per cent, for Australia’s big miners, in particular.

That would, eventually  replace State royalties and other charges.

Surprisingly, the miners themselves were not totally opposed to this idea.  Although high, that tax would not be imposed at all, when commodity prices were low, because the miners then would  be making little, if any, profit.

States like Western Australia, though, bitterly oppose this idea. That’s State’s Treasurer, Troy Buswell, is already fighting hard against it.

The Review has also come up with some novel ideas, such as taxing people who use the nation’s roads at peak periods.

That is based on the idea that if traffic flows could be spread more evenly – throughout the day – there would be less pressure from motorists for expensive new roads.

The Review concludes, too, that Australia’s rapidly ageing population will put heavy – and strongly rising  – pressure on Federal finances in the years ahead.

That’s why the Prime Minister, Kevin Rudd, has been touring the country, over the past week, telling Australians that the nation’s productivity must be increased, to meet these demands.

He has stressed, each time, that this means working smarter, not harder or longer.

But that forced  his Treasurer, Wayne Swan, to remind Australians of the Rudd government’s promise that its total tax take would be no higher – as a percentage of national income -than that of its predecessor, under John Howard.

Few issues, though, are as politically sensitive as tax reform, however well intentioned.

And things don’t always work out, in real life, exactly as intended.

Mr Howard, himself, discovered that.  Mr Rudd will, too.

The Federal Treasurer, Wayne Swan, says the Labor government’s future tax take won’t be bigger than that of its predecessor, the Howard government.

“We remain committed to keeping taxation as a share of GDP below the level the Government inherited,” Mr Swan said.

“And that’s 23.6 per cent of GDP in 2007-2008,” he told an ABC radio interviewer.

The commitment is important, because the Treasury Chief, Ken Henry, said last night that the government’s need for money would rise over the years ahead, as Australia’s population aged.

That was taken as a sign that the government might be planning to raise taxes.

Especially as Mr Henry headed a committee which has just completed a major review of Australia’s entire, ramshackle, taxation system.

The committee’s report, which runs to more than 1,000 pages, was handed to the government just before Christmas.

But it has not yet been released to the public.

Mr Swan admitted, though, that the rapid ageing of the Australian population would put pressure on the nation’s finances.

“Well, I think it’s very clear – and you’ll see this in the Inter-Generational Report which I will release in a short period of time – that the ageing of the population will put pressure on the Budget, and on the economy over the next 40 years.,” the Treasurer said.

“There are currently something like five people of working age for every person aged 65 and over,” he added.

“And in 2050 that will be 2.7.”

“That’s why the Prime Minister has been talking about increasing productivity,” Mr Swan said.

He said that’s what Australians must do to offset the ageing of the nation’s population.

” That’s the way to solve the problem of the ageing population, along with increasing participation,” Mr Swan said.

” It’s making sure that we pay attention to that critical issue of productivity, so we increase our wealth and increase our capacity to support an ageing population, and also make sure we have the right policy settings in place in health and retirement income policy which will support an ageing population,”

Mr Swan said, though, that increasing productivity meant working smarter, not harder.

Older Australians might be encouraged to work longer. But those who wanted to retire would still be able to do so.

Although damaged by two recent shocks, Australia’s superannuation funds have been doing their job, according to a new report.

The report, published by the respected assessment firm, SuperRatings, says mid level balanced funds have produced average returns of 6.8 per cent a year, over the past seven years.

But prices had risen by just 2.8 per cent a year over that time.

“This means that “most funds are meeting their long term objectives,” SuperRatings said.

But – as the old song warns – the fundamental things still apply – as time goes by.

SuperRatings acknowledges that reality, saying there is still a basic trade-off between long term returns and short term volatility with super.

The first of the two shocks came when the former Treasurer, Peter Costello cut tax favoured superannuation contribution limits from $50,000 a year to $25,000 in 2007-08.

Australians responded by cutting voluntary contributions to their superannuation funds by 40 per cent.

But there was an even bigger shock to come, with the share market crash.

That left many newly retired people with much smaller superannuation payouts than they had expected.

Once again, Australians reacted angrily, cutting their voluntary superannuation contributions by another 40 per cent.

So can Australia’s superannuation funds,  win back the hearts, minds and voluntary contributions of their clearly disgruntled members?

That’s an important question as they still have a massive $1.2 trillion of Australian retirement money in their care.

Public anger over these shocks remains high.  It will take some time yet to subside, even if all goes well for the industry, in the immediate future.

There is some good news, though.  The Federal government already has a sweeping overhaul of the industry, well under way.

That will certainly raise suspicions, at least initially.  The public  already believes that governments can’t keep their hands off the rules that govern super.  That sits badly with what, after all, is essentially meant to be  a long term investment.

Even the industry’s best friends, though, don’t argue that Australia’s super funds have been as nimble, at times,  as they should have been.

At long last, too, the funds have been  finally chalking up some good numbers, that have – at least partly – offset the terrible ones that came with the crash.

SuperRatings tells the story.

“After experiencing their worst year on record in 2008, with average losses close to 20 per cent, Australia’s major super funds have staged a remarkable recovery in 2009 to post a positive 12.9 per cent return,” it says.

SuperRatings said this was largely due to “a surging Australian share market, “which had produced a record gain in the second half of the calendar year.

So which funds have been the top performers?

SuperRatings gives Commonwealth Bank’s Officers’ Superannuation Fund – a corporate – the top spot, saying its Super-Mix 70 balanced fund had produced average returns of 6.8 per per annum over the past five calendar years.

An industry fund, for Queensland’s building workers, BussQ, took second spot, with a similarly calculated average of 6.5 per cent.

There’s more at www.superratings.com.au

The best way to look at a crisis is to see it as an opportunity.

And figures released on Christmas Eve show Australians  are doing just that.

The data, produced by the Australian Bureau of Statistics, have received little attention, so far.

That’s a pity.

For they show that there are advantages to be had, as big players in the corporate world rebuild their financial strength, largely by borrowing.

The bureau reported, for example, that Australians lent no less than $13.6 billion to the nation’s banks and other financial corporations in the September quarter alone.

That looks like being a smart investment, in most cases.

These figures were part of the bureau’s September quarter National Accounts, in the Financial Accounts sector.

The bureau also reported that Australians, in what it calls the household sector, increased their demand for credit by $24.5 billion in the quarter.

The total household sector debt, at the end of September, was $1.3277 trillion.

For a nation of some 21 million people, that’s a truly impressive figure.

The ABC reported, over the holiday period, that on a per capita basis, Australians are now more heavily in debt than Americans.

It said that Reserve Bank figures show that Australian adults now owe an average of $74,000 each.

The share market recovery, over the past year, has helped to put some balance back into family finances though, even for Australians who don’t invest directly in shares.

The  crash, of September last year though, showed that thousands of Australian families do, in fact, have big interests in shares, through their superannuation funds.

The value of  superannuation payouts plunged, in the months after that crash.

Much, but not all, of the value wiped out at that time has since been restored, as share markets rose -  more quickly than expected – over the past year.

Here’s the bad news.  The cost of living , for Australia’s retired people has been rising faster than that of the general population.

This effect, which may well be temporary. shows up in figures just released jointly by the Australian Superannuation Funds Association and the Westpac bank. They show, for example, that retired people saw their living costs  rise of by 0.7 per cent in the September quarter while those of the general population rose by just 0.4 per cent.

The difference arises largely from the different spending patterns or retired people and the general population.

Electricity prices, which affect the entire population, rose by 11.4 per cent in the quarter.

Their figures, published below, also give a very useful guide to how much you will need, in retirement, either to live modestly or to have a comfortable lifestyle.

They indicate, for example, that a retired couple in Australia now needs to spend $51,437 a year, to maintain a comfortable lifestyle.

You would need, of course, to adjust your plans each year, to maintain the value of your retirement savings, in real terms.

The present 9 per cent compulsory super levy will help with that, but it won’t be sufficient alone.

That’s because, by itself, it would provide barely enough to generate an income stream that could be described as “adequate,” let alone modest.

One of the great failings, of the present compulsory superannuation arrangements is that, by and large, Australians tend to set and forget their super funds, neglecting the fact that they need to be kept up to date.

Table 1: Budgets for various households and living standards

But there is good news, too.

Other figures, just released, show that there has been a strong recovery in super fund earnings, over recent months.

The independent agency, Superratings, reports that the funds have chalked up earnings growth of 10.07 per cent  over the past year.

Jeff Bresnahan of Superrattings, admits that the funds are still 11 per cent off the peak they reached in November last year.

But he said this is a far cry from the 25 per cent fall, evident just nine months ago.

In a second development yesterday, the Federal government released simplified product disclosure statements, for the superannuation and financial management industries.

Public comment is  being sought.

Australia’s $1.1 trillion compulsory superannuation industry is impressive, but there are still big gaps in its coverage.

These are revealed in figures just released by the Australian Bureau of Statistics.

These show that almost two thirds (65 per cent) of retired Australians strill rely on the age pension, or some other kind of welfare, as their main source of income, in retirement.

Yet the Age pension – and similar benefits – were designed to help people in their retirement years.

They were – and still are – not meant to provide a comfortable standard of living.

The architect of compulsory super, Paul Keating, originally meant contributions to rise gradually to 15 per cent of salary.

But they have did not go beyond 9 per cent, either in the 12 years of the Howard government, which was decidedly cool – if not openly hostile to compulsory super – or under the subsequent Rudd Labor government.

The current superanuation minister, Chris Bowen, talks enthusiastically of seeking more than mere adequacy in retirement incomes, through super.

But he becomes distinctly nervous when asked if the present government is contemplating lifting compulsory superannuation contributions, even to 12 per cent.

Characteristically, though, Mr Keating, himself, remains bold.

He told an interviewer recently that he would push those contributions right up to the 15 per cent level, if he were to return to power.

That’s not likely to happen.

And the upshot is that Australians, who are now living longer than ever, are still quite likely to find themselves strapped for cash, in their retirement years.

Complex financial products have acquired  a particularly nasty reputation, over the past year or so.

They were central, after all,  to the global economic crisis.

And that has produced thes biggest financial shocks seen since the Great Depression of the 1930s.

But the trouble they cause doesn’t stop there.

All too often, Australian investors are faced with thick slabs of impenetrable legal jargon, when they prepare to put their money into one managed fund, or another.

Australia’s superannuation, life insurance and managed investment industries are all  littered with bad examples, of this kind.

And they erode clarity, fairness and efficiency.

This kind of  gobledeegook can be be  particularly dangerous in the field of  superannuation, because super, all too often, is a set and forget investment.

And that can, all too easily, leave superannuants with less to live on, in their retirements, than they had a right to  expect.

Small charges, for example, can lead to big differences in eventual payouts, with a 30-40 year investment, like super.

One small trailing payment, to the salesman who sold you that policy, thirty odd years ago, can do that, effortlessly.

And dangers like that do lurk in many current policies.

The Federal government wants these untidy clauses cleaned up.

That’s why the Federal minister for Financial Services, Superannuation and Corporate Law Chris Bowen is promoting public consultatio0n on these issues.

The latest step in that process is the publication of a proposals paper, issued by the Federal government’s super systems review.

It sets out its aims, very bluntly.

“The key issue in developing a product rationalisation framework is to ensure an appropriate balance between the interests of the various groups of stakeholders, in particular investors and product providers,” the review, headed by Jeremy Cooper, says.

“Adequate powers need to be provided for regulators to exercise their supervisory and enforcement function,” it adds.

The review team is seerking publc submissions on all this.

This is your chance to make a difference.

There’s more information at http://www.supersystemreview.gov.au/

Australians are not saving enough to provide even a comfortable living for themselves in retirement.

This finding has been confirmed, yet again, in new research just published by the National Centre for Social and Economic Modelling,  NATSEM.

Its research is supported by the AMP.

“Australians have very high retirement expectations,”  Craig Meller, the managing director of AMP Financial Services said.

“But we are not saving enough to even afford a comfortable retirement, let alone one which meets our expectations.”

NATSEM’s research showed that a move from the present level of 9 per cent – in compulsory superannuation contribution -  to 12 per cent would help fill that gap.

By increasing the superannuation guarantee to 12 per cent, the average superannuation balance could increase by one quarter, Mr Meller said.

Thousands of Australians were shocked late last year, when the stock market crash took a huge bite out of their retirement savings.

Their fortunes have been partly restored, though, by steady gains in share prices since March this year.

However there was a small set back in October, with Australia’s superannuation funds suffering an average loss of 1.5 per cent, during the month.

However Jeff Bresnahan, of Super-ratings, which published this result, said it is still too early to tell whether this loss, the first in eight months, amounts to more than a hiccup.

A Federal minister signalled today that Australians can expect shocks, when a new report on tax reform is finalised next month.

However, the Minister for Financial Services, Superannuation and Corporate Law, Chris Bowen, promised that the  public would be given adequate opportunity to consult the government, on proposed changes.

He said he expects some of the changes, proposed by the Henry committee, would be controversial.

And there would be winners and losers.

The Rudd government has asked a committee, headed by the Treasury Secretary, Ken Henry, to recommend ways in which Australia’s tax system should be reformed.

Mr Bowen was speaking at a conference, organised by the Australian Superannuation Funds Association, in Melbourne.

He promised, though, that the government would not make major changes to Australia’s tax system, until adequate time had been given for public consultation on the Henry committee’s recommendations.

Mr Bowen had previously revealed that he may well cut the current, very generous, tax concessions, on superannuation contributions, that are presently available to very high income earners.

He said these tax breaks are not fair, when low to middle income families get little, if anything, by the way of comparable tax breaks.

The Henry committee’s report, though, is likely to lead to the deepest tax reforms made to Australia’s tax system, for more than two decades.

Early indications suggest that traditional State charges, like annual motor vehicle licence fees, might well be swept aside, in the reform processs.

However Mr Bowen’s remarks today suggest that the reform process, itself, will take months, if not years, to complete.

The Federal government challenged Australia’s superannuation industry today to develop more attractive retirement income stream products.

The Minister for Financial Services, Superannuation and Corporate Law, Chris Bowen, had been asked, at a superannuation industry conference, if the government would consider introducing compulsory annuities.

Mr Bowen said would not.  He said people, everywhere, preferred instant gratification.

And superannuation had to be kept attractive.

So it was the task of the superannuation industry itself to develop income stream products, or annuities, that people would find attractive.

Private Briefing asked Mr Bowen, after he had spoken, if he had any suggestions on how that might be done.

He said he did not, repeating that this is an area for the industry, itself, to develop.

Mr Bowen was also asked to elaborate on his previous assertion that Australia should be aiming for something better than bare “adequacy” in its retirement income policies.

“I see it as a theoretical approach,” Mr Bowen said.

“We look for something better,”  he added.

Mr Bowen said he would like to see a national debate on the adequacy of  the retirement incomes, that are available in Australia.

Australians have already put more than $1.1 trillion into their superannuation accounts, to help them provide for themselves in retirement.

Mr Bowen also said, again, today that he would like to see middle to low income earners given more incentive, through the tax system, to save more for their retirements.

Jeremy Cooper says Australian superannuation funds should be able  to buy entire enterprises, not just “bits” of them.

Mr Cooper, who chairs a Federal government commission, which is investigating the structure of Australian superannuation, says Canadian funds can already do this.

He said every time he drives  – on a tollway – to Melbourne’s Tullamarine Airport – he contributes to the superannuation savings of Canadian schoolteachers, with the toll he has to pay.

At present, Australia’s superannuation industry has about $1.1 trillion under management.

It also has some 350 superannuation funds.

However Mr Cooper said that, in 15 years, the superannuation savings of Australians could be worth $2 to $3 trillion.

And he suggested that there should be no more than 30 superanuation funds, by then.

That would make important economies of scale available.

This could mean lower management fees for fund  members.

And, of course,  it would also mean bigger ultimate pay-outs for fund members.

The Federal government ordered the Cooper review, in the shakeout which followed the share market crash in September last year.

Australia’s superannuation funds had invested heavily in shares.

That meant that thousands of Australians, who retired this year, received  less than they had expected, in their superannuation payouts.

Private Briefing asked Mr Cooper if the present take-over talks, involving the AMP and AXA, could prove to be a catalyst in the “getting big”  process he advocates.

He said he would not want to comment on “a live” proposal.

Superannuation fund managers admit they have learnt new words, over the past year, as they brushed up their risk management skills in the wake of the global economic crisis.

That hasn’t always been easy.

“Rehypothecation,” Lochiel Crafter, the chief executive officer of ARIA declared sadly.

“I still don’t know what it means.”

He was speaking at the annual conference of the Australian Superannuation Funds Association in Melbourne today.

Fund members, often confronted with notoriously opaque documents, when they purchase superannuation products, might well have little sympathy to offer.

But Mr Crafter’s central message, during his presentation, was absolutely serious.

He declared that risk management had to become a central part of the entire culture of Australia’s superannuation industry.

“We want to drive the ownership of risk, so that individuals can be held responsible,” Mr Crafter said.

He admitted that many mistakes had been made in the past.

Mr Crafter admitted, too, that risk management would remain among the “most difficult” and “most opaque” of the tasks facing Australia’s fund managers.

Ultimately, though, it could be as simple as saying “no.”

If people selling financial products were reluctant to be transparent, about the risks involved, the fund manager, offered those products, should “simply say no,” Mr Crafter said.

That’s good advice for the public, too

Australians had not lost faith in superannuation, even though the industry had been “done over” by the media, in the wake of the global economic crisis, a former Victorian Premier, Steve Bracks, said today.

Mr Bracks, who is now a trustee for the industry super fund, CBus, said a new survey showed very high levels of customer satisfaction with super.

The survey was commissioned by the Australian Superannuation Funds Association and presented to the association’s annual convention in Melbourne.

Mr Bracks was speaking at the conference.

Thousands of Australians, who have retired over the past year, have found their superannuation payments to be smaller than they had expected.

That happened as a result of the stock market crash last September.

Australia’s superannuation funds, which manage some $1.1 trillion, had invested heavily in shares.

Another speaker, Michael Dwyer, of the FSS Trustee Corporation, said the funds had experienced the biggest shock “imaginable” in the past 12 months.

Even so, the survey showed that  82 per cent of the people who are in industry funds are either satisfied or very satisfied with their funds performance.

The comparable figure, for retail funds, though was also high at 65 per cent.

However, the survey also showed that 67 per cent of those who responded to the survey believe that the present 9 per cent compulsory superannuation contribution rate is not high enough.