by Alan Thornhill
Would an income stream suit you better in retirement than a lump sum?
Many people would be tempted to say yes to that question.
But our at present, our superannuation system is largely designed to produce lump sums.
The Association of Superannuation Funds of Australia – ASFA – says that has to change.
But in a study, released today, it admits that a fresh policy framework is needed to deliver retirement income streams.
However it says that could produce a better super system.
In its paper, ASFA outlines the principles on which it believes Australia’s retirement income system should continue to be built.
It says trustees should be able to default members into MyPension type income streams.
ASFA says, too, that it should be compulsory for superannuation fund statements to disclose income stream projections.
“We know that the ageing population is going to be a game changer when it comes to retirement incomes policy” ASFA CEO Pauline Vamos said.
It’s time we stop pointing at the problem, and start developing the solutions required to deliver a better system for Australia’s retirees,” she added.
“This will require innovation and bold policy decisions, which is why we have released a framework that will guide policymakers towards creating a system where delivering income streams in retirement are at its core.”
“The days of thinking about taking superannuation in a lump sum are numbered, and the era of income streams has commenced,” Ms Vamos said.?
“Most people are looking for a steady income stream throughout their retirement.
“ We need to ensure that they can make a safe choice, with as much flexibility as possible to cater for a very diverse group of older,” Ms Vamos added.
by Alan Thornhill
Are we drowning in household debt?
Westpac economist, Matthew Hassan, didn’t pose the critical question quite like that, in a new study, in which he takes what he calls “a more detailed look” at our household finances.
However he does note, in his study, that: “Australia’s high household debt levels have been a recurring source of concern for well over a decade.
“At around 150 per cent the household debt to income ratio remains near record highs,” he says.
“And is seen as representing a significant risk for the economy,” Mr Hassan adds.
However, he says, a “holistic look” at household finances produces a more comforting picture.
Indeed, our household finances might well be in somewhat better shape than “this simple, somewhat crude, ratio suggests,” Mr Hassan says.
He even suggests that we might spend a little more.
Mr Hassan says: “The sustained high debt to income ratio has been one of the more puzzling aspects of the Australian consumer in recent years.
“It has remained high despite a sustained move by households to contain spending and lift saving with a clear intention of bringing debt levels more into line with incomes.”
He acknowledges that Australians have generally been saving more, since the global financial crisis arrived in 2008.
Since 2008 Australians have been saving over and above compulsory super.
The more holistic look at our family finances, that Mr Hassan speaks of, includes taking account of such factors as superannuation, asset depreciation tax and several other factors.
Once that is done, “a ‘net’ measure of debt less all holdings of ‘currency and deposits’ has fallen from 88 per cent of disposable income in 2007 to 65 per cent currently – the lowest since 2003,” he says.
“Although some of this reflects increased holdings by households without a mortgage, a large proportion of this decline is clearly due to increases in holdings in mortgage offset facilities,” he adds.
“More generally, the detail suggests there has been a more marked improvement in Australian household finances than indicated by the simple debt to income ratio.
“It also suggests there is some scope for a further easing in savings rates to give modest support to spending.
“We estimate that a 1 percentage point fall in the savings rate over the next year would be sufficient to lift consumption growth from its current 2.0 per cent annual pace to 2.7 per cent in turn providing the Australian economy with the basis for a solid a lift in growth momentum heading into 2015.”
The sound you hear in the background is that of the nation’s hard-pressed shopkeepers cheering at that idea.
by Alan Thornhill
Is your boss making your superannuation payments on time?
Some are not.
So you would be wise to check.
New research shows that $2.5 billion worth of superannuation payments owed to workers goes missing each year.
That research was commissioned by three superannuation organisations Cbus, AustralianSuper and REST.
It was conducted by the research house Tria Partners.
Tria found that that the average person affected loses around $3,750 a year in superannuation, or around 9 months’ worth of super for someone on average weekly earnings.
Some are hit harder than others.
The research also confirmed that these losses impact more heavily on younger and lower-income Australians.
“For a 25 year old, a one-off loss of this magnitude could equate to a loss of $13,500 at retirement in today’s dollars.
“Those in more vulnerable circumstances, industries or employment modes may endure multiple losses throughout their working life.” Tria said.
So what, exactly, is at stake?
“By law, your employer is required to pay 9.5 per cent of your salary into your superannuation account, at least quarterly,” Pauline Vamos CEO of the Association of Superannuation Funds of Australia said.”
The next deadline is October 28.
“So if you have any doubts about whether or not your super is being paid correctly, contact your fund in early November.”
It will be able to let you know the timing and amount of your recent super payments, Ms Vamos said.
“If a payment is missing, then speak to your employer about it.
“And, if necessary, notify the Australian Tax Office (ATO), which will be able to chase it up on your behalf, if you are unable to resolve the issue with your employer.”
Remember, though, that a late payment does not necessarily mean that your boss is a crook.
He – or she – might simply be confused.
Help is available, in those cases, too.
“If employers are unsure about how much, where or when to pay their super obligations, they should contact their default fund or check out the ATO website for a wealth of information about paying superannuation, including tools they can use to calculate their superannuation obligations,” Ms Vamos said.
ASFA’s Super Guru website has information for employers on how to make sure they meet their superannuation obligations. There is also other information on the site for employers and Australians of all ages and stages of their life,” she added.
Some industries, though, are worse than others, when it comes to overlooked super payments.
CEO of Cbus, the largest fund for the construction and building industry, Mr David Atkin said that the construction industry was massively over-represented in the research results on non-compliance.
But the boss’s obligations are clear, there, too.
These employers, too, are required to pay 9.5 per cent of your salary into your superannuation account, and at least quarterly.
by Alan Thornhill
Tony Abbott flew back into Australia today to celebrate the first anniversary of his election as Prime Minister, claiming progress and dismissing criticism.
“Our focus has been building a strong, prosperous economy and a safe and secure Australia,” he said in a statement he issued, as he returned from a visit to India and Malaysia.
He also had sharp words for those who have been comparing the promises he made before the elections last September, with what we have seen since then.
Particularly those who have accused him of lying.
In an interview to mark his government’s first anniversary, Mr Abbott declared “I haven’t broken promises” and added that anyone who claims he had told “lies” is “part of a hysterical campaign.”
That sounds suspiciously like Abbott overkill, particularly when we look at the promises he made before last year’s election and what his government has done since.
To take a few examples:-
Just days before that electionTony Abbott told the National Press Club in Canberra that there would be no cuts to health, no cuts to education and pensions wouldn’t change under a government he led.
There would be no adverse changes to superannuation, either.
Since then he has proposed changes in all of these areas.
Health and education spending, for example, will be cut by $80 billion over coming years.
And from September 2017 pensioners will lose regular adjustments they have traditionally had, which allowed them to share the national prosperity they helped to create, during their working lives.
There are many other cuts, curbs and restrictions as well.
So what, then, does Mr Abbott say to those who say there are very big differences between what he said then his government has since delivered?
He reminds his critics that:
” We are making progress
“The Carbon Tax is gone
“The boats are stopping
“Our record $50 billion roads and infrastructure program is underway
“We’ve given environmental approvals to big new projects worth over $800 billion
“We’re boosting exports and jobs with Free Trade Agreements with two of our major trading partners.”
Mr Abbott has certainly mastered the very useful political skill of shifting ground in his responses.
An old rule in politics, says politicians should not answer the questions they are asked but, instead, answer the questions they wished that they had been asked.
It has moved well beyond that, now.
The American author, Joe Bageant, says in his book Deer Hunting with Jesus, that the hard Right, in the United States, understands that the four corners of the US political psyche are:-
Emotion substituted for thought
Some suspect that Mr Abbott, a warrior of Australia’s hard political right has, instinctively
perhaps, made a similar assessment here.
Certainly he is a master of the three word slogan, displayed at its most effective, when he repeatedly called the previous Labor government “Australia’s worst ever.”
Mr Abbott is far from either the first, or the last, political leader to find that successful government is a much more complex and difficult achievement than it might appear to be, beforehand.
But does he have the political skills, intelligence, integrity and grace to deal with the potentially catastrophic sinkholes that have already appeared in his political credibility?
If he can do no better than calling his critics “hysterical,” that seems unlikely.
by Alan Thornhill
Australians could lose billions of dollars in superannuation, through changes the government rushed through the House of Representatives today according to the Shadow Treasurer, Chris Bowen.
Mr Bowen said this could happen through one of several major changes that the government had included in a bill that contains its latest attempt to scrap the mining tax.
He said the government is proposing special regulation-making powers that would give the Treasurer power to vary the rate of the superannuation guarantee in future.
This could be done without further parliamentary oversight or the possible disallowance.
Mr Bowen said that, under present law, the compulsory superannuation guarantee levy is due to rise from its present level of 9.5 per cent of salary to 12 per cent from July 1 2019.
Under the government’s plan, though, it could be put on a slower path, rising to just 10 per cent at that time.
Mr Bowen said the bill had rammed its bill into the lower house of parliament without notice and with hardly any debate.
“The Government has now twice sought to introduce delays to the Superannuation Guarantee,” he said.
An earlier bill, meant to scrap the mining tax, has stalled in the Senate.
“The Abbott Government is so dysfunctional, that the Parliamentary Secretary to the Treasurer moved the second reading of the Bill without saying anything – without telling the Parliament what was in the Bill,” Mr Bowen said.
He said the government sought to gag debate in the House and move the Bill through all stages without debate.
The government has yet to make a detailed response to Mr Bowen’s charges.
by Alan Thornhill
The Reserve Bank is warning that “above all” superannuation assets must be managed “in the best interests of members.”
It made that comment today in a supplementary submission in response to the Federal government’s Financial Systems Report.
The bank said it endorsed the Report’s consideration of measures to lower superannuation funds’ costs and fees and to improve fund management.
And it described superannuation fund management in Australia as “relatively high cost.”
“However,” it added, “costs in the superannuation system should not be considered in isolation.”
“Measures that reduce costs may also create additional risks to members’ retirement incomes, government and employer finances and financial stability.”
The bank also warns that liquidity management is “a key challenge for superannuation funds.”
It says this should include consideration of portability.
Market risks must also be kept in mind.
“…it is important that superannuation funds continue to assess the potential liquidity risks associated with the sudden sell-off of a particular asset class,” the bank said.
And the liquidity implications of an ageing population must also be considered, it said.
by Alan Thornhill
The fact that having kids is expensive is no secret.
But the impact that decisions taken, while the kids are young, can have on family finances, in later life, is too often overlooked.
The MLC has just published some useful research on this subject.
It’s worth a look.
The latest MLC Quarterly Wealth Sentiment Survey concludes that taking a career break to raise kids can be a significant barrier to having sufficient retirement savings, in later life.
In fact, taking a ‘career break to raise kids now takes top spot in ratings of factors likely to impact on retirement savings.
The MLC said that 70 per cent of women rated a career break as their number one barrier to adequate retirement savings, with 70 per cent giving it the top spot.
Men ranked it third overall behind unemployment and major health issues.
This survey of more than 2,000 Australians also found the level of concern about financial sufficiency in retirement rose this quarter, with over half of participants saying they would not have enough to retire.
The MLC said women still worry more about superannuation and investments than men.
Yet about 25 per cent of women who are more than five years from retirement are not investing at all.
The survey also found that:-
· More than one third (38 per cent) of participants expect a large financial shortfall at retirement, and less than five per cent think they will have more than enough to retire
· Superannuation, debt repayment and cash remain the preferred investments, with higher income earners maintaining more diversified portfolios than lower income earners
· There is less aversion towards fixed income investments, shares, investment property and balanced funds compared to previous quarters
· Younger people (18 to 29) show the strongest interest in property investment.
Management Lara Bourguignon, the General Manager of Client Management for the NAB said: “With just five per cent of Australians confident they will have enough money in retirement, the gap in retirement savings will be one of the biggest challenges facing our ageing population.”
“Families, and particularly women, concerned about the impact career breaks will have on their retirement savings should plan ahead as there are strategies that can minimise this financial shortfall. One of our financial advisers can assist in developing a plan to increase confidence and security around family finances, so they can enjoy this exciting life stage.
“Pleasingly, this quarter we’ve seen a small increase in people investing in super as the benefits of taking control of your finances slowly start to resonate.”
by Alan Thornhill
Rising medical and hospital costs mean that Australians may need to save more, to live comfortably in retirement.
This advice comes from the Australian Superannuation Funds Association, ASFA.
ASFA research shows that price rises, in these areas, had placed pressure on household budgets in the June quarter.
In the last quarter of the 2013/14 financial year, the expenditure required for couples wanting to live a ‘comfortable’ retirement rose by 0.5 per cent to $58,128 per year, the Association said.
“This would require them to save a joint superannuation balance of around $510,000.
“Couples seeking a ‘modest’ retirement lifestyle will need to spend $33,664 a year, also up 0.5 per cent from the previous quarter.
“Single retirees faced a similar increase in costs, with expenditure for a ‘modest’ retirement recording a 0.5 per cent increase from the previous quarter to $23,363 per year,” ASFA added.
“Singles seeking a ‘comfortable’ retirement will now need to spend $42,433 a year, a slightly lower increase of 0.4 per cent from the previous quarter.
“This would require a balance of around $430,000 in super savings to generate this income annually.
“The most significant price rise this quarter was for medical and hospital services – 4.6 per cent,” it added.
The Association said this had occurred mainly as a result of the increases in private health fund premiums effective from 1 April 1.
Electricity prices were largely unchanged in the quarter, which will come as a relief for many retirees.
Weathercoast by Alan Thornhill
A novel on the murder of seven young Anglican Christian Brothers in the Solomon Islands.
Available now on the iTunes store.
Alan Thornhill is a parliamentary press gallery journalist.
Private Briefing is updated daily with Australian personal finance news, analysis, and commentary.
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