Welcome to Firstlinks Edition 402

The only enquirer to study the SCG is still the Henry Report and he concluded 9% was adequate. The best thing that ever happened re my financials was the ability to take all super out at age 40 on leaving company and upgrading property. My Grandsons, both Masters, are forced into compulsory super while house prices rise and they are going backwards. Super needs major re-think.

Most of the SMSF members have thought about their future and realise that building a large asset base over their working lives is much better than having a high income, living extravagantly and then wondering what happened when their working life comes to an end and they still have 20 to 30 years to live. I would believe that the median (asset size) members in an SMSF probably generated some wealth by highly geared and negatively geared investment properties, some more wealth by judicious long term investment in banks (CBA at float), CSL, Telstra etc because they decided to invest time to research these financial pathways. Many retired SMSF members probably borrowed 90% of a property's value at 12 to 15% interest rates and the property doubled in value in 3 to 5 years. Low interest rates and high house price rises are at odds with what is meant to happen and will soon come to an end - probably with high inflation and high interest rates.
When they had worked out their financial pathway, they then decided it was a good idea to control many of their assets in a SMSF rather than pay high management fees in retail or industry super funds. If you actually do all your own research, all your own investments, and your own accounting then all you need is an auditor with a fee of plus or minus $1000 per annum. If people are prepared to go these lengths for financial freedom and to eliminate drawing on the public purse throughout their retirement, then surely we all, as taxpayers, get a good deal from their efforts and SMSF members should be able to determine what happens to the money on their death. Obviously there are some SMSF members with very high asset bases that have perhaps taken unfair advantage of the taxpayer. This happens in lots of situations but in reality does not account for a lot of dollars in total. Perhaps these people need to be encouraged to be more philanthropic.
We should applaud all those who take care of themselves and minimise the amount they require from the government.

When watching the 7.30 programme's Future of Retirement, was it just me or was Keating jumping on something that wasn't how I remember it?

When Alan Kohler asked: "What do you think is the optimal percentage of salary to go into super? Is it 12, 15, 10, what?", Keating replied: "It is the same as the parliamentarians, 15 I'd say, 15. When Mark Latham was opposition leader, convinced John Howard as prime minister to move away from the generous defined benefits scheme of parliamentarians. There was an enquiry into what a person needed, what contribution a person should make for their future and that came out at 15 per cent and that's why the parliamentarians, the pollies are on 15, 15.4 in fact.
So, that's near, I think, the optional and particularly now as earnings, yields from shares, yields from equities and bond yields have fallen so far there is no way a fund at 9.5 per cent can give you the kind of accumulation I believe you need. So the answer is 15."

My memory of why the pollies have 15.4% is somewhat different. When they needed to come up with a contribution % for pollies, they looked to the PSSap fund that has 15.4% as the employer contribution - and that 15.4% was NOT as a result of any enquiry, it was because at the time of closing the defined benefit PSS to new members and opening the accumulation PSSap, the actuary's recommended contribution to fund liabilities in PSS was - you guessed it, 15.4%. No enquiry would come up with a ridiculous number like 15.4%.

So pollies have 15.4% because that's what the APS gets. No other reason.

Thanks, Michael. Very interesting recollection, important for the debate. One thing's for sure ... the pollies will not let their 15.4% go. Mind you, who would want to work 80 hours a week in Canberra, away from your family?

Keating was always adamant that 12% was where we needed to head. EG in his AGSM speech in July 1991 he was planning on getting to that level for the SGC by 2000.

Here we are, 21 years later than that date, not there yet and he's trying to claim he thinks it should be higher.

I wish Alan Kohler will concede that:
1. Superannuation in Australia started in the 1850's well before any of us were borne;
2. At the commencement of the Hawke government 42% of the Australian workforce was covered by superannuation;
3. There were many industry funds in existence at that time - stevedoring, mining esp coal, etc; and
4. The increase from 42% to 99%(?) only occurred because of Hawke & Keating so for that is what Keating can be praised for.
The majority of funds were defined benefit in the early days, SMSF's started in the 1970's.
By the way I started work in superannuation in 1966 with National Mutual and I'm an actuary well retired.

As a comment, it seems a reversal of traditional approaches that Labor wants us to pass wealth to the next generation while Liberals don't.
Looking at policies in this area, the ability to leave wealth is heavily skewed based on where you live. The increase in house prices has been much higher in bigger cities compared to smaller ones. Also, as wages a higher for exactly the same work in larger cities the regular super guarantee is also higher.
Having equal pay for equal work on a geographical level would help. Including the value of the family home (or value over say $2.5m) for age pension purposes, combined with an increase in the thresholds, would also add equity to the system. I note this 2nd idea was in the Abbott Budget, but opposed by Labor while those affected were skewed to Liberal voters. Value capture, proposed by Turnbull in a different context, could also be considered.
I have parents in their 80's living in the family home in Sydney, so would be affected by any policy focused on the family home.
As an example of the inequality, my parents and parents-in law both bought/built houses over 50 years ago for a very similar cost. The capital city house is worth maybe $2m, while the large regional centre house $350k. Its clearly inequitable that one set of 3 kids gets $670k each while the other gets under $120k as an inheritance.

$395m is 1% of 39bn! SMSF owners are obviously much less likely to need cash

Most of SMSF members are retired anyway or very well off financially.

Iceman, that's nonsense.

I am a case in point. My wife and I have an SMSF, but we both work full time, so not retired.

And the data shows that a lot of SMSF holders are very much in the middle classes so not 'very well off financially".

Some SMSF members are retired and some are very well off financially, but most are still working to be in a position to have a comfortable, though ordinary, life in retirement.

If people want to use super as a bequest that's fine, but I don't see why taxpayers should subsidise multi-millionaires in the process.

To Pat Connelan : "......but I don't see why taxpayers should subsidise multi-millionaires in the process." The "wealthy individuals" subsidise MOST of the other 90% of "tax payers", who in reality are "tax recipients" for most of their "working lives" and almost certainly afterwards! Look up the ATO data . The top 20% pay almost ALL the income tax collected! Almost everyone wants to leave their family "financially better-off " than the previous generation. And in the process there are less tax dependent people to support from the public purse as each generation become wealthier ! What is NOT to like about that !??