This article was originally published January 2019
The Productivity Commission recently released their inquiry report into the Australian superannuation system. The report can be accessed here. I am not going to go into any deep comments on the report’s finding as there are plenty of commentaries around the recommendations. Here is one.
But I do have a few comments about the typical criticisms of the superannuation system and the people that are tasked with helping people save for their retirement (i.e. my industry friends and I).
The key theme — we all need to be more responsible for ourselves.
Clipping the ticket
There is often a reference to superannuation funds “clipping the ticket”, that is, charging members for being a member. And so what?
They are a business, have costs to cover, and despite the “for members’ benefits” taglines of industry funds, all superannuation funds are a commercial operations.
Every service provider and product seller charges money to cover costs, invest in the future of the business, and make a profit. As for whether the amount is right or wrong, that’s the role of capitalism and market forces. It works in other industries, and in superannuation we ultimately can choose which fund we use, but they all will “clip the ticket”. How much, is your choice.
Having multiple accounts
There is quite rightly a lot of attention given to people having more than one superannuation account. It is not efficient. It adds paperwork. And in the case where a member has insurance cover in two accounts, there could be substantial extra costs.
This is a classic example of a lazy tax — members pay for two or more accounts, and insurance that may not be needed, simply because they have not made the effort to take more interest in their superannuation.
But it is not someone’s fault or the system’s fault. It is the individual’s fault. Most superannuation funds now will do all the work to help members consolidated their funds, so it’s just a matter of spending a small amount of time to make it happen.
This also gets a lot of attention and it should. Insurance is often included as a default when a fund is joined, and if someone changes jobs and opens new accounts, they potentially take out additional insurance for additional costs.
But again, it is the individual’s fault for not paying attention. Every time a statement is issued by a fund, the level of cover and the associated premiums are displayed. It is just that people do not give it the attention it deserves.
“It’s too hard to understand”
This excuse never goes away and of course I am conscious that I live and breathe superannuation and have for 20 years. But while some of it is hard to understand, the fundamental elements are simple:
- It is compulsory so get used to it and become more informed.
- It is the most tax effective way to save for retirement, and saving for retirement is the whole point — take some responsibility for your future and do not expect the government to be there to help out as much.
- Pay attention to the fund/s you are in and avoid having multiple accounts (though there sometimes are reasons to have them).
- Seek advice and realise there is value to it — even if it is simply coming out the other side being more informed but changing nothing.
This article is the opinion of the writer and does not consider the circumstances of any individual. This document has been prepared by Peter Keogh (Authorised Representative No. 253538 of Paragem Pty Ltd AFSL 297276) and is intended to be a general overview of the subject matter. The document is not intended to be comprehensive and should not be relied upon as such. We have not taken into account the individual objectives or circumstances of any person. Legal, financial and other professional advice should be sought prior to applying the information contained in this document. No responsibility is accepted by Peter Keogh, Paragem or its officers.