Smart Investing
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The Federal Budget’s confirmation that the annual cap on concessional superannuation contributions for all fund members over 50 will halve to $25,000 from the 2012-13 financial year, has some investment commentators envisaging that more investors will turn to negative gearing.
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We've been told by the financial community at large that it's a tough time to be an investor. The financial markets are extremely volatile. Bond yields are near historic lows. The outlook is uncertain.
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The latest bouts of sharemarket volatility and this month’s cut in official interest rates once again highlight the crucial role of bonds in a properly diversified investment portfolio.
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Self-managed super funds typically have a much high exposure to cash than fixed interest.
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The Australian superannuation industry reverted this week to its unwanted status as one of the government’s favourite Budget ‘hollow logs,’ with billions of dollars in savings extracted from the system by reneging on a tax break meant to encourage higher retirement savings, and a doubling of the concessional tax rate on the super contributions of those earning more than $300,000.
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Going for gold with super 14 Oct 11
Investing, like professional sport, is full of short and long-term challenges.
Australia's rugby union team, the Wallabies, knows what a short term challenge looks like- it is dressed in all black.
Hopefully, the Wallabies can go one better than our superannuation system.
It may be cold comfort to retirees who have been buffeted by the global financial crisis and recent market volatility to know that we have the second best retirement savings system in the world.
The Melbourne Mercer Global Pension Index, published on [date], is a study of retirement savings systems across 16 countries that represent roughly half the world's population. Done in conjunction with the Australian Centre for Financial Studies, the assessment is broken into three key categories – adequacy, sustainability and integrity.
Providing adequate retirement benefits is given the highest weighting, followed by sustainability and integrity of the system and, all up, some 40 indicators are taken into account.
The good news is that the Australian super system has improved its score since last year – courtesy of the lift in the base pension and our rising household savings rate.
Who has the best pension system in the world is probably a candidate for trivial pursuit question of the year. The answer is the Netherlands – but even the Dutch do not get an A grade. Like Australia, they have to be content with a B which, according to the researchers indicates a “system that has a sound structure, with many good features but has some areas for improvement”.
So what does the Assistant Treasurer and Minister for Financial Services, Mr Bill Shorten, have to do to get the gold standard for super?
He is already on the way to kicking one serious goal with the plan to raise mandatory contributions to 12 percent from 9 percent today.
The other suggestions from the Mercer Global Pension Index team on ways to improve our super system, though, may not be as popular – and they certainly are long-term challenges.
For example, the research suggests key ways to improve the overall index value would be to:
- Introduce a requirement that part (around 50 percent) of the retirement benefit must be taken as an income stream
- Increase the labor force participation rate among older workers
- Introduce a mechanism to increase the pension age as life expectancy continues to increase.
From a public policy perspective, and given our ageing population and the strain that will put on government revenue, these measures are eminently logical.
But, the job of introducing them makes the challenge facing the Wallabies look like a walk in the park.
* Written by Robin Bowerman, Principal, Corporate Affairs & Market Development at Vanguard Investments Australia.
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