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The Chinese calendar says this is the year of the dragon. Less auspicious perhaps but for Australian investors this is shaping up as the year of fixed income.
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By taking a few simple steps, super fund members can both boost their retirement savings and legally minimise tax on their super – for themselves and their beneficiaries.
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Self-managed super funds seem set to remain by far the preferred superannuation choice among higher-balance members – particularly those in retirement.
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This is a question that many investors are, not surprisingly, asking themselves. But what might surprise some investors is that the answer is not as elusive as it may at first seem.
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Changes to the ASX operating rules to allow fixed income Exchange Traded Funds (ETFs) to trade on the Australian market will open a new means for investors to efficiently, conveniently and inexpensively diversify their investment portfolios.
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News & Commentary
What price stable super? 13 Aug 10
Superannuation is not normally an attention grabber when it comes to federal elections.
Perhaps it is another reminder of one of the lessons of behavioural finance that as human beings we often struggle to focus on the long-term when there are so many short-term things to worry about.
But this week the national conference of the Financial Services Council heard from both sides of politics in the run up to the election. Not surprisingly both were positioning their policies as the appropriate way forward for the financial services industry and superannuation fund members generally.
Regardless of the election result the superannuation system is looking at a significant period of change.
Three major reviews – Ripoll into financial advice; Cooper into super and Henry into tax - have reported and made recommendations that affect almost every aspect of financial services be it advice, super fund administration or funds management and that is before tax is factored into the equation.
The detail of the changes and the implementation timetable will depend on who wins on August 21 but irrespective of the political party in power neither the financial services industry, super fund members nor individual investors should be under any illusion that the next two to three years will be anything other than a period of almost unprecedented change.
The Government has had the advantage of working through much of the detail of the respective reviews and has provided detailed responses to many of the key issues. The federal opposition, not surprisingly, is looking to keep its options open ahead of the poll.
Notwithstanding policy and philosophical differences both sides of politics agree on one thing – the need for a robust and effective retirement savings system to deal with the challenges of an ageing population. And both can point to significant improvements made to the system during their periods in government.
But a hallmark of our system has been the seemingly constant legislative changes. Now improving a system is hard to argue against. But in an industry as complex as this even changes for the better come with a cost in terms of IT system changes, administrative changes and so on.
The proposals from the Cooper Review into super are a classic case in point – the proposed Super Stream changes are expected to dramatically enhance administrative efficiencies and take cost out of the system to the benefit of members in the long term.
Indeed according to work by Ernst & Young and released by the Financial Services council at their conference this week the savings would total a staggering $20 billion over the next decade. But the catch is the bill to implement the improvements will cost about $1 billion.
Coincidentally, the 10th annual survey of CEOs in the financial services industry by PricewaterhouseCoopers in conjunction with the Financial Services Council was also released this week. One of the key issues raised by the industry leaders was the need to improve confidence in the superannuation system and the issue the 35 CEOs surveyed ranked as the most important contributor to confidence in the system was stability of legislation.
So here is a radical idea: what if the new government after a suitable time in office and with it reform agenda mapped out made a commitment not to change the laws relating to superannuation for a certain period of time – be it five or even 10 years.
Perhaps it is wishful thinking but this is an issue where perhaps we can adopt some US thinking because there are several examples – particularly relating to tax and retirement savings – where a fixed timetable was set to provide certainty.
It may well mean you have to live with some annoying flaws for awhile but as always it is a tradeoff – and the suspicion is that once we get through the next round of changes to the way advice is delivered, super funds are structured and our tax system operates a period of stability may seem like an end unto itself.
* Written by Robin Bowerman, Head of Retail at Vanguard Investments Australia.
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