Majority Of Australians Say They Support Superannuation Increase
A majority of Australians say they are in favour of the government’s decision to implement proposals that would increase the national superannuation rate, whilst more than half of all Australians say they are willing to sacrifice their wages to fund the measure.
The Australian Institute of Superannuation Trustees released the results of a poll over the weekend, which suggests that 77 per cent of workers say they support the gradual increase in superannuation guarantee from the current 9 per cent to 12 per cent by 2019.
More than half — 56 per cent — said they would be happy to pay for the 3 per cent increase out of their wages.
In its response to the Henry tax review, the government proposed a gradual increase in the compulsory superannuation guarantee rate over seven years to 12 per cent.
Fiona Reynolds, chief executive of the Australian Institute of Superannuation Trustees says the results of the poll should provide the impetus for the coalition to support the reform.
“It has taken a long time to get 12 per cent to the table. This is good social policy that deserves bipartisan support, particularly when the vast majority of Australians are backing it.” she said
The government also intends to cut the corporate tax rate from 30 per cent to 28 per cent to accompany the proposed increase, providing businesses the ability to fund the increased super contribution.
“According to the Australian Bureau of Statistics data, consumer price index growth has averaged 3.17 per cent per annum in the past 10 years to March, whereas average weekly ordinary time earnings have grown at 4.88 per cent per annum,” Mrs. Reynolds said.
“Since earnings have outgrown CPI by 1.71 percentage points each year, it’s hard to argue that an annual increase to the super guarantee by 0.25 per cent or 0.5 per cent would have a significant impact on an individual’s take-home pay.”
The survey of 1206 respondents, conducted at the end of May, included 728 full-time or part-time workers.
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Three Ways To Save A Bit Of Cash In A Low Interest Rate Environment
With governments globally raising income tax rates in their response to fiscal deficits run up during their attempt to deal with the financial crisis, it is becoming increasingly difficult to save.
In Australia, fortunately the government so far has yet to raise tax rates, the top marginal tax rate is the same as it was last year however it is still at a hefty 45 per cent.
Australia is indeed one of the few countries that has not aggressively raised taxes, whilst at the same time has also begun tightening monetary policy, so interest rates are no longer at near half century lows.
If however you find yourself living in a place where like the UK for example, the top marginal tax rate has been raised to 50 per cent, whilst the bank rates are less than half a per cent, then clearly difficulties in obtaining returns on one’s savings does become a problem.
Those seeking returns are therefore being extremely inventive in sourcing methods to beat their savings problems, using offset mortgages, cash back credit cards, paying private school fee upfront.
Here is how it works
CASHBACK
Low bank interest rates are not the main problem in Australia, with the official cash rate at 4.25 per cent, and many lenders offering term deposit rates well in excess of that level. But for those who want easy access to their cash, and want to find a way of making some savings at the same time, then a cash back card is a good idea.
Many lenders seem to offer better rates for spending money using their credit cards, in some countries it is more profitable to spend on a credit card than using your savings.
The card issuer typically offers a cash back rate of something like 1 per cent, when you spend money using your credit cards with participating retailers.
The big advantage is cash back spending is tax free, so if you live in a place where the bank rates are puny, and a 1% cash back rate is competitive relative to the interest on your savings, then it makes sense to use the card to spend, not only do you earn cash back, but that is not taxable, unlike the cash sitting in your savings account.
OFFSET MORTGAGES
For those income earners who find themselves in the top tax bracket, holding a mortgage and a savings account, now would be a good time to enquire about the possibility of switching your mortgage over to an offset deal.
Offset mortgages work by simply offsetting the borrowers savings against their mortgage debt, with interest accruing on the remaining balance.
This means that the mortgage debt is paid off far earlier than otherwise would be, with the interest only accruing on the remaining balance, which is far less than the tax payable on the same amount.
The best thing about offset mortgages is the fact that cash balances can be accessed whenever you have the need to dip into them.
Ann offset mortgage allows the borrower to earn tax free interest on their savings at the same level as the mortgage, and is very useful for top rate taxpayers, who have a decent amount of savings.
PAY SCHOOL FEES UPFRONT
If you are sending your children to private school, then one way to save cash and reduce tax is pay the fees upfront. What the school will tend to do is place the money in a separate account, which is supposed to protect you from any closure or bankruptcy.
The school places the money in a deposit and returns the interest earned from the deposit in the form of discounts. Most schools have charitable status, so their interest income is tax free, which has the effect of the discounts often being far better than the interest received were the money held in a taxable savings account.
Bursars report increased interest in paying fees in advance, thereby netting a higher effective return than on cash deposits. Your money tends to be kept separate from a school’s financial affairs, so it should be protected if it closes or gets into difficulties.
When you pay upfront, the school puts the money on deposit and passes back the interest earned in the form of discounts. Schools earn interest tax-free thanks to their charitable status, which means the discount is often far better than the interest you would receive on a taxed savings account.
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Super Fund Industry Rails Against New Government Proposals- AGAIN
Once again, the superannuation sector is resisting government proposals that would change the industry, and is strongly dissenting against any move towards a compulsory government annuity scheme, in which retired investors can hand either all or part of their superannuation and receive an annual income.
The industry says any such measure would result in people being discouraged to save more for their retirement and would effectively act as a subsidy by the less well off for the wealthy, who tend to have longer life spans.
The Henry review of taxation, which recently released its interim report, which suggests that the government should run a mandatory scheme, which would allow Australians to pool part of their super, and would enable them to receive annual payments after retirement, which would be determined by the government.
The Henry review argues that such a scheme would mitigate against longevity risk, the risk that retired investors run out of fund in their retirement account before they die. The proposal would in effect prevent people from spending their savings to quickly.
John Brogden chief executive of the super fund industry association IFSA, quickly slammed the proposal, saying the scheme would suffer from too much complexity, it would be expensive to run, and could have a number of negative unintended consequences.
Mr. Brogden says that a uniformly priced annuity scheme operated exclusively by the government would reward people who lived longer and punish those with shorter lifespans.
“According to the Australian Bureau of Statistics, manual labourers do not live as long as office workers. So when the blue-collar and white-collar workers all put their lump sums in together, the blue-collar worker lump sum will spend its time subsidising the white-collar retiree once that blue-collar person dies.” Mr. Brogden said.
He went on to add that a mandatory government annuity program would seriously affect the level of confidence Australians had in their super, and discourage them from saving any more than the mandatory 9 per cent of their income.
“Such an annuity scheme will strongly discourage voluntary contributions into superannuation due to the harsh restrictions imposed on how those savings can be accessed in retirement,” Mr Brogden said. And he believes the temptation for the government to spend the money and then tax to get it back is high.
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Australians Losing Faith In Super Funds
The level of confidence Australians have in the superannuation industry has fallen to its lowest level, with many worrying that they will not have enough retirement income following the global financial crisis, which reaped havoc on super fund balances.
According to the results of a national survey, far fewer Australians have trust in their super fund today compared with the previous year, after they performed fairly poorly during the crisis.
Despite the increased suspicion, the majority of Australians (58 per cent) expressed optimism over the prospects for a recovery in the Australian economy, following the recent strong performance of the stock market.
The survey conducted by human resource consulting firm Mercer, which runs the Superannuation Sentiment Index suggests that confidence in the superannuation industry has fallen to a new low of 37 out of 100. A score of zero suggests extremely negative sentiment, whilst a score of 100 means extremely positive.
Last year the index registered a rating of 42.
“Despite a more positive outlook for the future, the experience of the last two years has not been forgotten by Australians, many of whom are still dealing with the impact of the global financial crisis on their personal finances and superannuation balances,” said Mercer partner Heather Dawson.
Mercer polled more than 1000 Australians across the country engaged in full time employment during December. The survey results suggest that many have lost faith in their super, with only 41 per cent of respondents expressing trust in their fund, compared with 44 per cent who expressed positive sentiment in June 2009 and 52 per cent at the end of 2008.
The study also found that 61 per cent of workers were concerned that they would be less financially comfortable in retirement compared with their current lifestyles.
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Fund Managers Bullish On Equities According To HSBC
A new survey by global banking giant HSBC suggests that fund managers are more bullish on equities today, than they were three months ago, and are maintaining their holdings of Australian equities steady.
The HSBC survey says that a large proportion of fund managers (nearly 75 per cent) are optimistic about Chinese equities, up 16 per cent from the final quarter of 2009.
13 global fund managers were polled and nearly half of them have increased their exposure to US equities to 50 per cent overweight, compared with just 22 per cent in the final quarter of 2009.
The fund managers that were polled expressed little change in sentiment toward Asia Pacific equities including Australia, with 70 per cent of managers maintaining an overweight position.
The growth in funds under management (FUM) declined in the fourth quarter 2009 as equity markets lost some of their froth following a remarkable recovery in valuations that begun to occur in March that year.
Asia Pacific equities grew by 9.9 per cent during the quarter ending December 31st 2009, having leapt by 30.7 per cent in the previous quarter.
Chinese equities were the only stocks that defied the trend having grown 12.8 per cent in the final quarter, compared with 9.5 per cent in the preceding quarter.
Global equity markets have made a stunning recovery however, with the ASX 200 having risen from 4500 in January to 4850 on Friday.
Illustrating the growing shift in power, the Asia Pacific region has now overtaken Europe as the second largest region for equity funds behind the US, according to the survey.
Fund managers in the survey included BlackRock, JP Morgan Asset Management, Schroders Investment Management and Societe Generale.
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Superannuation Funds To Eventually Become Australia’s Largest Institutional Investor
Australia’s superannuation industry, estimated to manage $1.2 trillion in assets, will eventually have to assume a leadership position as the country’s largest institutional investor as it increases in size by more than four fold over the next two decades.
Speaking at a conference on the superannuation industry held in Brisbane on Wednesday, The Minister for Financial Services, Superannuation and Corporate Law, Chris Bowen said the industry faces over the next two decades, the twin challenges of ensuring that the system is able to deal with an ageing population, and managing the system’s exponential growth.
“A big strength of the super system will be its exponential growth over the next 20 years — it will grow and exceed GDP and it will be one of our great assets. Therein lies a challenge, and we need to ensure that great asset is used to maximum advantage for the Australian economy and that we don’t squander the opportunities that exponential growth in funds under management will provide.” he said in a video statement.
Assets managed by Australia’s superannuation system are currently valued at approximately $1 trillion and are expected to grow to $5 trillion by the year 2025.
Pauline Vamos, chief executive of the Association of Superannuation Funds of Australia says the industry would ultimately become the largest Australian institutional investor, a position that would grant it significant leverage over the economy.
“How we manage that responsibility as investors in the whole of the Australian economy, how we drive that, how we manage that and use that quite significant leverage responsibly so that we don’t scare the horses, is what will be our biggest challenge. Speaking with one voice and speaking responsibility is where we have to go over the next few years.” she said.
However large differences still remain in the sector, between industry and retail super funds.
David Whiteley chief executive of the Industry Super Network warned industry funds not to side with retail super funds in their response to proposals from the government’s Cooper review of the sector.
“What Cooper is trying to do is get rid of unnecessary fees and unnecessary costs — and the retail sector is, by and large, the source of that through the commissions system. They have a vested interest in derailing the Cooper review, and we have to make sure that doesn’t happen.” he said.
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Super Fund Reform Two Decades Too Late Says Industry
Kevin Rudd’s government says it full intends to follow through with controversial new regulations for the superannuation industry despite vehement opposition from the sector.
Jeremy Cooper who heads the government inquiry into the superannuation industry, also known as the Super System Review, told industry participants that whilst the government did not seek to cause unnecessary disruption or costs, the current system needed to be “recalibrated” since it resulted in far too many investors being disengaged with their investments.
Last year Mr. Cooper unveiled new proposals which would classify super fund members based on their level of involvement with the management of their super.
This would mean that members, who were not actively involved and failed to make investment choices, would have their money placed in a universal category, which is a low cost fund that has a single diversified investment strategy.
The industry responded to the proposal by making a joint submission which said that the new regulations are too drastic and would result in increased complexity and higher costs.
During an annual industry conference held in Sydney on Monday, many industry participants ratcheted up the rhetoric, suggesting that the proposals were two decades too late, with many in the industry arguing that it would have been better to introduce such measures at the same time as when the compulsory super was first launched.
Mr. Cooper, former chairman of the Australian Securities & Investment Commission (ASIC) responded by saying that despite some sectors of the super fund industry finding the universal model quite challenging, the issue of rising costs had to be addressed.
Mr. Cooper said that the right of all Australian’s to choose their own investment fund had the inadvertent effect of driving management fees upwards, as managers spent more money marketing their various bells and whistles.
Mr. Cooper says that the proposals also sought to reduce costs and save the industry roughly $1 billion a year through the streamlining of back office functions, with a drive to make the industry paperless, and all transactions electronic.
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Super Fund Industry Opposed To Rudd Changes
Retail and industry superannuation funds have joined forces in a bid to lobby the government against implementing new regulations for the $1.2 trillion industry, arguing that such changes would only result in higher costs and increased complexity.
In its submission to the government review, the industry lobby rubbished new proposals which would classify super fund members based on the level of involvement with the management of the fund.
Last year, Jeremy Cooper, the man charged with conducting the review proposed the new changes, which would see superfund members who did not actively make choices about their super, have their fund choice automatically placed in a universal category, which would have a low cost structure and a single diversified investment strategy.
Four different industry groups joined together in an unprecedented move, to voice their concern at the proposed changes, saying they would be detrimental to the interest of most members and were unnecessary.
The groups say that having the set up separate structures would result in a larger administrative burden, which would mean higher costs and lower investment returns for members.
“In an attempt to shift the cost of administration on those who use it most, and protect those who use it least, the panel has proposed a rough model which will, perversely, result in the opposite effect,” the associations said.
The Investment and Financial Services Association chief executive, John Brogden says that whilst the industry was not philosophically opposed to change it did want to “stop change that will actually make things worse”.
“I understand what (Mr Cooper) is trying to achieve but ironically the model he is recommending will deliver greater complication and higher costs to members of super funds,” he said.
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AMP Criticised For Not Treating Investors Fairly
A newspaper report in the Australian has revealed that investors, who had placed money in the one Australia’s largest frozen funds, were being sold stock by the manager at highly inflated values, whilst the same manger was simultaneously dumping the same investments.
The Enhanced Yield Fund, run by wealth manager AMP, and holds $11.5 billion of retail investor assets, used a financial planning network to sell units at full prices to unknowing investors whilst that global financial crisis was ravaging valuations.
Despite collecting money from investors, AMP wholesale funds were simultaneously heavily selling its investments in the same underlying assets.
The Enhanced Yield Fund (EYF), is chartered to invest roughly half of its $1.1 billion under management in its sister fund, the AMP Structured High Yield Fund (SHYF)
SHYF makes loans to companies including Macquarie UK Broadcast and Thames Water.
In 2007, the value of many investments made by SHYF began declining, and in many cases slumped by as much as 40 to 50 per cent of their peak values. Despite the decline, EYF failed to alter its unit price to reflect the revised valuations, and continued to sell units to investors at the full price.
AMP, which in this case seems to have ignored its own industry representative body guidelines has come under intense criticism for not treating investors fairly.
In January 2007, EYF units were trading at $1.30. In December 2008, amid the financial crisis when the fund was frozen, units were valued at $1.44.
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Competition Regulator Voices Concern Over NAB AXA Bid
The competition regulator says it is more concerned with the proposed takeover of AXA Asia Pacific Holdings by National Australia Bank, than it was by the original bid tabled by AMP.
The Australian Competition & Consumer Commission says it was highly concerned that the level of concentration in the retail investment sector would be damaging for regional banks
Analysts say that the statement from the regulator means that AMP could still be in the running to acquire APH, and that NAB’s acquisition attempt may not win the approval of the ACCC.
Despite voicing concerns over the NAB proposal, the regulator said a takeover of AMP by either bidder would most likely result in the further concentration of the financial planning and advice sector, which would result in less competition. The regulator said a takeover was unlikely to have much effect on the pension or life insurance markets.
The regulator is also considering how likely it is for AMP to remain an independent and effective competitor, and whether it could become a fifth pillar in the financial services industry if its bid is successful, or whether it itself will become the subject of a takeover attempt.
The ACCC said it would call for further information on competition issues related to both proposals by February 26 and hoped to make a final decision by March 17.