The delay of the increase in superannuation contributions has been widely criticised by the industry which stands to benefit from getting even more money flowing in. But there are divergent opinions. Peter Martin in The Age argues that lifting compulsory super contributions to 12 per cent was 'perhaps the dumbest idea Labor had'. His contention is that it comes out of the pockets of workers now, money they can ill afford to forgo:
"The Henry tax review saw this clearly and had its findings ignored. Keen to jump on its support of a resource super profits tax Labor turned its back on the review's equally serious finding that compulsory super "remain at 9 per cent". It chose the day it released the review – May 2, 2010 – to announce that it would do the opposite: lift compulsory super contributions swiftly to 12 per cent over the next nine years.
The superannuation cheer squad loved it. Many of them work in an industry that would manage nothing like as much as the present $1.85 trillion were it not for compulsion. Where else can you perform badly (most funds fail to match the sharemarket after deducting fees) and still be rewarded with an extra 9 per cent (now 9.5 per cent) of wage earners' income flowing your way each year.
An increase to 12 per cent would have been even better.
Curiously, Labor's mates in the union movement occupy almost half the seats on industry fund boards. Bill Shorten himself sat on one. Where else can you get the finance industry and the union movement to agree that taking money out of your wages is good for you?
I mentioned wages. Strictly speaking, compulsory super contributions are paid by employers in addition to wages rather than being taken from wages. But it's easy to see where employers get the funds. When they are forced to pay more into super they don't increase the amount they are prepared to secure the services of each employee. Instead they change the way it is broken up. They pay a higher proportion in super (because they are forced to) and a lower proportion in wages.
When compulsory super contributions climb, the next wage increase is lower than it would have been. Employers fork out what they would have anyway. Their workers get less cash in their hands, more saved up for them in super."
The argument is that if people want to save more, they can choose to themselves. It is very much about the individual rights versus the needs of the system. The AFR argues the systemic case:
"You’re going to have to save harder than ever to get enough to retire on thanks to this week’s decision by the federal government to postpone increases in compulsory superannuation.
The decision means you’re going to be left short at retirement unless you become much more proactive – you’ll need to save more and decide how to invest it.
The problem is whom to trust for advice.
This is already a problem, with unscrupulous operators targeting investors who are desperate for yield after four years of record low interest rates and volatile sharemarkets. As the gap widens between regulators and unscrupulous operators, there are new revelations about widespread product mis-selling, frauds and attempts to leverage equity in borrower’s homes and superannuation to buy property and equities.
This week Smart Money can reveal that yet another bank – Westpac – has been accused by a senior executive of “massive and systemic” mis-selling of investment products, typically super, by unqualified bank tellers. This is despite years of gruelling debate over reforming the quality of financial advice to investors through the Future of Financial Advice (FoFA) reforms.
And trustees of self-managed super funds are looking increasing vulnerable. “The increase in SMSFs has given unscrupulous promoters direct access to the previously protected retirement savings,” warns Neil Kendall, a financial planner with Tupicoffs."
The incentives are pretty clear. There is good reason to save more if super is to be meaningful at retirement, whether it is mandated or not. The extra 3% a year can be extremely significant, especially in an environment where getting a decent return is difficult.
There is also good reason to be extremely careful about financial advice. The banks dominate the industry and they are clearly conflicted. In other words, they behave like banks. What would one expect?
This is the kind of thing that can happen. It argues that if you are going to do DIY super, you have to do your own homework and avoid get rich quick schemes:
"A developer and financial adviser at the centre of the collapse of a multimillion-dollar property and DIY super company has business links to jailed tax rorter Robert Agius, a high-profile scalp for Operation Wickenby, an ongoing tax crackdown by several government agencies.
And despite being under investigation by regulators who have cancelled his financial advisory licence, George Nowak remains an authorised chartered accountant, operating from his son Harrison’s luxury car business based at Adelaide airport.
Nowak’s one-stop-shop property development, advisory, real estate and management company was shut down last November owing more than $11 million to at least 100 investors. It was one of the biggest collapses involving a company offering SMSF schemes.
Investigations reveal that Nowak was taking hundreds of thousands of dollars from investors for his property and investment schemes right up until regulators moved in to close him down.
Some investors are also urging authorities to pursue Nowak’s alleged links to Vanuatu-based tax consultants and investors. He was a director of a company called Epicorp Ltd Investment, which invested in plantations of tropical hardwoods in Vanuatu."
Looking into your adviser's back ground is a must.