by Chris Becker
Uh Oh. Get your antennae up when the super-duper fund managers start using the “need to put more savings into super” meme to increase their ticket clipping activities.
The head of the country’s largest wealth manager has warned Australians will end up poorer and paying more tax to fund pensions if something isn’t done to boost superannuation savings.
AMP chief executive Craig Meller says a lack of savings will leave Australia with a fiscal challenge far more serious than the budget shortfall currently facing the Abbott government.
“We need to take action now to counter what is the most predictable threat to our prosperity over the next 20 to 30 years,” he said in a speech on Tuesday.
“And, the simple reality is that saving just 9.5 per cent of your earnings is not enough.”
“We only have four options: save more, tax more, work longer or be poorer.
Can I suggest a few more options Mr Meller?
How about reduce the major cost of living – financing a bloated mortgage – while increasing real wages and maybe, hey – just a thought – increase productivity so we don’t all have to work til 85.
Actually the “tax more” option can be implemented straight away by removing the flat 15% tax for high income earners in super. Given total concessions are around $30 billion a year, by adjusting this where the top 5% of earners pay their marginal tax rate would save about 20%, or around $6 billion a year.
Further, as shown by The Murray Inquiry, where a simple 0.38% reduction in management fees from their current sky high bloated levels to a median international standards could automatically increase final balances by over $40,000. Currently the industry pulls in over $20 billion a year in fees, or around $2000 per Australian with a super account.
I would add that its not just about the quantity of savings, but where and how those monies are applied. The vast majority of “savings” are leveraged into property, or into buying shares in property lenders (i.e Megabank – the big four banks take up most of your default asset allocation) or sit in cash deposits – which, yep you guessed it – help finance more property.
Look, I’m super critical (sic) of the super funds industry which has one of the most easiest jobs in the Western world – and I used to be part of it – and one of the most ineffiecent and anti-capitalist in nature.
And it seems easy to say, especially when it comes from a firebrand like former PM Paul Keating that we need to increase savings from x to y.
The Henry Tax Review was explicit about who pays for these savings:
Although employers are required to make superannuation guarantee contributions, employees bear the cost of these contributions through lower wage growth. This means the increase in the employee’s retirement income is achieved by reducing their standard of living before retirement.
If Mr Meller and others within the superannuation industry are asking for everyone to sacrifice their standard of living now as the unwinding of the mining boom just begins to accelerate while not making any other concessions (e.g fees) then watch out for the pitchforks.
And to finish on no surprise on the “leave us alone” regulatory front:
Mr Meller also rejected calls for greater regulation of the financial advice industry, which has sprung up in the wake of the scandal surrounding Commonwealth Bank’s financial planning division.
A Senate report in June blasted the bank over misconduct and fraud and chief executive Ian Narev apologised to customers who lost money after financial advisers forged client signatures to facilitate profit-producing product switches and switched investments without clients’ consent.
“Like any profession, we need to prove we can regulate ourselves effectively,” Mr Meller said. “And I believe we can.”
Of all industries on the planet that need closer scrutiny, the FIRE sector should have the most powerful microscopes – and big sticks – pointed at it. And it needs to be top down regulation, not just tick and flick checks or the limp wristed ASIC/FIRB/APRA apparatus.