I agree, what a conspiracy.

The money should go to direct investment, ie property shares and the like, and the government should license existing financial planners to provide the most beneficial investment.

Property is the way to go, no questions, and i will never put more than the compulsory into the fees and taxes feeding frenzy that is superannuation.

Use your equity to invest at the right time (ie 2008) and watch the power of leveraging realy get your retirement in order.

I usually avoid reading the crap Mirko Bagaric excretes on OLO. I really wish I had this time as well, he really should avoid economic issues, as he quite obviously has no idea. And he couldn't even produce any supporting information for his argument (but then, it IS an opinion I suppose).

To add insult to injury, I decided to see what was on the comments page, only to find the usual insight provided by "Realist". Good luck in the property market mate, perhaps you could invest in Westpoint?

Hallelujah!
Finally someone pointing out the outrageous nonsense that is compulsory super.
Here is another negative for your next article.
Putting such vast sums in the hands of financial managers has damaged public oversight of company management. When wages for managers and board members are decided, it is board members and managers of Superannuation firms which do the deciding, not the public. I believe this has a lot to do with the absurd escalation in management recompense in recent times.
Who would consider for a minute wage rises for James Hardie execs. or A.W.B. execs except other company executives who expect the same treatment.
Many small shareholders who once kept a close eye on companies in which they invested are no longer interested, and the flaws which they used to expose remain hidden.
This failure of oversight is damaging the performance of many companies.

There is little logic in the argument. If you reckon that everbody should have the choice of what to do with their money, then you do away with the whole tax system as well.

Compulsory super has been a great policy. Without it, most people will not provide properly for their retirement.

Problems in the financial planning industry should be fixed by proper oversight and regulation, not by scrapping the whole compulsory super policy.

Compulsory super does not preclude people from also accumulating money and investing outside of super. If they want to risk it in the property market or dodgy investments, that's up to them (and many do), but compulsory super at least means that they won't be totally dependent on the tax payer in retirement if the investment fails.

Jude,

Direct Property Investment I stated if you bothered to read.

Not trusts, not something managed, not things like westpoint, Buy your own investment property directly without being suckered by the thieving trusts.

It upsets me your opinion is like it is. Perhaps it is due to your lack of understanding. Dont knock the only method that will take people like you to financial security without having to trust and rely on 'managers', if you bothered to learn how you would know what i mean.

What was the price of property in your suburb 10 years ago?

Are building costs going up, or down over time?

Is land becoming more scarce in prime locations?

Any fool can see it, so someone of your intellect must.
I agree, dont trust any shemes, investment funds or the like, DIRECT INVESTMENT YOURSELF is the way to do it.

Hope fully without an ambush next time you read my comments.

Also, there are very few people licenced to provide INDEPENDANT advice on investment property, dont see your trusted real estate agent.

My advice is buy a property (within 2 years of being built) at a resale price 10-20% cheaper than a new home, make sure it is 600sqm and it is functionable, in an area of at least 50/50 investors/owner occupiers. Ensure the rental return is comparable with purchase price, you have a quantity surveyor report done to assist with deductions, you do a 221d form to recieve your tax break in your pay packet, you borrow interest only and use your equity, and let the property cycles (kicking off end of 2008) do the rest.

Westpoint? Dont let others manage your money. Thanks for the wrap Jude

Superannuation funds are owned by the old life insurance companies and haven't they done a wonderful job of reinventing themselves as a key player in the Australian economy from their low point in 1974 when everyone realised that life insurance was a waste of space.

I agree that fund managers benefit from all of those compulsory super funds. I have also heard property investors complain that the property market is over inflated as people with no experience buy property for their superannuation portfolio.

Most people are ill equipped to deal with the complex choices that our superannuation system allows so they are at the mercy of their investment advice - may it be good advice.
Having worked for super funds I can say I haven't been over impressed with their contribution to society or their members but admire their ability to return a profit for their owners.

I had a friend who ran his own business who contracted cancer at age 42. He was unable to access Centrelink benefits because he was self employed, he was too sick to work so thank goodness he had direct investments in property because thats what he had to live on. Fortunately no one ran after his executors asking why he hadn't made any compulsory super payments.

In this area there are many people in their early 50s who are unable to find employment. Although they often have funds tied up in super they are unable to access their money. It's about time we stopped talking about low unemployment and trying to project our future workforce requirements because the Australian Bureau of Statistics only surveys 30,000 households each month to estimate the unemployment rate. You are deemed to be employed if you have 30 minutes of paid or unpaid work per week or you are studying. Most people assume employment leads to income.

It would be far more efficient to adopt a universal old age pension system like New Zealand.

I totally disagree with your article

you are arguing that efficiency gain will make up for the decline in workforce participation. The point you miss is that part of the gain a worker receive from this efficiency gain goes to inflation. Also the only way of re-distributing the wealth is through higher taxation.

Australia already have a "way-too- high" marginal tax rate of 47%, this has led to the higher end of the work force to leave for the US, Hong Kong and UK, and for people like Rupert Murdoch and Pat Rafter to live in low tax jurisdiction. The only thing a lifting of the tax rate "to fund social pension" would be to increase the amount of our work force going overseas to work, and the use of tax minimisation vehicles for the wealthy ones who remains in Australia. This leaves the tax burden on middle Australia, who have a mortgage

You also seem to think it will be easy to let everyone access to their superannuation. If everyone withdraw from superannuation, firstly the stock market and property market will crash (simple supply and demand). Companies will start making losses, and start laying off staff. If you want to loss your job and lead Australia to another recession, feel free to scrap superannuation.

I agree with compulsory Super, from what I hear and read, Compulsory Industry Super funds are okay - good returns and low overheads.

Not so the Portable & Personal Super funds marketed by the born-again Insurance companies.

My first Life Ins Policy ran from 1950-1975 when I asked my AMP Agent to cash it in on a new "Whole of Life" Policy - could be converted to Super at a later date. Great, until I retired from Navy and went to put AMP money into an NLM Personal Super Plan - I was self-employed at the time.

AMP gave me a paltry amount and I asked why? Oh, the Agent didn't cancel the original policy and, under Govt regs, the money ate itself up until none left! I asked AMP to compensate me, it was their agents fault - oh no, he was a self-employed agent, AMP is not responsible, since he left the company. They told me he probably didn't transfer old into the new, as his commission would have been reduced by the fortnightly contributions to the original.

So, I had to start from scratch again, with NLM, then transferred to Australian Eagle, who were going extremely well at that time.Three years later I entered hospital for major surgery (war injuries) and was off work 2 years

Since, Aussie Eagle were swallowed by Zurich (I think), then MLC, who were swallowed by NAB. With the Crash of 1987 and lousy funds management by MLC, my money is now worth less than it was 15 years ago! Grrr. Last year I had to retire again, earlier injuries now stop me working altogether.

Worse still, CML want to take half my Super off me, more management fees, if I attempt to withdraw it and put it somewhere else, where I can get a better return! Superannnuation - Grrrrr!

Flez

I am amazed that the writer with academic qualifications can get it so wrong. I am sure the economics Professors and Lecturers at Deakin University would be embarrased by such a display of ignorance. The comment that we are forced to pay 9% of our wages into compulsory superannuation is wrong wrong wrong!

At best an argument can be made that the workers contribute 3% that being the original wage/super trade off from the Wages Accord.

The rest is a tax on employers, not employees . Does the learned Professor believe that every boss would give their workers a 9% (6% in real terms as the original 3% came from the workers in lieu of a pay increase) pay increase if the Federal Government abolished the superannuation surchage. Look there is a pig flying backwards.

Seriously the superannuation funds play an important economic role in capital formation as well as providing the means to improve retirement incomes for ordinary Australians.

Could anyone imagine what the current account deficit would be without the multi billion superannuation funds earning and developing income streams that ultimately lead to capital inflows.

It seems that the author has a degree of bitterness directed towards the former life funds which are the major benficiaries of the Howard choice legislation.

Industry funds which are not designed to generate dividends to shareholders but deliver a maximum return to their members provide quality services to their members and you do not ever hear these members complaining.

At least there are some perks to being self-employed, like legal ways around paying into a superfund where the main beneficiary is the fund manager and not the contributor!

Realist, I too will go with good property choices anyday - by far the winner over super.

Having said that I doubt that any Government can continue to hand out retirement pensions, given the continued rise in life expectancy. Not everyone has the self discipline to save and invest along the way so compulsory super is possibly the only easy solution.

All this tax and compulsion, is enough to send one into an early retirement.

coraliz

problems with your argument

with property, you actually do lose money, and you are hoping to be compensated by capital gain and the capital gain will probably not be there the next 10 years.

even over the last few year, shares investment out perform property, with earning and capital gain greater than the rise in property prices

shares are a safer investment than property, in the last recession, you are more likely to lose more on you property (because of gearing) then in your share portfolio.

you can actually have your property investment in a superannuation fund.

It is

The main problem is that it does not pay to save. This is because savings are taxed on the nominal interest, not the real interest. As a result, savers are taxed too much and borrowers get too big a deduction.

This is why it is necessary to force people to save, as very few would do so otherwise.

Reforming the tax system would not solve the problem, as feckless people would still blow the lot, and look to the taxpayer to support them in retirement. It would still be necessary to force people to save enough to disqualify them from the pension when they retire, as the number of retirees in the next few decades will be so high that the current pension level would be unaffordable by the government.

It is not necessary for people to pay commissions to fund managers. Those who wish can set up their own self-managed super fund, as I have, and put their money in more secure investments with lower returns that give the same net result because there are no fees and commissions to pay.

Agree wholeheartedly - the only REAL money I've made has been in Real Estate - bricks and mortar. Hobby buying, repairing & selling motor vehicles used to be good cash money, but lucky to make $300 each these days, so I stopped. Bought a house out of it once!

Being in the right market at the right time for both buying and selling property is the trick. I think it was more good luck than good management on my part, but Brisbane property guru Noel Whittaker gave me some GREAT free advice back in Jan 1980 - POSTION, POSITION, POSITION and BUY the WORST house in the street, NOT the BEST - so all the better ones will promote your cheapy upwards.

Even better if you renovate - which we did. Doubled our money in under 3 years! Did the same again couple of times since, but don't expect to buy a similar property in the same city - all there prices have gone up with yours!

Great investment strategy though, if you are prepared to pre-empt the property values in cities that have not yet boomed.

As for Super, like someone said - no share-holders to skim off the cream, unlike AMP, National Mutual (now AXXA), etc etc. You will never have enough by the time their executive salaries and share-holders returns have finished with you! Won't even cover inflation in most cases.

Did you know an Insurance Co. Agent gets your full first year's premiums as his commission and teh second years premiums are then swallowed up by Administration Fees - legalised robbery - what a rip off!

Flez

Flezzey

I think compulsory super is an excellent idea- I know I struggle enough to save for a new car, yet alone saving for financing my old age (as I am twenty-three, justifying putting away money for retirement would be incredibly hard were I not forced into it).

That said, I do fail to see why it needs to be put into managed funds etc, rather than, say, a personal savings fund, perhaps managed by a government agency? So the money just sits there, not even accruing interest, just CPI? Just put it somewhere I cannot get my sticky hands on it, or I'd be scooting off for a jaunt to Europe for a while!

Also, I fail to see why some bozo who happens to be my fund manager should be able to invest my money wherever, and hope it goes up rather than down.

Dovif

your comments are mad.

Can you leverage with shares like you can for property?

Say you had equity in your home and you wanted to invest, what will the bank lend you more money for?

Have you seen property values half in Australia overnight? have you seen a significnant decline in prices over time ever?

Shares, being a pure investment market is frightening and full of unknowns, with any company you invest in you are relying on correct accounting, the directors, the outlooks and you are opening yourself to many external and unforseen factors. Planes can crash into buildings and effect your investment overnight, yet property is a physical and social need, inelastic, as well as an investment vehicle. People have to live somewhere, if they dont own they rent. They are apples and oranges.

Shares DO NOT OUTPERFORM Property, never have, never will over any 10 year cycle. Show me the evidence, and i will show you how if you invested the same money and leveraged and brought property how you would outperform shares totally.

The world is too volatile a place for my hard earned super to go into shares. And i can leverage myself like i want to with property to create the wealth that i need.

Oh, and if property does not go up in the next ten years like you mentioned, I WILL BUY YOU A HOUSE unencumbered in the suburb you are currently living in. Deal?

Property will take you from nowhere to somewhere, just follow the formula. Promise

Dovif,

No problems with my argument at all; except it wasn't an argument it was fact, providing you know what you are doing with property. Having previously been in finance for many years I can assure you any lows in property are just part of a well known cycle - you just have to work out where and when to buy, and when (in need) to sell. If shares work for you and you are comfortable with them then go for it. I prefer tangibles - bricks and mortar have stood the test of time. More chance of a stock market collapse or a super fund crash then there will ever be a block of land falling into the ocean.

realist

It is a question of preference.

I am an accountant and I do not like risk, with 0 gearing my share portfolio have gone up 300% since 1994, it has gone up 20-22% the last 3 year, which no property market in Australia had done so in the last 3 years. Like property, you can negatively gear shares, with most listed shares, you can gear their value to 70-80%, so gearing is the same for shares and property.

As I am an accountant, I deal with people with properties and shares all the time, apart from capital gain, people do not make money with property, while if you have shares, you are gaurenteed yearly return of 4% (5% after tax). Property in my opionion is more risky than shares,
you can easily lose your tenant and not rent it out for months, the lost rent stacks up, shares almost never have this problem.
I have seen many places trashed, and the owner having to spend thousands of dollar to fix the problem from a tenant who have moved out
Strata - Special capital levies
Agency Fees, Stamp Duty, exVendor duty, Land tax etc
While most investors invests in units, the money made in property are on land + house, and they are harder to rent out and have higher turnover rate and lower % yield, this is because people who rent a house, is mainly those who are saving up to buy

Also with shares, if you aren't happy with the market at the moment or think a recession is coming, it takes me 10 minutes to sell all my shares. It can take months to sell a property.

I have dealt with many people with shares/property in their superannuation fund, and over the last 20 years, the people make more money in share portfolios than property.

Dovif,

A good response and i agree with you on some counts.

Like volatile shares, investors seem to be steered to volatile property. House + Land is the way to go, if you buy a property that has the right fundamentals.

As an accountant, it is disapointing to see that you 'dont like risk' yet you are happy with advising clients to enter a volatile, pure investment market which is this.

Shares go well, property sits, shares tread water and decline, property generally moves. Gear yourself up to your eyeballs with quality investment property, begin to purchase using your equity at the front of the cycle (2008-2009) and turn one property into 4 over the proceeding 3 years. You dont like risk, whats the risk in 4 substantial assets that have gone up in value, have a good rental return at cashflow neutral overall, and let the cycles take care of things.

Shares have their place, no doubt in my mind, but not over property.

If you can gear your shares to 70-80% (I bet only a handful)i must be doing something wrong.

Please advise..