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EYE-BALL Guru on – Superannuation – a great big rip-off – Part III …

July 27, 2012
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Title:
– Superannuation –
– a great big rip-off – Part III!!!
| Author: EYE-BALL Guru | 27th July 2012 |
Link to Previous Posts on this Subject:

  • Link to Part I Superannuation – the new great big Australian rip-off!!!
  • Link to Part II– Superannuation – the new great big Australian rip-off!!!

The World Financial Markets and its wellbeing continues its uncertain dance.  Western Governments are being forced to tinker with economic growth forecasts against a soul destroying and global self-inflicted debt crisis.  The debt burden is toxic and how Governments and Banks are responding to the crisis threatens the nest-egg of every Superannuation holder across the Globe!

Superannuation is a lifetime of savings and planing for retirement.  It is the heaven we are all promised in a modern world.  It is also a Government induced fix to an overspend commitment to Pension payments Governments know they cannot cover or afford.

These funds are supposedly held in trust and they currently represent the only credit funds of worth all around the globe.  Given the GFC – there is no doubt they are now at risk.

Global Governments have been planing for taxpayer funded retirements for decades.

The intent is to reduce the Government Welfare spend for Aged Pension payments.  Population demographics in Western Nations show slowing population growth, an aging population, and people living a lot longer.

Its intent is understood – but in an ever increasing risk market for both investors, and continuity of lifestyle, buying a 40 yr ‘call’ option on a financial future is the worst kind of investment anybody could ever put their hard earned cash into.   Paying for that call option on a weekly basis is like insurance – the added ‘con’ to this investment is how Governments now tax the contributions ‘up-front’ which in turn diminish the compound earnings of the fund.

In a nutshell – it’s annuity styled Insurance Policy that you are paying for weekly with great upside for the Government.  You won’t know until 40 years time whether the call option payout has real value or worth.

For the privilege of owning this ‘call’ option – the Government receives a weekly 15% option premium from your contribution and it’s called a Superannuation tax.  This ‘up-front’ tax collect was only introduced in the early 90’s.  Prior to then – you would pay 30% after you retired.  The arrangement now is you pay 15% up front, and another 15% at the back end if you have not managed your affairs properly.

Those ‘affairs’ depend on the complexity and frequency of Legislative changes made to Superannuation rules during each term of Government.  In addition there is the market volatility in investment returns, the negatives of flat index and exorbitant Fund Management fees charged against invested funds.

In the last four years and since the GFC engulfed the Global Investment market, the Rate of Return (ROR) growth in Superannuation funds has struggled to match employee contributions.  That is to say that employee contributions plus Fund investment returns created a negative growth year on year after allowing for inflation indexing.

Before the conclusions derived from the facts are disclosed hereto – let us take a ride on some of the research material uncovered.

APRA[(Australian Prudential Regulatory Authority)]: – publishes the Annual ROR (Rates of Return) for the top 200 Australian Superannuation Funds. The report also publishes the ROR going back eight years year on year, and ROR over the past 3yrs, 5ys, and 8yrs as a cumulative ROR.

The chart below shows the ROR for the 5 and 8 year periods as the first two columns, and then the year on year ROR for 2007-2011. [To enlarge – Click on image to open in a new window.]

Source Data: APRA Superannuation Report can be viewed using this link.

Perusal of this report provides further evidence to support Government incentives to increase Superannuation contributions.

HILDA:

But what is also interesting and of significance as a reference supplement to the above data is the HILDA Report – [The Household, Income and Labour Dynamics in Australia (HILDA) Survey] This report is published by the – University of Melbourne – Faculty of Business and Economics – and provides 2009-10 survey results relating to Australians employees, their superannuation entitlements, and their employment income/age demographics. [This HILDA report can be read in full using – this link …

A Table 1 extraction from this HILDA report shows the Australian Workforce broken down into age groups and income levels. [To enlarge – please click on image to open in a new window.]

From data presented in the Table above – the welfare threshold level of $150,000 excludes the 2.4% of the workforce who earn above $180,000, and a portion of the 18% who earn between $80k and $180k.

This would indicate that the 80% who earn less than $80k a year, and perhaps some 80% of the 18% who earn between 80k and 180k, i.e. another 15%, and a total of 95% of the total workforce – would be eligible for means tested threshold welfare payments.

More interesting though is the value of Super Funds held by individuals also published in the HILDA report – linked here.

See Table 2 data Below  – [To enlarge – please click on image to open in a new window.]

This Table hides many secrets about the Superannuation lie.

As at the survey period – 2009-10 –

  1. There are some 3.651 million Australians who have ‘ZERO’ superannuation.
  2. Some 7.321 million Australians who’s Superannuation entitlement is less that $100k, and more than half of them are aged 40 or above.
  3. In the $100k – $200 range there are 1.027 Million workers – of which some 750k are aged 40 or above –
  4. In the $200 – $300k range there are 485k workers – and some 460k are aged over 40 …
  5. In the $300 – $400k range there are 262K workers – all but 4.8k are over 40 …
  6. … and from there – everybody who has higher superannuation entitlements are all over 40 years of age.

To take this a little further – with Interest rate levels at 2-3% for investment returns, a $1 million retirement nest egg will return you some $20-30k annually before any Tax liability you might have.

Diversify the $1 million to a range of investment options, i.e. equities, Funds Management products, and the ROR might yield 7-8%, that would represent a $40k to $75k earn less tax obligations as an annual income.

There are only 89,000 Australians who have $1 million or more in super entitlements.

The compulsory Superannuation levy – a salary sacrifice of 9% made in the early 90’s, has had some 20 years to grow retirement savings. The sum total of all Australian Superannuation funds is around $1.3 trillion.

As the 2009-10 survey results presented above show – some 13.213 million workers were represented, and as measured up against the 2012 value of $1.3 trillion of superannuation funds value – the value of each superannuants ‘nest egg’ translates to a lump sum value close to $100k.

It is painfully obvious that what ever savings are being put aside – it will never cover required living standards as benchmarked by the Governments own proposed Budget 2012 $300k income threshold limits that provide additional welfare support.

Attempts to allow additional Super contributions over and above the 9% employer contribution have many a purpose. The incentive comes at a cost of 15% up front.  Now if these additional contributions were allowed to be made as a ‘salary sacrifice’ and paid into super funds before payee tax was applied it would be a fair arrangement. Yet – the Government allows these top ups for low income earners with a promised Government contribution.

Put another way – as each year rolls on by – the goalposts are being moved – yet the superannuation contribution is pegged at the 9%. So as wage increases are restricted, against an increasing cost of living – superannuation savings are woefully neglected to provide for financial security into the future.

The Superannuation experiment is a FRAUD.

When the early 1990’s Superannuation contributions were changed – the Government introduced a massive cash cow for itself when it taxed new contributions at 15%.   This changed the ‘compound’ factor of Superannuation Fund entitlements grew by in a very significant way.  All to the financial advantage of the Government.

The compound effect of the up front 15% tax collect going to the Government as opposed to the Superannuant is explained in detail in Part I of this story – [click here to see story with calculation to demonstrate this] –

This ‘tactic’ renders the Government as the biggest winner in the early 1990’s Superannuation gamble.  The Government is not exposed to the Financial Markets volatility, their 15% upfront collections now represent some percent of the total Government revenue stream.

Given the above Table 2 – and the numbered summary of highlights – only 316,000 employed people under the age of 65 have $500k or more of super.  That 316k represents 2.4% of the workforce of 13.2 million – 3.6 million have no super, and 7.3 million have less that $100k …

Given where the GFC is – and the likelihood of more negative returns in coming years – see Chant West Super PDF report –  Superannuation is being sold a product that will insulate the population against a poverty stricken retirement.

This ‘call’ option Ponzi scheme is a cash cow for Government – not for sucker employees.  The Funds would be better put toward home ownership for a like with like investment.

You ask any investment advisor about a 40 year investment return being sought via short term market securities.    Since 1970 equities have shown mammoth returns up until the GFC hit in 2008.  This growth in USA markets has been replicated in other Western Markets – as has the fall and flatline since the GFC. [Click on chart to open source webpage.]

Commentary that comes with this chart states:

“Is it possible that an 18 year Bull market (1982-2000) could be followed by a 2.5 year Bear (March 2000 peak to October 2002 low), and then launch into another multi-decade (2003-2018) Bull?

“Sure, anything is possible. But as the chart above plainly shows, it would be historically unprecedented.”

Each of the ‘Bear’ or ‘flatline’ periods in the above chart have lasted 18-21 years … the chart is to 2004 and we know that the DJIA went on to add another 4,000 points to be above 14,000 in the period to 2008 – that would mean that the red zone did not start until 2008 – and has 18-21 years of bear market activity ahead of it.

This GFC fallout is far from over and that puts all Superannuation ROR’s at extreme risk.

If we look at the sovereign debt numbers for the largest economies – USA, Japan, Europe, UK – all are technically bankrupt when future cash requirements are costed on top of existing debt – financial obligations just cannot be met without tax increases and horrendous budgetary cuts.  What is happening in Greece, Spain, Italy, Portugal, and about to engulf France and the UK after the Olympics – the cash holdings in Superannuation will look pretty good as National Savings.

No – Superannuation served the 70’s, 80’s, and 90’s generation retirees – but for the next generations the ‘nest-egg’ and retirement plans are all on hold.

Dow to Gold Ratio Since 1915

“This next chart tracks the ratio of the Dow Jones Industrial Average to the price of gold. The number essentially tells you how many ounces of gold it would take to buy the Dow on any given month. Previous cycle lows have been 1.94 ounces in February of 1933 and 1.29 ounces in January of 1980.” [Click on chart to open source webpage.]

What can be gained from this chart is that the Gold/DJIA ratio is in a Bear trend – that means either an exponential increase in the price of Gold which in US$ terms is happening, or the DJIA is in for a deep Bear trend, or a combination of both.  The trade is to be long Gold in US$ terms and short the DJIA.

The next chart is of the DJIA over the last 100 years – [Click on enlarge chart and open source webpage.]

It took a War to pull the World out of a global depression during the 30’s in the aftermath of the 1929 crash.  And that did not start until the 1950’s.  This 2011-21 decade has started as did the 1930’s with the Financial troubles in Europe, and with America’s economic meltdown that no one will call a depression – it is all set up again.  Asia is where everyone is looking for help and a prayer.  China will only serve China’s interest, as will India, Russia likewise given how the West have treated these Nations over the last Century.

All holders of Superannuation need to take heed – get control of your own funds – spend $1000 or so to set up your own Super Fund and take control of your investments.  You’ll pay no fees – you can lend to your own home as an investment and you pay your own Super Fund the monthly payments.

All that has to be done now is to have the Government return the 15% up front tax levy that it took back in the early 90’s …

Banks make a fortune in fees of Superannuation Management as do the Fund Managers outside the Banks.    There is no guarantee of return but if they make big bucks, the staff bonus’ they pay to employees come out of your earn.

Look – nobody has the perfect investment strategy for a 40 year payout.  The facts presented here are meant to show that giving control to others who play the markets with your future pension – have not performed for a number of years.  This with the forecast of troubled times ahead should give you warning that you need to take charge of your Super funds.


Have your say where it counts: – contact your Local Federal Representative via the links below and let them know how you feel about this, or any other topic that you feel strongly about – or you can just post a comment below and let off some steam.


The EYE-BALL Guru …

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  1. Jade
    July 29, 2012 at 8:37 am

    WOW … who would have thought that Super was such a poor investment going forward.

  2. August 7, 2012 at 3:32 pm

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    September 28, 2012 at 3:25 pm

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  5. Simsy
    October 17, 2012 at 2:42 pm

    I’ve just seen my superannuation investment since 2008. It has decreased by a huge 31.5%. If this was a corporate, the shareholders would go crazy and the management would be sacked. This is a wake up call for all of us. It is time to act and take back my superannuation.

  6. Faulty
    January 22, 2013 at 3:25 pm

    Hi there dear, from a youthful woman follower, I adore this kind of stuff! Keep going!

  7. Uni Student
    January 22, 2013 at 3:34 pm

    Woah nice piece. The exact thing I needed for dis essay I’m writing. Many thanks!

  8. Ed
    July 24, 2013 at 12:12 pm

    The concept of forcing people to “contribute” with an extra amount of money on top of taxes is terrible. Taking away the freedom to decide what to do with the money (after taxes) that you have worked for is just another way for governments to justify their inability to provide population with basics that should be covered with all the taxes we are paying anyway. It is just another small way of financial institutions making it clear that they are the ones running the show. And sadly, another proof that general population never reacts to anything, accepting whatever they are forced to accept and not questioning with real actions and as a collective what’s best for them.

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