Is the super system broken?

Over the past few months we have seen many “commentators” express their views that the superannuation system is broken & needs to be fixed or even dismantled.

However, many of these experts are sitting behind a computer pointing the finger for a plethora of reasons including superannuation fees, investment returns, & Australians retiring that still require Government support.

In contrast, over the past 15 years our Newcastle Financial Advisers have been supporting Australians retire on their terms (particularly residents of Newcastle, Lake Macquarie & the Hunter with financial advice). Our outlook to superannuation is somewhat different to that of the “commentators” & “experts”:

Education & Understanding of Superannuation
Most Australians do not understand the superannuation system.
With many seeing super as a product, which through our discussions over the years is heavily linked to the advertising of super funds & the advertisement of rating house “research reports”, which all provide the perfect ‘click bait’ for news outlets around the country.
We continue to get questions, even from some of the most qualified & educated in our community (e.g. accountants, lawyers & doctors) about which super fund is better or that they don’t believe in super as their friend lost money during the Global Financial Crisis in 2008.
We need to strip superannuation back, explain & educate Australians as to why superannuation was introduced & how it can impact someone’s retirement.
In it’s simplest form, superannuation (or ‘super’) is money set aside while you’re working, so you’ll have money to live off when you retire. Your employer, or you if you’re self employed, direct a percentage of your salary to your nominated super account. This money is invested by your super fund and earns returns, which will help grow your retirement savings.
The Government’s ultimate goal is to produce generations of self funded retirees that do not rely on the Government during retirement.
However, an alternative way to view superannuation is to think of it as another tax savings vehicle or entity.
Within your personal name, you can pay tax up to 45% (marginal tax rate)
Companies can be taxed up to 30%
Whereas, superannuation is taxed at 15% during your working life (accumulation), with taxed reduced to 0% during retirement (pension phased).
In each entity (whether it be your personal name, company or super fund) you can invest in cash, term deposits, shares, managed funds, property/real estate & art.
The question then for many Australians is where do you want to be holding your retirement assets?
Do you want to be holding them in your personal name, where you may be subject to 45% tax plus capital gains tax (should your investments grow over the years) or alternatively would you prefer to hold your retirement investments within superannuation, being taxed at a maximum of 15% with potential 0% capital gains when you sell your assets in retirement (pension phase)?
Once Australians understand this key element of superannuation, it is easier to have a conversation around their retirement, what they are looking for, how much income they need & the time to retirement.
Changes to Superannuation
Over the years superannuation has become a political football & this does not look like stopping in the foreseeable future.
We have seen over the years, changes to tax rates, retirement age, changes to how much you can put into super and the list goes on….
The changes are not limited to caps & thresholds, but also extend to the terminology used within superannuation which when coupled with the rule changes over the years, you understand the confusion amongst many Australians.
As a Newcastle Financial Planner this is fantastic as the more the Government change the rules of super, the more Australians need a financial adviser or advice.
However, all these changes undermine the confidence many have in the superannuation system. This leads to many having the feelings of worry, concern, confusion, anxiety & uncertainty when planning their retirement. Keep in mind this comes at a time when many Australians are lost heading into retirement as they continue to look for their purpose & value in our community & life.
Let’s hope the Government are speaking to the frontline workers (financial planners & accountants) who support those looking to retire before making further changes to superannuation & continuing the political football.
Generation of Superannuation
Superannuation is broken!
As the average super balance for a male in their 60s looking at retiring is $270,000, whereas a female is $160,000.
This amount of retirement savings is not sufficient to spend the next 25-30 years living off.
Many retiring over the next few years will be supplementing their superannuation benefits with Government support (part Age Pension) & downsizing their family home.
However, if you are using the example of those in their 60s looking at retiring & not having sufficient superannuation to be a self funded retiree you are only telling half the story.
The superannuation system has not yet matured. With people retiring today not benefiting from compulsory super contributions throughout their entire working life as super guarantee contributions became compulsory in 1992 at a rate of 3%. With the contribution rate growing from 3% in 1992 to 9% in 2002.
This highlights that many Australians over the age of 45 will continue to need Government support (or the Age Pension) to supplement their superannuation savings.
The first generation to retire, that will have the benefit of superannuation throughout their working life are those aged 45 & younger (born after 1974).
Based on our calculations of an average 45 year old male with $150,000 in super, they will retire at age 65 with an estimated $850,000. In contrast a 45 year old female with $90,000 in super, will retire at age 65 with an estimated $600,000.
Therefore, a couple with $1,450,000 will be able to retire on $100,000 per annum (tax free) & will not ‘eat in’ to their capital.
This example highlights that superannuation works & Australia will start producing their first generation of self funded retirees in 20 years time. However, over the next 20 years the Government will need to continue to support retirees by supplementing their retirement income.
Importance of Retirement Plan
Almost half of Australians aged over 65 say “retirement is costing them more than they expected.”
With more than 50% worried that they will outlive their retirement savings, 40% saying they can’t afford to go to restaurants and cafes.
This sobering picture of retirement finances suggests more Australians should take action earlier in relation to their retirement. Especially those aged over the age of 46, who have not had the opportunity to benefit from compulsory superannuation their entire working life.
I don’t think people understand how low the Age Pension actually is with the fortnightly rates outlined below (including supplements);
Single Age Pension $944 p/f
Couple Age Pension $711 p/f (each)
We had a 73 years of age lady contact us in tears last week. She is getting bullied at work (Government Employer) & trying to be forced out. However, with $10,000 in the bank & currently renting a home at $400 per week, her current modest lifestyle is unsustainable if she was to retire.
We worked on a solution for her, however it involved moving to a small unit that she could rent for $275 per week. This was heartbreaking to see, which was compounded by her recent health issues & no contact from her family in years. She was feeling very isolated & lost about what her next step in life is.
This highlights a critical gap in the retirement plan for many Australians. Many should be placing a larger emphasis on building their retirement plan earlier to ensure their can retire on their terms.
Understanding of Government Support
As outlined, the Government support or Age Pension is a safety net for those retiring.
The following support payments highlight that retirement will not be comfortable & will not be on your terms:
> Single Age Pension $944 p/f
> Couple Age Pension $711 p/f (each)

The superannuation system is not broken. However, the Government does need to stop playing political football with superannuation which is undermining the confidence in the system.

In addition, the Government will need to continue to support people aged over the age of 46 during retirement. However, this will taper off over the next few 20 years as superannuation plays a bigger role in Australians retirement plans.

Start early to ensure you can retire on your terms.

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Our Newcastle financial planners also have offices in Sydney and help clients across the local areas including Newcastle Financial Planning(Merewether financial planning, The Junction financial planning, The Hill financial planning, Bar Beach financial planning, Newcastle West financial planning, Hamilton financial planning, Adamstown financial planning, Redhead financial planning, Whitebridge financial planning, Kotara financial planning, New Lambton financial planning, Mayfield financial planning), Maitland Financial Planning (Morpeth financial planning, Lorn financial planning, Rutherford financial planning, Aberglasslyn financial planning, Metford financial planning, Beresfied financial planning), The bay (Medowie financial planning, Fern Bay financial planning, Fullerton Cove financial planning, Anna Bay financial planning, Nelson Bay financial planning, Shoal Bay financial planning, Tea Gardens financial planning, Hawks Nest financial planning), Lake Macquarie Financial Planning (Cardiff NSW financial planning, Glendale financial planning, Speers Point financial planning, Fennell Bay financial planning, Bolton Point financial planning, Coal Point financial planning, Toronto financial planning, Valentine financial planning, Belmont financial planning, Eleebana financial planning, Warners Bay financial planning, Caves Beach financial planning), Hunter Valley Financial Planning (Muswellbrook financial planning, Scone financial planning, Pokolbin financial planning, Cessnock financial planning, Singleton financial planning, Broke financial planning, Rothbury financial planning), Central Coast Financial Planning (The Entrance financial planning, Bateau Bay financial planning, Berkeley Vale financial planning, Tuggerah financial planning, Wamberal financial planning, Terrigal financial planning, Erina financial planning, Avoca financial planning, Gosford financial planning, Woy Woy financial planning, Picketts Valley financial planning) & Sydney Financial Planning (Castle Hill Financial Planning, Rouse Hill Financial Planning, Dulwich Hill financial planning).

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Is the Super System Broken?