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We’d Be Better Off Without Superannuation

We’d Be Better Off Without Superannuation
October 8, 2021 Propertyology Head of Research and REIA Hall of Famer, Simon Pressley

You can’t tell me that 8 out of 10 Australians set themselves the long-term ‘goal’ of working well into their 60’s, then retiring to such a modest lifestyle that a weekly ‘highlight’ is a $10 roast-of-the-day at the local RSL.

The fact is an overwhelming majority of Australians don’t get remotely close to achieving their preferred retirement lifestyle.

 

A World Of Financial Failures

There is much more to life than money. But the quality of one’s life, particularly in the last third of one’s life, is significantly diminished if one has very little money (or assets which can either generate or be converted to cash).

Humans are so intelligent that we can find a way to put people on the moon, create all sorts of amazing gadgets and develop cures for deadly diseases.

If only some of that intellectual potential was used for making financial decisions.

The average person spends the first 20-years of their lives learning and the next 45 long years earning, most people don’t even get close to ‘living the retirement dream’ that they imagined.

According to the latest federal government statistics, only 23 percent of the 4.2 million Australians currently aged 65+ are financially independent.

The financial reserves of 62 percent of Australia’s current 65+ population are so inadequate that they depend upon a taxpayer-funded aged pension (aka a ‘back-ended unemployment benefit’).

For those who are not aware, a full aged pension equates to $25,000 for singles and $37,000 for couples.

Think about it, annual utility bills and insurances will gobble up half of that. Enjoy that roast-of-the-day.

15 percent of Australians who are currently in the 65+ age bracket are still in the workforce, primarily because they can’t afford not to work.

Is this what you want?

Superannuation Is Part Of The Problem

Superannuation is a system which fosters financial complacency.

At its core, superannuation is a piece of legislation that requires employers to pay a prescribed amount of money into a highly regulated fund. The money is ‘locked-up’ for umpteen years because those who the money is intended for cannot be trusted to use it wisely.

Society teaches skills to earn income, but it does nothing to teach people how to make good decisions with the income that they earn, let alone what life might look like when we stop working.

Most of the 13.1 million Australians that make up today’s workforce do not have the slightest clue what their retirement years will look like. They get caught on the Rat Race treadmill and foolishly assume that superannuation is their retirement solution.

Australia’s superannuation policy suppresses financial intelligence.

Most people don’t realise that their superannuation will probably only cover half the cost of their preferred lifestyle.

And the age restriction for when one is permitted to access their superannuation keeps creeping closer to 70. Too bad if one wants to exit the workforce before then.

 

The Numbers

Collectively, Australia’s population of 25.7 million hold $3.3 trillion in superannuation.

The popularity of self-managed superannuation funds (SMSF) over the last decade is such that it now represents 25 percent of national holdings.

Employer contributions to superannuation last year equated to $97.8 billion.

Superannuation fees last year totalled $2.6 billion (beware those with vested interests who take exception to reading this story).

The national consequence of fostering complacency in lieu of developing financial intelligence is that aged pensions cost taxpayers $50 billion per year (and growing). No wonder Australia can’t afford to fund infrastructure.

Over the next 40-years, the number of Australians aged 65+ will double to 9 million and the 85+ population will triple to 2 million [source: Treasury’s Intergenerational Report].

 

The solution

Currently, the small few who actually set goals, exercise financial discipline and invest in their future are subjected to tall-poppy criticism by those who have mastered the game of blame, excuses and ‘rights’.

Governments are forever producing Robin Hood policies which take from those who’ve produced more only to give it to others. It is impossible to multiply wealth by dividing it.

Any society which does not encourage people to invest in their future is a grossly underperforming society.

At a macro-level, teaching basic financial literacy, including the importance of everyone aspiring to become financially independent, needs to become part of normal life.

Personally, I look at superannuation as little more than a full-back position. I choose not to add a dollar more into the superannuation prison than the law requires, but I’m very driven to do as well as can for my family’s future with investments outside of the superannuation environment.

The only certainties which one can have with superannuation is that it will never be enough, the age that one can access it will keep getting stretched, the rules will keep changing, and it affords absolutely no control at all over one’s future.

As a back-of-the-beer-coaster guide, in addition to owning the (debt-free) piece of real estate which one wants to retire in, a couple with a goal to live a retirement lifestyle that costs $100,000 per year needs circa $1.5 million in (net) investment assets. Plenty of couples have a desired retirement lifestyle which will cost significantly more than $100,000 per year.

2-arms, 2-legs, 1-brain, 45-years in the workforce, copious volumes of resources to draw upon, and an attitude… It is what one does with these resources that counts.

Superannuation still has a role to play, but it will never be the entire solution. The current statistics prove that it has a 2 out of 10 success-rate.

I’m in favour of changes to superannuation which include:

  • First Home Buyers
    A first-time property buyer (including a RentVestor) to be authorised to withdraw a maximum of $30,000 to put towards a deposit on the purchase of residential real estate. Conditions of withdrawal should include the person must (at least) match the superannuation withdrawal with the same amount of their own genuine savings accumulated over a period of no less than 2-years.
  • Early Access
    Those who have already demonstrated financial responsibility ought to have the option of accessing their superannuation from age 50, whether they have completely stopped work or not. Eligibility criteria would need an ‘asset test’ of sorts and those who do access superannuation between the age of 50 and 65 forfeit any future access to an aged pension.

 

DISCLAIMER: The information in this article is the personal opinion of the author and is general in nature. It does not constitute personal advice.

Propertyology are national buyer’s agents and Australia’s premier property market analyst. Every capital city and every non-capital city, Propertyology analyse fundamentals in every market, every day. We use this valuable research to help everyday Aussies to invest in strategically-chosen locations (literally) all over Australia. Like to know more? Contact us here.

We walk-the-walk. Here’s a recent example of our work for a client.

About The Author

Simon Pressley is founder and managing director of Propertyology, a national property market research firm and Hall of Fame Inductee of Real Estate Institute of Australia. Simon is a graduate of Australian Institute Company of Directors and also has tertiary qualifications which include property investment advisory, financial planning and housing finance.

Having studied Australian real estate history to the nth degree, Simon has an intimate understanding of the complexities of property markets, the machinations of the numerous inputs, and the knock-on effect that human actions have on property markets. There is no university degree or training course which teaches these things.

When, during the onset of COVID-19, every single bank and a big bunch of economists were predicting the biggest downturn in Australian real estate history, Simon was the only person in Australia to correctly predict that property markets would actually boom and that it would only take a few months for that to occur. The below graphic contains a visual summary of some of Simon’s other thought-leading forecasts.

Immediately prior to analysing national property markets full time, Simon gained invaluable experience at the real estate transaction level as a buyer’s agent. With the skills and appropriate licences to operate in five (5) different states, Simon was recognised as Australia’s Buyer’s Agent of the Year in three (3) consecutive years and subsequently inducted into the Real Estate Institute of Australia Hall of Fame.

Simon has recruited, trained and developed a team of buyer’s agents that have helped everyday Aussies to invest in real estate in nineteen (19) individual cities and towns across Australia.

Prior to pursuing a career in real estate, Simon gained valuable knowledge about banking, finance and credit. A 10-year career with Commonwealth Bank of Australia included roles in assessing credit applications, a broad appreciation for commerce, and understanding the consequences of borrowers defaulting on credit.

Subsequent to CBA, Simon owned and operated a mortgage broking business. In 2004, Simon was awarded Australian Mortgage Broker of the Year Award.

Called upon most days by different segments of the media, Simon’s objective and often very direct commentary on property market matters are featured in print, radio and television. He is also happy to consider requests for being a keynote speaker at events.

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