Has there ever been an issue that causes as much of a conundrum for our politicians as the $1.94 trillion held in superannuation assets?
It seems the figures are rolling around in their eyes like lemon symbols on a poker machine waiting for alignment to release a jackpot payout of epic proportions.
And as a result we’re now receiving mixed messages, resulting in none of us knowing where we really stand with the retirement savings system.
They say a week is a long time in football and it seems three months is an eternity in the world of super.
It is three months since the handing down of the Financial System Inquiry (FSI) report back in December 2014 and in that time it appears someone has hit the reboot button, so we’re all back to square one on the super drawing board.
To give a refresher course on where we were in December, David Murray and his panel had just outlined some recommendations with the main purpose of defining what this country’s super system was all about.
Namely, it wanted all Australians to be in no doubt the system was purely intended to provide a steady income in their retirement years, to the extent that only those in real need would have to rely on the age pension as a source of funding during this stage of their lives.
But it appears the individuals in power on Capital Hill have already forgotten all about the FSI.
A case in point has to be the current notion being bandied around to allow individuals to use their accumulated super balances to fund the deposits on their first homes.
If implemented, exactly how will this initiative help people fund their own retirements?
And naturally the SMSF sector will be the most affected as it is the super set-up that would best allow its members to take advantage of this new rule.
So let’s examine what potentially happens. For starters we are probably talking about someone in their early to mid-30s who can take advantage of the opportunity.
Bearing in mind current super balances, it will mean the entire amount will have to be used to fund the deposit on the property.
This will result in the individual resetting their super balance to zero, once more effectively diminishing any advantage they can get from compounding asset returns in the years to come.
The scenario will almost certainly mean that by the time the individual reaches retirement age, they will not have enough savings to last them for the remainder of their life.
Furthermore, use of super balances in this manner appears to perpetuate one of the main problems facing current retirees – where they are asset rich but cash poor. And what does that mean as far as funding their retirement goes? Selling the house or relying on the age pension for an income stream.
Is there a solution to boost the level of super assets once it has been reset to fund the first home purchase? Sure, but it will have to be a gearing strategy, which is exactly the issue Murray was talking about banning last December to reduce the risk in the system.
Put simply, the pitfalls of using retirement savings as a fiscal lever to solve other more immediate economic problems such as housing affordability just will not work.
It’s time all of the people in power start singing from the same hymn book to ensure the super system achieves its proper purpose and allows people to develop confidence and trust in it.
