Aussies lose $30 billion a year to this ‘guarantee’

[6 min read]

Dear Reader,

Today’s article tips its hat to our guiding philosophy here at Fat Tail Investment Research of personal freedom and responsibility.

We can’t help but object to the fact that the so-called ‘Super Guarantee’ rose from 10% to 10.5% on 1 July 2022.

It will rise to 11% next financial year. By 2025, it will be 12%.

The finance industry pitches this as a way to secure a healthy retirement for Australia’s workers.

The reality is the government forces you, me, and everyone else to hand our money over to the financial markets, usually via fund managers that rip out billions in fees.

Even if super ‘worked’, philosophically we take issue with the government not only fleecing our wealth through taxes but then telling us what we can do with another 10% it doesn’t steal in the first place.

‘But, but’, some say, ‘super keeps people off the age pension’.

Blah, blah.

What BS.

The Australian Financial Review cited a report on this issue released this year:

‘The PBO modelled a handful scenarios in which superannuation never existed. In most situations, the Commonwealth government would have saved more money if it had never introduced superannuation.’

The tax breaks to the super industry are nearly $40 billion a year.

Mostly due to this, super doesn’t save the government money on funding the pension.

Note too that last financial year, about 50% of super balances were paid out as lump sums.

In other words, as soon as people got access to the money, they grabbed and spent it, probably paying off their remaining mortgage balance, therefore getting the age pension, or part of it, anyway.

$141 billion flowed into assets under management within super last financial year.

Economist Cameron Murray cites that Australians pay $30 billion in fees per year to the financial industry.

Put that together with the $40 billion in tax breaks, he says, and fees and lost taxes are greater than the age pension.

And what did you get for your money?

In the last financial year, the average super fund returned -3%. Adjusted for 5% inflation, this result was even worse.

Just three funds made money.

Thank God for Self-Managed Super Funds — one avenue of escape from an absurd system.

Let’s be blunt: Super robs people of the right to access and spend their own money.

Apparently, the government and the financial industry are full of Thomas Jeffersons and Albert Einsteins that know better than you and me on how to allocate the wealth we create.

Why, then, did we need to have a Royal Commission into Misconduct in the Banking, Superannuation, and Financial Services Industry?

One of the few decent decisions from Scott Morrison was to allow people to access their own money during the COVID crisis — and offset the contraction in spending otherwise.

That reminds me…that decision was criticised by some who said anyone withdrawing money would lose thousands from the lost compounding effect.

I guess those critics didn’t expect the financial markets to take a hiding in 2022.

And who knows?

Maybe the money that escaped the super system financed an education course, a small business, or a move to a higher paying job in another part of the country?

I’m sure some of it was squandered too, but there’s plenty of that going on in super as well.

One of my friends is billed $500 a month for his managed fund for ‘advice’. He gets the bill every 30 days, but the advice…never.

Why bring this up? It’s not just to rant.

You and I know that one fear stalking the markets right now is rising interest rates choking some of Australia’s overleveraged homeowners.

Wouldn’t it make sense to relieve the pressure on their living expenses by letting them keep what they earn, or, if you must, at least let them pay off the damn house with it?

Why would we have the absurdity that an Aussie citizen can’t pay down their mortgage loan (with their own money) but it’s OK for a fund manager to buy property trusts for them (for a fee, of course).

Both are assets, just in different structures.

One is a lot more helpful when you have a big mortgage, and likely, high childcare or living expenses.

This debate is going to become more acute as we go forward. The money amassing in super is gigantic…and everybody has their oar in the water about what to do with it.

Lost in this debate is that it belongs to the people who created it in the first place…who should be able to do what they damn well please with it.

Best wishes,

Callum Newman,
Editor, The Daily Reckoning Australia

Dear Reader,

‘De horses run ‘round, den dey come back.
‘Doo dah, doo dah.’

Stephen Foster

England on Monday was closed. The streets were quiet. Few people moved about. No shops were open here in Blenheim. Instead, each had a photo of Elizabeth II in the window, with a reminder of the funeral.

We came to England to support one of the US’s two entries at the Blenheim Horse Trials. But, on Friday, your editor first stopped in to check on his business in London.

Our CEOs all report the same thing — business is off. And our financial analysts all see similar declines in asset values…with central banks forced to raise rates…and economies weakening.

But London was distracted. It wasn’t money troubles that weighed on the minds of our English colleagues. For the first time in their lives, they have a new monarch.

‘It’s amazing’, said one. ‘The lines waiting to view the queen’s coffin stretched for 5 miles. People waited in line for 12 hours — including some very old people…and retired military men with the medals on display. They’ve set up a special line for old people, apparently. And now, they say people are coming into the city just to see the lines.’

‘It’s really quite remarkable. We all loved the queen, of course. But the depth of feeling is startling. I mean, she was famous and admired for keeping a stiff upper lip. But now, the English people are all crying and shivering with emotion.’

The Financial Times later reported that the line had stretched even further and that people waited 24 hours to pay their respects.

‘We are all supposed to be modern, rational people’, continued our friend.

‘Almost none of us ever met the queen. And she had no real impact on our government, or our lives for that matter. But she was always there. And now that she is gone, we see that we had some profound connection with her. It is inexplicable in today’s cynical political culture…even less in the superficial culture of the Facebook era. But there it is.’

Diversity of everything (but opinion)

We saw no lines in London. Our taxi avoided them. What we saw was a changed city.

Though we’ve been there many times since…and lived in London off and on…we couldn’t help but compare the city to the one we visited for the first time in 1969.

London was drab, dreary — and white — back then. There were few immigrants. And none in major public roles.

Today, that has changed. London must be the most prosperous and dynamic city in the world…with huge new buildings, architectural marvels of curving glass, leaning glass, or pointy glass. And on every street corner are what the English used to call ‘wogs’.

Of every hue and colour, women in hijabs, brown men with beards, black men, tan men, Sudanese, Nigerian, South African, Zulu, Xhosa, Bihari, Bengali, Ceylonese, Iranians, Iraqis, Syrians…

….one of the unintended consequences of the US’s ‘War on Terror’ was that it created 37 million refugees. Many of them seem to be here. Bus drivers, street sweepers, police, shopkeepers — a great many of them are ‘people of colour’.

And they’ve risen to the highest levels. Ms Truss’s cabinet is said to be the ‘most diverse in history’. Women, men, gay, straight, black, white — everyone is welcome…as long as they all think the same thing.

From London, we drove out to Blenheim Palace. There, gathered on the vast lawns, were some 25,000 people and hundreds of horses. The crowd was almost all white. Only the horses were diverse. Some white. Some black or brown. Some mixed.

And here — in ‘Three Day Eventing’ — the equestrian world held one of its main contests. And while the course was treacherous, and full of obstacles, the playing field was level. Riding is one of the few sports where men and women compete on an equal footing. (This year’s winner was a young woman from Germany.)

Here, too, Elizabeth II was recalled. At noon, a bell rang at the palace. All went silent. Caps were doffed. All turned to look at the Union Jack, flying at half-mast from the palace roof. Then, a woman’s voice came over the loudspeaker, singing ‘God Save the King’.

A few minutes later, like a film restarted, people turned their eyes to the horses.

Thrills and spills

The most exciting event is the ‘cross country’. It is a track nearly five miles long, uphill and down, across the lake, over a collection of obstacles, all designed to spook the horses and confuse the riders. And it must be done at breakneck speed.

We found a good vantage point. The riders galloped by, one at a time, at full throttle. Down the hill they came…the horses’ nostrils flared…their hooves throwing up clumps of grass and dirt behind them…their backs sweaty from the exertion. And on their riders’ faces — many of them young women in their 20s — was a look of gritty determination mixed with absolute terror.

Without hesitation, the horses ran towards a hedge, on the other side of which was a muddy pond. When we ride our horses in Argentina, the horse will balk when he comes to a river crossing. He wisely stops and enters the water carefully; he doesn’t know how deep it is or what lies beneath the surface.

But these horses leapt over the hedge…splashing into the water…jumping two more obstacles in the pond…and then racing up the hill on the opposite side.

‘Breakneck speed’ is not an exaggeration. The course was so difficult and dangerous that more than a dozen riders dropped out immediately. Others were disqualified when their horses refused to go on.

Some must have felt a sense of relief. Perhaps they remembered what happened to ‘Superman’, Christopher Reeves. He was at a riding event in Culpeper, Virginia, in the 1990s, when his horse fell and rolled back on him. He could never walk or even breathe normally again.

Riders wear helmets and protective vests. But horses stumble, riders fall, and necks are still broken from time to time.

Several times, the crowd gasped and held its breath. The announcer let us know that there had been an accident. There was a pause…a second…two seconds…and then came the announcement:

‘Both horse and rider are up and walking.’

And the race went on.

Doo dah.

Regards,

Bill Bonner,
For The Daily Reckoning Australia