At this time in the quarter all small businesses should just have paid their 1st quarter 9% compulsory superannuation guarantee payments.
For those people like myself who have to make these payments, this can be a very frustrating time:
1) Because under “CHOICE” I have to send the money into about 10 different funds using about 5 different methods
2) With the financial crisis the money goes into funds that are just going to lose a lot of it.
3) How much better would it be if the money had been invested in residential real estate?
If you want the details, read on.
1) It’s great that we all have “Choice” as to who to let lose our hard earned 9%, but “Choice” has become an administrative nightmare for small businesses.
I got bombarded with paper from about 10 different funds, most of them trying to get me to send them money monthly instead of quarterly, which is the government requirement for the superannuation guaranteed (9%). Do you seriously think I want to send amounts as small as $100 to 10 different funds monthly rather than $300 once a quarter, just so the government can take their 15% contribution far earlier, so that the funds can get their excessive fees earlier, and lately, just so they lose the remaining amount more quickly. Because I refuse to do this, one fund wrote me quite threatening letters which start by stating that their fund (who better remain nameless)”….requires superannuation contributions you make on behalf of your employees to be remitted at the end of every month.” Because I refuse, even though the law allows me to refuse and the funds know this, the fund & several others make me write individual cheques to cover the superannuation guarantee (SG).
At the other end of the scale there is BT (now part of Westpac) who are super efficient. They allow me to pay by Bpay. Each member has a unique reference number, which my financial institution stores and the process of sending that staff members SG takes about 1 minute, with absolutely no paperwork involved. Brilliant! But I have all the range of funds and their individual quirks in between. Some funds are still in the dark ages with their accounting systems. They want a cheque and a letter, or Bpay plus follow up advice.
How is a small business supposed to have time to make money and survive when this chaos reigns supreme? There are simple solutions to this problem, but does anyone in authority care?
2) What is going to happen over the next few years is anyone’s guess, but we have to face facts. We have just had 15 fantastic years of economic growth so we can’t really complain that about 8 different bubbles (see my blog 18.10.08) have burst at the same time. It is unlikely that we are going to recover quickly from this crisis, if, in fact, we have reached the bottom yet. We might even have a way to go down yet. So what does this mean for your 9% SG. Firstly, the government will take 15% off the top, then there are the administration fees, the insurance cover costs and before the funds have invested a cent your money is below 80c in the dollar. After only a few years of negative income, it is going to take a lot of positive returns to even get your money back. Anyone approaching retirement would not voluntarily put money into super.
When I was young and worked for a bank, my bank’s superfund was so rich it was compared with Fort Knox. If you stayed till you were 65 you walked away with guaranteed super benefits. One year they actually worked out the bank could give all its staff some money back because we had overcontributed. Other years the expected liability was such that the Bank had to fork out huge money so shareholders got sick of that & closed the fund to new members and gradually changed over to a scheme where the benefits depended on the economy and financial managers who are like lemmings and follow each other over the cliff. By that I mean that because of ratings no funds performance can be too different from that of another so they all have to be in the latest fancy investment or derivative or lose funds to those that are. Of course when the bubble burst they all fell over the cliff at the same time without exception, like sheep to the slaughter.
Quite apart from the performance aspect I remember writing to the committee of the bank when it was looking for submissions on superannuation. I said I didn’t want to contribute to superannuation for my retirement when I was already battling to feed, house & educate my four children. Also, I was working just before the 1987 crash and after the 1974/5 crash. Crashes are not new, but this one is a beauty.
3) One of the investments, super fund managers don’t get into is residential estate. Yet over my working life, land in my area has gone from $10,000 to $500,000 without any finesse or intervention from fund managers.
Admittedly, 2 years ago, it might have been worth $550,000 – $600,000. Why not package residential real estate into trusts and let super funds buy into them?
Another solution might be, and this is not a new suggestion, to allow self funded retirees to get the pension, but tax it along with their retirement income. After all, they have probably worked and paid taxes for 40 years before getting the pension.
Alternatively, do away with the 9% SG and add another income tax such as is charged in many European countries and invest the specific proceeds in some sort of infrastructure future fund.
With the benefit of hindsight it is easy to criticize the SG. Two years ago when funds were returning +15% everyone was happy. Hopefully the good times will return. In the meantime government can do a lot to improve the system we have.
Or think about investing in quality real estate?