Concerns over funding for retiring baby boomer generation continue
San Francisco, CA -- (SBWIRE) -- 10/04/2012 -- Bill Kelty and Paul Keating created the retirement savings pool with the idea that individuals would be capable of saving money for earlier retirement. Today, Kelty, the former ACTU leader is pleased with the system’s evolution, but does express pointed concerns as well. He described the system as a “very significant achievement. We have one of the best retirement systems in the world, which is funded.”
At the same time, Kelty believes the system has not achieved the all-important goal of providing necessary funds for retirement. He believes more could have been done in the early stages of the system’s development.
Kelty stated he believed the super guarantee contribution rate should have been placed at 15% rather than its current lower rating. Since 2002, the percentage has been set at 9%. From 2013 on, it will be gradually increased to 12%.
The former ACT leader also noted innovations were lacking, saying, "I would have liked to have seen us get in Asia, China earlier, in terms of investment strategy," he says. "I would have liked to have seen a clearer saving instrument in terms of super in infrastructure, at reasonable rates of return.
"I would have liked to have seen the portfolios more balanced towards some of those (investments), so the net result would have been higher earnings over the last few years. Governments haven't been very innovative."
The superannuation industry will double over the next eight years, at $3.3 trillion. That will make it bigger than the Australian banking industry. By 2030, the numbers are predicted to hit $5.5 trillion.
Unfortunately, for many the system is not providing its primary function, which is to provide adequate income to retirees.
Australians living longer puts pressure on the system’s intended purpose, and the baby boomer generation is marked to make a considerable impact on the bottom line. The increase to 12% will close the gap on the deficit; however, the average Australian is retiring with $100,000.
Because of the budgetary constraints, more individuals are feeling like they must work later in life and take on debt or rely on pensions.
The funds industry itself is set to take on structural transformations of its own, as new government policy initiatives roll through. That has been causing consolidation in retail, corporate, and industry super funds during the last 18 months.
Perhaps what is most worrisome regarding the continued struggles of the super funds is the lack of confidence among superannuants. The super system missed out on $15 billion dollars last year as a result of “tax and confidence issues”, according to SMSF Professional Association of Australia.
AMP Financial Managing Director Craig Meller stated: "The drop in voluntary contributions, market volatility and ongoing subdued investor sentiment is impacting overall retirement adequacy and has the potential to adversely affect the future retirement lifestyles of Australians."
David Murray, former future fund chairman, had his own concerns: "You don't want to see wild changes one year to the next because people will lose confidence in it (the super system)," says Murray. He warns that if people are not confident in the super system, there will be ramifications.
"Whatever happens, we need a reasonable degree of certainty on superannuation in the long term."
Current Chairman of Industry Funds Management, Garry Weaven said: "There is an awful lot of regulatory change around the edges, which on balance a lot of it is probably causing more uncertainty than fixing things.
"In that environment and combined with the fact that markets have been terrible since 2008 -- and will continue to be volatile -- everyone has to be very careful about creating any further negatives and uncertainties around the industry.
"It is a world-leading system, it is very much in the long-term interest of Australia to keep developing it, but if it doesn't retain its popularity, then there is always a temptation for future politicians to lose support for it.
"Stability is really, really important. This is not the time to reduce people's confidence in super which is, after all, a very long-term investment and people have to believe that the rules will be there in the long term."
The situation is not an easy one to understand, let alone fix. However, Kelty remains adamant when he says, “Stop fiddling with retirement savings.”
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