Aged Pension MkII

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We’ll take a break from bashing the Copenhagen soiree for today.

Mainly because we’ve got nothing further to add for now.

We had hoped to come up with some elaborate analogy to illustrate the foolishness of the Copenhagen Conference and how the 34,000 attendees won’t achieve one single thing that will benefit the environment.

But fortunately we don’t need an analogy because it’s plain to see that nothing good will come of it.

I mean, take the opening paragraph to an article on page 14 of today’s Australian Financial Review (AFR):

“Heavy industry is pressuring the Rudd government not to lift its greenhouse target above a 5 per cent cut by 2020…”

Seriously, for the amount this scam is going to cost, 5%, what’s the point? It hardly seems credible that a 5% cut will prevent the whole world from melting and sea levels rising to the moon.

As we mentioned yesterday, we’ve been told Climate Change is of such vital importance for the survival of humankind, yet the government is only proposing a 5% cut in emissions.

It can’t be that urgent then. Maybe if the government stopped giving a free kick to the fossil fuel industry at the expense of ‘greener’ fuels they might actually achieve something.

Anyway, as I say, we struggled to come up with a suitable analogy. We were looking for something Danish and the best we could come up with was bacon, pastries and Lego.

None of which seemed to offer any plausible comparison.

So we turned to the literary world instead. But still we’ve come up short. Our pea-sized brain could only come up with Hans Christian Andersen and Hamlet.

“The Emperor’s New Clothes” probably fits the bill best. Politicians and bureaucrats swanning around – like Ugly Ducklings – wearing their Climate Change clothes, only for the crowd on the sidelines to shout “But they aren’t wearing anything at all!”

But, like in the story, they keep strutting, hoping no one will notice.

Perhaps the best analogy is yet to come. That’s if the ending of Hamlet is anything to go by. We can only wait and see.

If you’ve read the Bard’s play you’ll know that after a few hundred pages only two or three of the players is knocked off. But then in the grand finale the entire main ensemble is sent off to meet their maker.

Meeting their end by the sword or from poison – and in a couple of cases a combination of the two! Of course we’re not advocating such an event in Copenhagen(!), but it would certainly liven up the proceedings.

Anyway, considering we weren’t going to mention Copenhagen we’ve done a pretty good job of, erm, mentioning it. We were going to pull the pants down on property again today, but that can wait until next week.

Instead a follow up on yesterday’s Money Morning article on the planned theft of your super.

As a refresher, we pointed out that two jumped-up boffins from the University of New South Wales had presented a submission to Emperor Ken Henry’s tax review panel recommending that a “compulsory” government provided annuity was the most “efficient” way to provide for retirement.

It would mean that the hundreds of thousands of dollars, or even millions of dollars that you’ve accumulated in your superannuation fund would be compulsorily acquired by the government on your retirement and in return you would get an Aged Pension MkII.

The worst thing about it is that it was a commissioned submission. In other words Emperor Henry selected the two profs to come up with this report. So we can safely assume it’s in line with what the Panel has in mind.

But we’re still amazed the submission didn’t once mention the already tried and failed existing Aged Pension. That’s a perfect example of what happens when a government grabs your money and then tries to “invest” it for your retirement.

Because it turns out they don’t invest it, like most Ponzi schemes they just spend it.

But there are more examples. Money Morning reader Steve sent us this perfectly timed article from the UKs Daily Telegraph headlined, “Taxpayers face £2 trillion unfunded pensions liability.”

The article explains:

“The entire bill of around £2.2 trillion would more than triple the size of the national debt overnight. It is entirely unfunded, so will have to be paid directly by future generations of taxpayers, rather than paid out of a pot contributed to by the pensioners themselves.”

That’s what happens when the state is given responsibility of looking after you. It spends all the cash and then has to borrow and steal from future generations just to pay you an income that won’t even keep you above the poverty line.

In fact, there’s not much difference between what the UK and Australian governments have done with pension money to what dead crook Robert Maxwell did with company pension funds in the UK in the 1980s and 1990s.

Maybe Ken Henry and the tax review panel plan on taking a leaf out of Robert Maxwell’s book on how to handle pension money.

According to the ‘Lazy Researcher’s Handbook’:

“It emerged that, without adequate prior authorisation, he [Maxwell] had used hundreds of millions of pounds from his companies’ pension funds to finance his corporate debt, his frantic takeovers and his lavish lifestyle. Thousands of Maxwell employees lost their pensions.”

You could easily replace those words with “… pension funds to finance government stimulus programmes, infrastructure spending and public sector salaries.”

But before you say, “Aha! That proves the free market and private enterprise can’t handle this either”, I’ll quickly point out that being a crook and stealing money from people has got nothing to do with free markets.

Being a crook is being a crook whether it’s private sector or the coercive (public) sector.

The best way to stop crooks getting hold of your money is not to give it to them. Trouble is, in the government’s case it’s hard not to when you’re forced to do so, and when you’ve got the threat of jail if you don’t.

So, as Money Morning reader Dave asked us yesterday:

“What can we do to stop this theft of our super funds?”

The simple answer is probably, not much. But it’s a theme I’ve already started to look at in Australian Wealth Gameplan. One simple solution which I’ve advocated for some time is that you’d be mad to contribute more than the compulsory amount into your super fund.

I know many financial planners will tell you that super is the most tax effective investment vehicle there is, but just as with any other investment, you should never invest purely for tax reasons.

I don’t care how good something looks, if the primary reason for investing is because of a tax break, then the odds are it’s a bad investment – just remember all those “tree farms” and “grape farms” accountants and some of the dodgier financial planners were spruiking.

With the ‘compulsory acquisition’ proposal in the pipeline, adding more cash to your super fund now could be the equivalent of just burning it.

But don’t forget that if the trade unions and fund managers and super fund lobby group get their way, it won’t be 9% of your salary getting swiped each year, it could be up to 15%.

And there’s absolutely no guarantee whatsoever that you’ll ever see any of it ever again.

Which makes these pension plans sound more like a nightmare than a fairy tale.

Kris Sayce
for The Daily Reckoning Australia

Kris Sayce
Kris Sayce, dubbed the ‘Jeremy Clarkson of Australian finance’, began as a London finance broker specialising in small-cap stock analysis on London’s Alternative Investment Market (AIM). Kris then spent several years at one of Australia's leading wealth management firms. A fully accredited advisor in shares, options, warrants and foreign-exchange investments, Kris was instrumental in helping to establish the Australian version of the Daily Reckoning e-newsletter in 2005. He is currently the Publisher, Investment Director and Editor in Chief of Australia's most outspoken financial news service — Money Morning.
Kris Sayce

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Comments

  1. Excellent article. Anyone who keeps money in Superannuation after age 60 is crazy. The tax advantages are outweighed by the costs (be they public or SMSF schemes), given that you can invest in fully franked shares outside super.

    4 reasons to get out of super:

    1. There’s a window of opportunity to take your money out without a tax penalty. How long before the window closes?

    2. Do you really want the Government in charge of your money? It’s called “legislative risk”

    3. Are you aware that 15% of the capital value will disappear in tax if you die without a dependent to leave it to, and chances are that if you are over 60, your only dependent will be your spouse, and when he/she dies, there goes 15%.

    4. If you are in a public fund, you are probably losing 2-3% per annum of the capital values in fees. If a SMSF, have you looked at the costs of running the fund (our non-super tax return costs us around $300 pa for two people, using a tax agent), and your own time and effort?

    John Richardson
    December 11, 2009
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  2. Governments have grown out of control in Australia at all levels and will not blink an eyelid to take anyones hard earned money and waste it on crap stimulus projects and Money Go Round schemes like an ETS which will achieve 2 fifths of F all.

    The best option is to cut the size of Govt by 20% and remove all taxes on savings so people dont have to rely on Govt for pensions. Govt want to get bigger and lock up peoples savings so we have to rely on them to make them feel important. Dont be suckers and vote for anyone who wants to reduce taxation and oversized Govt.

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  3. It’s a potentially important one – If I am correct in my suspicion that lots of Aussies intend to muddle through their home loans as best they can and use their super to pay off the mortage when they retire.

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  4. There used to be a time when retirees who had super (lots didn’t) would do the grand tour of Europe etc to get rid of same and then come back to their home and the pension. Getting rid of super is no longer a problem – The mortgage can fix that. But Ken seems to have a different vision for our future. Hot damn I’m SO interested to see what all this stuff brings!

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  5. I have been long being saying this on DR posts. This is no big news flash or anything astounding. I consider my super to just be a tax – it is in a SMSF at the moment so I get to play with it until the government finally claims it. No brainer.

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  6. We can laugh at the Copenhagen conference, but just think about how far it has already gone, how much momentum is behind all this – where did all that come from? Protests? Petitions? Was it really an election issue at the forefront? Who is forcing their hand? Do we see a Copenhagen Conference for the Removal of US Imperialism, or against “Settlements”? The Iraq invasion generated some of the biggest public demonstrations in history, but all that’s forgotten now … the repetitive, nauseatingly false mantras from our news agencies have once again put the waking giant back to sleep.

    They are trying to brand critics as “sceptics” where all we are is people who refuse to recite a false credo. Finding ways to use existing fuels more efficiently (such as eliminating the need for cars in cities) does not require international treaties, but the conscious elimination of undue influence on government by big business / oil companies / the tyre and automotive industries.

    Imagine if your local Roads Authority (with its mega-budget) was basically disbanded (beyond managing road rules) and handed to the local Public Transport Authority, whose mandate was to all but eliminate bitumen from cities, replacing them with rail and other mass transportation systems – the cost to society HAS to be less to live this way. Why do you think it never happens?

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  7. Any economic lunacy is possible in Communist Australia where Stalin or Mao would feel right at home

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  8. Dan the “4th Estate” has really let us down regarding the whole global warming story which has now morphed into climate change and thus gives Al Gore the chance to be right no matter what the weather does.

    The attacks on those who question the ETS or AGW remind me a lot of “McCarthyism” and even if people do strongly believe that humans are causing the planet to warm, they should strongly oppose the way debate on the issue is being suppressed.

    Greg Atkinson
    December 13, 2009
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  9. The latest rent-a-crowd scale protests are unconvincing too. When average mums and dads miss work to drag their kids through the streets to complain, it’ll be worth taking notice.

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  10. Krys tomato Sayce should get an aged pension then we wouldnt have to read his dreary posts here!

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  11. The Earth’s atmosphere has been warming and cooling for one reason or another, since day one so get used to it.
    If those of the ‘greenhouse’ religion were fair dinkum the debate would all be about reducing the human population whereas most of the world, Australia included, wants to actually increase it.
    The one thing you will see all governments agree on though is the need for a new tax to perform their climate cooling miracle.
    The human ape is such a gullible, foolish creature notwithstanding his cranial capacity.

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  12. The fundamental problem with your article is you seem to believe that “stealing money from people has got nothing to do with free markets”

    I agree that all super is a waste of money but at least, as you say, if the government is responsible for your pension future generations will underwrite it. If through incompetence or mismanagement the directors of private super fund loose your money it’s just tough luck and then you will end up being supported through a government pension system anyway.

    Dogma, anti government or otherwise, turns most readers off and reduces the effectiveness of articles.

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  13. I think Kris, rather than being dogmatic, expressed his view poorly with that particular sentence. Afterall he concedes both beforehand and afterward that theft occurs in the private sector besides within the public sector.

    Lachlan Scanlan
    December 13, 2009
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  14. robert maxwell is not dead but living comfortably in israel.

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  15. Mainly because we’ve got nothing further to add for now.

    But then proceed to discuss it in detail.

    Scam is used then to describe the proposals to act to mitigate median temperature growth within our ecology.

    I do wonder how you ever manage to investigate and research stock picks when you lack the ability to make natural deductions about cause and affect.

    Kris your capitalist right wing small government faith is gauling.
    I can only presume you believe that within Australia Abbott is your man because he doesn’t want a ‘big fat tax’ ETS.
    Well good for you, but, have you really considered what you are signing up for?
    Abbott believes in Global Warming (sort of .. he’s a tad ambiguous on that if your consider his historical record) and proposes Government chosen specific measures to practically and pragmatically tackle it.
    He plans to do this with a ball park figure of $50 Billion AUD.

    So, what we have are two political parties.
    Labor are left wing and proposing a market based solution to action.

    Liberal are right wing and proposing a command economy solution to action.

    What on Earth is going on, they seem to have switched places?

    All of a sudden, Labor are capitalists believing in markets, and the Liberals are socialists believing in big government knows best.

    And where is Abbotts going to get $50 Billion AUD (and when did a government ever come in on or under budget so expect $100 Billion) from. Oh yes, the Treasury, which means us. So another big fat tax.

    Since an international ETS is the consensus way ahead are you saying (irrespective of whether an actual agreement is reached) that markets are not the best way to invest in change and to underwrite risk?

    Kris, perhaps you need to attempt some more joined up thinking on Climate Change, the affects, the future, and the consequences both business and political. Then cast it aside out of hand, but at least you’d have thought about it.

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  16. I agree with you Lachlan. This contribution by Kris Sayce is not up to the usual standard of Daily Reckoning articles. He provides evidence to disprove any point he makes in his own article, he also says he’s a pea brain. It all makes it hard to take him seriously.

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  17. Passing legislation in Australia takes at the minimum a month of two, from the initial bill to formal implementation, and if the government even mentioned proposals to confiscate individual super assets the result would be obvious. Every SMSF would sell its assets immediately, the ASX would crash immediately, and thirdly all money from the sales would leave Australia asap. And all this would happen while the legislation was still being discussed. Sayce’s article is paranoid nonsense.

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  18. We need to give Kris a bit of a break on the super issue. He doesn’t have a crystal ball and he may not be a super expert. HOWEVER, the one industry fund I looked at in detail is actually underwater and that is the kind of real risk which is not disclosed to the punters.

    Politically the government cannot move too quickly on the super issue but change, along the lines of reduced payouts, will happen slowly over time as a noose is gradually tightened. Ignoring everything else, demographics alone will dictate a higher contribution lower payout future.

    It’s complex, confusing and irritating and everyone is a loser. Even I’m losing money (through input taxes) after switching everything to cash post Bear Sterns. But yeah ….. on the other side of the coin you would probably need to be saving about 20% of you income to fund a reasonably comfortable retirement within a long term bear market. With very few punters saving this much the game will be up very soon IMO.

    By highlighting some key risks associated with super, Kris is providing a valuable service.

    Coffee Addict
    December 16, 2009
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  19. Re ‘You could easily replace those words with “… pension funds to finance government stimulus programmes, infrastructure spending and public sector salaries”‘ :

    There’s already a precedent in place – The Australian Government Future Fund – The purpose of which is to meet the “future liabilities for the payment of superannuation to retired civil servants of the Australian Public Service” invests in road, rail, ports and broadband – $20 b; health infrastructure $10 b and education – around $11 b. Leastways, as of the 2008/9 Australian Government Budget they do!
    http://en.wikipedia.org/wiki/Australian_Government_Future_Fund

    The fund has an interesting tax minimisation strategy via the Caymen Islands tax haven too apparently. But no real need to worry about that as the fund isn’t required to pay Oz tax at all and it’s only tax to foreign governments that is being minimised as best as I can see? : “The fund does not deny that it uses its subsidiaries to minimise its taxes. These would be due to foreign governments as the fund does not pay tax to the Australian Government.”
    http://www.smh.com.au/business/future-fund-enjoys-tax-break-in-cayman-islands-20091029-hnnx.html

    Ah what a tangled little web our betters what head off to G20 meetings and agree that Tax havens just could be naughty do weave!

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  20. just red this posts after reading the money morning from kris today. you lot might owe him an apology ;-)

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  21. Well Chris you can bleat on about super all you like. But to many at the top end of town are making to much money out of it.I can show you some where before you were allowed to consolidate it at different jobs you had to be in their scheme often 2.5% charges. A couple of years after finishing that job you would get a statement with about $20 left and money deposited into some default fund.I suppose that $20 was to hard to take.

    Remember most employees for went 10% in pay increases for super,It is their money from their toil
    Self employed etc also have to pay !0% off the top then Tax Then 15% tax on super contributions
    Now they are trying to work out how to prevent you accessing the little bit left.

    It’s all really part of the ponzi scheme you have written about with the banks that if we all wanted our money they would default very quickly.
    I do not now contribute a cent after reading where they were lending shares for short selling thus reducing my total wealth even further for their short term gain and bonuses

    A good idea gone bad through LEGALISED THEFT…….

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  22. Why is it that we pay high taxes (after standard taxation plus compulsory superannuation- what a scam)for even low wage brackets we are looking at, at least 32% or more out of our wages. These kinds of taxes are usually only found in European countries with free health care schemes- of higher quality- might I add, free dentistry, free universities, and the list goes on. In Australia we essentially have a large proportion of our wages forcibly stolen and for very little social return. The last (and the only time ever) I had to call for police assistance (drunken men were trying to break into our apartment whilst calling out threatening things) they said that unfortunately they could not attend. I am trying to visualise the benefits.. and failing. There are virtually no bulk bill clinics left for healthcare, and the one that I know of is affectionately known as the “negligence doctors” because the service they provide is literally negligent. However some people have no choice.

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  23. The model for the governance of states seems to be largely outdated and a relic. It seems no longer to be effective. Hospitals are failing people, wages are hardly enough to live on as they are eaten up by inflation and the rising cost of living. What and who is inhaling such a large proportion of our income- if we were Americans we might complain about military funding (but no we don’t even have a decent military capacity to complain about in terms of sucking up funds).. no all we have is a system of banking that maniuplates situations to make it difficult to live let alone save money, and then to eat up hard won savings through financial embezzlement. They sound like they are sucking funds up to prepare for the next major war (from our country with little straws over to theirs through financial, economic and commercial systems), and that all the turmoil they are deliberately creating is just a prelude to it.

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  24. Coffee Addict you still around?

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