*Government snaps fingers* Your money is gone…
No, we aren’t coming back.
That was the answer I got from my mum.
My folks are currently in the process of planning their twilight years together.
Granted, retirement is still a couple more years off for them both.
That hasn’t stopped the planning though.
The plan? Pack up, head off.
Live the nomadic life they’ve wanted to for the past 40 years…
Ditch all their possessions. Hand down the nice stuff to my sister and I. Sell the rest of the junk at a garage sale…and have no home base. Come and go as they please.
All the things they couldn’t do before because they were anchored to one spot with kids, grandkids and jobs.
It sounds incredibly freeing.
Running off into the sunset…
…knowing full well your retirement years and money are all yours.
AMP sinks as gravy train ends
The royal banking commission is now a distant memory.
Some mortgage brokers were bad, but most bankers were badder.
The final Hayne report saw the value of mortgage broking stock drop 20-30% the day after it was released.
In contrast, bank stocks rallied 5% on the news.
The badly behaved banks were rewarded with skyrocketing share prices.
And while bank shares rallied on the back of the report…AMP soared almost 10% on the news.
Yet as of this morning, the rally over.
Well, it turns out AMP is about to take a $30 million hit to its bottom line…
Sneaking into your retirement
Have you heard of the Treasury Laws Amendment (Protecting Your Superannuation Package) Bill 2018?
The bill is currently in front of the Senate and I suspect it could be ‘wealth altering’ for Aussies. It’s tipped to get the stamp of approval this week.
This news alone is hammering the AMP share price.
You see, the super reform is about giving the Australian government the power to ‘claw back’ inactive super accounts worth less than $6,000.
In addition, the bill plans to give low account balance holders the ability to opt of life insurance if they’re under the age of 25.
This means some $6 billion in inactive retirement savings will fall under the power of the Australian Taxation Office.
Sorry, not power. I mean under the ‘watchful guidance’ of the ATO.
Although The Australian didn’t use soft language to describe the powers the ATO would have, writing it would ‘seize’ low retirement balances:
‘Under the plan, inactive accounts with balances below $6000 will be held in the ATO until combined balances between the seized account and the member’s active account reach $6000.’
The problem is that the superannuation system has been money for jam when it comes to inactive accounts.
Life insurance and other random fees have made the wealth management sector, well, wealthy.
AMP is now bearing the brunt of this forced wealth transfer. One report showed that it has the largest amount of inactive accounts within its two retirement trusts, at 57% and 43% respectively.
This year alone, AMP estimates the loss of these inactive accounts will reduce earnings by $10 million…and as much as three times that amount for the 2020 financial year.
Of course, these changes won’t only affect AMP.
All superannuation branches of the industry are likely to be affected.
The fact that so many will lose money from this forced shift goes some way to showing us just how much money could be made off our collective $2.8 trillion superannuation industry.
However, it’s not the damage of AMP’s share price I want you to think about.
The passing of the government bill, to transfer power of small account balances to the ATO, should indicate what’s about to come next.
The writing on the wall
The real problem today isn’t that AMP is losing several hundred thousand inactive accounts, which it could charge fees on while doing absolutely nothing for people.
On the surface, it looks like the government is doing the right thing. That is, protecting the little people.
But the reality is that with a couple of taps on a keyboard, the government changed who could hold that money — with little opposition.
Today, it’s just the inactive accounts being handed over to the ATO.
What comes tomorrow?
Five prime ministers ago, Julia Gillard told Australians they didn’t need a sovereign wealth fund because of the superannuation industry.
Back in 2011, the Australian superannuation industry was worth $1.4 trillion.
Today, it’s double that.
In less than a year, $3 trillion will be kicking around the financial system looking for a home.
That’s a frightening amount of money.
Money that has, until recently, been predominantly left to private businesses to oversee.
But now our super industry is worth more than Australia’s gross domestic income (tipped to be $1.9 trillion for 2019).
The private sector oversaw the government-forced savings scheme as it grew into the fourth largest pension fund in the world.
Don’t be shocked if our retirement pot ends up entirely in government hands.
They dropped the hint years ago.