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Doesn’t Anyone Understand Superannuation?

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I am consistently amazed at the lack of understanding of the true nature of superannuation. I have written previously at length (see here), but following a couple of recent conversations I thought I should take the issue up again.

The dictionary is not much help:


1. to allow to retire from service or office on a pension because of age or infirmity.
2. to set aside as out of date; remove as too old.
verb (used without object), superannuated, superannuating.
3. to be or become old, out of date, or retired.
The term actually came from a word used to describe cattle who are more than a year old i.e. super (or more) annuated (year)
1625-35; alteration (with -u- of annual ) of Medieval Latin superannātus over a year old (said of cattle), equivalent to super ann (um) beyond a year

The regulator (or at least the legislature) seems not to understand what superannuation is. For example they insist that an accountant hold appropriate financial planning licensing and qualifications in order to establish a self managed super fund, yet to establish an investment trust they do not require a similar level of qualification. Both of these vehicles could equally well be used to hold investments and yet for some reason the regulator seems to think that there is a distinction between the trust that is a super fund and the trust that is an investment unit trust. It is true that there are particular complications in Superannuation law, after all various governments have been fiddling with it for the entirety of my more than 30 year career.

Joe public also does not seem to stand the true nature of superannuation, maybe because the government seems incapable of leaving the rules alone. I cannot tell you how many times I have heard the phrase “I don’t trust superannuation”. The problem that Joe faces is that he has forgotten that the tax concessions which are provided by the government (and thereby by the rest of Australia) are given in order to encourage him to save for his retirement, to provide an income stream for him without it having to come from government coffers not so he can buy a Winnebago, or so he can buy a holiday house down the coast that he eventually will want to live in whilst reaping the benefits of the government provided pension.

Similarly the media is also confused. We often hear the headline breathlessly exclaimed that says something like “XYZ cost his clients all of their superannuation” as if an investment in superannuation savings was some kind of golden goose which could only experience upside in terms of investment and was protected completely from the vagaries of the market. Mums and Dads have lost all their money they say, yet Mum and Dad made an investment decision at some point in connection with their super, with or without advice.

For years the accounting profession acted as if the only superannuation was self-managed super, probably because that was the only kind of super on which they were allowed to advise. Now that they have to be separately licensed to provide self-managed super advice I wonder if they will begin to ignore the existence of super altogether. The slow take up of Accountants Limited Licenses might be the beginnings of this.

Let’s get this straight, superannuation is simply a tax advantaged vehicle by which you can save for your retirement, and from which you can withdraw tax advantaged sums once you have retired. It is a structure, not an investment, a profoundly beneficial structure at that, and one which ought to be used for the purpose for which it was designed. The more people that understand this, in government and in pubs across Australia, the more likely it is that it will achieve what it was created to do.

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