Media Releases

By Ray Griffin

RaboDirect, the straight talking online savings bank.

The government is planning to increase the compulsory superannuation contribution for employees (made by employers) from 9% of gross salary to 12% at a time when more and more Australians are stepping up to have more say in their superannuation choices – especially via Self Managed Superannuation Fund (SMSF) option.

From my perspective the increase to 12% makes a lot of mathematical sense. Simply put – 9% just doesn’t cut the mustard in terms of adequacy – 5 minutes and a spreadsheet with sensible assumptions about rate of return, inflation and salary growth will confirm that.  And while opponents of the plan would argue that employees should be voluntarily topping up their superannuation contributions, as recent research by Rabodirect shows, more people, especially ‘Baby Boomers’, will enter retirement with debt and as such, making additional contributions is not as easy as it seems.

While Australia has one of the most highly developed retirement savings regimes (the superannuation system) in the world it’s not without its share of shortcomings. One of the shortcomings is the multi-layered system which takes a super fund member’s contribution from the point of deposit to actually being invested and earning a return. Even the much advertised, so-called low cost, industry superannuation funds are compromised with several layers of fees which apply to various components of the investment process. There are administration fees and fund fees and it’s not until the money is invested by the underlying investment companies that earning a return on your money is possible. Added to that complexity is the fact that the majority of Australian superannuation fund members get very little say in how their money is invested.

Given the state of world markets in recent years; the lack of a voice in how their money is invested and the costly process of actually getting superannuation contributions invested and it’s little wonder that more and more people are turning to so-called ‘Self Managed Superannuation Funds’. SMSFs first began to rise to prominence as an option for super fund members in the 1990s but back then, running a SMSF was costly. The rate of new SMSF fund establishment seemed to ease in the early part of the 2000s possibly due to the high rates of return being paid across the board of super fund offerings – high fees and poor asset selection can be overlooked when everything is rising in value.

Come the GFC and some ghastly returns and SMSFs were once again in the spotlight of choices for super fund members. Like all things economic, increased demand has seen SMSF operating costs decline and an increase in specialist SMSF fund administrators which now makes for a highly competitive market place. SMSF fund administration can now be several thousand dollars lower than what is was ten years ago. This plus the choice and control that comes with SMSFs is seeing more and more people look to the SMSF option as a way to manage their retirement savings. The government’s plan to increase the Superannuation Guarantee from 9% to 12% should prompt more people to think more fully about their superannuation options including SMSFs.

All that said, SMSFs are not for everyone and they are accompanied by substantial legal obligations on the Trustee(s) and I’ll discuss those more fully in a future article.