Naysayers in the mainstream media, who have a very limited and poor understanding of the financial advice industry (and one major institution), believe the latest round of proposed super changes in the Turnbull government’s first federal budget will be a bonanza for financial planners.
They claim advisers are rubbing their hands and salivating at the idea of reviewing and redoing thousands of financial plans given budget measures, if legislated, will derail many existing strategies.
But the government’s penchant to tinker with superannuation is only deterring Australians from saving for retirement, which isn’t good for anybody.
It’s not good for Australian workers and their families, the majority of whom won’t be able to afford a comfortable retirement, and it’s certainly not good for advisers who already have the difficult task of convincing people to invest in a nest egg they more or less can’t touch until they’re 65.
Oh, the irony
Ironically, the budget changes are bad news for the economy.
While proposed measures are expected to add $2.9 billion to the budget over four years, the destruction of confidence bought on by constant super changes will only push up the government’s pension liabilities.
The annual cost of the age pension now exceeds $41 billion or roughly 10 per cent of all government expenditure. It’s expected to rise to $50 billion by 2019.
If the government hopes to curb Australia’s heavy dependence on the age pension, it must increase the number of self-funded and partially self-funded retirees. To do that it must build confidence in Australia’s retirement income system, make super an attractive savings vehicle, and allow investors and advisers to plan with certainty.
Those who believe advisers stand to gain a lot from ongoing super changes are taking a very short term view.
Many clients believe it’s their adviser’s job to regularly review their needs, strategy and portfolio in light of changes, to not only their personal situation but external factors such as the economy, market conditions and legislation.
They pay ongoing advice fees for that high level of service.
More work not necessarily rewarded
So while the budget changes will generate a lot of activity and extra work for advisers, and may push some pre-retirees and retirees to seek professional advice, it’s unlikely to deliver a commensurate financial reward.
Furthermore, because certain measures are retrospective, advisers will need to be meticulous to ensure investors don’t exceed new limits and incur hefty penalties.
Licensees will have a critical role to play to ensure their advisers fully understand the changes and their implications, conduct thorough reviews, and have sophisticated tools and systems to efficiently implement changes.
But in the end, the cost to the advice industry will be significant, regardless of whether or not the changes end up being legislated and passed through Parliament. Confidence in super is already at an all-time low, which is hardly an incentive to invest for the future.
Again, older Australians approaching retirement stand to lose the most.
Playing catch-up
Let’s not forget that compulsory super was only introduced by the Keating Labor government in 1992, meaning that most people born before 1972 have only been contributing to super for part of their life. In a way, they’ve had to catch up.
But instead of helping the generation of workers who grew up without compulsory super to put more money away, the government consistently penalises them because they’re now at an age where they’re in a position to contribute more to super. They’re earning more money, they’re starting to pay off the mortgage, and their children are leaving school and home.
Many of the super changes which have been steadily introduced over the years end up hitting that generation the hardest.
If the government is serious about building an effective retirement income system, they need to stop changing the rules and restore confidence in superannuation as a stable, tax effective long-term savings vehicle.
