Columnists Australia

Business/Robbery etc

15 November 2014

9:00 AM

15 November 2014

9:00 AM

No wonder so many Australians, from those with modest incomes to the very rich, now prefer to satisfy their compulsory superannuation obligations by dumping the existing super funds and doing it themselves. The more the existing funds are shown to have expensive administrative costs or inadequate performance or, in the case of some union-controlled industry funds, to have too many union officials with their snouts in the trough, the greater the incentive to do it yourself.

The union-dominated industry funds sector, which grew rapidly under the Rudd-Gillard governments’ most-favoured-mates deals, especially their preferred role as default funds in the absence of an alternative, are being deprived of much of their indefensible advantages by the Abbott government’s level playing field legislative approach.

But when former NSW Labor Treasurer Michael Costa spilled the beans on The Bolt Report about the ‘rorts that are going on (in unions’ industry funds) are horrific and need to be dealt with’ (by the Royal Commission into trade union governance and corruption), it only served to increase widespread unease about this $1,850 billion industry whose performance affects the manner in which millions of Australians will spend their retirement.

So there has been a boom in self-managed super funds, with a more-than-trebling in assets to $557 billion over the past decade, to capture one third of the market at a rate that is more than double the rise for the industry as a whole. The big question is how, in the long run to retirement, will their performance compare with the professional funds, many of which have a much wider spread of assets. Some money managers are seeking to protect their diminishing proportion of the business by offering investment advice at a fee to self-managed funds. While some rich people put big money into SMSFs, as is evident by the gap between the median asset per member of $313,003 and the 70% larger average of $523,814, membership extends far below the big players. More than half those in SMSFs have a taxable income of less than $60,000 a year. They really need a good performance from their fund.

Maybe this really is the Lucky Country – and Donald Horne’s ‘second rate people’ have run it well enough for Australia once again this year to enjoy ‘median’ wealth per adult that is the highest in the world, having risen to $US225,000. On ‘average’ wealth we are in second place after Switzerland where there are far more multi-billionaires, compared to Australia’s more equitable outcome, to push its average up to $US587,000 compared to our average of $431,000, according to the latest Credit Suisse Global Wealth report.

One of the foundations on which this wealth rests is the Menzies-led crusade for home-ownership (to make ‘little capitalists’ of us all). The fact two-thirds of us own our own homes is a key reason for Australia’s middle-class wealth leading the world; 63% of Australian adults have assets worth between $US100,000 and $US1 million. But this world leadership is under threat; home ownership is in decline, despite years of low interest rates. This decade, ownership of mortgage-free homes has been slashed by almost one third. Overall home-ownership has fallen from 71% to 67% and private renters have risen from 18% to 25% as young families are priced out of the market.But while governments have a political capacity to lower housing costs by increasing the supply of land and infrastructure, it’s a bit much to expect governments to solve the problems created by the age of entitlement that has generated a mounting problem of excessive expectations and consequential household debt: McMansions.

Over the last decade, the average house size has risen to 3.1 bedrooms although the average household is 2.6 people. The proportion of four-bedroom homes being built has doubled in recent years, so that the average floor space of new Australian dwellings is now double that in the European Union. But not only is the decline in home-ownership a threat to our wealth status, there is also the possibility of a widely-touted fall in house prices, of continued falls in the US dollar and declines in export commodity prices and our terms of trade. So enjoy your wealth status while it lasts.

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