Anything and Everything about Superannuation

Hi PCers

My parents are looking how best to invest $300,000 they will come into. They both still work part time so don’t draw a pension and are happy to invest the additional money for 10 ‘or so’ years for it to grow before accessing it. With this in mind, I suggested either setting up a second super scheme through an Industry fund (mum doesn’t want to interfere with her super account) or LICs (outside super). Dad’s question was why choose and manage shares if they can just put the money away in a second super until they need it. (for the record, they wouldn’t come close to the $1.6m cap even after these funds are paid in).

Depending on whether they can set up a second super scheme and invest for a suitable length (a question for the fund or a FP), my question here is if you were at or within a few years of retirement (so ability to access an income at super tax rates) and funds were returning (as an example) 9% since inception (HostPlus balanced), 12.44% (AustSuper) or 7.2% (SunSuper), would you invest in LICs outside super or through an industry super. (When I presented purchasing LICs and ETFs through super, this overwhelmed them, so it is either one or the other).

I am thinking that LICs (currently) provide fully franked dividends so my parents can receive this income at low tax rates (but is treated as ‘regular’ income and taxed as such), however super funds appear to have similar CG returns to LICs although with no franking benefits when receiving the income.

I would be interested which way PCers would lean if they had a sum of money to invest and they were near or at retirement age. What have I missed in my thoughts?

 

Firstly, forget historical returns, especially when approaching retirement. Losing money at its stage can be catastrophic - see sequence of return risk.

Secondly, there appear to be contradictory requirements, is it 10 years or near retirement age? I would say 10 years is enough to start in equities but you should consider a process whereby you increase your allocation to cash / no risk investments as you approach the exact retirement age.

Read the discussion on sequence of return risk and how maintaining 2-3 years of spending in cash should be enough to complement your equities investment whilst keeping your risk at an acceptable low level.

You can't predict when or how big a downturn might be, therefore as you approach a time when you will lose control - reduce risk appropriately.

 

Thanks @ErYan . Understand the confusion. They fully expect a 10 year investing horizon, then taken out when they are over 65 (hence could access as a tax free income, but I assume this is only if income is through investments held under a super stream??).

Agree with the significant consequences of losing money - thanks for tip - sequence of return risk.

Certainly understand the need to maintain 2-3 yrs cash buffer - would this be regardless of whether the funds were invested through a super scheme or shares, or only through shares (I would assume both, since risk of loss is there for either option).

Appreciate the comments.

 

No use wondering how we here (who enjoy investing) would invest, we’re not your parents. My sense from what you’ve posted is that your parents want to keep it simple. Hence an Industry Fund sounds like it might be most suitable. Probably one of the pre-set options (as opposed to direct choice) would be less worrying for them. When they’re fully retired it can be converted to a tax free Super Pension.

Not advice.

 

Perth punters 'shafted' as super funds charge for unwanted insurance

• Millions of Australians are being automatically opted into life, income protection and disability insurances by their super funds, which strike “group” deals with insurers.
• They are paying $6 billion a year in premiums that are automatically deducted unless they specifically opt out.
• This is for insurance they haven’t investigated, haven’t chosen, and that might not even honour a claim

 

I concur. A fund with low fees that allows your parents to freely rebalance into cash would be my pick. As your parents approach the end of 10 years, the strategy might be to ensure there is at least a 2 year cash buffer, and the rest in equities. If the market tanks then they can leave the cash for spending to give time for the equities market to pick up without requiring them to sell at the bottom. They might consider withdrawing less money during a downturn to transfer money into equities at or around the low point.

Alternatively if the market does well, let it run and withdraw some of the profit in equities whilst maintaining said buffer.

Main point:
Cash buffer is there to ensure that you don't need to sell equities at the worst possible time. Once you've won the game you can go 100% cash.

 

‘I go without food’: Struggling pensioners reveal what retirement is like

 

Thanks for your thoughts. To clarify, I'm not so much interested in the x over y, but the thoughts behind why - to give my parents something to ponder as they choose their path and pose questions to FP etc.

Certainly agree that an Industry fund is a set and forget, as well as LICs and ETFs by and large.

Cheers for your comments.

 

More Super news as the fight on fees continues

Super funds ‘skimming over $700bn in fees’

For two decades the superannuation industry has extracted more than $700 billion in fees above what typical super funds charge overseas, equivalent to almost 40 per cent of the nation’s annual GDP, according to new analysis.

Super funds charged fees more than four times higher than similar funds in Canada, Europe and the US, with workers thousands of dollars worse off each year, the study says.

“If members’ contributions between 1997 and 2016 had been invested in a passively managed fund with typical expenses and allocations, they would now be valued between $700bn and $800bn larger,” University of NSW economist Nicholas Morris said. The total pool of superannuation assets, $2.6 trillion in March, would now be more than $3.3 trillion.


Aussie super funds skim $700Bn in fees - union industry funds our biggest

Here's a graphic published by The Oz a couple of years ago, it's based on AEC reports and shows how much money unions extracted from super funds over just 4 years.

Money is power.

Frightening.

 

The union funding via Super funds is really quite sickening.

 

Labor’s proposal to remove franking credit refunds effectively wipes out SMSF’s as viable competition to the industry funds. (because smsf’s are limited to the number of members allowed, they cannot get the same advantages in harvesting franking credits by pooling members)

You don’t have to be very sceptical to really wonder the true motivation of some policies. Yet it’s quite possible the politics of envy being used to dupe the masses and get this through will succeed.

 

That's only $132M over 5 years not $700B per year or millennium.

What form did this payment take eg director's fees - employers Associations would also have received a similar amount through equal representation on their boards.

The above does not take into account the returns generated by those industry (not for profit) funds. CBUS, (linked to CFMEU) has returned over 9% pa since inception - how many retail funds have a) consistently achieved those results b) lasted the distance (not been restructured, investment options changed etc)?

 

I guess this question fits into "anything and everything"..
I'm with PSSAP (CSC), but it's the newer one, not the sweet defined benefits old scheme.
What are the compelling reasons to stick with this fund? I only really have the standard pick of four investment mixtures (high growth, balances, etc). I can't make any other choices above that.

 

It's true, it seems the Industry Funds are quite easily the lesser of two evils.

 

I was with PSSAP too. Missed the old scheme by about 2.5 years. I could not think of a single reason to stick with the fund because to my mind, it was just like any other super fund but only with fewer choices. I now have my own SMSF. I can always rejoin if takes my fancy for whatever reason.

 

What are the fees and returns? How are these comparable with other funds? Can you get life as part of PSSap, if so, that would all be rolled into the standard package (rather than paying extra through other funds.

Their pre-recorded webinars on the CSC page might give some background about the finer details to help your thought process?

 

Find your super fund in the top performers

Top 60 super funds ranked

 

If this does not wake everybody up in Australia to see the institutional corruption, I don’t know what will. The unions have to cooperate with capitalism and politics in order for their superannuation fees money truck keeps rolling in with cash.

This is why they no longer fight for anything. The government said, here you make money from superannuation, leave us alone to ensure everyone in Australia is an obedient debt slave.

 

The Hostplus Indexed Balanced has been consistently lagging behind the Hostplus Balanced Fund net fees according to this table on their website:

Investment Returns

Am I looking at this incorrectly or are there some costs unaccounted for in the Balanced Fund?

Apologies if this has been discussed before.

 

Never mind, I think I may have found my answer. The Balanced option has allocations to property and infrastructure which the Balanced Index option does not have. Also, under the Balanced option, property has a 9% allocation within their Defensive allocation which I find interesting.