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Since its introduction in 1993, Australia’s compulsory superannuation system has morphed from a thing of hope and wonder to one of scepticism and distrust. With the 2017 Federal Budget set to be handed down tonight, we look at how this perception arose, and what advisers can do to restore faith in a system designed to support all Australians.
For years the superannuation system has been linked to the Federal Budget, most often in the context of ‘tinkering’, yet mainstream media and a lack of understanding have also contributed to the bitter taste this topic has left in the mouths of the public.
As many advisers and consumers brace themselves for potentially another round of super changes, it’s important to remember that “super is still super” and is still the most tax efficient way for Australians to save for their retirement, BT Financial Advice, head of financial literacy and advocacy, Bryan Ashenden says.
“There’s a lot of misunderstanding from a lot of people about super and what has actually changed,” Ashenden says.
“Nothing changes the fact that earnings in super are still taxed at a maximum rate of 15 per cent, which for many people is still a better tax result than if they took the money out and invested in their own name.”
Profile Financial Services managing director Phillip Win agrees that super changes can get confusing, but says many of his clients recognise that the super laws to date have been advantageous and favourable.
“Nobody likes change, however, on the whole our clients reluctantly accept change having been in the sun for so long,” Win says.
“They’re still able to recognise that they’re in a good position for themselves to meet their own objectives.”
However, the mainstream media and its coverage of poor performance of super funds has hampered this view to an extent and continues to contribute to super’s negative perception.
“What people need to understand is that it’s not about the performance of super funds, they’re just an investment vehicle,” Ashenden says.
“If a fund hasn’t performed well it’s because the underlying investments haven’t performed well.
“If you invested exactly the same way outside of the fund, you’d get exactly the same performance outcomes but would have to pay more tax.”
A good way to help clients to understand this is to ask them what their plan would have been without super and ask them to critically reflect on that option, Win says.
“If you don’t like super, that’s okay, but what would you do instead?” he says.
“At the end of the day, super is still attractive and a better outcome for clients, as a dollar saved is always better than a dollar spent.”
This sentiment is an important one to communicate with clients as although their financial situations and goals will differ, all will be utilising super to help them save for and fund their own retirement.
“We look at super because we’re actually having a discussion about retirement planning,” Ashenden says.
“We need to discuss the best way to plan for retirement for our clients, and super has a significant role to play here.
“So don’t have a discussion about super, have a discussion about retirement planning.”
Top three tips to help restore your clients’ faith in super:
- Communicate super changes with your clients and help them take advantages of changes where possible
- Build a buffer into your clients’ portfolio to account for changes in the future, particularly around tax
- Remind clients of the long-term nature of super and position super as part of a larger retirement planning conversation
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