Confirmation: You Will Never See Your Super

Wednesday, 25th March, 2015

  • Why does the mainstream hate savers?
  • The real super scammers
  • Building an income stream outside super
  • Don’t pay any old price for yield

The news is in front of you.

It’s there, day after day. And yet, when I try to explain the consequences of the news (which is in plain sight), most folks still accuse me of making it up.

On ABC Radio Adelaide, one listener called me a ‘crank’. Another said I was ‘cynical’.

On the Channel Seven news segment, the reporter said that ‘few others agreed’ with my views.

But it’s all there, in black and white. Take this story from The Age yesterday evening:

Australians entering retirement will most likely be stopped from taking their superannuation as a lump sum and will have to access it through a structured self-funded pension, a top Treasury official says.

Treasury executive director and chief operating officer John Lonsdale signalled that recommendations from the financial system inquiry put forward to overhaul superannuation are likely to be adopted.

It can’t be any plainer than that. Once you retire, you won’t be able to access your money. The government will force you into buying an annuity, which will pay you an income over your retirement.

I know some folks will say that’s a good thing. But it’s not. This is the final step that the government will take before full-blown nationalisation.

In retrospect, it seems I may have underestimated how fast the government would move on this. I thought the government would take it a bit slower…by introducing new taxes…making it harder to set up a self-managed super fund (SMSF)…making up new rules.

It turns out, if the comments from the Treasury are right, that the government plans to go straight for the jugular.

That makes sense. If you think about it, the longer the government takes to nationalise super, the more time it gives folks to prepare for it.

But also look at the way: the government is trying to sell this. Take this quote from John Lonsdale:

Superannuation trustees should be cautiously optimistic that the framework will go towards something like what is outlined by the inquiry…

I’m a superannuation trustee for my family SMSF. I can tell you right now that forcing me to take an annuity in retirement doesn’t make me ‘optimistic’, cautiously or otherwise.

It’s Orwellian spin. Get the chumps to believe that nationalising super is in the public’s best interest.

Look, I know this is hard for folks to believe. They don’t want to admit that the government could possibly take their money.

But why is that so hard to fathom? They’ve done it before. They did it with the National Welfare Fund. Look it up for yourself.

They did it with the super of foreign temporary workers.

They’re doing it with so-called ‘lost super’.

They confiscate money from you every time you get a paycheque. It’s called income tax.

And now they’re coming for the big one, the $2 trillion currently held in super. The Canberra bureaucracy wants the whole darn lot, and they won’t stop until they get it.

Quite frankly, today’s Port Phillip Insider is one you should send to everyone you know. To use the right jargon, this email needs to go viral. I can’t believe this story hasn’t gone viral already.

Folks are too complacent. They don’t believe it. But that has to change if you want any chance of saving your super from the clutches of the government.

So I expect to see this email ‘boomeranging’ back into my email box from all my contacts, telling me that I should check out the contents! If it doesn’t, I’ll be sorely disappointed.

Why does the mainstream hate savers?

The government has pulled off a master stroke with the way it has introduced an idea into the public arena, and then let the lobby groups and vested interests do all the hard work.

They’ve done a wonderful job of demonising savers.

You may remember the article from the 17 January edition of the Australian Financial Review. I’ve quoted it in Money Morning and here in Port Phillip Insider many times.

Here it is again:

The Australian Taxation Office will intensify its focus on self-managed superannuation funds as baby boomers retire and the risk increases that tax-free income could be stashed and passed on to beneficiaries.

Look at the language. Perish the thought that you may want to save money so you can pass it on to surviving relatives. Much better that the government or a fund manager takes your money and looks after it for you.

No thanks.

Here’s another quote from the same article:

This drawdown rule is partly designed to ensure people use their SMSF to cover the costs of retirement and not as a means of hoarding wealth.

Again, look at the language; ‘hoarding wealth’. What does that even mean? To me, it just sounds like saving money.

The fact is that saving for yourself has become a dirty concept. The only type of saving that has become acceptable is if the saving is done by the government, the funds management industry or industry super funds.

Because of course, you’re incompetent. You don’t have a clue how to look after your own money. That much is clear in the Age article:

Superannuation Consumers Centre chairwoman Jenni Mack also backed the development of a default option for managing the retirement phase of superannuation as in the best interest of consumers.

“Expecting a 65-year-old who has never managed a bucket of money before to suddenly know how to do so is exposing them to too much risk,” Ms Mack said.

Isn’t that up to the individual to decide?

I know of plenty of 65-year-olds who are perfectly happy to learn about investing. Many of them read our investment advisories.

The Age article goes on:

Mr Lonsdale said there would need to be a true collaboration between industry and government to get the design of both the new system and the products needed to service it right.

There’s the corporatist fascism for you — the funds management industry and the government working together to decide how they’re going to carve up your money.

Don’t let them get away with it.

These folks are the real super scammers

One of the arguments I heard in my ABC Radio Adelaide interview on Monday was that compulsory superannuation is crucial, especially for the poor and working class.

That’s junk.

The whole concept of superannuation is corrupt. It would be much better for employees to receive the extra cash as part of their income rather than forcing employers to quarantine the money and send it to the funds management industry.

As I said in the interview, it’s ridiculous that many people have to live hand-to-mouth each month, struggling to feed their family and pay bills, while 9% of their wages is hived off to the funds management industry.

Once it’s there, the fund managers take a 2% management fee (which is about one-fifth of the total returns in a good year). In other words, the super system is doing little more than funding the lifestyles of stuck-up Collins Street and Martin Place fund managers.

Forget about the tax breaks for the rich. As I explained in yesterday’s Port Phillip Insider, the attack on the rich is just a diversionary tactic by the government, lobby groups and fund managers.

The real scam is the fees that the fund managers get for doing next to no work as the cash flows into their funds. With two thirds of super in retail or industry funds, these guys are creaming off around $26 billion in fees.

No wonder they want the government to put restrictions on how much you can withdraw.

There’s no other way to say it, the entire super industry is a scam. But it’s only about to get worse as the government takes away any last notion you had of control when it nationalises the whole lot, exactly as I said they would on Channel Seven News on Monday evening.

The attack on your wealth has gone up a notch following the comments from the Treasury. It’s up to you to make sure you’re doing everything you can to keep your super out of the government’s reach.

There are no more excuses. If you haven’t already done so, go here now.

Build an income stream outside of super

This is another reason why it’s so important to start thinking about your retirement income now.

Quite frankly, I’m pretty much at the point where I can say you should forget the idea of ever getting access to your super.

With the government and Reserve Bank of Australia keeping interest rates at record lows, don’t be under any illusion about what that would mean for a compulsory annuity. The income you earn from it would be basement-level lows.

That scenario has played out in the UK. Take this report from the Daily Mail in 2013:

The income from a £100,000 pension pot has more than halved in the past 18 years, a damning study reveals today.

In January 1995, a 65-year-old worker could have bought himself an annuity – an income for life – of £11,380 a year.

Today a man of the same age, who has worked throughout his life to save the same amount, would get an annuity of just £4,920 from an insurance company – a fall of 57 per cent.

The government isn’t about to force you into an annuity because it’s good for you. It’s about to do so because it can lock you into a low income stream for life.

That makes it ever more important that you start thinking about building income streams outside of your super. At the moment (as far as I’m aware), there aren’t any plans for the government to nationalise non-super savings. But I wouldn’t put it past them.

So if you can start saving independently of super, by putting a few extra dollars aside and then looking at good income investing opportunities, that should stand you in good stead.

A trick I’ve written about before is the ‘One Dollar Savings Plan’. It’s fairly simple. If you can put aside just one dollar a day, and save that over 30 years, it can provide you with an extra year of income in retirement.

You can start off by putting the money in the bank. But once you’ve saved enough (minimum $500), you can then look at low risk stock investments.

If you can save two dollars per day for 30 years, that’s potentially two years of income in retirement. And so on.

I know, not everyone has the time left before retirement to save that long. That’s why it’s important to think about this now…to start building a steady and stable income stream outside of superannuation — something that the government can’t touch.

This is all part of the strategy that our new income specialist, Matt Hibbard will focus on when we launch his income investment advisory this weekend.

Stay tuned for more details.

Don’t pay any old price for yield

Meanwhile, how are those markets looking?

The S&P/ASX 200 index is still struggling to reach 6,000 points. As I write, it’s at 5,974.

But the major Aussie banks are certainly trying their darnedest to get there. Australia & New Zealand Banking Group [ASX:ANZ] is up 0.7%. Commonwealth Bank of Australia [ASX:CBA] is up 0.5%. National Australia Bank [ASX:NAB] is up 0.7%. And Westpac Banking Corp [ASX:WBC] is up 0.8%.

Like it or not, investors want yield. And at the moment, they seem happy to pay anything to get it.

Commonwealth Bank shares are trading at $95.54 today. The bank is in a fight with CSL Ltd [ASX:CSL] to see which stock makes it to the magic $100 mark.

That news alone should be enough to scare some investors. You may remember that there was a similar race before the 2008 crash. Back then, it was between Macquarie Group [ASX:MQG] and Rio Tinto [ASX:RIO].

There may have been another stock in on the race, but those are the two I remember. Rio won the race. Rio even went up to over $150.

Of course, it wasn’t long after Rio won the race that the market topped out in late 2007 before beginning the long and painful crash.

So even though I’ve got this market pegged to go much higher from here, it’s hard to shake old memories. Worryingly or not, Macquarie is in this race too. It’s a late comer. It’s currently at $78.38. But that’s up from $55 in mid-January.

Don’t write it off. But my money is on Commonwealth Bank…providing the obsession for paying any old price for dividends continues.

But as Matt will warn subscribers of his new income service, whatever you do, don’t overpay when it comes to income stocks.

Is this what sends the oil price crashing to US$20?

Finally, watch the oil price. It’s now at US$47.53 per barrel. It’s up nearly 10% over the past few days.

But before you put money on the oil price continuing to rise, consider this from Bloomberg:

Just as Wall Street says the U.S. was running out of room to store oil, it turns out there’s another 20 million barrels of empty space.

Where? Right at the top of the tanks.

A supply glut has dragged U.S. crude for May delivery almost $10 a barrel below contracts a year out. This market structure, known as contango, has encouraged traders to shove the most oil in 80 years into storage so they can sell it for more in the future. The problem is, tanks are filling up…

Despite the lower price, oil companies are continuing to pump oil, and traders are continuing to buy it because of ‘contango’.

In simple terms, it means a trader can buy oil today and take physical delivery of it while at the same time selling an oil futures contract for one year into the future.

Providing the cost of the oil today, including storage costs for a year, is lower than the price that they can sell the oil for in a year’s time, they’ll lock in a profit.

They say that’s causing the supply glut at US oil storage facilities, especially those at the key oil hub of Cushing, Oklahoma.

The thing to remember with the oil price, or any commodity price, is that falling prices are just as much to do with the higher US dollar as they are to do with falling commodity prices.

Remember, oil consumption remains at record highs. China is still growing its economy by 7% this year and is importing more iron ore than ever before.

The US dollar has remained strong because investors are convinced that the US Federal Reserve will increase interest rates. But what if it doesn’t?

What if the Fed keeps rates close to zero and perhaps even starts a new money printing program?

You’d think the oil price should take off as the US dollar sinks. Those who have sold oil to take advantage of the ‘contango’ in the market won’t benefit from a higher price, because they’ve already locked in their sales price.

So it makes me wonder, just how much of that oil has been sold forward to lock in a price now, and how much is unhedged as a speculation on a lower US dollar and higher oil prices?

It’s worth thinking about. The ‘contango’ trade is fairly low margin stuff once you take into account storage costs. And for all but the biggest players, the trade isn’t available due to the small margins.

So while the press suggests that the ‘contango’ trade is causing a glut at oil storage centres, I’m not so sure.

But we could soon find out. If the Fed does go ahead and raise interest rates, that would cause the US dollar to jump and commodity prices to fall further.

If traders have stockpiled oil on margin (as they likely would have with super low interest rates), higher interest rates could be the catalyst that sends oil prices to US$20 and even lower.

I’ve said since last October that the oil market was the one to watch. Six months later, nothing has changed. Keep watching.