Suspicious of Superannuation

No doubt ...... no doubt ....... the Australian Superannuation system has some terrific tax benefits both during accumulation phase and also during pension phase.  The ability to salary sacrifice at only 15% tax during accumulation stage is wonderful as is the tax free earnings, tax free dividends and tax free capital gains events during the pension phase.

However, I'm still suspicious of placing all my eggs into this government regulated Superannuation system. Now, I am no finance man, I have no qualifications in this regard, so my following thoughts can only be fairly classified as a conspiracy theory - nevertheless, I see what I see.

Consider the following with regards to Superannuation:

1. Constantly changing rules and many layers of complexity
2. Your money is not truly accessible tax free before retirement preservation age.
3. Retirement age is getting older by law - (mine is now 67 !!)
4. No ability to access your money before preservation age (60 for me) without a huge tax bill
5. Most Superannuation funds have huge fees - as bad as most fat managed funds in many cases
6. Default Super options (the one that you automatically get if you do not choose) is usually a balanced fund with significant fees.
7. Very difficult to see where your funds are invested beside vague labels like "Australian Shares" etc
8. Not everyone can choose a fund of their liking depending on their employer.
9. Fees are often hard to understand and can be recorded (hidden!) in several scattered places across PDS's (Product Disclosure Statement).
10. Administration fees during retirement or pension phase are often many times greater than when in accumulation phase.
11. Life insurance within Superannuation can be very tricky to access in a variety of scenarios and can sometimes be taxed.
12. Transition to retirement (TTR) tax rules have recently been introduced into Superannuation which do not benefit the retiree.
13. Maximum limits on pension phase accounts have been introduced and changed recently.
14. Before and after tax contribution limits have been changed for the worse too.
15. Thresholds have changed and many pensioners have had their aged pensions drastically reduced simply because they were good savers and used Superannuation the way they were historically told to. A nice reward for doing the right thing - not!
16. What future changes will the government make to Superannuation? It is a complete unknown. Therefore is my money predictably a proper investment in Superannuation?
17. Will Superannuation taxation structures and rules change?  If so, this could completely compromise your retirement plans.
18. Cyber risk to Superannuation funds is a hush-hush topic
19. How will future legislation impact on Superannuation? Given the long list of legislative changes directly impacting Superannuation over the years, it is reasonable to assume that this trend will not change.
20. The younger you are, the less appealing Superannuation is as legislative changes across the next 30 or 40 years could massively change the intention and viability of Superannuation in much the same way as the aged pension has gone from being a wonderful innovation generations ago, to now being a pittance that is mockingly referred to by many as a charitable or social security payment.
21. I challenge you to easily read and understand your superannuation yearly statement (!)

Look, in Australia our employers are obliged to contribute 9.5% of our gross salaries into a Superannuation fund for us. We have zero say in this. So my approach is that I have chosen not to add any extra than this obligatory 9.5% because we plan to retire from our current paid work before our preservation ages and thus we will need plenty of funds invested and accessible outside of Superannuation for this purpose.

So because I have to get the best out of my obligatory Superannuation account, I have therefore researched scores of Superannuation PDS's (product disclosure statements - gosh they are so freaking boring) and have chosen a Superannuation fund that offers a Balanced Index Fund charging only 0.02% fees plus a $78 yearly admin fee. This Superannuation fund also offers a very low cost self-managed investment platform where I can choose a reasonably good selection of ETF's, LIC's, individual stocks, bonds and term deposits to invest into directly.  The proviso is that only 80% of my funds can be invested via the self-managed platform and the other 20% needs to be in the Indexed Balanced Fund option - but that is OK.  The other pleasing (and rare) thing about this Superannuation fund is that once I am allowed to retire and change my accumulation account across to a pension account, they will allow me to transfer all my stock holdings across to my pension account as a once-of transaction without the need to sell all my holdings which would normally trigger a massive capital gains tax event - this is pretty good.

However, outside of Superannuation we will continue to stick to our personal budget to invest 20% of our net incomes into tax efficient investments (namely investments that are 100% franked). Fortuitously, under Australian law, the company tax of 30% paid by the company on its 100% franked dividends does not need to be double taxed by the owner of the shares and thus can be used as an efficient tax claim at tax time each year.   e.g. for low income earners, they will get a tax rebate on their 100% franked dividends and for high income earners they will only need to pay the difference between the 30% tax already paid on their dividends and their particular tax bracket. Australian shares also generally pay slightly better dividend percentages than international stocks. Because of the lower immediate tax advantages but higher growth trends of international stocks (USA, Europe, Asia etc) I use my Superannuation to buy international growth ETF's and stocks thus taking advantage of the generous tax rules within Superannuation to diversify my holdings outside of the tiny Australian stock market whilst my ex-Superannuation investments are all Australian investments specifically geared to be tax friendly.

When we eventually decide to pull the ribbon out of our typewriters for the last time, we will first use our investments made outside of Superannuation as an income stream to tide us over the decade or more before we are allowed by the government to access our Superannuation funds.

Anyway, make sure you thoroughly check everything I have said because I am not a qualified finance person and may well have got it all badly wrong ..... (but I doubt it). I am only sharing this information for the purposes of encouragement and open, honest discussion about the often taboo subject of money and investments - this post is obviously not qualified financial advice. Always do your own homework.

Take care folks and stay nice.

Mr HM (Phil)


  1. Yep, I have a lot of trouble deciphering anything my super fund, which I am not allowed to choose, sends to me in the post. May as well file them under "useless"! Meg:/

    1. Start by going online and downloading their PDS - start by looking at the fees. You may not be able to change Super funds but you might be able to change how your money is invested within that fund.

  2. Neither myself or my husband have put extra contributions into Super, I never saw the sense in putting extra funds into Super while we still have a mortgage.

    Your advice over the past months is really making me consider setting up my own little investment fund, and directing a set amount each fortnight into it. To be honest I'm terrified, I have no idea where to start. I know I need to do some research and educate myself, perhaps that will be my 2018 goal.

    Keep inspiring us Phil :)

    1. Ah that old chestnut - investments or mortgage....either way has its merits based on your core values and goals.

      With investing the best place to start is just starting. Open a ME Bank online saving account (currently paying 2.89% interest) and habitually dedicate 20% of your income into this .... just let it build up to $10,000.00 before you do anything. This will give you time to research how to invest your first $10K whilst you save it. Just a suggestion.

    2. Thanks Phil, I will look into it :)

  3. a great post even though i have no idea what you just wrote or i just read LOL
    thanx for sharing

  4. I've been waiting for you to post this Mr HM, as a skeptic of Super for many years too, and have never had any desire to add extra for exactly the reasons you mention. Now that I'm officially retired I'm able to access my super as an allocated pension, I'm five years away from being eligible for the Govt pension of which I have full intention of accepting, but will probably be penalised because I've saved and created a shares portfolio, plus savings. Another thing I would add to your good advice, is to watch out for unscrupulous financial advisors. The Barefoot Investor (Scott Pape) has some great advice in his columns, plus his latest book. I suspect the financial advisors aren't impressed with his honest views and warnings of them.


    1. Mr Home Maker26 October 2017 at 05:57
      Scott Pape seems to be a pretty good egg - I do like his writings. Depending on the size of your savings and investments you will be most certainly penalised. My poor MIL who was very obedient to government messages re money, squirreled everything into Super (when it first came out) shares and savings and lives very frugally was recently hit with her aged pension going down to a little over $100 per fortnight! "She must be loaded" some said...ha! Not at all. She lives very frugally and needs a decent sized nest egg to simply be able to live off the proceeds. Also recently I discovered that she has never switched her Super across to pension mode (she never knew you should) and thus has been paying tax on her Super earnings for nearly 20 years!!! No body breathed a word, not her financial adviser, not Centrelink, not her Super fund.....I am so sad for her. Needless to say she and I have recently had some excellent talks about money etc and she and I will be doing a big overhaul of her finances so she is getting the best returns and lowest fees we can figure out. It is not until you delve into basic wealth creation rules for non-businesses (AKA normal people!) that you discover just how socialist both sides of Australian government are

  5. Hi Mr HM and bless you. I have been quietly reading your posts for the last few months, and put simply, you make a lot of sense. I too have had my doubts about Super - the changing rules inspire no confidence in me at all. It was a relief to find someone else who thinks the same way. My husband + I have decided to go the personal investing route so we can retire when we want, not when the government tells us we can. Taking your advice, I have embarked on self education, doing little bits here and there and letting it settle in my head to make sense. The first book I picked up? Scott Pape! He just makes sense too.
    Thank you Mr HM for your little nuggets of gold. Also, for other bloggers out there, keep up your great work. Im positive there are many out there quietly reading, being inspired, then quietly returning again the next day to read again.

    1. Hi Sal. Wonderful to hear from you. That is exactly how I study and educate myself too....little bits here and there and letting it all settle in my mind and reflecting.

  6. Hi Mr HM have just discovered your blog. very interested in your formula for retirement 25 x your yearly expenses... I imagine you've explained this in a post somewhere, would love to read it... by my calculations using your formula we need another $100,000, unfortunately

    1. This is an ideal calculation that allows the lump sum to be invest and for you to draw down 4% yearly as an income. The $100,000 can be mitigated by a combination of reducing your expenses a little, earning a little more an investing a little for better returns.

  7. Just catching up on your blog, love what you write Phil - thanks from across the ditch, Wendy (aka Emeline)

    1. Hi Emeline - lovely to hear from you again. I hope you and Andrew are keeping well.

  8. Thanks Phil, very interesting. I understand that the current Federal Government is wanting to raise the pension age to 70 from 67. That would mean people like you and I would have to wait an extra 3 years to be eligible for the age pension.

    I am suspicious regarding private health cover too. I saw something on telly the other week that said thousands were leaving private health cover due to escalating cost of premiums. Then too there is the rising cost of power. Not to mention stagnated wages growth. And now a butter shortage pushing up the prices of baked goods. I think the baby-boomers may have been the lucky generation of a once lucky country.


  9. Nice, this articles are excellent and very helpful. Thanks

    planning to retire


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