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Blow 12% of your income in the stock market

Tasman Times
James Gruzman
9 July 2010

The Federal government would like to increase employer contributions to superannuation from 9% to 12% by 2019.
This may seem like a good idea to make people save up for their retirement, but there are many problems associated with it.

By increasing the super contribution to 12%, that’ll be an extra 3% of your income that isn’t going to go towards living expenses. In effect, it is a pay cut. In a time when the majority of people are facing increased taxes, bills and interest rates, it will push people under.
Super contributions for the financial year ending in June 2009 were $112.2 billion. Total super assets decreased by 5.8% during the same period. This money could have been better spent elsewhere.

Why throw your money into the stock market when it is a rigged game? All these large investment banks and hedge funds are breaking the law without being prosecuted. Due to the volatility of the market it could very well be lost before you reach retirement. Right now it’s probably safer to go gamble at a casino than invest in shares.

Government taxes super. Taxes on super could easily be increased in the future to pay the government debt.

By paying extra superannuation, this will reinflate the stock market with all the extra cash going in. Probably only to be lost again.

Further down the line when the government is totally broke it may decide to confiscate superannuation. Again, all that money will go down the drain without the employee even seeing it.

Below are some annual figures on superannuation rate of return (ROR) and CPI.

Year

Jun 2000

Jun 2001

Jun 2002

Jun 2003

Jun 2004

Jun 2005

Jun 2006

Jun 2007

Jun 2008

Jun 2009

Rate of Return %

10.2%

3.0%

-4.9%

-2.1%

12.2%

12.2%

13.3%

14.5%

-8.1%

-11.7%

CPI %

2.375

5.975

2.825

3.075

2.375

2.45

3.2

2.925

3.4

3.175

ROR extracted from Table 12. CPI calculated from Historical series xls.

10 year average rate of return = 3.86% per annum.
10 year average CPI = 3.18% per annum
After factoring in inflation, 10 year average rate of return = 0.68%

As you can see, inflation, the hidden tax, will drastically reduce the value of your super over 40+ years.

Inflation is currently at 2.9%. If you have your money in the bank, the RBA cash rate is 4.5%. Westpac is offering a standard variable rate of 4.25%. According to their figures, if you have money in the bank earning interest and factor in inflation, you’ll be receiving a 1.35% annual return on your money. Not very exciting.

For year ending June 2009, super assets were down by 5.8%; these assets are also reduced by inflation, so deduct another 2.9% from your super assets. The rate of return for the same period was -11.7%.
Super assets down by 8.7% and rate of return down by 11.7% in the same year. It isn’t very helpful if you are retired or would like to retire.

If you could wave a magic wand and correct the faults in our government and financial system (it would be a very long book if you listed the faults and solutions), you wouldn’t have the government dictating how much of your income you are entitled to.
Instead of the 9-12% of your income going to super, it could go to the employee so that they can spend and save the money their way. It could be much more beneficial for the economy if people were investing this money in creating their own businesses and producing goods in Australia.


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