How safe is your super?

As the Great Moderation passes by and the Great Volatility takes its place, the investing world is glacially facing up to the fact that a return OF your money is just as important as a return ON your money. The past 30 years have allowed all and sundry to “fuggedaboutit” or “she’ll be right mate” when it comes to investing, as even the laziest stock pickers were rewarded, although many mistakenly viewed this as skilful, not luck. At MacroBusiness we focus on the risk as well as the reward, and are not blind sided by the historical anomaly that has now finished.

Today I want to talk about 3 key risks about the return OF your superannuation, outside of the tremendous underperformance or the return ON super.

Liquidity Mismatch
A recent news article highlighted one of the 3 major “return OF” risks with super: liquidity mismatch, driven by the demographic bulge that is the Baby Boomers who are nearing or in retirement phase. The report highlighted the risks, well known by the industry, that negative cashflows from pension drawdowns could have systemic risks within the funds themselves, some of whom are heavily invested in illiquid assets and have low cash allocations.

This could lead to, at best, delayed super payments, or at worst, runs on funds, causing immense stress on superannuants. The industry was quick to allay such fears by publishing and spreading a research note that countered these assertions.

Notably, most pension drawdowns are monthly income streams, not lump sums, which should make this liquidity risk easier to manage. However, the systemic risk is by the industry focusing more on liquid asset allocation, instead of potentially more advantageous (both from an investor’s and macroeconomic point of view) illquid asset allocation, this could drive fund returns even lower, and/or increase volatility, which hasn’t been the industry strong point:

A further risk, exarcebated by a repeat GFC style event, is a fund freezing or reducing withdrawals as this implies a realisation of losses, which will affect other (i.e younger) fund member’s returns. One solution bandied about is to effectively turn larger funds into Ponzi schemes:

A fund with an ageing membership or with an uncomfortable level of exposure to illiquid assets could merge with a fund with a youthful membership or one with high levels of liquid assets.

Perhaps Ponzi is a stretch, as the more longer term solution, recommended after this comment, is to realign fund investment and product strategies with a return to annuity style products (this has been the strategy adopted by Challenger, pushed by the former chair of the Cooper review), which should never have gone away in the first place in the last 30 years and have potential outside super as well.

But should you rely on an industry to self regulate and promulgate such risk mitigation strategies, when their collective record of management and prudence when times are tough is less than exemplar? Perhaps the members are “doing it for themselves” as a recent Australian Investor’s Assocation surveyshowed that the average investment portfolio (including non-super) now had a 26% cash level, up from 21% in July.

Frozen and defaulted investments
The introduction of a deposit guarantee by the Federal Government during the GFC to prevent a run on illiquid mortgage funds (who would have needed to sell their assets at firesale prices to redeem funds) led to a widespread “freeze” with some investors still struggling to see their money returned, 3 years on. Not only struggling retirees – some of whom had concentrated a majority of their super into the once high yielding mortgage funds – but the sector itself is still battling, with ASIC running a “hardship” program pushing the funds to slowly return the frozen accounts.

The collapse of Trio Capital – not out of the blue or unusual particularly for a property based fund – was a wakeup call for the non-APRA regulated super funds who were denied compensation.

Who are they? Self-Managed Super or DIY Funds (SMSF). Currently, only APRA regulated funds (industry and retail super) can be compensated for bad investments, whereas the DIY crowd are on their own – literally – when it comes to these investment mistakes. Considering the rising popularity of SMSF (now more than a third of the whole super sector) this has a significant ramification, outside of the usual caveats about diversification and due diligence.

There have been some calls that the SMSF “community” should be regulated at a higher standard, including the trustees themselves. Given Australian’s penchant for requiring every aspect of life to have a “Ticket to Operate” attached, this has morphed into a possible requirement for trustees of SMSF to have, at least, finance Diploma level education and possibly more frequent auditing and a restriction of their investment universe.

This would “bring them into line” with the onerous requirements attached to the industry and retail super funds – you know, the ones that charge percentage based fees (and thus are constantly looking for ways to grow funds, and I don’t mean by performance) and provide around a 3% annualised return (before inflation) on your super.

So there is a minor risk that SMSF trustees in the future could find themselves “unqualified” and this could potentially mean a temporary or permanent loss of control through a compulsory allocation to the Federal Government’s new plan to tackle the fund management industry’s tentacular grip on super – MySuper, which leads me to the final identified risk.

Whose Super?
Puttings aside the tin foil hats for a moment – but not completely out of reach – the intent behind MySuper is a good one. First an explanation – what is MySuper (from the government fact sheet):

MySuper is a new low-cost and simple superannuation product that replaces existing default funds.
…funds will still be able to offer different products, and will not have to offer a MySuper product.
However, only a MySuper product will be eligible to operate as a default product. Which means a fund’s default product must meet the MySuper standards to continue to accept contributions from employees who have not exercised choice and nominated a fund.

  • – no entry fees, with exit fees limited to cost recovery
  • – a ban on hidden fees and commission in relation to retail products distributions and advice by financial advisers
  • – removal of commissions in relation to Group insurance
  • – a single investment strategy set by the trustee

Note that currently, MySuper is not compulsory, but by default (sic) it will be, as the vast majority of Australian’s don’t bother to change or select an investment option for their super. The savings for members (and the loss of income to the industry) is expected to be $550 million a year, growing to well over $1 billion. Whilst I agree with the rationale behind the new scheme, it has longer term implications and risks.

First, it still does not address the serious asset allocation problem of the standard default fund for the individual investor (i.e too much in shares, not enough in fixed interest). This is compounded by the structural concentration of retirement savings, as shown by the most recent OECD study, which shows Australian pension fund (i.e super) investments the most heavily concentrated in the world:

It is my contention that this concentration has lead to the serious underperformance of Australian super funds and will enable future governments to regulate MySuper at the investment level. That is, there is a great possibility that governments, working in the best interest of savers, will enforce a stricter asset allocation/investment strategy protocol on the MySuper accounts.

This could, in an extreme scenario, albeit done again with best intentions, lead governments to compulsorily acquire MySuper accounts and have them run viz. like State and Federal public pension schemes (e.g QSuper, Military Super etc).

This scenario is valid, particularly in a second GFC style event where a large amount of Baby Boomer retirement savings is wiped out (again) alongside the sparse and shallow savings of following generations.

Combined with the liquidity mismatch problem, another decade of sub-inflation returns by the entire industry, and the high probability that 2 generations of mortgage laden Gen Y and Gen X member cannot increase their contritbutions, could result, like in so many instances around the developed world, in a pension crisis. And from a crisis come the seeds of large and widespread solutions, including complete confiscation of private super accounts.

This could be construed as alarmist, I agree, and goes against the mainstream and longheld view that regardless of party, economic and fiscal management at the Federal level has been and will continue to be sound. Not having a recession for over 20 years will reinforce this notion, as does the concept of very low government debt, especially in comparison with the “badly run” developed nations now facing rolling debt and public spending crises.

I am not suggesting complete confiscation, but rather “voluntary” incremental steps. For example, in Hungary, the goverment recently “offered” the private retirement savers the option of either remitting these savings to the State or lose the right to the old age pension, and still have the obligation to contribute to it.

Poland recently came up with a variation on this scheme, whereby one third of future contributions (the equivalent of Australian Super Guarantee contributions paid by the employer) would be transferred into the State public pension scheme. However a more relevant example for Australians is the Ireland case.

Suffering from onerous repayment requirements from European banks in the midst of a property bubble crisis, the Irish government effectively had to give up its equivalent of the Future Fund (actually more so – the National Pensions Reserve Fund is supposed to fund ALL pensions, not just public service) to fund its bailout package.

Another “confiscation” risk is the ever increasing preservation and pension access age. This has increased in recent years, for superannuation, from 55 to 60 (for anyone born after 1 July 1964) and 67 for the old age pension (for anyone born after 1 Jan 1957). Both measures could increase further, as European nations facing austerity measures have recently used this tactic to cut public spending costs. In addition, this could involve an increase in tax rate in super, or elimination of contribution thresholds (thus increasing tax revenue).

Given that Australian private savings amount to some $1 trillion or almost 100% of GDP, the incremental measures above, tied to MySuper and other measures, are not out of the realms of possibility.

Risk Mitigiation
Obviously, diversifying assets amongst several different fund types, or outright exclusion of investing in illiquid funds (even if the yield seems tempting) goes a long way to avoiding risk of a frozen or defaulting fund. However, this does reduce your universe of investment products and in Australia particularly, there is only a small selection of super-suitable investments, due to our continued and unplaced devotion to equities.

The best way to mitigate against transactional liquidity is to control your own fund. This, for mind, is the greatest attribute of the Self Managed Super Fund (SMSF). Although the flipside of total control is total responsibility, and an almost part time requirement in terms of management and administration, there is no greater (apart from having off shore accounts) method of controling your precious retirement savings.

As for the final “tin-foil” hat risk, there’s not much (legal) chance of avoiding these risks (even if you emigrate to another country, your super remains in Australia until preservation age).

I contend the following:

1. If you are not approaching retirement age (i.e are Gen X or Gen Y), regardless of the generous (although they seem to be less generous each passing year) tax advantages of superannuation, I would not add any amount remaining of your disposable income to super. Let your employer contribute (as they are required to) and realign your asset allocation, but that’s it.

The risks are too high in putting all your savings into this basket, just as they are too high in putting the majority of your income into servicing a single dwelling. Accumulate wealth outside super where you can control it, direct it and use it.

2. A SMSF is the best way for you to get not only the best return OF your super, but managed correctly – and by not following the financial industry failed paradigms – also the best return ON your super.

For those interested in securing their retirement, regardless of age, their is no better solution – or would rather have the government or the fund management industry look after that for you?

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Comments

  1. And you can be sure that at least half of that equities allocation is invested in the Aus market (effectively eight companies, as demonstrated elsewhere on MB).

    Part of the love of Oz equities is the yield and imputation credits. Has anyone seen any good analysis making an argument to let go of franking credits in the interest of more robust diversification?

    • I’m working on that analysis Ben.

      e.g given the high dividend yield on many major stocks – which can also be hedged via put options – it may be “less risky” to load up on those stocks and sacrifice some of the dividend yield for protection below.

      Telstra (TLS) is classic example – 8% plus yield, plus franking credits pushes it to double a TD, but with better liquidity.

      The diversification amongst risk assets is not there in my opinion – correlation is close to 1 on almost all classes since 2008.

      We need more fixed interest options in this country.

      BTW – sorry for the verbose tome above, I didnt realise it was going to be 2000 words.

      • We need more fixed interest options in this country.

        Hmm, are you thinking something along the lines of the infra bonds, or more general gov’t bonds, or corporate bonds?

        And could our current lack of options be (ironically) blamed on an over-focus on paying down debt at the government level?

      • “sorry for the verbose tome above, I didnt realise it was going to be 2000 words.”

        Not at all, I found every one of those 2000 words tremendously valuable.

      • Yes Karan.

        Definitely more government bonds – a healthy, deep and liquid government bond market would go a long way to helping develop similar corporate bonds markets.

        Instead of having cash sitting idly in bank deposits (helping fund loans so we can buy existing houses of each other), corporates and governments should have these funds to raise equity for projects and drive research and development and infrastructure projects.

        I would add my research bonds idea to that as well, which match perfectly with superannuation, although require sufficient liquidity – so hence – MORE!!!

        Yes it is blamed on the slavish devotion to “balanced” (I heard one prominent right wing economist say a balanced budget is one that is in surplus……) budgets, without considering the private debt burden.

        Paradoxically, we need to return to surplus to retain our AAA rating….

        But I’ve said it before – I’d rather have $200-500 billion of federal government debt (remember – this is private savings – these would be owned by Australians, mainly retirees…..how is that a bad thing?) and the equivalent in private debt, instead of less than $200 billion gov’t and over 1 trillion in private debt.

        Why economists and politicians don’t get that is beyond me?!

        • Absolutely agreed – seems like at some point politicians began to sell the budget like a balance sheet, with anything in the red being Very Bad, without considering the fact that debt is ok if it’s spent on useful projects.

          Since our last chat on super, you’ll be pleased to know I’ve de-emphasised equities and shifted to fixed income assets. I’m thinking now maybe I should do the same for the cash sitting in my account… until last week that was earning very nicely thank-you-very-much 🙂

  2. SMSF’s can be a money drain for those who do not have the time and motivation to do the job properly and who trust the word of their accountant implicitly. Accountants don’t (or didn’t perhaps) have to have any super quals to offer advice on setting up an SMSF. They may know tax law, but they don’t know super law, and that can lead to some very expensive problems.

    On the age issue, funds are well aware of this. The move by boomers to SMSFs has probably eased some of the pressure though. There are funds that have much younger memberships- I would expect to see mergers between aging, but investment rich funds and those with many younger members to balance out the risks.

    One factor for government funds (and my experience is with QSuper)- they are still heavily market based, and most do not have much recourse to government funds to make up the shortfall. But, for QSuper at least, they are old enough that they are already dealing with significant numbers of retirees, and so have balancing mechanisms in place. Industry funds are generally 20-30 years old, and have less experience, and therefore fewer mechanisms to deal with the issue.

    • Great comment – I agree with all your points.

      ITs a legacy of the super rules that your accountant can’t give advice on super as well.

      For those under say age 50 or so, a SMSF can be very simply run, as you dont need to know your pension strategies (where you can foul of the overly complex super law)

      But yes, an accountant who is a super tax lawyer is a must for over 50 SMSF owners…some of them are out there if you look.

  3. Why cant we have the option to have all of our super in a interest savings account that gains interest, without the risk of others pissing our retirement funds into the wind with little to no account.

    Super is a farce! I would have 6x the money I do know without other idiots doing what they want with it.

    • Actually you can if you are member in certain Super fund. I am a member of Australian Super and I know for sure that we can start to choose putting some balance into savings and term deposit accounts from ME Bank and NAB. The feature will start soon around November 28th if not got postponed. I am looking forward to this.

    • You do buddy… maybe you should have a look at the options you have in your fund, and if they dont provide that option go elsewhere.

  4. Prince, thanks for a timely in-depth article (could have been two or three perhaps?).

    A couple of questions. First, has there been any research done on the effects of increased volatility on the accounts of those in the pension drawdown phase?

    Second, I wonder how a liquidity mismatch can be an issue for any except long established (mainly government) funds. Surely the rest of them only have small numbers of members in the pension phase, usually with relatively small balances.

    One minor point, the chart of OECD country super mixes suggests to me that Poland has the least diversified super funds – nearly all bonds.

    BTW, I have personally suffered from a fund liquidity problem freezing my pension withdrawals – ironically with a cash fund!

    • Yeah I should have made it 2 or 3 articles – super just seems to go on and on and on….its the perfect rod for your own back as a blogger

      1. Not sure about the research, but I have some info regarding EU/US pensions that I’m looking into

      2. Some commenters (who are in or were in the industry) have some contributions here on that question. You have to remember that the average fund balance for non Baby Boomers is quite small, IIRC. I should look into this more however.

      3. From that chart pack from the OECD, you get this picture: http://bilbo.economicoutlook.net/blog/wp-content/uploads/2009/10/Pensions_Oct_2009_Figure_1.jpg

      “…Australian funds experienced the third worst losses (behind Ireland and US) and the lowest recovery…”

      It’s about the only thing I agree with Mr Joye on – that Australian investors have far too much allocated to equities.

      I disagree about his solution however, more allocation to property, when we should be investing in productive enterprises (and yes, gov’t debt can be productive, but I would prefer corporate bonds and my own idea, research bonds instead of yet another financial engineering product dedicated to property…)

      • Thanks for the response. Have to agree with you on corporate (or research) bonds. The question is, I guess, how to make bond issues a more attractive financing option for companies. Super funds can only buy bonds if companies issue them.

  5. Wasted OpportunitiesMEMBER

    Prince, thanks for covering this. I saw the article and it terrified me.

    I’m still not sure I understand how the funds are at risk of negative cash-flow in the first place – I would have guessed the regular 9% (or 12%) infusion of every wage-earners salary would be enough almost on its own to cover retiring members, even with a baby boomer bulge.

    Also, given as you say most people are in the default “balanced” option, with about 20% to 25% cash and 40% to 50% shares, wouldn’t less than 20% of the fund’s assets be subject to illiquidity problems? Can you explain the problem itself a bit more?

    Also, what does the “alternative” component that makes up about 7% of balanced allocations refer to?

  6. I’ve thought about setting up an SMSF several times but I have read varying articles about the costs being prohibitive and you need $200k+ to make it worthwhile due to the costs. Is this true?

    Then on the other hands I have seen things like eSuper where the costs seem reasonable. Has anyone used this/would recommend it as a service?

    • Mark HeydonMEMBER

      I set up my smsf for under $1300 through an accountant. This included setting up a company to act as the trustee as well as all the documentation and registration of the fund etc.
      I expect it will cost no more than $1500 annually in admin costs (covering ASIC fee for the trustee company, ATO fee for being the regulator and accountant to draw up accounts, complete regulatory forms and audit accounts). This could be reduced if you are willing to do more of the work yourself.
      The annual cost is less than a quarter of what it was costing in fees (many hidden) in the previous retail fund I was in.
      The onus is on you to invest the funds, so it isn’t for everyone, but if you can look up a table in a banks term deposit schedule, you can probably outperform most retail funds.

      There is a small amount of time maintaining records etc, but this has been well less than an hour a month for me.

    • Thanks for your comment Mark – that seems to be my experience too.

      I have written before about this in my other super posts Shay – look at the links of “investing” and “Superannuation”.

      The minimum depends on a couple factors:

      1. how much are you going to contribute to super
      2. how much are you currently paying
      3. how much time are you willing to devote to running the fund
      4. your investment strategy

      I’ve seen it done with $50K startup – I started with less than 20K, and then 100K when The Princess rolled in her (pathetically performing) QSuper account. We’ve since doubled that to the “minimum” the industry reckons you need, but I did that in under 3 years through performance, not extra contributions…so maybe thats a special case?

      • AustralianSuper is now offering what they say is a low cost option to SMSF. AustralianSuper lets you trade individual shares in real time, open fixed term deposits, or just use their pre-packaged funds. Most of what you want in a SMSF.

  7. The retail funds are bringing their fees and structures down as a result of the competition. Asgard has recently launched a wrap product known as Infinity. The admin fee is a flat 0.30%. You pay an extra 0.2 if you want direct shares.
    No charges for term deposits or cash, so you only paying 0.30% If you want a basic stable of diversified fund managers you add 0.5 to 0.7
    The lowest cost structure I have seen for retail funds is FSS through the NSW state goverrnment, where the average is 0.4% but you do have limited features such as no term deposits and you can only nominate the estate as beneficiary.

  8. Well, Prince, this one is certainly destined to scare the horses.

    I love the word “confiscation” in this piece. It reminds me of teachers, pupils and water pistols.

    People scream for Government to keep away from their super. But in many ways, I think there are some good arguments for Government intervention.

    As you imply, intervention on more prudent investment/allocation standards by APRA wouldn’t go astray and limitation on fee structures for all funds management, not just My Super, would be great.

    The public has been woefully served by many players in the advice and funds management industries for too long, simply by the asymetry of financial knowledge.

    Great was the betrayal of those advisors who pretended that the super investor was their client when their real client and paymaster was the funds.

    Even a fallible Government backs the mug consumer in most instances.

    The Government also spends $30 plus billion dollars a year in tax expenditure towards our super- so why many people see it as the arch enemy, I don’t know.

    On to your article- it does raise important risks and gives important advice. It does scare the horses and calls for greater prudence in the system.

    One thing I think is a bit harsh is the Government’s decision to raise the preservation age higher. If they are simply going to match it with the retirement age, why don’t they just save their money and raise the Government pension level for all.

  9. Failed Baby BoomerMEMBER

    Prince,
    Thank you for a very good article. I have run a SMSF for many years, and I take a strong interest in SMSF trends. Some issues/points I have encountered;
    a) It is not easy investing directly in bonds. Corporate bonds are only available in large parcels and RBA and State Bonds are not investor-friendly.
    b) Most SMSF have poor investment strategies and they have lost badly in the GFC. The current obsession with gearing SMSF’s into property is likely to end badly.
    c) A simple SMSF invested in a balanced mix of ASX shares/hybrids, term deposits, funds and RBA/State bonds is easy to administer.
    d) You do need an adviser to guide you as you approach retirement age. The rules and laws are complex and illogical.
    e) A SMSF corporate trustee arrangement makes it easy to add your children to the fund, and it seems to be a very tax-efficient way to pass what little wealth you have left when you die to them.

  10. Mark HeydonMEMBER

    Rather than the government issue bonds to invest superannuation in, I would prefer to see the government offer the ability to purchase the age pension (or multiple of the age pension) at an actuarially determined rate. This would much more closely match the requirements of a pensioner than a straight government bond. The government is the only entity with the ability to hold the very long term interest rate risk and the longevity risk associated with a retirement annuity.

    • That idea has a lot of merit Mark, and its something I think governments will look in the future, but I would rather see an expanded bond market for macro investing purposes.

  11. Prince thanks for the post. Great topic.

    I was previously with a big Super Oz company, but after looking at my returns over 15 years it was about 3%. My fault as I’d never looked, but it made me angry and I now manage my own SMSF. Thanks to global market chaos I’ve made back a reasonable chunk in my first year. I have a sizeable chunk in fixed interest 6%, and so far that going well, but I’ll have to change strategy as rates come down, but if I was still in my previous fund I’d be well negative, and I very much positive.

    If your in fund that is mostly in stocks, and say ASX200 it’s not a pretty picture.

  12. Some thoughts

    I used to work for a medium-large industry fund catering to an industry that was youth dominated and low wages. They have invested considerable effort in retaining those individuals in the fund as they move into full time, better paid employment.
    Every week, I would receive a report which would lay out how much had been paid out in benefits over the previous week (including fund transfers), how much in contributions had come in, and any expected deductions for the week ahead. The CEO and Ops manager would then work out how much money to retain in the bank account to fund benefits, and how much to send to the investment managers. I would say that we would send money to be invested 6 out of every 8 weeks, and have a couple of sit tight, no action weeks. It was pretty rare to actually draw down. This ratio will shift as a large percentage of boomers retire and start taking money out. This can be mitigated if the fund has a retirrement income stream available- why else would all of the industry funds set one up? Even the 25% won’t keep the flow positive. But if a fund is 80% young workers (and manages to retain a healthy percentage) it will come out better than one that has an older profile.

    On investments- I suspect a lot of smsf’ers are doing it because they think it is a good tax dodge, or because they have an overinflated view of their investing skill (keep in mind I see the problem ones more than I see the others). News flash- if you have an SMSF and you invest in the retail investments available (mutual funds etc) you are probably paying more in fees for a comparable investment than you would in most funds. Investing in your own mix of stocks, bonds and other- fine, although I still think there are a lot of people out there just waiting to be fleeced.
    I would also expect to see more action from the ATO on people who have broken SMSF laws. They were relatively lenient over the last decade, as the industry got going, but I think that someone has noticed that there is bit of dodgy behaviour going on- and now they are bringing out the heavy penalties, as a warning. There may be a lot of well-run, law abiding funds out there, but the bad apples can be pretty spectacular.

  13. Gough Whitlam confiscated (stole) member contributions (5 % in my case) in the early 1970’s, through it all into consolidated revenue and then squandered it. I got it back many years later minus interest. Not so long ago labour was about to raid the Future fund, that very same Fund that was set up to remedy Labour’s theft in the first place. If things go pear shaped with the current Govt still in power confiscation is a very real risk – and don’t expect any earnings if you ever receive it back!

  14. From that chart, an awful lot of Europeans have an awful lot of money in bonds, probably government bonds of their own and other European countries.

    Just another reminder that the sovereign debt crisis is also a retirement savings crisis.

    How long until the Germans give the ECB the green light to monetize? Default or inflate? (i.e. instant depression or possible hyperinflation?)

    Tough choices ahead. The choices will be made by the politicians, so inflate it will be, as always!

  15. Diogenes the CynicMEMBER

    I came to Prince’s view in 2007. I have been running my SMSF since 2002 but with no extra contributions since 2007. This would only change if my retirement was less than five years away. The risk of confiscation is one issue, but the risk of sustained legislative interference is very high. It is extremely that the minimum age for withdrawal will rise, which means I need to wait even longer to access that money.

    As for fees I pay only the audit fees as I prepare my own accounts and do the tax return. Less than 0.2% p.a. If you lower your fees you will increase your balance over the long term. The academic research supports this but it gets little mention.

  16. Prince, certainly not too long at 2000 words, but if you want to write three articles then go right ahead. I’ll read the next two with equal interest no matter how long.

    One thing to consider is that Boomers generally have less in super than Gen X because of when the scheme started. Hence, the number of old members is less relevant than the sum of funds held by old members.

  17. A ‘Self Managed Super Fund’ will not be suitable for the majority of the population. Beyond the question of financial knowledge, there is also the issue of temperament. Not everyone can deal with losses. Some will insist on ‘winning every trade’ and increase their bet instead of accepting a loss. The majority of people are also inclined to make irrational choices simply because ‘everyone else is doing it’. Most of the people with an investment properties will fit into that category.

    While it remains a possibility, the risk of your super being confiscated by the Australian government is pretty low. The Australian constitution prevents the Federal government from simply seizing your asset (although the States can do it), and as everyone who works has a super account, it is an issue which will unify the voters. The greater concern will be inflation, taxation, and pushing up the age limit on retirement.

    The bigger issue facing Australian retirement will be the trade imbalance. As the Baby Boomers retires and the workforce diminishes, our consumption will exceed production. Given so much of our ‘investment’ is really housing debts, we’ll need to sell a lot more houses and iron ore to the Chinese in order to maintain our living standard. The situation will not be sustainable.