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Is superannuation a flawed retirement strategy?

Here we look at an important article on superannuation and planning by Mark Teale from Prepare for Life.

The frenzy and speculation that occurs sometimes in the media on the topics of superannuation, retirement, and age pensions is nothing unusual. Over the years there has been a constant parade of legislation, which has been introduced and passed, all in the spirit of refining the ‘Three Pillar Retirement System’.

If you are extremely desperate and have a couple of hours, you can go to the Parliament of Australia’s website and search through the library for a list of legislative changes and parliamentary committee reports that relate to superannuation and age pension in Australia. You will notice that between 1900 and 1973 (the year I started working!) there were some legislative changes, but nothing in comparison to the changes since 1983.

To give you an idea, of the 57 pages outlining the legislative documents and committee reports since 1900, 51 pages (90 per cent) refer to the changes that have occurred since 1983.

So, what does this all mean for you and I? Well, change is constant and that should come as no surprise. It does not mean, as I have heard some people say, that superannuation is a flawed method of saving for your retirement.

I believe the government’s objective, along with any speculated legislated change, is to ensure we view superannuation as it was originally intended. Which is as a vehicle of choice for retirement planning, and not necessarily the vehicle of choice for tax planning.

The balancing act for the government in any legislative reform will be ensuring that superannuation remains an attractive option for people planning and saving for their retirement. They need to make sure it does not become so onerous and complicated that people lose confidence in the process, consequently meaning they no longer see any value in planning and saving for their retirement.

The legislative changes that have occurred over the years have not been confined to superannuation. During this time the age pension has also been subject to constant refinement. From the removal of the means test for those retirees over the age of 75 in 1973, to the abolition of the assets test completely in 1976, the re-introduction of the assets test in 1984, through to the future changes to the assets test from 1 January 2017.

The constant merry-go-round of changes makes it hard for the public, and their professional advisers, to implement a rock solid plan that will guarantee the income wanted for retirement.

You’ll note I said hard but not impossible.

Let me emphasise; it is extremely important to have a plan and review that plan on a regular basis, taking into account the legislative changes and the movements in investment markets. Implementing a plan when you are 50, and then not reviewing it until you retire at 67 or 70, will, I am sure, result in some very disappointing outcomes.

If you don’t believe you have the time to review your plan, or you are unsure of what the legislative changes will mean for you, make sure you talk to an expert. Someone suitably qualified to provide sound advice and assistance. Don’t rely on your well-meaning neighbour, the ‘experts’ on your favourite current affairs program, or someone you have spoken to casually at a party or barbeque.

Regardless of the speculation over possible future legislative changes, one fact remains. A well-researched and professionally prepared plan is a must to ensure your retirement is all you wished for.

Prepare for Life is a publication from our Licensee, Professional Investment Services

It’s my job to work as my client’s financial ‘lifesaver’ to ensure that they swim between the flags and that they don’t get in over their heads.