Is the Australian superannuation system designed to fund your
retirement or fund managers lifestyles?
Its a trick question, of course. The correct answer is that it
doesnt matter what a government policy is designed to do. It always
does the opposite anyway a phenomenon that economists call the
Cobra Effect.
As the story goes, the British Government in Delhi decided to
get rid of cobras by offering a bounty for cobra skins. The result
was a vast increase in the cobra breeding industry
Even the British Government eventually figured out what was
going on and closed the subsidy program. And so, the cobra
breeders, no doubt caught up in a frenzy of animal rights
environmentalism, freed their stock back into its natural habitat,
causing a flood of cobras on the streets of Delhi.
Thus, the government programs intention to reduce the number of
cobras resulted in a cobra plague. And so itll be for the
superannuation industry too, Ive always said.
Now, Id just like to mention that the sound of a hissing cobra
once caused me to be so petrified that I couldnt even manage to wet
my pants.
That is probably how the superannuation industry is feeling
right now too. You see, the super industry forgot that the Baby
Boomer generation would eventually like its money backbut somebody
at the regulator just reminded them.
Super funds slammed over failure to plan for Boomer
retirement wave, reports The Australian Financial
Review. This is despite the law requiring them to help members
plan for their super withdrawals to fund retirement.
Yes, according to the regulators tasked with making sure the
super industry follows the rules, the super industry is not
following the rules.
You and I might think this requires the regulators to experience
some form of accountability for not doing their job. But thats just
not how the Cobra Effect works. Its always the man on the street
who gets bitten on the bum by the consequences of government
policies.
Now Im sure it comes as a complete shock to people in the
finance industry that people might want their money back at some
point.
Then again, fund managers from Bernie Madoff to the UKs
superstar stock-picker Neil Woodford have always struggled with the
concept. Not to mention banks, like those which failed in the US
this year when depositors wanted their money back.
So, Australias superannuation industry probably thought their
gravy train of compulsory savings they kept safely out of our reach
would go on forever.
But, yes, people will eventually withdraw money from a
retirement savings systemif they can.
The trouble is that, when it comes to super, this implies
selling the assets in the fundand that means fewer assets under
management for the fundiesand that means fewer fees for fundies
Uh oh
But it gets worse. The premise of the super system is that its
many savers an...