Dear young investor: MINIMISE your contributions to super

Dear young investor: MINIMISE your contributions to super

Back in 2013, I wrote a now infamous article entitled Dear Under 50 Investor. For convenience, I have linked that article at the end of this one. That article made it clear Australians’ superannuation would not be the great source of wealth accumulation for the youth that it once was, and still is, for the older cohort of baby boomers.

The purpose of the article and its associated predictions were to warn younger investors about the dangers of funnelling too much money into their super. Money they might not see again. In fact, I went further, risking being a ‘generationist’ and suggested younger superannuants; “invest the absolute minimum amount into super…That means, no salary sacrificing, no co-contributions, no non-concessional contributions. Ignore the calls to save tax and boost your super…”

And why did I offer such a contrarian opinion?

Because, up to that point in time, almost every change to super legislation had shifted the goalposts further away from younger accumulators and, in many cases, grandfathered and therefore favoured the boomer cohort who had created the super scheme for themselves.

“Super was set up by baby boomers, for baby boomers. And since I am not a boomer, the favourable tax environment enjoyed by the boomers, I believed, would be gradually eroded such that it won’t be any advantage when it comes around to my turn.”

Even then, an observable chronological trend meant investing within the super structure was becoming less and less attractive for the young. 

And most recently, evidence is emerging, of my final 2013 prediction for super, coming to fruition.

That final prediction was that as the total sum in superannuation grew, the trillions would be too tempting for the government of the day to ignore when thinking about repairing their own budgets.

“As the aggregate amount invested gets bigger, and as baby boomers get older, the temptation to tap into the giant pool simply becomes too great for the government to resist…Over time however, I expect it is inevitable (thanks also to poor economic and fiscal management – see my post here on The Balance of Payments and my meeting with Andrew Robb) there will be a gradual erosion of the attractiveness of super for younger people.”

On 1 September 2023, the expanded memorandum of the exposure draft of legislating the objective of superannuation has triggered fear and consternation among financial advisers and their member organisations that the government intends to view the pool of superannuation we have accumulated as a source of funds for national building and fiscal repair.

The Institute of Financial Professionals Australia’s (IFPA) 28 March 2023 submission to The Treasury, noted they do not support legislating the objective of superannuation. Criticism was reserved for Section 5 (1) of A Bill for an Act relating to the objective of superannuation, and for related purposes.

Section 5(1) reads as follows:

“The objective of superannuation is to preserve savings to deliver income for a dignified retirement, alongside government support, in an equitable and sustainable way.”

Quite rightly the IFPA warns “The proposed objective is in our view loaded with terms that are open to interpretation or manipulation by future governments.”

They’re right. A ‘dignified retirement’ means different things to different people based on their own economic circumstances. It can also mean different things at different stages of the economic and business cycle.

Legislation should be much more tightly drafted.

Moreover, the sustainability of the superannuation system could be contingent upon the overall budgetary and fiscal situation of the current government. It’s possible that when the superannuation pool reaches four or five trillion dollars (an arbitrary figure), the government might decide that there’s more than needed to maintain sustainability. In such a scenario, they could consider accessing the surplus for other purposes, such as fiscal recovery or ‘pet’ projects like social housing.

While these projects may indeed have a great social benefit, they were not suggested as a possibility when workers were encouraged to accumulate money in super. It’s a fundamental democratic principle that ‘goods must be correctly labelled at the time of purchase’. People need to know what they are buying before they pay. At no point since 1991 have those who contributed to super been told, ‘the government may use your money for whatever it likes’.

Natasha Panaganis, who heads Super and Financial Services for the IFPA, warns the government does indeed view the superannuation system as an important source of capital for the economy.

Speaking to self managed super fund (SMSF) Adviser, Panaganis notes the government hasn’t been “shy” regarding its plans for the nation’s super savings. Her interpretation of the draft exposure is that the government sees your super as an important source of capital that could be used to support investments in the economic priorities of any government at the time.

As you will see from the chronology of legislative changes in my 2013 article, younger people must work longer before qualifying to access super, the amount they can take out has had limits imposed, and the tax rate that applies has risen. In each case, less of your money is available to you. This trend is structural and will not be reversed.

And now the IFPA warns, as I did in 2013, the super pool is so great that governments will seek access to it.

And so, I conclude by repeating my warning of 2013: minimise your contributions to super. 

Any advantages that exist today are not static and are subject to the whims of government legislative change. If you are young, you won’t see much of it so why lock it up for up to 40 years?

Here’s the original article from 2013.


Roger Montgomery is the Founder and Chairman of Montgomery Investment Management. Roger has over three decades of experience in funds management and related activities, including equities analysis, equity and derivatives strategy, trading and stockbroking. Prior to establishing Montgomery, Roger held positions at Ord Minnett Jardine Fleming, BT (Australia) Limited and Merrill Lynch.

This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.

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  1. I have a good friend who still has another 20 working years left, who has a home nearly paid and close to 7 figures in super and no other savings.. I’ve suggested another way forward is to invest outside of super from now on. I do a split of roughly 80/20 outside and inside super and plan to work part time from now on.

  2. I on the other hand am a boomer who took full advantage of the rules and have a reasonable nest egg which I am proud of. Unfortunately the market being what it is I am finding it insufficient to live off ( without burning the capital) and deemed to much to be able to tap into a pension. Consequently and ridiculously I would have been better off retaining the money outside super and under my control.

  3. My late father, a grocer, warned me of exactly the same thing in 1984. You are both absolutely correct. The advice I have given my 30 year old children is to have only compulsory super and pay off their modest-sized apartments purchased over 5 years ago ASAP until things change.

  4. Thanks for the comments Roger. Gerrard Rennick has been commenting on the failings of super recently. Have you spoken to him, or have any comment on how the system is failing in the present?

  5. Two questions Roger.

    When (as Gen X) are WE going to be in the Parliament and making rules that benefit OUR generation, and whatever happened to the Trustee making financial decisions that were in the BEST interest of the person for whom the money is being held in trust ?!

    I, like many other Gen X are caught in the middle between boomers and Gen Y/Z, likely have a couple of hundred thousand dollars in Super and can’t do anything about it for another 10-15 years or so before we start to retire.

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