Is a Home Inspection Required When Buying a House?

Inspecting anything before you complete a purchase is a good idea. For example, you can use a magnetic particle testing device to check that the metal surface is free from defects. Or, you can have ...

News Company - avatar News Company

Trump Remembers the Forgotten

Not so long ago Washington all but gave up on our country’s blue-collar workers.  They washed their hands of those in the supposedly outdated manufacturing and energy sectors.  The message the perpe...

Dr. Robert Owens - avatar Dr. Robert Owens

As weary Britons head to the polls again, parties seem incapable of handling the nation's problems

The cost of running the 2017 UK general election was estimated at £140 million (A$270 million). It’s likely to be higher this time. In 2017, the Conservatives, Labour and the Liberal Democ...

Rob Manwaring, Senior Lecturer, Politics and Public Policy, Flinders University - avatar Rob Manwaring, Senior Lecturer, Politics and Public Policy, Flinders University

I had an idea in the 1980s and to my surprise, it changed education around the world

Cogitive load theory explains why explicit guidance from teachers is more effective in teaching students new content and skills than letting them discover these for themselves.from shutterstock.comThi...

John Sweller, Emeritus Professor, UNSW - avatar John Sweller, Emeritus Professor, UNSW

Indonesian cave paintings show the dawn of imaginative art and human spiritual belief

This hunting scene, painted 44,000 years ago, is the oldest known work of representational art in the world.Ratno Sardi, Author providedOur team has discovered a cave painting in Indonesia that is at ...

Adam Brumm, ARC Future Fellow, Griffith University - avatar Adam Brumm, ARC Future Fellow, Griffith University

As simple as finding a job? Getting people out of social housing is much more complex than that

A private member’s bill, moved by Labor MP Josh Burns, recently called on the Australian government “to help build more affordable homes” in response to the growing homelessness cri...

Chris Hartley, Research Fellow (Housing and Homelessness) at the Centre for Social Impact, UNSW - avatar Chris Hartley, Research Fellow (Housing and Homelessness) at the Centre for Social Impact, UNSW

Marianne Leonard: a new film tells us little about the woman fixed in the role of musician's muse

Marianne Ihlen: she remains stuck in the role of the beautiful ingénue, the part-time lover, in Nick Broomfield's documentary.Copyright Nick BroomfieldNick Broomfield’s latest documentary...

Tanya Dalziell, Associate Professor, English and Literary Studies, University of Western Australia - avatar Tanya Dalziell, Associate Professor, English and Literary Studies, University of Western Australia

What limits shareholder activism as a force for good: the free-rider problem

Shareholder activism involves directly engaging with directors and executives of companies to effect change.www.shutterstock.comThe board of Australia’s second-biggest bank is in for some stick ...

Salvatore Ferraro, PhD candidate, RMIT University - avatar Salvatore Ferraro, PhD candidate, RMIT University

How New Zealanders miss out on hundreds of thousands in retirement savings

New Zealanders pay higher fees for KiwiSaver funds than people elsewhere.from www.shutterstock.com, CC BY-NDIn the 12 years since New Zealand introduced the retirement fund KiwiSaver, nearly three mil...

Ayesha Scott, Senior Lecturer - Finance, Auckland University of Technology - avatar Ayesha Scott, Senior Lecturer - Finance, Auckland University of Technology

Diabetes and pregnancy can be a tricky (but achievable) mix: 6 things to think about if you want a baby and 1 if you don't

A successful pregnancy if you have diabetes comes down to planning and making sure you have the right health-care team behind you.from www.shutterstock.comThe number of people with diabetes is expecte...

Freya MacMillan, Senior Lecturer in Interprofessional Health Science, Western Sydney University - avatar Freya MacMillan, Senior Lecturer in Interprofessional Health Science, Western Sydney University

Examining how primates make vowel sounds pushes timeline for speech evolution back by 27 million years

Baboons make sounds, but how does it relate to human speech?Creative Wrights/Shutterstock.comSound doesn’t fossilize. Language doesn’t either.Even when writing systems have developed, they...

Thomas R. Sawallis, Visiting Scholar in New College, University of Alabama - avatar Thomas R. Sawallis, Visiting Scholar in New College, University of Alabama

What limits shareholder activism as a force for good: the free-rider problem

Shareholder activism involves directly engaging with directors and executives of companies to effect change.www.shutterstock.comThe board of Australia’s second-biggest bank is in for some stick ...

The Conversation - avatar The Conversation

How New Zealanders miss out on hundreds of thousands in retirement savings

New Zealanders pay higher fees for KiwiSaver funds than people elsewhere.from www.shutterstock.com, CC BY-NDIn the 12 years since New Zealand introduced the retirement fund KiwiSaver, nearly three mil...

The Conversation - avatar The Conversation

USMCA: The 3 most important changes in the new NAFTA and why they matter

Pena Nieto, Trump and Trudeau signed the USCMA in November 2018.AP Photo/Pablo Martinez MonsivaisPresident Donald Trump and Democratic leaders agreed on a deal to pass a new trade agreement between th...

Amanda M. Countryman, Associate Professor of Agricultural Economics, Colorado State University - avatar Amanda M. Countryman, Associate Professor of Agricultural Economics, Colorado State University

The just-announced inquiry into Australia’s retirement income system ought to be anything but run-of-the-mill.

Taking place 25 years after the introduction of compulsory superannuation, it provides an opportunity to either fix a broken system, or discard it as failed experiment.

Incremental reform won’t work.

There’s a budget problem

The first and most fundamental problem with compulsory super lies in fiscal arithmetic.

After a quarter of a century of compulsory super, some 70% of the aged population still rely on either a full or part age pension, which is an awful lot for a system whose stated aim is to substitute or supplement the age pension.

Modelling by actuarial firm Rice Warner predicts that it will still be 57% by 2038.

That’s right. After almost half a century of compulsory super – an entire working life – more than half the aged population will still be collecting the age pension.

It’s progress, of a sort.

By then then age pension will take up 2.5% of Australia’s economic output, down from the present 2.7%.

Read more: Productivity Commission finds super a bad deal. And yes, it comes out of wages

It will still account for one in every ten dollars spent by the government. That’s more than defence, twice as much as Medicare, and twice as much as the Commonwealth spends on schools.

In return, the government forgoes an enormous amount of revenue on superannuation tax concessions.

Source: Australian Tax Office Its practice of taxing income paid as super contributions at 15% rather than the taxpayer’s marginal rate will cost the budget A$19 billion this financial year according to the Treasury, climbing to $23.3 billion in 2022-23. Its practice of taxing super fund earnings at 15% (or less) rather than the marginal tax rate will cost the budget $20 billion this financial year, $23.6 billion in 2022-23. We are forcing workers to divert up to 9.5% of their salary into super (soon to be 12% unless that legislation is withdrawn) and losing enough tax revenue to fund scores of government programs or to cut general tax rates, in return for little change in what we spend on the pension. There’s a returns problem The second problem is what happens to the money. Not only are there quite a lot of poorly performing funds – something that has been widely discussed in the leadup to the inquiry – but fees charged are incredibly high. The Productivity Commission finds that average fees are 1.1% of annual balances. More than 4 million of us pay more than 1.5%. It mightn’t sound like much, but it’s a fair proportion of the average annual return of 3.5 percentage points above inflation. In New Zealand, where the government selects the default schemes on criteria that include price, the average annual fee is 0.55%. In Chile, which tenders exclusively on the basis of price, the average fee is 0.47%. Many of the funds justify their fees on the basis of their superior skill at picking stocks, which, as Nobel Prize winners Eugene Fama and Richard Thaler have discovered, is almost always a bad idea. Read more: Super fees vary wildly, and it will hurt your retirement income Even when they do less stock picking over time, upping the proportion of safer assets such as cash and bonds as their clients age, they continue to charge the fees they justify on the basis of the work of picking stocks. Equally bad is the lack of transparency about what they charge. Those of us who able to switch (and here are still some who can’t) find it hard to find out what we are paying. Try it for yourself. I am, by many measures, a pretty sophisticated consumer of financial products, but it took me a ludicrous amount of time to find out what was being taken out of my account. And there are ways out Here’s what I’d use as two guiding principles. The aged pension ought to provide a baseline dignified minimum for those who haven’t been able to provide for their retirement Saving through the super ought to be tax-free on the way in, tax-free on fund earnings, and taxed at the marginal rate (including the 50% capital gains tax discount) on the way out In order to cut fees and lift returns there ought to be a default offering that invests in a broad range of Australian equities indexes and costs no more than 0.15% to 0.20% per year – maximum. It would be natural to have a sliding scale of allocation from 100% equities at (say) age 25 to 0% equities (and all cash plus bonds) at age 65. Again, these would be defaults that people could opt out of. Read more: 5 questions about superannuation the government's new inquiry will need to ask The tax advantage given to super would be the timing: at retirement versus as money goes in and it earns income. It would need to be justified by the savings that would accrue to the budget from getting these people off the aged pension. Whether these numbers would stack up is an empirical question that would require careful analysis. But it is important to remember that the rate of the pension, the retirement age, and the various tax rates and contribution caps are all within the government’s control. It would have a lot of wriggle room to make the arithmetic work. We should fix it, or axe it If we are going to keep sequestering between 9.5% and 12% of people’s pay, we need a good reason. It could be to provide them with a decent deal in retirement, or it could be to provide a good deal for the taxpayer. The current system is questionable on both counts. It would be vastly preferable to get to a system where only a relatively small number of people retired on to the government pension, and the rest saved enough for their retirement not to need to, through a series of incentives and nudges along with some compulsion. It could be world-class. The system we have isn’t. And tinkering with it won’t help. We need a retirement income revolution.

Authors: The Conversation

Read more http://theconversation.com/vital-signs-our-compulsory-super-system-is-broken-we-ought-to-axe-it-or-completely-reform-it-124974