Keeping superannuation safe
Wealth Within chief analyst Dale Gillham shares his strong views with Miranda Brownlee on Joe Hockey’s proposal to allow superannuation to be used for the purposes of purchasing property.
What are your thoughts on this proposal from Joe Hockey to allow superannuation to be used for the purchase of a first home?
I don’t like that idea. To me it’s a double-edged sword: the government plays with superannuation all the time resulting in never-ending changes.
People have proven over the last 30 years, since we’ve had compulsory super, that they don’t know how to save money, and putting it in the family home is not the place to put it. It should remain an investment for the future and the family home is not about your retirement.
Whilst I appreciate that young people need to be able to afford homes, to me the government should be working on that rather than making a change to superannuation. If you look at the people retiring on superannuation right now, the average Australian is still retiring on some kind of government pension.
I think around 80 per cent of the retired population is still receiving some kind of pension from the government. Therefore, we need to keep as much money in superannuation, letting it compound and build, as we possibly can, not letting them buy a house. This is not going to help fund their retirement because people borrow right up to their limits and use their house to borrow more, and waste their money.
I do understand the government wants to help younger people get into property, but I think Australians need to get smarter. Australia’s love affair with property is very misguided; it’s actually far more profitable just to be a renter and invest in shares and property you don’t live in because of the tax deductions and the fact it’s a much better way to create wealth for retirement.
Australians need to get out of the habit of owning a property with their name on the title. It’s not actually very productive for you because all you’ve done once you sell the house at the end of a 30-year period is pay the capital cost into the house and the bank interest – it’s just enforced slavery in [my] mind. You may as well rent where you want to live, because we’re seeing younger people living further and further out of the city because it’s cheaper than having to commute one to two hours to work. That’s not a lifestyle in my book: you may as well live closer to where you work, where you can get the better lifestyle and invest.
What are your thoughts on property investment outside of the family home? Do you have any concerns there?
I think quite often there is an inference that SMSF investment in property is too high but I think that’s just people trying to talk that up, especially those who are not involved in property. I’m a sharemarket guy so in theory I should be talking up shares rather than property, so to speak. But I believe it’s those people who want SMSF trustees to put their money in other places such as managed funds or other investments that talk about SMSFs being over-invested in property. I don’t think it’s anywhere near being overdone, however. To me, as long as you look at the liquidity issues and things like that, investing in property within your super fund is fine.
What are some of the other issues you’re seeing in the SMSF space?
Well, there are lots of little things. It’s a such a big industry now and is becoming even bigger so we’re getting a lot of, well, I wouldn’t say 'sharks', but we’re seeing a lot of property spruikers and other people putting out information and I think there needs to be more done on educating trustees on how to invest.
There’s lots of information on the compliance side of super in terms of how to be a trustee, but when I talk to a lot of SMSF trustees their knowledge of investments isn’t anywhere near as high as it should be in terms of understanding how cash flow, property and sharemarkets work. They tend to be like ships without rudders going with whoever’s telling them what to do rather than making their own informed decisions.
Who do you think should be responsible for trustee education?
I think it should mainly be the trustee but I believe the SMSF industry should be also. Every SMSF trustee has an accountant or an auditor so perhaps they should be the ones who suggest training for trustees if they feel the trustee doesn’t have their skills at the level they need to be.
At the end of the day, it’s about their future. It’s their retirement, and having dealt with people investing in the sharemarket I can say that 80 per cent of people make mistakes all day, every day, and it really affects their returns dramatically. I think this is also happening in the super fund space; people are setting up portfolios and doing things they shouldn’t be doing because they don’t have that knowledge.