I’m Sebastian St James. I’m here to answer your money questions. Is Super a scam? Superannuation has always been the promise to allow you, as a moderate to high Income earner, to save for retirement and replace the pension. Yes, true. But if you’re a lower
Income earner, you still get the pension anyway. True, again. The Australian government places the old age pension in exactly the same category as unemployment benefits. In fact, they’re administered by exactly the same people. So effectively, the way it is treated in
Australia, it’s welfare. I’m not suggesting that we think of it as being welfare. In fact, if you’re paid your Taxes the entire lifetime, shouldn’t you get something back from the government? But I’m just saying that this is effectively how the
government is treating you if you draw a pension. This is not the same thing in the US or a lot of other countries. In fact, over there, you effectively, by paying your Taxes right throughout your working career, you pay into the system a bit like you do in Australia, but then
you’re eligible for actual social security. Social security sounds like, you know, like a safety net, whereas the old age pension, maybe something you’re entitled to, except it’s the other way around. In America, you are entitled to that money. It doesn’t matter if you own
squillions of dollars, you still can get an old age pension and you’re not Income tested nor asset tested. In Australia, you are both. So which is the fair way? Well, I can see arguments for both. Firstly, if you in fact have been paying your Taxes your
entire life, it would be really nice to know that you’re going to get a pension of X number of thousand dollars a year, like guaranteed. Then on top of that, you can work out how much money you’re going to save for yourself in a separate 401(k) system. So and then you can add them
together and say, well, you know, I’m definitely getting this money from the government and I can then get this amount from my own Savings and it will not affect what’s coming from the government. So in the US, it’s actually a lot easier to plan for your
retirement because like the first threshold, the first tranche of what you’re going to be using for expenses is sort of guaranteed. In Australia, it’s not. The more that you save, the less you get from the government. So it’s kind of a bit harder in a sense. It’s a
disincentive to save, but not really, because unless you can completely live on what the pension gives you and a lot of people unfortunately do have to, but it’s not a particular comfortable lifestyle. I think it’s also a valid argument to say if you have millions of dollars in your
superannuation, why are you going to cost the taxpayer anything? So I think both points of view are valid. This concept alone means if you only think about yourself, then super is a scam. Is super a scam? Well, it really depends on your point of view. If you are a per hour worker, then you get a
base rate, whatever you’re getting. And on top of that, you get the super. So of course, it seems like super is something that you’re getting. However, and it depends on what sort of jobs you have to whether you even realize this. A lot of people who get wages in the form of a salary,
in other words, regardless of the number of hours that you work, this is what you get. You get $90,000 a year. That’s it. Even if we call you in for overtime, it doesn’t exist. What you tend to find with these people is it will be a package all up. So you’ll get, in my example,
$90,000. $90,000 including super. That’s what we’re giving you. In other words, the super is built into it. And if the super goes up, well, you’ve agreed to $90,000. And so the amount that you’ll get with your wage will go down. So quite clearly, from those people’s
point of view, super is in fact forced Savings. It’s not something that your employer is willingly giving you as a lovely free bonus. You’re getting a set amount. The more that goes into your super, then the less comes back to you. So quite clearly, it is your own wage
being diverted. If you are earning well and want to give to your family on retirement or build an empire, then super is great. Superannuation was created by Paul Keating, the then Prime Minister, in 1992. I’m slightly older than that, and so I do remember it. Interestingly, they actually had
an agreement with the unions back in around 1983 where the unions agreed to actually forego 3% of a wage increase in order to put it in something that predated superannuation. So that’s the very origin if you want to look back at it. So if anybody has any confusion that super is in fact extra
money, you just need to go back to the original of how it was done. And it was a wage increase that you didn’t get. Is super about Wealth Building, as our commenter suggests? Well, if you talk to Paul Keating yourself, which I’m sure you do every day, he will tell you
out of the horse’s mouth, "No, it was always designed that you would fully draw down on your super. The government does not like to pay you a pension. You do not deserve it," according to the government. So how about you save for your own retirement, and then we will means test you,
and then we don’t have to pay you anything. It’s a brilliant system, said the government. The idea is that you would actually draw down on your super throughout your retirement. Draw it down to zero. How do we know this? Well, there are mandated amounts. Once you start drawing down on
your super, the amount that you can withdraw, the percentage that you have to withdraw, is mandated and it gets larger and larger the older you get. It’s huge. It’s quite clearly it’s designed for you to draw down on your super. Now, technically, if you are a squillionaire, then
of course you can draw down on your super, and then you can invest that money outside of super. So of course, there are in fact ways of transferring the wealth to the next generation. But you can see by the drawdown percentages, it was always designed to in fact be used up within your retirement
itself. Your ex-wife can take your super. Is this an existing ex-wife? Or are you using the comment section in my CashNews.co to announce to your current wife that you’re in fact planning to divorce her and you’re very upset about what’s going to happen with your superannuation?
Hmm… Diane, if you’re watching, Robert does not love you. He wants a divorce. Under the Family Act of 1975, there’s a pre-date super, but as a result of that law, superannuation is in fact just part of the general family property and has to be divided as such. I’m doing
Shares index fund that ART offer because it’s measured in units. Because it’s measured in units, I presume the fund reinvest what would otherwise be distributions if it were an ETF. Units, well, all basically superannuation funds deal in units. The reason why, I can
give you 24.965 units, I can deal in fractions and therefore it’s so much easier. The exception is with direct Investments. Members direct. Names like that. You in fact are buying your own Shares and therefore they’re directly under your own name. No
units except if you invest directly into an ETF and then you’ve got units again. Oh, amazing. So it is true that the particular superannuation fund that you’ve selected has got units, but all superannuation funds have units. So that’s nothing in particularly new. The question is,
what happens when the money comes in? What happens when the Shares, which that super fund owns, actually produces Dividends? Because it’s super, they’re not going to distribute them to you. No, it’s locked away until you retire. So what actually
happens? Two things can happen. Firstly, it could be like a dividend reinvestment plan where the money that would come in, because it would come in as cash from Dividends, right? This is the real world. The super funds hold real Shares, they get real
Investments, it comes through as cash. Then they could actually buy more units on your behalf and therefore suddenly you’ve just got an extra few units. It’s just the same as some systems use for Shares. But they don’t have to do that. What they
can do instead is they can actually increase the value of the units you’ve got, right? And therefore you’ve got exactly the same number of units and you’re getting no more units, but don’t worry because your units are worth a little bit more. Now, there is a bit of a secret
to understand here, although if you watched all my CashNews.cos, it is no secret to my regular viewers and that is your actual Shares will drop in value as soon as Dividends have given out because Dividends is a way of taking the inherent value of
your Shares and giving it to you in cash. So the company’s not worth as much and therefore the Shares will naturally drop. So it’s a bit of an argument about, oh, what are we gonna do with this extra money? Are my units going to go up in price? Well,
they probably went down in price just before that money came out. So it’s kind of a bit of a wash at the end of the day, but it’s really up to the individual super fund and what they’re going to choose to do, whether they’re going to give you new units or whether your
existing ones will just change. The astute amongst you will notice that this CashNews.co has a different format to my regular CashNews.cos. Actually, you don’t have to be astute, but I know you are because I know you’re watching my CashNews.cos. Why is this? Some of you have claimed
that my CashNews.cos take too long to produce. I know, Escandaloza. The reality is they can’t be produced in any quicker time. To start with, I may have to do a whole lot of simulations that can take weeks to work up. It’s a big job. That’s additional time that is not actually a
part of the CashNews.co, it’s just preparing the source material. Then I record the CashNews.co, all that is done with an edited, that can take weeks and weeks because my CashNews.cos are fancy and therefore all up, it can take well over a month to do a single CashNews.co. In this
CashNews.co, we’re trying something new. Can I get out a CashNews.co in say, a week? I know, that would be amazing. Yes, if the format is entirely different and the format is built exactly around getting out that CashNews.co in that short period of time, then yes, I believe I can. I may do
both types of CashNews.cos and find out how they work together. Some CashNews.cos that come out fairly quickly, others which are burning away in the background. Exciting times.
CashNews, your go-to portal for financial news and insights.
You used to be able to salary sacrifice your whole wage into super then draw a low income support from the govt. They cotton on to this and reduced the amount to $55K then $50K, all the way down to $25K and 24/25 back to $30K.
If your super is at the million mark and I know only <10% of earners will be anywhere near there and returns are 8-9%. That's 90K a year without drawing on the principal while still complying with the 4% draw down rule. The way the accumulation accounts works you can reinvest some of that back into that account.
Super is a great wealth building tool. It's not a set and forget. Tax free (after 60) is very generous and people should be utilising every aspect of super to build wealth. As you said the pension alone life will be a very meagre one.
I like this format better, back to the original style. Thumbs up!
My super find has made nearly 10 percent year after year on average. Thats without me doing anything. I salary sacrificed and basically the govt allowed me to pay in more super which through decreased taxation the govt basically paid half. But some people cant be convinced and will retire on the bones of their butt.
Reminder. When first introduced, Super was sold as a nice addition to your pension. The pension paid for your basic cost of living. Super was so you could travel or whatever you wanted in your golden years. Source? I was paying very close attention when it was introduced
Here's a fun factoid for you Mr James. 3% of the income tax paid by Australians goes towards their pension. This used to be kept separate. Then the government decided to put it into consolidated revenue because "it'd be easier to manage". Once that was done the government stopped saying that 3% of income tax was for your pension and that fact was forgotten about. Source, my grandfather (Greatest Generation) who was very very angry about this until the day he died as the government had stolen his retirement money.
If you have millions of dollars in super, you probably paid a huge amount of tax, so you should get some back.
Thanks, could there be a an advertisement for production team on seek soon 😁