Sent: 26-07-2012 09:21:02
In this issue:
Return to full article list
HomeFree weekly newsletterSelf Managed Super Fund ArticlesContact usLogin
Super to face price controls?
Most sections of the UK media are abuzz with the costs charged on their super funds which they call pensions funds.
Traditionally the UK has used defined benefit pensions but it's moving to a defined contribution arrangement. At the end of this year millions of UK taxpayers will automatically become members of "workplace pensions" - their defined contribution system.
In the UK it's expected that many people will take their retirement benefits from the workplace pensions and purchase a lifetime annuity.
The cost issue was first exposed by the Pensions Policy Institute in February when they found that benefits could be much larger if annual fees were lower. What an amazing observation!
According to the UK Pension's Minister for many people the annual administration charges will total 0.5% per annum of the amount invested.
The UK Government has the power to cap charges in the pension sector. This rule was introduced by the Coalition Government.
A major issue in the UK is older pensions which have higher charges.
I find it interesting that the issue of fees has become an issue in the UK but hasn't really done so here. The issue of fees and charges has occasionally been seen - for example, the industry fund "compare the pair" campaign.
But the Government, and its regulators, have done their utmost to keep well clear of this issue.
In the Telegraph an interesting article noted that charges were only part of the problem. It said that one UK Government pension regulator representative had said that "many [pension investors] think their [retirement] money is in some sort of bank account and are completely surprised it is invested at all. They don't expect to see volatility."
I assume this type of comment is based on some research which I've never seen replicated here.
The article then goes on to say that research by the Cass Business School "found most traditional default funds [similar to our default funds] did not match members' needs in terms of asset allocation and risk profile. This is perhaps hardly surprising. Many default funds are still filled to the brim with equities and do little to protect members from the vagaries of stock market cycles and macroeconomic issues."
You could expect to see similar commentary in any media outlet in Australia.
You can read this interesting article here: http://www.telegraph.co.uk/finance/personalfinance/pensions/9419395/Pension-charges-are-only-part-of-the-problem.html
What this tells me is that the financial services industry and the Government have been lousy - absolutely lousy - at showing people how and why they invest money and that investing in equities is about investing in businesses that use money to make money. Unless you're a speculator or gambler investing in equities isn't about the changing value of company shares.
The only commentary we see is about asset prices. Nothing about the fact people are investing in companies - or whatever - and the most important issue is the income that comes from the investment.
And guess what? The amount of dividends paid by companies listed in the ASX 200 All Ordinaries in the first six months of 2012 were higher - in dollar terms - than the dividends paid during the first six months of 2011. At the end of June '11 the ASX 200 All Ords stood at 4,608 and at the end of June '12 stood at 4,095.
Why do you hardly ever see this talked about? I admit this is hard to understand for a nation obsessed with capital price speculation.
Until we begin to educate investors about what investing really means so they understand the uselessness of asset price speculation then we're really wasting everyone's time.
Version 6.0 of my SMSF book is now available.
You can see all the changes that have been made between Version 5.1 and 6.0 (the latest edition).
You can look at the contents page at the following link: http://www.atcbiz.com.au/r.php?r=0mjd6ne
For details of the changes made from version 5 to version 6 visit: http://www.atcbiz.com.au/r.php?r=d5xcpch
As you'll see from the list there have been many changes.
Two purchase options are available - once only subscription - $55 inc GST - or an annual subscription will gives you access to all the updates made throughout the year ($120 inc GST). The book can be purchased at the following link: http://www.atcbiz.com.au/r.php?r=5a4agqb
This email is general in nature only and does not constitute or convey specific or professional advice. Legislation changes may occur quickly. Formal advice should be sought before acting in any of the areas discussed. Be aware that the information in these articles may become innaccurate with time. Responsibility is disclaimed for any inaccuracies, errors or omissions. Particular investments are neither invited nor recommended and hence this publication is not "financial product advice" as defined in Section 766B of the above legislation. All expressions of opinion by contributors are published on the basis that they are not to be regarded as expressing the official opinion of any other person or entity unless expressly stated. No responsibility for the accuracy of the opinions or information contained in the contributor's articles is accepted by any other person or entity. Copyright: This publication is copyright. If you wish to reproduce this article you require a license, which can be purchased here, to do so.