Cracking the sads with the media, episode 426: The GFC and superannuation

Those who read this blog will know all about my thoughts on the media. Some of you will also be probably saying, “There’s been a GFC. Why have you been so silent?”

I admit to being busy with other stuff in meatspace, and I haven’t blogged in a little while, so shame on me. But finally, I’m going nuts again, and you can all shut up and read for all I care because there’s stuff that simply has to be said.

The media has been all over superannuation funds for quite some time. True, this is the biggest exposure Australians will ever have to volatile investment markets outside their own home. And yes, for those of you who like to read between the lines (you know who you are) there was a subtle dig buried in that sentence.

Part of the negative press aimed at super funds is simply unwarranted, and here’s the reason why: Chances are big that you need to shoulder what could potentially be the lion’s share of responsibility for that diminishing nest egg.

That’s right folks. You, or at least most of you who are reading, are almost fully culpable. Not your super fund. Possibly your financial adviser, if you have one, but this ain’t aimed at you if you have. That will be the subject of a different post, so if you have a financial adviser, you can consider yourself in the clear. At the moment.

For those of you who don’t use a financial adviser, I suspect that you are having a grand old time criticising your super fund for what is, for most of you, a year and a half of negative returns. Let’s face it; we love to have a go at stuff that shits us. As a nation, we love to stick it up the poms when they’re complaining, but to be frank; we’re a nation of whingers. Possibly even worse than the English.

We’re also a nation that hates to accept personal responsibility.

Put these two traits together, and you’re left with the kind of sensationalist reporting that sees the media (News in particular, but Fairfax is a close second) putting out tripe like this or this and Australians lapping it up like the sheep that that they are.

I’ve said it before and I’ll say it again: Australians are shithouse investors and it’s time that you were all told. As an investor, the chances are that if you’re reading this, you suck.

Permit me to now explain why you potentially suck.

Superannuation is not a type of investment. It’s a tax environment.

John Smith (not his real name) is 58 and recently retired. Naturally, he’s rather upset at his super fund’s return of -20% over the past year. And he’s only in the fund’s ‘balanced’ option.

He spots an ad for an online account in the newspaper paying 4.50% and thinks to himself, “At least this is positive.”

John empties his super fund and sticks the entire amount, lock, stock and barrel into this online account. John is, quite frankly, a goose.

On John’s current marginal rate of tax (30%), the rate of interest becomes less attractive at 3.15%, not including Medicare.

On top of this, John simply doesn’t want to know that he could have invested in a cash option in his super fund which is only taxed at a concessional rate of 15%. He’s that pissed off. In fact, the bank that offers this account also offers an identical account to self-managed super funds, thus yielding a superior return after tax of 3.825%.

And because John is not 60 yet, he’s going to be in for a fright at tax time when he finds himself hit with a tax bill in the tens of thousands of dollars on his lump sum super withdrawal.

Can it get any worse?

You bet. John also couldn’t care less that, had he switched to the pension phase of super, his assets aren’t even subject to tax on their earnings. Holding this online account within a self-managed super fund in the online phase would have yielded the full 4.50%.

Not only that, because John has withdrawn the amount from super he is going to have serious problems if he ever wants to start up a super pension, because he won’t be able to get the whole thing back into super if he tries. Amounts able to be contributed to super in a financial year are subject to contribution caps, which limits his flexibility in this regard.

John might be a retiree, but I have no sympathy for him.

Notice that I haven’t talked about John’s potential exit fees, John’s lost insurance coverage or the likelihood that he’ll miss a market upswing. Well I wasn’t going to, anyway.

You choose your investments (part 1)

Jo Phelps (not her real name) is 40 and a manager with an HR recruitment firm.

About a year and a half ago, she received her annual super statement from her fund. Jo was in the balanced option of her fund which had been performing quite respectably for the past four years posting regular returns of 15%.

Her balanced option is about 70% shares and property and 30% cash and fixed interest.

But when she saw the returns on the fund’s ‘high-growth’ option, her eyes lit up as it showed average returns of 25-30% regularly over the past 4 years. The high-growth option is predominantly shares with a smattering of property. There is about 3 or 4 % cash in the portfolio.

Jo rings up her fund and demands to have a switch form sent out. The staffer on the end of the line helpfully suggests to Jo that she speak to a financial adviser before going ahead with the switch.

Jo helpfully suggests to the staffer that she takes her offer of financial advice and sticks it where the sun doesn’t shine, because after all, all financial advisers only recommend stuff with kickbacks for them. “I don’t need a financial adviser,” she casually mentions, “please just post the form.”

The switch was processed and now Jo feels shell-shocked by negative returns of -35%.

Jo would like to know this:

1. Aren’t fund managers meant to see this sort of stuff coming and take action to stop it?
2. I mean, I know that there’s no such things as psychics, but couldn’t they have short-sold or something? and
3. Given that employers have to contribute into superannuation, how come the government can’t guarantee it like bank accounts? I mean really, all Australians should be protected from the downside, shouldn’t they? They guarantee bank accounts; superannuation funds aren’t really that different…

Jo had no idea that a high-growth option could go down as well as up. Mind you, if you’d told her a year and a half ago, I don’t think she would have given a stuff.

You choose your investments (part 2)

Brad Dawes (not his real name) works in a blue-collar job. He’s twenty-something.

When he started with his current employer, he couldn’t be bothered filling out the super forms. He did ask at the time, “So let me get this straight: I don’t have to fill this in. You’ll sort it out for me with this ‘default’ thingy?”

To which the answer was, “Yes”. Natch.

About the only form that Brad filled in correctly was the bank account details for where he wanted to be paid.

The super from Brad’s current job now goes, by default, into the balanced option of the default super fund offered by his employer. Brad doesn’t know how these funds are invested, and really couldn’t care.

Brad’s super is all over the place. All default funds provided by previous employers and all different.

All the negative press about super has Brad looking at the one or two statements (out of the six or so funds he’s ever joined) that he regularly gets. Brad now has the following criticisms of super:

1. I could invest my funds better than my super fund could;
2. What’s with all these fees coming out? This is a scam;
3. What do you mean, ‘Share prices have gone down?’ Isn’t super meant to be invested in property which never goes backwards? (This is Brad’s opinion, not mine)
4. I didn’t choose to have my super here. I shouldn’t suffer as a result.

About the only good thing you can say about Brad is that he’s finally shown some interest (even if only passing) in his super as a result of this.

But he’s dead wrong about not choosing to have his super where it is: He chose alright. He’s also not worthy of sympathy.

Retirees are not always worthy of extra sympathy

Let’s go back to John Smith again. Sorry John, but you’re particularly worthy of some stick.

About three years, John decided he’d retire when he turned 58.

John’s super was in the balanced option, which his super fund recommends for periods of 4-5 years or longer. That’s right: 4 to 5 years minimum.

John consciously chose to leave his super in the balanced option, because, “It’s doing pretty well there.” Unlike Jo, he looked at the more aggressive options and thought that they seemed pretty aggressive for him. That’s OK.

He looked at the less aggressive investment options and was put off by the lesser returns. And I’m sure you can see why.

But, looking at the recommended minimum timeframe on his balanced option, he thought, “Well it’s only a recommendation.”

Fast forward to a year and a half ago. John looked at his super fund again, and he thought the exact same thing.

That’s right. With a year and a half to go until retirement, John completely disregarded the recommended minimum investment periods and consciously chose an investment option suited to 4-5 years or longer.

John is now shitted off with his super fund when really, John should be shitted off with himself.

It’s probably worth mentioning that you should plan your exit strategy from the outset. John didn’t even do this with three years to go.

---

So what can investors learn from this?

1. You choose your investments. Read the sodding disclosure statements – they may look like slickly produced marketing paraphernalia (and to be honest, most are) – but they have to contain stuff you need to make an informed decision.
2. The default option isn’t some kind of magical tool that posts excellent returns while protecting investors from market downturns.
3. Read the bits about how your funds are invested. Also read the bits about recommended minimum timeframes. If you don’t understand how an investment option works, ask an adviser, ask the fund and if they can’t tell you, steer the fuck clear of it.
4. No one is psychic. Especially not fund managers.
5. Have you switched to cash? You may learn the hard way that markets can rise violently as well as fall. Chances are you’ll miss out and by gee, won’t it be costly?
6. No one rings a bell to let you know that the market has bottomed out. Think of this if you’re attempting to time your way back in.
7. Super investments are taxed at 15 %. Non-super investments are taxed at your marginal rate. This should be a no-brainer but you would be surprised at the number of people who couldn’t give a shit about this.
8. When you next whinge about your super fund’s non-performance, compare it to something that vaguely resembles it. Comparing a balanced option with anything other than a balanced non-super managed fund is only going to make you look like a moron. Even that is pushing it. Do not compare a balanced super option with an online bank account – geez do I have to spell it out?
9. Good, fee-for-service financial advisers are there to help out people who know bugger all about investing. There is a very good chance that you form a subset of the latter half of the previous sentence.
10. I’ve heard people whinge about their super fund’s performance who are in defined benefit schemes. I’m not kidding. If you don’t know what investment option you’re in, or even the fund’s design, find out. Number 3 above should help you.

That’s it. I’ve had a gutful. You can all get stuffed.

Disclosure: This blogger works for a service company that services super funds. He also used to work as a financial planner. And he most likely posted bigger declines in his superannuation balance than the lot of you (if expressed in percentage terms).

Standard but necessary disclaimer: This is not advice. Only a complete idiot would think that any of this constituted advice. It's not even vaguely reasonable to consider this to be advice. If you are in any doubt as to the content of this, see a good, independent financial adviser immediately. They do exist.

Total carnage

July and August 2007 is proving to be one serious downer for investors, and this blogger, if he didn't exactly tip it, certainly knew that fall-out was imminent.

So far, in Australia, as we speak, markets are down about 12%, and it looks like it's going to continue for some time. The story is similar around the world.

So what's causing it this time?

When the markets had their last major quiver, back in March, this blogger tipped that it would pass and that things would soon be back to normal again, soon.

The reason for the volatility in March was a slide in the Shanghai Stock Exchange, and, as tipped by this blogger, there was absolutely no reason why this should have been seen to have had the major impact on markets that it did.

This time around, I'm tipping that markets around the world will have more lasting problems, and the impact from these will be a little more heavily felt.

Allow me to demonstrate.

The first thing that should be realised, is that this little bit of mayhem is being caused by problems in the US housing sector created by too much money being lent to people who shouldn't have been allowed to borrow in the first place. In delightful understatement, these are called, 'sub-prime' mortgages.

Lenders in the US were bundling up their loan books and then on-selling them on to the market in securitised packages. This had the double impact of raising further money for lenders to continue their risky activities, and re-locating the credit risk on the money lent to the new owners of the loans in question. The most common arrangement was called a collateralised debt obligation, or CDO.

This is not a new practice. Lenders have been doing this for some time. And not just lenders of 'sub-prime' mortgages.

A lender in Australia, RAMS, recently floated on the Australian Stock Exchange (ASX). RAMS floated at a share price of about AUD $2.50 back in July. RAMS' share price is now around AUD 89c and there is nothing that their management can do about it.

RAMS is not really exposed to 'sub-prime' activity (which is called 'non-conforming' in Australia). However, RAMS needs to be able to on-sell it's current mortgage book, otherwise, it will not be able to continue to lend money out to people.

And if no one is willing to buy RAMS' current crop of mortgages from them, then RAMS is going to have to discount the whole package until they can find a buyer. Hence the fall in RAMS' share price.

RAMS will have trouble selling the current lot of mortgages because the institutions that buy this kind of security from them are now reconsidering if this sort of security is worth the risk. And that is regardless of the quality of RAMS mortgage book - mortgages of any type, hell, fixed interest of any type is now being re-assessed across the board and investors are now expecting higher returns for the risk that they're taking on.

Anyway, RAMS investors really have to ask themselves could they have foreseen this? I don't believe that they could.

But this whole meltdown doesn't just end with the lenders, folks.

The debt securities sold by the lenders have been traditionally bought by fund managers for their mortgage and fixed interest portfolios. Normally, these are considered defensive assets - all other things remaining equal, mortgage and fixed interest funds are recommended as short to medium term investments within a portfolio, and form the defensive part of most Australians' superannuation funds.

But investment in CDOs is crystallising risks far riskier than what would normally be considered prudent.

So mortgage funds and fixed interest funds are going to take a hit. This is bearable. At least I would have thought.

But it turns out that quite a lot of buyers of these investments are a different type of fund manager again.

Hello, hedge funds. Fancy seeing you here?

Hedge funds, in their never-ending quest to satisfy investors seeking lower risks and greater returns for their investment whilst at the same time kicking a shitload of fees in the direction of fund managers have had their snouts in the trough for some time.

This was apparently a no-brainer for your average inscrutable hedge fund manager. Borrow at standard rates and invest in a fixed interest security paying well more than your standard mortgage or fixed interest rate of return. And then do it again. And again.

The end result of this was that some hedge funds, in their search for endless returns were geared several times over mainly as a result of idiotic risk assessments that had these sub-prime mortgages being seen as relatively low-risk, when the reality is substantially different.

So much money was whizzing round the economy and inflating asset prices that when the housing price crunch set in in the US last year, there was going to be problems. Bear Stearns was the first company to feel the heat and have advised that the investors in two of their hedge funds are unlikely to get anything back.

In Australia, we heard problems initially from Basis Capital, a fund manager whose products were actually rated AAA from Standard and Poors. Not long after this, Macquarie Bank have advised that some of their hedge funds are suspending new investment and redemptions, because they are having a hard time valuing their portfolios.

So what for the broader market?

Well a lot of the sell-off that we are seeing has to be driven by hedge fund activity. Hedge funds own other assets and it makes sense that they simply have to liquidate large sections of their portfolios just in order to ensure that their offerings are sufficiently liquid when the investors come a calling.

On top of that, because hedge funds are so opaque in their operation, investors in the broader market simply don't know the level of exposure of other businesses.

One municipal council in Sydney is facing losses of up to AUD 60c in the dollar due to some unwise investment in CDOs directly.

And all this is contributing to an environment where borrowing is going to be so much harder in the months ahead - which stymies investment by you, me and businesses. About the only people who should be rubbing their hands together with glee are going to be the banks - their main lending operations come from quality mortgages, and they don't relay on sourcing cheap funds by way of securitisation to do it.

This is going to be nasty, folks. For me, what makes matters worse is that all my money is currently invested and I don't have any more to plough into what appears to be a corrected market. And for most Australians, superannuation returns will be the worst this year that they have been in quite some time - probably about 7 years.

On the plus side, it does appear that that Australian stock market has fixed up the serious over-valuation that has been identified for some time by financial journalists. It means that some rationality has returned to the table.

But things may actually get worse before they get better. This is not like March, folks.

Disclosure: This blogger owns shares in Macquarie Bank Limited.

Standard but necessary disclaimer: This is not advice. Only a complete idiot would think that any of this constituted advice. It's not even vaguely reasonable to consider this to be advice. If you are in any doubt as to the content of this, see a good, independent financial adviser immediately. They do exist.

Why AMP got busted

This is something that I didn’t think that I’d re-visit for a little while, however, the whole situation that blew up last week requires some reflection.

For those who don’t know, AMP Financial Planning was pinged in a big way by ASIC for an large ongoing amount of inappropriate advice being given out.

Basically, what was happening was that advisers were recommending that their clients roll over their superannuation to another fund, which was, more often than not, administered by AMP.

This isn't bad in itself.

But they were doing it enough to warrant a second look by the corporate regulator. And they were giving inadequate reasons for such recommendations whenever they did it. Finally, they weren't discussing what it was going to cost clients to roll over.

Now it’s the worst kept secret in the industry that advisers are under pressure to do exactly that – sell the products provided by the company that you represent.

And why not? It’s bleeding obvious to even the most financially illiterate observer that an AMP-branded adviser, or anyone else for that matter, is going to be told to push the products of the hand that feeds them.

But from the other perspective, how many mug investors know that Godfrey Pembroke, for example, is a member of the National Australia Bank group of companies, which also includes MLC? How many investors know that RetireInvest is part of the global ING group?

This blogger was formerly employed by and represented another financial institution which also just happened to have funds management, life and general insurance and banking operations.

Yes. We were told in no uncertain terms that, although we had various products from various providers on our approved product lists, we were to make sure that our first choice was from the providers in our group of companies.

This, when it was painted in such stark language, caused me to re-think my career in financial services.

Now I left the advice business in 2003 when it became clear to me that working for the same company as the product provider caused all sorts of dodgy situations.

My personal experience went something like these:

Story 1:

Boss-man: (at a meeting of advisers in the area/region/zone/district) We need sales to improve. So we’d like you to “churn”.

Adviser 1: Isn’t that unethical?

Boss-man: Other areas/regions/zones/districts are doing it.

Adviser 2: Surely that doesn’t mean that we should.

Boss-man: Look. All you have to do is find some good reasons to get your clients to do it.

Adviser 3: Could you provide us with some written guidelines that illustrate how we can do this ethically?

Boss-man: No. This is simple, straightforward stuff. You should be able to work out how to do this. Or maybe you think that a job here is not for you?

Note that “churning” is a particularly smelly practice that involves swapping existing clients from one product to another for no reason at all other than to collect another fee on the way through.

Story 2:

Boss-man: (at a sales seminar) I’ve brought in a “BDM” to explain to you why you should consider moving your clients in product X to product Y.

BDM: Thank you, Boss-man. Folks, your clients are currently in the equivalent of a Mitsubishi Magna (large-medium family sedan, for those outside Australia). How good would it be if you could move them to a Rolls-Royce?

Adviser 4: Sticking with your car analogy for a moment, what if what they really need is not a Magna or a Rolls Royce, but a Toyota Corolla?

BDM: Who wants one of those, really?

Adviser 4: Isn’t that between us and our clients?

Note that a BDM (Business Development Manager) is a representative of the product provider who liaises with the advisers similar to how a drug company sales representative might liaise with a doctor.

Doctors don’t get sales commissions, though.

But let’s put that aside and look at the argument.

Financial institutions such as life companies, fund managers and banks all rely on a dealership network of sorts to market their products.

“So what?” they say, “Doesn’t Ford and Toyota rely on a network of dealerships to sell their cars? Don’t Telstra and Vodafone relay on a network of dealers to sell their mobile phones?”

This is a valid argument.

If an investor goes into the office of a financial adviser from AMP or anyone else who also manufactures financial products, he should expect to receive advice that products from AMP are the best for him.

And, in some way, shape or form, he will receive a Statement of Advice to that effect. It will say that the product that the adviser is recommending is most appropriate for him for reasons A, B and/or C.

It’s at this point that the uninitiated usually ask “Hang on. If they’re providing advice, shouldn’t they be considering all products equally?”

Well, they should at least be considering a broad spread of products, yes.

Certainly, that spread should be a lot broader than what would be on your typical Approved Product List (APL) for your adviser from the particular dealership that that adviser works for.

Where a financial institution’s argument about being a dealership for in-house products comes unstuck is in the question asked above. And if you muttered "Conflict of Interest" under your breath, give yourself a point.

Does a car salesman for Toyota consider that they are an “auto-adviser”?

Should a mobile phone salesman at a Vodafone branch be considered an adviser?

The answer is a no-brainer. Product advice of any sort requires products from a variety of providers to be considered. At least, if you would like objective advice to be provided, anyway.

The dealership argument is a sound one. However, it is rendered null and void by the fact that the dealers themselves are simply not advisers – they are salespeople.

A financial institution, at this point, will jump up and down and scream, “How, then, do we get our product out there, for Joe Public to invest in/buy/use?”

The answers to this are pretty easy, actually:

1. Produce stuff that is worth it to consumers to use. Concentrate on old-fashioned values like high returns, low fees, simplicity and ease of use and easy to read documentation. There are companies out there who are doing this now, and who do not rely on a network of financial advisers to sell their product.
2. Cut out the middle man and advertise directly to clients. Clearly, you’re uninterested in providing a service that’s worth anything to anyone if your advice network is merely an expensive rubber stamp. Why would, or should, clients accept bits being sliced off here or there if there is no value being provided?
3. Call your network of advisers, “salespeople”. This is just telling it how it is. Why mislead clients further by creating the expectation that they are getting something objective?
4. Put advisers’ APLs into a client friendly brochure. Why continue to be bashful about the fact that advisers are tied to a particular provider? What is it that you’re really ashamed of?

The fact is that AMP got busted. But it could have been anyone.

AMP are to get an enforceable undertaking from ASIC and this will probably last for the next few years at least.

Bravo to ASIC for targetting the dealerships.

It should, of course, be remembered that the advisers are every bit as complicit as the dealership that they represent. Yes, I know it's hard saying no, but if soldiers can be found guilty at war crimes trials for merely following orders, then advisers should, most certainly, not get off lightly in the least.

But it is clear to even the most disinterested of observers that it was AMPFP's internal policies in the first place which has lead to ASIC's action.

Having an interest in the industry, the very important piece of wishful thinking is that the progressive move away from commissions towards fees-for-service should prevent this sort of thing from happening in the future.

Sadly, I'm not positive that this will be the case. AMP will still require sales. So too will other institutions that produce their own products. And thus there will always be some kind of pressure on advisers to tow the line.

But the four points I've outlined above would, at least, make the whole thing a lot more honest.

Disclosure: This blogger owns shares in National Australia Bank Limited.

Standard but necessary disclaimer: This is not advice. Only a complete idiot would think that any of this constituted advice. It's not even vaguely reasonable to consider this to be advice. If you are in any doubt as to the content of this, see a good, independent financial adviser immediately. They do exist.

Is this Peter Costello's best ever budget?

Peter "Smirky" Costello handed down his eleventh budget as federal treasurer this week, and from what I've seen so far, it looks pretty good.

He's forecast a budget surplus of $10.8 billion for the 2006/2007 financial year.

Examining it in depth, the two great achievements of this budget are that all taxes on superannuation benefits for over-60s and RBLs have been abolished.

Which the cynical may like to point out (and there is definitely truth to this) that this is another example of the Howard Government pandering to baby boomers, this is good for the rest of us on several levels:

1. Only a brave future government would consider re-imposing these.
2. We all have to retire eventually.
3. Anything that simplifies tax legislation is pretty good in my book.

The budget hasn't just been about improving the tax situation of superannuation, though.

Income tax rates have been reduced.

As this is the one area that our conservative, sensationalist media can pick up on a possible way to blow holes in the budget, they've already honed in on the pay of people earning $50,000 per annum.

Apparently, they'll only take home an extra $9.81 per week.

Personally I don't have a problem with income tax rates being reduced - we have a bizarre situation in Australia where the corporate tax rate is 30%, while the top marginal tax rate will now be 45% (not including the Medicare levy).

This is designed to achieve more foreign investment, but has the unwanted disadvantage of discriminating against Australian taxpayers in favour of multinational companies.

No wonder people use offshore bank accounts and companies for tax avoidance purposes.

The other angle that our tired and unoriginal media go for when this happens is to compare apples with front-end loaders by looking at someone earning $30,000 a year with someone earning $1,000,000. This comes in the form of, "How much will each group save?"

Naturally, this gets a bite, especially on talkback radio. People can be such idiots.

Families earning up to $40,000 get the full amount of Family Tax Benefit Part A.

And so they should. No controversy here.

Costello has scrapped the cap on subsidised childcare places.

This one does concern me, and not just because I don't have kids.

This is stuffing around with supply and demand on a grand level. The obvious outcome of all this is that childcare itself will climb through the roof as parents scramble to take advantage of this.

And the net result is that the grant itself will end up being meaningless.

Not that anyone will notice this until well after the next election.

Kinda similar to how the First Home Owner's Grant contributed (along with low interest rates) to the most extreme property bubble this country has ever seen. We still haven't seen the complete fallout from this yet.

These were probably the most important new initiatives.

On the whole I like it. I think it's the best budget that he's introduced ever. It has its stupid bits, but who ever claimed that politicians were smart?

Scrapping Superannuation - An "Argument" For

Australian readers would know that compulsory superannuation exists for a reason.

For those of you reading from outside Australia, compulsory superannuation is an enforced savings regime for all employees with significant tax benefits attached to it.

At Deakin University's School of Law, two of the academics there, Mirko Bagaric and Rami Hanegbi, have suggested that it might be a good idea to scrap this system.

Mirko Bagaric, you might recall from early last year, was the sensitive soul who suggested that torture should be made legal.

Thanks to such flagwaving American propaganda as 24 and NCIS, we now have a population in Australia ready to embrace the no nonsense, "It'll never happen to me, only the bad guys," world of legalised torture.

I'll leave Bagaric's torture proclivities for another day.

Bagaric and Hanegbi (B&H) have moved in this recent stroke of genius that scrapping this will be the kind of thing that makes Australian society a much better place to live.

Let's look at their arguments one by one:

1. B&H contend that:

The superannuation juggernaut that was introduced in 1992 by the federal government against alarmist predictions that we can't afford to sustain an ageing population needs to be halted.

Let's look at this one right here. Hysterical use of words like "juggernaut" and "alarmist" are, well alarmist in the extreme. I so wish I had another word to use right now.

It works kinda like this - when one uses that term "juggernaut", the automatic vision is of a huge vehicle out of control and destroying everything in its path.

What's doubly ironic is that the authors then go on to use the word "alarmist" which implies that every word of warning related to this is exaggerated.

You can see the unintended consequence of having these two rippers of words in the same sentence.

Anyway, the word "alarmist" is used far too often these days - and usually only used by those with some agenda to push.

The most obvious example of this is the anti-Kyoto lobby.

Science has known for years that the Greenhouse effect is a legitimate environmental concern. Yet you chat to anyone who stands to be affected by applying some environmental standards and this quickly becomes "alarmist nonsense".

Anyway, our point with regards to this statement of B&H's (hmm, sounds suspiciously like a packet of cigarettes, doesn't it?) is that there is a hard sell at work here. For what reason that may be we'll have to see if we can nut it out.

2. B&H make the next rash statement:

The main winner from this meddling, coercive policy the superannuation industry which makes hundreds of millions of dollars annually charging us fees for money we are forced to hand over and public companies in whom fund managers are effectively forced to purchase shares due to an absence of other investment vehicles (thereby artificially driving up the value of stocks).

Whoa. Stop right there. B&H are literally accusing fund managers of paying over the top for investment assets.

If an investment that you or I see does not represent value for money, we don't invest in it, do we? A point that B&H appear to have not the slightest bit considered.

Fund managers do a similar thing. They leave their funds in cash. Of course, B&H won't be pointing this out.

It's here where B&H show their true colours. "Meddling, coercive policy," to appeal to free-marketers before bringing it home with a tirade against the fees that the superannuation industry charge.

I think I see where they're going with this.

3. The cards come out here:

The Government should cease the policy of compulsory superannuation and allow us to access the approximately $600 billion that we have been forced to hand over
during the past 14 years.
Provision should be made for our old age by
abolishing the erroneous notion of retirement and a providing a non-means-tested
pension to all Australians.

Here we are. Pensions for all. You mad, crazy, greedy schmucks.

What's the bet that they have parents in retirement with investment properties who are unable to draw a pension as a result of unfavourable means testing?

It's the old, "Let me at my super. After all, it's my money," combined with, "Can I have a pension? I swear I didn't just blow all my super at the races."

Towards the end of the middle bit, they just quote mindless statistics that don't necessarily defeat their argument. They don't, however, support their argument, either.

In fact, the use of these stats in the middle is so frighteningly inane, so bizarrely irrelevant, that I wonder how the hell these guys ended up as academics in the first place.

Have a read of this:

As a result of these new efficiencies [technical advances/workplace efficiencies], a government paper in 2003 projected that gross domestic product growth per capita in the next few decades to be between 1.5 per cent and 2 per cent. This will ensure that in the future, despite a smaller percentage of the population being in the workforce, total income per capita will remain similar to what it is today.

Or this:

Moreover, while in the foreseeable future there will be proportionality more dependent old people, the community will make enormous savings by not being required to fund the education of the proportionality fewer young people.

You get the idea? Yeah, me neither.

At no point do they address the original intentions of compulsory superannuation or means-tested social security pension. In fact, they appear to be absolutely oblivious as to why these things exist at all.

Lets' look at why they exist.

Compulsory superannuation exists to repair a situation that was identified in the 1980's. Our population is aging, and we aren't saving enough money.

So, as we are not going to have enough money to retire on comfortably, the Hawke/Keating governments legislated compulsory super into existence.

As we can't save properly, it is legislated that employers contribute an additional 9% of our salaries into super.

Not a bad solution as solutions go - It's only 9%.

And the pension - this is meant to be a safety net for those who cannot save for their retirement.

Why is it means tested?

This is so that only those who actually need it get it, and not those who don't.

Quite responsible, don't you think?

Anyway, B&H appear to think that this should all be abolished and replaced with non-means tested pensions for all. I smell the foul stench of Larouchians.

Here's a few good reasons why this should not even be thought about.

1. The government is about to venture into virgin territory as a saver. Prior to the creation of the concept of the Future Fund, it has mostly been a borrower. Given this appalling fact, the very thought that the federal government should be looking after our retirement savings is a little bit scary.

2. Financial Planners and, increasingly, Fund Managers are plugging diversification between different fund management styles. (I support this, as there is not a shred of evidence that one fund management style is best. I say this as an proud index trouser-wearer.) How is having just the one fund manager, the federal government, going to support this?

3. Why should we all receive the same benefit in retirement? Isn't this straightforward communism?

4. I find it fun managing my retirement savings. What is going to replace that?

5. You say that I don't have a life 'cause I'm into investment and personal finance. Yeah well, what are you into, stamp collecting or something?

6. B&H claim that quite a lot of families can't afford the extra amount that ends up going towards superannuation. Talk about an appeal to the lowest common denominator. Let's take a person earning $40,000 per annum. How in the name of FSM (may we all be touched by His noodly appendage) is an extra $69 per week going to do anything at all?

7. A Pension is meant to be a safety net. Given that under B&H's recommendations, everyone would be getting it, (pension that is) will we go on to complicate matters further by putting a saftey net under the safety net?

8. Speaking of safety net, how is the pension meant to operate as one if everyone gets it?

9. B&H plug a civil libertarian argument on compulsory super. Coming from someone who supports torture (Bagaric), I find this more than just a bit insulting.

10. They actually say this in the article:

Coercive laws are legitimate only where a government can demonstrate that it will encourage compliance with fundamental moral norms that affect the wellbeing of others or where they will promote the welfare of each individual. This test has not been satisfied in relation to compulsory superannuation.

We can all conclude from this that Sony's attempts to destroy Western civilization's braincells with their insidious Playstation are most certainly working.

B&H's recommendations are so far out there that they don't stand repeating. And it's not even creative out-thereness. This is purely reactionary propaganda spewed out by someone who is not disclosing a conflict of interest and arguing from authority.

B&H might be law academics - they're certainly not business ones. 1 star.