Throwing toothpicks at a mountain … and November 2021 – End of Month Update

Throwing toothpicks at the mountain': Paul Keating says Aukus submarines plan will have no impact on China | Australian foreign policy | The Guardian
Paul Keating, at the National Press Club in November 2021, likening Australia’s recent announcement of buying 8 submarines as part of our defence strategy against Chinese expansion as “… like throwing a handful of toothpicks at the mountain.” – The Guardian

Paul Keating is an established Slack Investor hero for helping to modernise Australia’s economy and also introduce compulsory superannuation back in the early 1990’s. He has certainly not lost his ability to cut through with memorable quotes. In amongst the barbs at his latest Press Club interview was a compelling message for the need to feel comfortable with Australia’s place bordering Asia. Keating stressed the positive aspects of Australia’s potential for engagement with the region, particularly with Indonesia and China.

Now, back to finance … and the need to engage with our own mountain. At the end June 2021, Australia’s total superannuation assets were $AUD 3300 billion ($USD 2360). This staggering sum is almost 150% of the whole of Australia’s annual Gross domestic product(GDP) for 2021 of $USD 1610.

Australian superannuation fees are still too high

Although it is far from perfect, we should be proud of our superannuation system – it is the fourth largest pension pool in the world – not bad for a small country. But we can do better.

Data collected by the Productivity Commission showed that superannuation fees and costs were at the upper end of global comparators, and significantly higher than pension top dogs, Denmark and the Netherlands

Harry Chemay – Morningstar
From Morningstar: Why has Australia slipped down the global super ranks?

It is difficult to make direct comparisons to other countries as each country has its own quirks. For instance, the average Netherlands worker contributes 22.5% of salary to their defined benefits super scheme – compared to the current rate in Australia of 10% and (hopefully) moving towards 12% in 2025.

There are some structural changes that must happen to make our superannuation system more efficient. A good start is the Australian Prudential Regulation Authority (APRA) introduction of a performance test to identify poor performing super funds. But readers of Slack Investor do not need prompting from APRA – they have already engaged with their super and switched to be in one of the top performing funds.

In a recent speech, Margaret Cole, a board member for APRA, pointed out that Australia has too many small super funds – Of the 156 APRA-regulated superannuation funds, there are 116 funds that each have less than $10 billion under management.

The red ellipse shows the multitude of small superannuation funds that exist under APRA’s jurisdiction. From Margaret Cole – speech to the Financial Services Council webinar

To get costs down there must be much greater consolidation of these toothpicks to achieve economies of scale so that they can be at least a “tree on the mountain”. Unfortunately, each of these funds have their own board, investment officers, and other “hangers on”. Self interest keep them going … not the needs of their clients. Their members must overcome their super inertia and change funds if they are performing badly. Or, the funds need to be told … and regulated out of the picture.

November 2021 – End of Month Update

Slack Investor remains IN for Australian index shares, the US Index S&P 500 and the FTSE 100.

Most markets drifted down this month. The Australian market down -0.9%. The FTSE 100 down -2.5% and the S&P 500 down -0.8%. Slack Investor remains watchful with stop losses in place.

All Index pages and charts have been updated to reflect the monthly changes – (ASX Index, UK Index, US Index).

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