Conventional wisdom is a byproduct of groupthink that presents solutions good enough for the average person while simultaneously not being right for any individual. You follow it at your peril. The more different you are from the person that defined a rule the less you should follow the rule. Each Monday I will challenge the investing norms that just may be holding you back from living the life you want.

Unconventional wisdom: The state of retirement in the midst of the super tax fight

“The tax treatment of superannuation would be brought into line with the tax treatment of other forms of savings such as bank deposits. This was that income would be taxed on the way into the superannuation account, as with the after-tax income of deposits in a bank account; that earnings in the super account would be taxed as they accumulate, as interest in a bank account accumulates and is taxed; and that funds would be free to be taken out, as savings can be freely taken from a bank account.”

- Paul Keating

Super has been in the news with controversy continuing to swirl around the proposal to tax unrealised capital gains on balances above $3 million which my colleague Shani did a great job of explaining.

This proposal is either the end of western civilisation or just whinging by people that have more money than they need. I will share my thoughts in this article.

Against the backdrop of the debate I thought this was a good opportunity for an overall look at the Aussie retirement system.

I came up with several categories and gave them a letter grade. You may disagree with what I’ve come up with and i’ve added a survey at the end of the article so you can share your thoughts.

Perhaps your categories would be different. I’m sure your scores would be different. Let me know what you think i’ve gotten wrong. Here is my view of our retirement system.

Stability

Retirement has the longest time horizon of any investing goal. Your decisions may have implications decades in the future. This includes both investment choices and determining how much to contribute to super.

Investing is an act of faith in the future. An investor takes this leap of faith knowing the future is unknowable. While investing outcomes are unknown it helps to have stability from a regulatory and tax perspective. That should be the goal for policy makers.

Changes in taxes and regulations are difficult to navigate for long-term investors. None of us can jump in a time machine to revisit our previous decisions based on the new rules. Life is about adapting to change. But it doesn’t mean there shouldn’t be a high bar before retirement rules are updated.

The latest iteration of the shifting retirement landscape is the proposed tax on unrealised capital gains on super balances above $3 million. Much of the debate has been commentary on whether $3 million is too much to have in super and how the lack of indexation will impact future generations of Australians.

Regardless of where you come down in this debate it is undeniable that the Australians facing the tax made decisions about their retirement assuming the status quo would be maintained.

This may have influenced how much they saved within super and their investment choices. It may have impacted the timing of their retirement. It could have impacted charitable donations or support they provided to their family.

You don’t have to feel sorry for people with $3 million in super. But I think we need acknowledge the challenges of moving the goalposts after people have retired and they can’t course correct.

For Australians who are still working and in danger of breaching the cap in the future the proposed law makes it more difficult to plan for retirement.

How can you model out a tax that will be assessed on unrealised capital gains that will shift annually in volatile markets? How do you account for the double taxation of unrealised and realised capital gains? How can you plan when changes to the $3 million threshold are at the whim of future governments?

This is a terrible policy. And I’m not saying that because I fundamentally object to the taxing people more. It is the design of the tax that is the problem. The proposal makes planning for retirement harder. It erodes confidence in the super system. A system I believe in and want to see maintained.

Stability = D

Fees

Fee levels

Offering tax concessions to encourage retirement savings can attract large pools of investor money. Particularly when there is a compulsory element to a retirement system like we have in Australia. This can create a feeding frenzy for the investment industry and all manners of advisers.

The structure of a retirement system contributes to the fess that participants end up paying. There are several factors that contribute to fee levels.

Competition and choice: Some retirement systems lock an investor into a provider. In Australia we can pick any provider which gives super funds the incentive to compete through lower fees.

Scale: The investment industry has inherent scale advantages. The resources need to manage $100 million and $1 billion aren’t that different. Scale is one area that has improved significantly in Australia with the consolidation of super funds. Australia’s largest super funds have the scale needed to deliver low fees for investors.

A stable and hands off tax and regulatory environment: The more hoops that a participant in a retirement system needs to jump through the higher the administrative burden is for service providers. This is an area Australia comes up very short. The complex rules governing super are a large administrative burden. The taxes are complicated. The fact that both are always changing adds an additional burden.

Given that two of the three elements to lower fees are evident in Australia it is confusing why fee levels remain stubbornly high. According to a 2023 Rainmaker Superannuation Benchmarking Report the average industry fund My Super option charges 1% in annual fees with 0.71% of that for investment management fees.

The same Rainmaker report also highlighted that the average fees for retail funds and industry funds have reached parity. This makes little sense given that Industry funds are supposed to be run in the best interest of members and retail funds must be profitable for shareholders.

I’ve heard lots of justifications for super fees. I’m not buying them. Fees are way too high and need to come down. The admin fees can be partially explained away by a succession of governments that can’t help themselves from changing the rules. The average investment management fee of 0.71% in 2025 makes no sense.

Fees = C

Protection from behavioural risk

Procrastination is the name of the game when it comes to retirement. It is hard to focus on a goal that is decades away. As a result, many people follow a familiar pattern by ignoring retirement for most of their working lives before a desperate attempt to catch-up.

The compulsory aspect of super forces most – but not all – Australians to save for retirement throughout their careers. I’m well aware of the opposition to compulsory super and I’m sympathetic to those arguments. But I think on balance the compulsory contributions are a good thing.

Once money goes into super it is hard to get it out. I also think that is good. The standard rules around accessing super prior to retirement are strict with only limited pathways for hardship withdrawals. However, lately governments have been too willing to bend the rules on withdrawals.

First came the Morrisson government allowing $38 billion of withdrawals during the pandemic. Unsurprisingly this money was largely used on discretionary spending which and went to takeaway food, gambling and alcohol.

There are also the various proposals to spend super on housing. This is a slippery slope and I’m afraid that the temptation to buy votes will continue to outweigh maintaining super’s purpose as a retirement saving vehicle.

Despite this troubling trend the forced saving and strict rules on withdrawals mean Australians are better prepared for retirement than most. Australia earned the highest non-European ranking on the Global Retirement Index thanks to strong scores in retirement finance. Sometimes the nanny state has some beneficial outcomes.

Protection from behavioural risk = B

A financially literate population

It is underappreciated how profound of a shift we’ve experienced globally when it comes to retirement. It wasn’t too long ago that the typical person worked most of their life before a few years of retirement funded by government or employer funded pensions.

In Australia we’ve now put the onus on individuals for their retirement outcomes without much effort to prepare the population for this responsibility.

Financial literacy is critical to retirement. An educated investor base understands the impact of small early sacrifices on retirement savings. I can’t imagine a scenario where 2.6 million people would pull money out of super during the pandemic if there was greater awareness of the opportunity cost. Yet that is what happened.

Financial literacy is critical to picking the right asset allocation in super which is the single largest driver of returns. If more people understood risk capacity 90% of an AustralianSuper member base with an average age of 42 would not be in the balanced option with 25% in defensive assets. Yet that is the situation we find ourselves.

Shani called for the government to take financial literacy seriously. There is a lot of work to do.

Financial literacy = D

How the most vulnerable members of society are treated

I’m a believer in equality of opportunity. And that is different than equality of outcome. However, I do think we should protect the most vulnerable members of society and that everyone should retire with dignity.

When it comes to retirement in Australia this is the age pension. The whole point of super is to reduce reliance on the age pension to make it a targeted program for vulnerable Australians. This is a work in progress.

I find it perplexing that the primary residence is excluded from the means test given propery is where most Australian wealth is held. But this is Australia. Nothing about housing makes any sense.

The maximum combined rate for the age pension is $1,732 per fortnight. This falls short of the ASFA retirement standard for a modest household.

I personally think that including the value of the primary residence in the means test would be a good step to exclude people and free up extra funding to raise the pension rate. I understand this would be a big change and I’m a proponent of stability which means it should be grandfathered in for people approaching retirement or in retirement.

My colleague Shani called for the government to take financial literacy seriously. As she points out there is a lot of work to do.

Helping the vulnerable = B

Final thoughts

I started this article with quote from a 2007 speech on the evolution of super by Paul Keating. It is not an inspiring quote. It isn’t interesting or funny. There is nothing about being ‘stripped down and ready to go’.

Yet I picked it for a reason. It describes what super should be – simple and easy to understand. That example of super being taxed like a bank account was supposed to be clear and relatable for all Australians.

I think Keating knew that super would only gain widespread support if people understood it. Contrast this with the DIV 296 tax proposal which is very difficult to understand. That proposal relies on the cynical view that most people won’t care about the tax because they don’t think they will ever have to pay it.

This really shouldn’t be that hard. Super is for retirement. Using that simple truth as a prism to view super makes it obvious what to do.

Drive fees lower because that improves retirement outcomes. Maintain a stable regulatory and tax environment because that helps long-term planning which is essential for retirement. Maintain confidence in the system by making it as straightforward as possible.

I am a big fan of the retirement framework in Australia. I think it is something we should be proud of and something that should be safeguarded and improved. We have it pretty good. It can always be better.....but it can be a whole lot worse.

I would love to hear your thoughts. Take our survey to share your own view on my categories and anything I missed.

Email me at [email protected]

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What i’ve been eating

There are dishes on menus that are perplexing. It isn’t readily apparent why somebody would order them. Not something strange or off putting. Just a boringly conventional dish that doesn’t fit. Those are the dishes I order. Being a contrarian can work out well as an investor and a diner.

Flip past the pages of show-off Burgundy and Bordeaux on a wine list. Ignore the super Tuscans and any Shiraz from Barossa. Find something obscure and unpronounceable and you know that wine is loved by the sommelier. So loved it sits on the list day after day without anyone fumbling through a name with 14 consonants and a solitary vowel.

After weaving my way through a wine shop and trudging up a set of stairs I reached the dining room of Porcine in Paddington. The pork chop immediately stood out. Most people don’t order a pork chop in a restaurant. But chefs don’t put pork chops on a menu unless they know it is great. And this one was.

Pork