Aug 15, 2011

Kohler: stranded at super’s ground zero

The aim of retirement incomes policy in Australia for two decades has been to shift the burden of risk to individuals before the next big bear market hit. It worked quite nicely.

Alan Kohler

Business Spectator editor-in-chief

The aim of retirement incomes policy in Australia for two decades has been to shift the burden of risk to individuals before the next big bear market hit. It worked quite nicely.

Defined benefit funds, through which an employer guarantees an employee a certain pension in retirement, were mostly shut down in the 1990s and workers were moved to accumulation funds, where you get what the market, and the fund managers, give you.

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3 thoughts on “Kohler: stranded at super’s ground zero

  1. Frank Campbell

    “Suddenly accumulation super lacks the vital ingredient of accumulation.”

    What took you so long? The last crash was the dotcom bubble in 2000, preceded by the 90s recession…

    You’re dead right about corporate capitalism’s risk being palmed off onto individuals. Stuck with compulsory university super in 1993 (when I left academia in disgust at corporatisation), I took one look at the Pyramid Building Society recession in Victoria and got rid of most of it. The modest remnant went shortly after.

    Now superannuants are stuck with the GFC. Casino capitalism hardly missed a beat after 2007- Madoffian bonuses are back; obscene salaries remain pornographic.
    Massive corporate debt has in effect been nationalised in Europe and the USA. The usual pattern: privatise gains, socialise losses.

    No wonder extractive rapacity has been given carte blanche in Australia- the govt. cleaves to mining like a whore to a millionaire.

    No wonder Alan Jones needs dental suction as he exploits rural distress…

    Just remember President Hoover (once a mining engineer in Australia) “We…are nearer to the final triumph over poverty than ever before”.

    He said that in 1928.

    Here’s a warning: reduce retiring baby-boomers to poverty and the London riots will look like late-night shopping.

  2. Malcolm Street

    “First, it’s likely that the growth of self-managed super will accelerate as savers become disillusioned with the returns being generated by the industry.”

    Amateurs trying to out-do professionals in a bear market sounds like a recipe for disaster.

    “Second, stand by for the return of defined benefit super. There is still quite of it about, by the way: in April, Watson Wyatt found there were 54 defined benefit funds administered by 54 listed companies — a hangover from the 1980s. They were sitting on an unfunded black hole of $25 billion, which had grown from $2 billion in June 2008 — a shocking blow-out.”

    Er, on those figures forget about defined benefit super – no company in its right mind will continue such a scheme longer than it has to.

    Incidentally, as a soon-to-be retired Federal public servant this unfunded liability goes against what I’ve heard in the past (not least from David Koch) that unfunded liability was something that only government schemes could get away with and that it was a legal requirement that private sector schemes be fully funded at all times.


    Defined benefit super will not return. What Alan misses here is that the defined benefit schemes would have achieved the same questionable returns and be run by the same managers. The difference is that the companies are left to carry the shortfall, in the first instance. Once companies can’t fund them the defined pensions can be cut (in the courts) and retirees are left in the same place – with less funds than they expected in retirement. These defined benefit schemes are beginning to cripple the largest companies in the world, at the expense of future growth, employment, tax revenue etc – all because some actuary told someone in 1973 that they would receive $43,236 pa when they retire. Any good economist will tell you the DB system is archaic and inefficient.

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