When did the super system become class warfare?

The current argument over superannuation leaves me cold.

For some reason a system that should encourage more people to have more money in super - and to leave future governments and the age pension alone - has turned into class warfare about whether it's "fair" that wealthy people have more money in their funds.

Of course wealthy people have more money in their funds. They get paid more. They can afford to have more money in their funds. The last time I looked, this was a free-enterprise-based economy and system of government.

Because the blindingly obvious fact is that people who cannot afford to put more in their superannuation fund (or who run out of money more quickly in retirement because they did not have as much in the pot) will end up on an age pension.

The married age pension for home owners is around $35,000 a year. But if you tried to earn $35,000 in interest from a pot of money in a savings account, you would need around $1 million at 3.5%. Say it another way: the married maximum age pension is worth the equivalent of about $1 million in the bank.

The big question is whether a family that diligently saves through super is actually wasting their time (and money). If during their working life they spent the $1 million instead, they would have had a better lifestyle, then fallen back on the age pension in retirement. But if they sweated and saved $1 million in super - and are no better off than somebody who did not save and ended up on a full age pension - where is the fairness in that?

Which, despite a lifetime of preaching super's benefits - with its comparatively low tax rates an incentive for you to save - I'm wondering whether people are better off saving outside the super system, and therefore keeping at arm's length the impact of changing government rules. This can be aided by using negative gearing to keep tax bills down in the early years of owning assets and then accumulating more assets with gearing as the early investments become positively geared.

This presumes no change in the negative gearing rules. Change seems unlikely with the Coalition government right now and I suspect that Labor will realise the folly of its policy of allowing negative gearing only on new properties (which will no doubt harm the value of pre-owned properties, the older they become).

The trick to turn your income into a large enough pot of capital so you can live off the income in retirement. Super is one pot of capital; as is a share portfolio or a clutch of investment properties, or money in fixed interest or the bank.

The point that many people miss is that in retirement you must hope that your income stream keeps growing. This can only happen through investment in property or shares where rents or dividends can grow. The risk (to your income and your capital) is that the returns fall (say, banks cut their dividends) and that also causes your asset values to diminish. That is all about risk, though.

But my suspicion is that future governments will steer people towards allocated pensions or annuities (where you are paid a regular income from your super), which will restrict people's ability to dip into their lump sum to pay down debts, buy a new car or go on an overseas vacation.

I also suspect political parties in future will be tempted to tighten rules whereby the family home is exempt from pension means testing. If this is ever changed (and there would and should be a hue and cry if anybody tries) it would force people to dip into the equity in their house before they became eligible for an age pension.

And the problem of that is that I have never really seen a reverse mortgage product that solves all of the goals of releasing the equity in your own home. But that debate is for another day.

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