Superb Solution for Superannuation

14 Apr 2006|Darrel Rhea

Again, reporting from Sydney…

“Superannuation” is the common Australian term for “retirement savings.” Retirement is something that touches almost all of us whether we think about it actively or not. Eventually, most of us will live beyond the period in which we are able to earn a paycheck. Having recently completed a Cheskin consulting engagement with an American organization that offers tax-qualified retirement plans — and directing the research to determine what is meaningful to their customers – the concept of funding retirement has come into focus for me: retirement is about survival.

Retirement in the U.S. is a big hairy problem. With our Social Security system in a tenuous position, the imminent retirement of the Boomer population is going to be an expense that is very probably not to be adequately covered. The Feds have been discussing this problem for years; it was a key part of the Presidential campaign platform — and is as yet unresolved. So far, what we have heard from them as the most future-oriented option is “privatization.”

This is where Australian Pioneering comes in…

Thirteen years ago, the Australian government passed law that requires companies to contribute 9% of each employee’s salary to the equivalent of a 401(k) plan. The funds must be deposited with one of several financial institutions that have been vetted and blessed by the Australian government, one of which is AMP, an organization based in Sydney. So far, this has generated almost a trillion dollars in retirement funds overall and it will grow by more than another trillion dollars in the next ten years. Even more, almost every dollar of this will be funded back to individuals who have contributed when they retire. Compare this to what you expect to get back from your aggregate SSI contributions when you retire. With that in mind, the Aussie system starts to sound meaningful, doesn’t it?

In fact, thanks to the position the Australian government took, its citizens have moved beyond from a survival mentality to a meaningful state that is more in alignment with freedom. People want to construct lifestyles that give them the freedom to make choices about what they do tomorrow…travel, visit friends, play golf. By forcing people to be take responsibility about their retirement (coupled with the clear message of ‘your government will not be here for you’, which is the message we are getting at home even without this kind of help), Aussies have generally started to design desirable futures for themselves.

This notion of “designing your retirement” is catching on so much that “self managed super funds” (where you take control of your 9% under specific, auditable procedures) are growing at more than 100% per annum. Some companies have positioned themselves up as “self managed super fund specialists.”

Overall, this superannuation mandate is pushing Australia into a prominent economic position within the Asia Pacific Region. Australia is the largest retirement market in Asia, with superannuation funds bigger than those of countries that are much more populous, most notably India and China. And their market share and commercial/industrial/retail property markets are expected to continue prospering for the foreseeable future. Not bad for an island of 20 million people!

Looking ahead, Aussie fund managers such as AMP are not resting on their laurels but continuing to develop their products and services to better serve this growing market. This is a good business case for where a forward-thinking government is working hand-in-hand with innovative organizations to create a meaningful solution.

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