The Australian Regulation Prudential Authority publishes quarterly superannuation statistics for funds with $50m of funds under management. I have summarized the statistics going back to the December quarter 2004.
Total income over the six years was $232 billion. This included the negative returns of $206 billion for the six quarters between December 2007 and March 2009. Due to these losses, tax on earnings was a net refund of $1.7 Billion over six years.
The total income of $232 billion represents a rate of return of 5.53% per annum over the period. It is a shame that a good proportion of employees who have a mortgage paying about 7.5% interest are investing their retirement savings in a more risky investment than the certainty of making mortgage payments.
Maybe it is time to cut out a lot of middlemen and allow a member's superannuation fund to invest in a mortgage offset account in the member's own mortgage. The interest on the offset account could be paid back into the superannuation fund. Simple rules could be established so that loan to valuation ratios remained at conservative levels. The process would cut out a lot of fees and give the member a chance to invest in their own future.
The Government should mandate the banks to provide the facility for owner occupied homes.
The banks would be provided a direct guaranteed funding source, easing funding requirements.
The offset facility would be seen as easing the growth of debt for consumers in the economy.
Mortgages are provided under normal lending criteria, with mortgage insurance being relatively cheap up to 80% of value of the home. The superannuation fund, as a bank depositor, would have the normal protections.
As interest rates rise, the same benefit would flow into their retirement savings.
As earnings of the fund are normally taxed, there would be no loss to the Government, as returns on investments are taxed anyway. As the assets are a bank deposit, the tax would be less cyclical, avoiding the $14 Billion in refunds the Government made during the credit crisis.
People would be more encouraged to save for their retirement if they could see a real direct benefit in saving.
As the superannuation system already exists, it is only a question of where you invest your money. Should you be forced into speculative investments to get a decent return, or should you invest in what is a high rate savings account. Remember, 7.2% return over 10 years doubles your money. Doubling your money with safety sounds like a good idea.
It probably makes too much sense to be practical.