Step up to the plate

So the government has decided you don’t need increased superannuation contributions after all.

Well, maybe they didn’t put it that way — it was supposedly a necessary compromise to get rid of a mining tax that wasn’t raising any revenue anyway — but that’s the result. Oh sure, the increases will start again sometime in the distant future, but if you believe that’s going to happen, you probably thought Paul Keating’s L-A-W tax cuts were inevitable too.

Yes, broken promises and political deals aren’t just the province of one side of politics or the other — politics is the art of the possible, after all… or the politically palatable, if you’re something of a cynic.

A short-sighted decision

The government is trying to tell us that we still have the choice — and that we’ll get the same amount by way of pay rises anyway. It’s a nice line, but if that was the case, we wouldn’t have seen the massive rise in superannuation when the original compulsory scheme was started.

If you’re a libertarian, you might be cheering the change — what role does the government have in telling me what I have to save — but contrary to the political rhetoric, the superannuation scheme required little in the way of personal pain, save perhaps some smaller pay rises than might have otherwise been the case when the scheme was brought into operation.

And besides, the role of super was — and is — precisely to relieve pressure on the public purse… and don’t we have a budget emergency? No, of course we don’t, despite rhetoric to that effect, but the reality is the same — any wind back of superannuation guarantee contributions will add to the burden of pensions and entitlements down the track. These changes have shifted costs from today’s small contributions by employers — in lieu of pay rises — to a large taxpayer burden when today’s wage earners hit old age in years to come.

That’s not a partisan view — it’s the simple reality of a political deal and its fiscal result.

Ignore the vested interests…

Of course, the superannuation industry is bleating — as you’d expect a vested interest to do. It was looking down the barrel of some lovely mandated inflows into accounts of Australians that, despite the existence of record numbers of SMSFs, are largely happily ignorant of how their money is being invested, and what fees are being charged. (Hint: poorly, on average and a huge amount, respectively).

There’s no need to feel sorry for an industry that is taking, by some reckonings, up to 40% of your retirement nest egg in fees. They’re perfectly fine at the trough, even if their bleating makes you worry that the poor things might have to actually earn their money in future, rather than just stand there and watch the money roll in.

…But take control

So what does it mean for you? The compulsory superannuation system was introduced because you — all of us — weren’t doing enough to save for our own retirements. It was the classic economic problem… too few were prepared to sacrifice today’s spending for tomorrow’s. Or, more specifically, our retirement.

Successive governments of both stripes had done for us what we weren’t prepared to do for ourselves — but that’s come to an end (or, more generously, if you believe them, it’s been shelved for the best part of a decade). But now it’s up to us.

More specifically, it’s up to you.

Personal finance commentators, economists and anyone with a working calculator have been telling us for years that the current superannuation contribution level at 9.25% of income, will be woefully insufficient to prepare us for retirement. That very reality was behind the planned — now shelved — increase.

And while the decision is woefully short-sighted from both a national and personal fiscal perspective, there’s little we can do about it, except take up the slack.

5 steps to getting your super on track

So here’s what you need to do:

1. Find out how to make voluntary contributions to your superannuation account. Whether it’s an SMSF, industry fund or retail fund, you should be able to make additional, voluntary contributions to top up your retirement fund.

2. Work out how you can save (an additional) 5% of your income. Yes, that’s eminently possible for almost every person reading this. Don’t say it can’t be done or it’s too hard. I won’t go through the usual money saving tips here — suffice it to say that unless you’re in dire financial straits, you can find a way to save 5%. It’s time to take control of your money.

3. Deposit that 5% in your super account on pay day — not at the end of the week/fortnight/month if you have enough left. Even better, set up a direct deposit or ask your employer to do it for you. If it’s not there, you’ll be forced to make the necessary changes.

4. Don’t make excuses. When super is paid by your employer, you don’t see the money. You don’t miss it. And you don’t have to be responsible for making sure you put the money aside. This week’s decision has put the responsibility back in your hands. It’s time to step up to the mark.

5. If you’re in a retail or industry fund, find out how your money is being invested. What fees are being charged? If your account isn’t beating the market — after fees — you’re being taken for granted. Make a change. Find a lower cost alternative. Educate yourself. Choose your own investments. To invoke an overused cliché, make sure your money is working as hard as you are.

Foolish takeaway

No-one cares more about your retirement than you do. And no-one is more responsible than you. Most Australians don't have enough money to retire. Around three-quarters of managed funds fail to beat the market. There's no budget emergency, despite what politicians will tell you. But there is a retirement emergency -- most Australians are on a path to a poor retirement, even if they don't know it. And now it's up to you to take action.

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Scott Phillips is a Motley Fool investment advisor. You can follow Scott on Twitter @TMFGilla. The Motley Fool's purpose is to educate, amuse and enrich investors. This article contains general investment advice only (under AFSL 400691).

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