Retirement incomes under a cloud

Remember the days when an employee was guaranteed a certain pension from an employer when he or she reached retirement age? You knew exactly where you stood. That all ended two decades ago, when workers found themselved faced with ‘ a new pension system, one of ‘accumulation funds, by which retirement incomes depended on what the markets and  fund managers gave you. Undefined, and sometimes messy.

The first fifteen years following the Superannuation Guarantee (SG) legislation being introduced in 1992 went well, with a compound annual rate of return provided by the share market at 15.5 per cent. The power of compound interest plus mandatory contributions starting at 3 per cent and rising to 9 per cent would have seen retirement accounts increase up to tenfold 10-fold in that period.

Things have changed, however, not least the unpredictable world economy. The market has been fruitless now for five years. After the 20 per cent correction between April 11 and August 8, the ASX 200 accumulation index (capital return plus dividends) has produced zero five-year return. And the 10-year return is not the brightest at just 6.6 per cent, while the 20-year total return is now below 10 per cent..

Added to this is the painful fact that fund managing fees now account for a much larger percentage of the long-term return.

With both the Europe (Eurozone and the UK) and the US  heavily in debt it  is unlikely that the markets will turn around soon – and as people become disillusioned with the.returns being generated by the pensions industry.there will doubtless be a marked increase in self-managed supers

If we have learned one thing over the past decade or so, it is is that there are no easy answers for funding retirement.

Prepared by Bob Woodward & Associates: offering you business consultancy, accounting, payroll administration and ancillary services in Darwin, The Northern Territory, Australia
http://www.woodwards.co/