I constantly receive feedback from Self employed clients that they refuse to contribute money into their super as they feel it is so far outside their control that they would rather forgo the tax benefits of contributing to super and just pay down their mortgage or make investments outside their super. Unfortunatley many investors feel that they have a real lack of control in their super funds, and therefore would rather use their investment savings in more tangible ways.
A recent article in the Financial Review stated:
“Investors are dramatically reducing their voluntary contributions to superannuation funds after five years of dismal returns and constant changes to super rules by the federal government. Disenchanted members are shunning large pooled funds and moving into self-managed schemes, where they have greater control over their investments and can diversify into assets such as direct property.” (Financial Review 21 July 2012).
Many People seem to forget that Super is not a specific investment, it is just an entity used to invest your own money for your own future benefit. Most people are disillusioned by Super as the returns in Australia have been so poor, that they feel that they could do a far better job themselves managing their money than most of the funds managers are doing. The Australian recently ran an article entitled “Super funds’ losses among worst in the world” where the writer David Uren is quoted as saying “Australia’s Superannuation funds have lost a greater share of their members funds since the GFC than any other pension system in the advanced world, with the exception of Iceland”. Is it any wonder that most of us have lost confidence in the fund managers ability to manage our money effectively?
David goes on to say ” Since the end of 2007, Australia’s Superannuation Funds have been losing 4.5% per year, much worse than the advanced country average of 1.6%” According to the article the OECD last review of Super funds advise the negative returns are a result of the high concentration of investment in the share market.
Given this information many investors are seeking alternatives to the typical share market concentrated offerings the fund managers have chosen for them, and are looking at direct property as viable option. Australian investors have always loved direct property outside their Super due to the gearing benefits that investing in property can provide, so with the ability to now gear into property through their superannuation funds using a Self Managed Super Fund and a Custodian Trust structure, there is a renewed interest in Superannuation as a whole.
Ultimately this should provide additional confidence in Superannuation as a whole, which will be a great result for investors, as they will once again begin making additional voluntary contributions to their funds. This should result in more funds available for their retirement in the long term, which is good news. So gearing into direct property through superannuation could be the answer for the diminishing investment into the segment, and hopefully an increased confidence in Superannuation itself.
If you are interested in finding out what is required to borrow through your super fund to purchase direct property, we would be happy to discuss it further with you and explain what is required. With the ability to borrow up to 80% of residential property values, you can really get your Funds assets working for you.
We would love to assist you to regain control of your Super fund and get them back to work through a Self Managed Super Fund. Jon Colley is our resident Self Managed Super fund lending Specialist, so feel free to call and make an appointment to discuss your options.