Superannuation Fund CEOs are out of Touch…

Superannuation Fund CEOs are out of Touch…

Damian Hill is the CEO of REST Super. Here’s his pay packet for 2013.

  • Salary: $433,253.
  • Profit sharing and other bonuses: $78,876
  • Non-monetary benefits: $36,601
  • Superannuation contributions: $24,575

There were a few more little add-ons, which brought his total package to $584,191.

Here’s what it was in 2014.

  • Salary: $467,148
  • Profit sharing and other bonuses: $90,832
  • Non-monetary benefits: $36,018
  • Superannuation contributions: $23,947

Again, a few little extras took his total package to $605,856.

The ABS says that the average Australian full time wage is $74,724 before tax.

Based on Hill’s salary (not including all the extras) that means he’s paid about six and a quarter times more than the average Aussie.

Also as you can see above, Hill pretty much maxes his superannuation contributions. Considering he’s been the CEO of REST Super since 2006, you can bet that he’s been doing it for almost 10 years now.

That means he’s probably been able to whack in more than $250,000 in under 10 years. By the time he retires, it’s a pretty done deal he’ll have comfortably more than $1 million in superannuation.

Admittedly Hill’s salary package isn’t close to those of retail super funds.

For example, in 2013 AMP’s outgoing CEO Craig Dunne received a total package of $2.569 million. While incoming CEO Craig Meller (who was AMP Financial Services Managing Director at the time) got $1.569 million in total.

Either way, Hill still gets a fair slice of the pie.

On Friday News.com.au published an article about superannuation. It was in reply to the proposed changes to pension eligibility.

Here’s the bit that got me in a tizz:

Rest Industry Super’s chief executive officer Damian Hill said super fund members needed to save more money now.

“The gap in super can look too big and it’s important not to bury your head in the sand, take baby steps,’’ he said. “Start doing something now, one of the easiest things you can do is increase your superannuation contributions.

“Usually there’s a payrise that comes each year, take a small proportion of that and invest it in your future.”

No wonder Hill’s spruiking more super. As of 30 June 2014, REST had over $32 billion in funds under management.

Looking at the REST Annual Report, three quarters of their 2 million members are under age 39.

That means around 1.5 million REST members will have their super locked away for between 36 to 54 years. That’s a looooooooooong time for the fund to collect fees and pay executives a lot of money.

I thought I’d have a look at the REST Super Member Guide. And under the heading ‘How Does Super Work?’ It says,

Super is a bit like a long-term savings account.’

The ‘How Does Super Work?’ section then continues on for four agonising pages more. The whole thing is 15 pages of boredom.

But it doesn’t distinguish between super and savings. You see, there is a key difference that they failed to mention.

You have access to your savings. You don’t have access to your super. In fact, you might never have access to it, with changes that could be coming soon.

But the part that really ticked me off about Hill’s comments was his flippancy about income.

Frustrated or angry? You’re not alone

Usually there’s a pay rise each year.’ His exact words.

Well for him a $20k pay increase might not seem like much. But the sheer fact is, not everyone gets a pay increase each year. And if they do, it’s likely to be in line with inflation — if that.

Hill then says to take a small proportion of that and ‘invest in your future.’ Well the way it stands, a lot of Australian’s don’t feel like they have a future.

Deutsche Bank’s annual world consumer price index ranks the most expensive places in the world to live. Sydney comes in at number five. Melbourne comes in at number eight. In terms of whole countries, Australia is number one.

This follows a survey by News.com.au of 53,000 Australians about the cost of living. 72% of people were either frustrated or angry at the rising cost of living in Australia.

And so they should be. With property prices in a seemingly never ending spiral upwards, the dream of owning a home gets further and further away.

Recent cuts in interest rates will only make it worse. And when the rates are cut again, kiss goodbye to any chance of financial security for a whole generation of Australians.

Meanwhile the ABS Wage Price Index (WPI) for the September/December 2014 quarter rose just 0.6%. For the year the WPI rose 2.4%.

Now you might think a 2.4% increase in wages might be good.

Well, inflation was 2.3%. That means wages rose just 0.1% above inflation.

And Damian Hill wants you to put more into super.

To say Hill is out of touch with real people, his members, is an understatement.

But it’s no great surprise. The whole of the superannuation industry is the same. They want more money pumped into Australia’s $1.94 trillion super industry. The more money, the more fees, regardless of performance.

Maybe super is really just the biggest ponzi scheme of all time?

Struggling Harry

Let me tell you about the example of a fictional 30 year old. We’ll call him Harry Windsor. He’s on the average income. He works in the Melbourne CBD. (This example could work equally well for Sydney, Brisbane, any city in Australia, but I know Melbourne best so go with it…) Harry wants to try get ahead in the world.

According to the Real Estate Institute of Victoria (REIV), the median price of an inner suburbs house in Melbourne is over $1.1 million. The reality is most people will never get close to that. For Harry on his average Australian wage, he’ll never live in inner Melbourne…ever.

His only option is to look further out.

The median price for a ‘Metropolitan Melbourne’ house is $688,000. On an average salary of $74,724 that’s 9.2 times earnings. To most people that’s out of reach.

But let’s see if Harry can do it. After tax Harry takes home $4,783 per month.

Maybe Harry wants to buy a house. He’s been very strict and lived with his Mum and Dad until 30 years of age. And over time, he’s saved a perfect 10% deposit plus buying fees and stamp duty.

All he wants is an average house in metropolitan Melbourne.

With a CBA 4.95% per annum ‘No Fee’ Home Loan, Harry borrows $619,200 for his ‘average’ home. That’s a principal and interest payment of $3,306 per month.

That leaves him $1,477 to cover his cost of living. He needs to get to work though. So he’ll have to buy a zone 1 & 2 monthly Myki pass (Melbourne’s public transport travel card). That’s another $143.22.

Per month his gas and electricity bills will be around $265. He’ll pay about $59 for the internet. About $40 for a mobile phone plan.

That leaves him with $969. The ABS says a single person under 35 spends about $128 a week on food & drinks (including alcohol — seems a bit low to me). Anyway that’s another $555 off Harry’s stash. Leaving him with $414 remaining for the month.

That works out at $13.61 per day.

In other words he’ll never have a holiday. He’ll never see friends. Forget about new clothes. He better get used to reading books, because he won’t be able to buy a TV. He’ll never own a car…all so he can have the ‘Australian Dream’.

Of course Harry could always live in the ‘outer ring’ according to the REIV. Places like Werribee, Hoppers Crossing or Pakenham.

For around $352,000 Harry can nab a place. But it will take Harry an hour and 21 minutes on a train to get into the city if he chooses Pakenham. That’s 27 days of commuting per year based on a five days per week, 48 weeks per year job. Harry spends a month per year just getting to and from work so he can afford a house.

And Damian Hill wants you to put more into Super.

It’s hard enough as it is to simply get ahead. To put money away for 40 years is just simply not possible for many. And chances are you might never see it anyway.

Damian Hill’s comments are ignorant. They come from someone who doesn’t worry about contributing to super. He doesn’t worry about buying a house. He makes more per year than most do in six.

But what can you do about it?

I don’t know. Find a way to get more income? Move to Thailand? Never own a home? Have a kid and give him golf clubs at age two? (That worked for Tiger and Rory.)

Perhaps owning a home is the worst financial decision you will ever make.

Instead, perhaps investing in the markets will be the only true way to achieve long term financial security.

Of course there’s the stress that comes along with that idea. But then again, what about the stress of having your home foreclosed?

Perhaps the only way for young Australians like Harry is to change their thinking. Throw away the financial ideals of their parents. The great Australian dream of a house in the suburbs, 2.5 kids and a job for life is a fallacy.

It doesn’t work like it used to. It probably never will again.

Regards,

Sam Volkering [+],
Editor, Money Morning

Two Stories from Money Morning This Week…

On Wednesday, I wrote about the feeling of being cheated by broken promises from politicians. You can’t rely on anyone but yourself for your own financial security; the leaders who claim to represent you are only interested in protecting their own power. If you want to afford a good life for yourself and your family, you have to take control of your own financial future.

On Thursday, Kris Sayce talked about the sharp falls in the Aussie market this week, and panicking investors who were selling everything. He explained why it’s important to keep your head and understand your own psychology as an investor, to avoid buying high, selling low, and eventually becoming discouraged and giving up. Instead, Kris showed why a falling market is the time to — calmly and carefully — top up on opportunities at beaten down prices.

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Sam Volkering

Sam Volkering is Editor for Money Morning and its small-cap, cryptocurrency and technology expert. Find out what he has to say here with all his latest articles.

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