John Cameron's personal blog

One of the major messages that superfunds direct to young people is not as straight forward as it seems – and may even hurt them financially.

You see, superannuation funds often encourage young people to put extra money into superannuation, so that they can reap the long term benefits of compounding.  The logic is simple – put more money in now and there will be more there to grow and compound over the long term – possibly lots more.

The result of the funds’ projections is pure mathematics – and maths does not lie. 

There are a number of super funds built on the concept of “life stages”.

This means that the fund is heavily invested in growth assets such as shares and property when you are in your younger age. As you get closer to retirement, the mix of investments changes, and shifts more towards low volatility and low yielding things such as cash and fixed interest funds. Hence, the fund balance changes as you go through different life stages.

- There is a superficial appeal to this approach.

George Bush lost the 1992 election to Bill Clinton by focussing on the wrong thing. Bush focussed on his record, and success in Gulf War one. Clinton focussed on the economy and jobs, and won the election, thus giving rise to the saying “It’s the economy, stupid”. In other words, focus on the right thing.  Often it is right in front of you, and afterwards you can seem stupid for not spotting it.

It’s much the same when it comes to planning your financial future.

Too often we see people focussing on particular financial products as a cure to their financial ills. Often the discussion goes along the lines of, “Should we have an allocated pension?” or, “Is an annuity the answer?” or “Is superannuation worth it?” or …….

There. I’ve said it.

There are many reasons to criticise the superannuation changes announced in the budget (more on that next time), but retrospectivity is not one of them. Why? Because they are not retrospective.

Much of the considerable amount of criticism has been around the changes being “retrospective”. However, there is confusion between “retrospectivity” and “grandfathering”.