Your Retirement Has Been Quarantined

The fangs are out for the pension debate. The old have worked their whole lives. They should be able to retire at 65. But the young shouldn’t have to pay welfare to the old. It’s practically theft.

Cue fist shaking in opinion columns. This is the World War Demographic we predicted back in March.

We’re getting plenty of hate mail for our version of the ageing population story. Apparently your ‘snotty nosed’ editor lacked ‘a good spanking’ during childhood.

The ageing population debate is about maths, not morals. And the maths doesn’t look good for the baby boomer generation. To be fair, it’s even worse for your editor’s younger generation. The ratio of young people buying shares to retirees selling shares should steadily fall for…well indefinitely in Australia.

What would happen in any market if buyers steadily turned into sellers? The price would go down. For some reason, that basic fact is deniable when it comes to financial markets. Supply and demand just don’t determine the price of financial assets.

Good luck with that.

To be fair to the hate mailers, they mentioned having infinitely times more children than your editor does. That means they contributed to the pool of ‘share buyers’ of the future. Our congratulations on having a family, and spanking them. You’ve done your bit.

But it’s undeniable that the baby boomers didn’t keep the population pyramid looking very pyramid-like overall. That’s probably a good thing. Overpopulation and all its related problems would have become an issue eventually, no matter how far you think we are down that road so far.

But the Daily Reckoning is first and foremost about the financial world, especially the stock market. And in that world, supply and demand are determined by ‘the life cycle hypothesis’. You buy shares and other financial assets in middle age and then sell them when you’re retired. Demographics drive stock markets. It’s not about earnings, dividends, economics, governments or central banks as you’ve been hearing about. And demographics have always been pyramid shaped. Buyers have always outweighed sellers. Until now.

Australia’s population pyramid, like Europe’s, isn’t square. It’s condom shaped. That’s what we called it at World War D, with graphical evidence. But we don’t want to tell you the whole story .

The interesting bit is how the budget changes have rocked the boat on the same set of topics. We all seem to understand that the government welfare system will have to change because of an ageing population. There just aren’t enough young workers to pay for all those pensions. But nobody seems to realise the exact same argument applies to the Superannuation welfare system.

Yes, Superannuation is not strictly welfare. Except it is. If there aren’t enough future taxpayers, there aren’t enough future share and property buyers either. The cash comes from the same place. Whether you’re paying tax or Super contributions is remarkably similar if you’re 25 years old.

Some have figured all this out. As always, the cure is worse than the disease. The solution invariably involves ‘managing’ the gigantic pile of money accumulated in Super accounts.

The TV commentators on the ABC’s Q and A were more honest with their wording. One called it ‘quarantining’. They want to control what and how much you can sell from your Superannuation in retirement. Oops, we called it ‘your’ by mistake. It is now ‘society’s’ or ‘the government’s’.

This is precisely the type of change we predicted at World War D . But the word ‘quarantine’ is just perfect. No doubt the government will call it something more palatable.

If you’re retiring, doing a runner with a Super lump sum payout probably isn’t a great move just yet. Unless you’ve got your overseas retirement haven lined up. Good luck with the paperwork in that case. Even a pair of Super representatives who come to our office don’t  know how to get ‘your’ money out if you leave the country.

We can’t imagine why the government would make it difficult.

The government’s campaign against the lump sum payout is already underway of course. Apparently retirees are using lump sum Super payouts in much the same way you and I would use lottery winnings.

At least they get the money. Getting your hands on your savings will soon be taxed to restrict sudden outflows from the Super system. It’s the first step in quarantining your retirement.


Nick Hubble+
for The Markets and Money Australia

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Having gained degrees in Finance, Economics and Law from the prestigious Bond University, Nick completed an internship at probably the most famous investment bank in the world, where he discovered what the financial world was really like.

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