Wealth Managers See Government Sanctioned Annuities as Their Next Cash Cow

In Australia there are rumours that our Superannuation is yet again going to be tampered with. The latest idea suggested by the private sector is that we be forced to put 30% of our retirement nest egg money into an annuity on retirement to ensure we will not rely totally or partly on a government pension if we lose the rest of our nest egg due to poor investments.

Once again lizard brains are at work in governments and financial intuitions all around the world. They move in unison from one extreme to the other. So this post applies to everyone, not just Australia. In the US they are talking about government takeover of 401K) and IRA’s. In Argentina they have already done it.

The Australian government review appears to be keen on a slightly different idea. Their suggestion is that for people with relatively small nest eggs. Those people have no real hope of generating enough income from the nest egg to provide an income to live on. An annuity may actually help them by topping up their government pension.

Such a scheme may be run by the government and has the fund managers opposed to it for obvious reasons. Where is their cut? They want privately provided lifetime annuities, managed and controlled by them.

Interestingly the chief executive of Challenger’s Financial Services “life business” said,

“… retirees were bearing far too much longevity and investment risk with existing account-based products in which super lump sums were invested and the retiree drew income from the earnings and capital.”

Where was he when this “longevity, buy and hold equities high risk strategy” was the holy grail to the retirement pension problem for the government?

I don’t blame him for touting for his “life business”. Just think if the insurance industry can grab 30% of the current $1.1 Trillion in Superannuation in Australia. Oh what they could do with an initial deposit of over $300Mn which they could keep in their piggy bank for life to do with what they like.

I got a little excited there for a minute 🙂 They are only asking for your money when you go into retirement. So it won’t be $300Mn but will be substantial.

The frightening thing is here is a private company wanting the government to legislate business for them by forcing you to give them your retirement nest egg – for your own good I might add.

There appears to be no mention of inflation protection for these annuities at this stage. Inflation is the major problem we are likely to face in the next few years as governments around the world grapple with the huge debts they have run up.

If they add inflation protection to the annuity and have transparent fees and charges with easy transportability of the annuity if you are unhappy with your provider, then we might have something. Plus if you die then any balance should be passed on to your heirs – that will be hard for them to swallow. But you should make sure it happens.

Giving 30% of your nest egg to a wealth manager to then give you a paltry inflation unprotected annuity payment for the next 30 years smells “fishy” to me, to coin a new White House term. Without the safeguards mentioned it should be opposed at all cost.

I’m not picking on wealth managers here. It is a known fact that giving anyone your money for 30 years is a potential recipe for disaster. Very soon they will think it is their money. If their business goes through a bad patch they may increase their hidden charges. There are so many ways they can rationalise what they might do to pay themselves what they think they are worth and it will all be at your expense.

Remember each year they will most likely want to increase their profits for their shareholders. In a tough year they may decide to outsource your reports and add a charge of say $50.00 for each client. Let’s say they have  a million clients, that’s $50Mn right there.

The next year they might decide some marketing fees they used to charge to their business as a cost of sales for getting new clients, should be paid for by the existing clients. So you end up subsidising their marketing budget. Bang goes another fifty bucks out of your account – and you may not even know. This really happens.

Many years ago there was some integrity in most human beings. Now I fear there is very little. It’s all about “what they can get away with” and “what you don’t know won’t hurt you”. The name of the game is make money for the firm so you are a sucker if you give your money to them for 30 years – simple as that.

But the government isn’t interested in you either. 25 years ago all they wanted was to get rid of the liability of paying you a pension for 30 years. The easiest way was to talk to some high powered financial guys who came up with a scheme that promised you would all retire wealthy from their “buy and hold” strategy. It was a great story and so was borne the wealth destruction – I mean wealth management industry.

All the financial guys wanted was government coercion to force you to give them a percentage of your money every month for 40-50 years whist you worked and they would make the retirement problem go away for the government. Because we are a democracy they did ask for a sweetener with tax concessions so they could “sell it”.

So Government and Big Financials got together and made it happen, or did they?

After two market crashes in 10 years their performance has been abysmal. I reckon the fund management industry is running scared because they have done such a lousy job for protecting your nest egg by losing huge chunks of it twice in 10 years. They are afraid this is the thin end of the wedge towards government takeover over the wealth management for retirement business.

Under government sanctions they have been able to gamble with your nest egg for over 25 years and made record profits for themselves at your expense through a global ponzi scheme that dwarf’s Madoff’s little scandal. They may not have realised it but their gamble was implicitly backed by the government because if they lost your nest egg money (which they have) the government would bail them out by giving you a pension anyway.

How fantastic is that?

You lose though because you retire on a government pension but so do the tax payers lose. They will pay for it – mainly your kids. The winners are the funds managers who can start afresh with a new batch of government enforced superannuation payments from more suckers. They are not required to pay you back for the losses they accumulated on your nest egg account with poor or no stop loss strategies. The tragedy is this time it will be your kids’ money they will use, misuse and abuse.

Listen to them tell you it is your fault though. You have not managed your retirement nest egg wisely they say. It was your fault. You need a smack! You should have been looking at the markets and keeping yourself informed. You should have instructed your financial planner to reduce your exposure to equities as soon as you saw the sub prime market overheating. You could see it was going to cause a credit default swaps meltdown. Why didn’t you do something. I say again, it’s all your fault.

So it’s obvious you cannot be trusted to look after your own money, so here’s what they want to do for you now. Take 30% of your money if you have a reasonable nest egg and maybe all of it if you don’t and deposit it in an annuity. They want to lock that money away for life – your life. That way you cannot fritter away what money you have left from your poor investment choices making more frivolous investments in those silly managed funds through your financial planner.

You should be grateful they have found the answer – All aboard the Annuities Train Hurray! – That’ll fix the problem, I don’t think…

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