Point of View 14/09/2000: Forum needs to explore incentives

A national savings summit may sound somewhat grandiose but I believe it is now vital to Australia that the bell should be rung.

The Federal Government should stage a forum and invite representatives from all sectors of an industry that recognizes that our savings patterns are falling below what is necessary to cater for the baby boomers retirement needs in 10-15 years time.

Representatives from banks, building societies, the superannuation industry, fund managers, accounting, legal, stockbrokers, financial planning, property, unions and the Federal and State Governments need to be included.

All have different ideas and concerns, and a forum to tackle this issue now seems the best way to address this concern before it becomes a problem.

Some of the issues on the agenda could be:

*A reinstatement of tax deductible employee contributions to superannuation up to 10 per cent of earned income.

*The requirement for a minimum licensing/education for do-it-yourself investors.

*The establishment of tax rebates on investments held for five years (a similar 15 per cent tax on investment earnings on a super fund would be a good start).

*The introduction of a rebate on personal insurance up to a level of unearned income provided from savings and investments that are outside the superannuation arena.

The need for savings incentives is clearly obvious to all Australians. All of this has been accentuated by our market's failure to follow the rebound of overseas US markets and the pullback in typical equity investments held by the mums and dads, such as the Telstra 1 and 2 shares.

Despite bursts of good publicity, much of the world still has that legendary image of Australians that has been there for many years - a happy-go-lucky, beer drinking, gambling nation - she'll be right mate! This portrayal is out of date and unfair.

In an investment sense, it translates into little regard for the risk versus return decision necessary when choosing between investments. In reality, most Australians are cautious investors who are not prepared to risk hard-earned capital in search of triple digit returns that many of the dot.com companies aspire to achieve.

Whilst recognizing the fact that there is a sector in the community that understands and accepts the risks, potential and volatility with pioneering enterprises in any revolution, there is also a sector that has no idea of the risks, nor understands the investments they are making and are caught up chasing the triple digit return, often at the expense of everything.

Overall though, most Australians are looking to protect capital whilst building a diverse range of investments that will provide long-term returns on capital and provide the income for tomorrow. What is needed is a scenario with no-change rules and an encouragement to invest in the sectors of the market that suits each of our own risk profiles.

The Government has introduced company-sponsored superannuation (SGC) and this has increased potential for more of the baby-boomers to be in a position to self-fund retirement, but falls short of having all the answers to our alarming savings patterns.

While employers are addressing national savings for employees and the Government is considering the benefits of choice legislation for superannuation, the Government needs to further encourage us to pay ourselves first and offer incentives to save up to 10 per cent of our take home income.

It could be argued that the current rules, where employee contributions to superannuation are non-deductible and any earnings from savings outside super attract income tax, encourages people to take risks they don't often understand and they should not have to face. The choice of electing to chase the blue sky return outside one's risk profile, or retire at a lower standard of living, is unacceptable.

The move towards e-commerce is an issue that is exposing investors in this regard. A forum could address the need to set a minimum standard of education before people are allowed to buy or sell investments without advice.

Issues relating to risk profiling, margin loans and online trading, without any educational background, is alarming.

Doing it yourself is fine, but driving a car without taking lessons and then getting licensed is a recipe that increases the chance of making mistakes, the inexperienced driver may tend to take inappropriate risks that they don't recognise.

The same can be said for the new wave of investors - trying to build capital now in an environment lacking enough incentive, and allowed to do so direct, without training or all the skills the professionals are educated to deliver, is a formula that sets off the alarm bells.

Like national savings, we were told the benefits of private health cover in itself were enough to encourage us to take out private cover. Yet not until the initiatives of tax rebates and the lifetime cover did we actually see health fund memberships dramatically increase.

I have no doubt that Australians will save more if the Government provides incentives which are soundly based. I further believe that more Australians will invest closer to their risk profile if the Government pushes forward the choice legislation and sets out educational requirements for online traders.

At the same time, the introduction of an incentive to save up to 10 per cent of earned income in a longer term investment strategy, and a forum placed on the agenda, sooner rather than later, would give time to reap the benefits of time in the investment prior to retirement.

If we don't address the issue now while the baby boomers have the time to save, how can the Government expect to fund the future social security system at current lifestyle levels?

As one committed to the industry, my hand is first in the air to represent the independent financial planners, life insurance advisers and sharebrokers who recognize our clients need a better go.