Residential housing bonds backed by the Reserve Bank (RBA) would be an alternative property investment for superannuation funds if former Prime Minister Paul Keating had his way.
”Superannuation funds have invested in real estate investment trusts, but these have lost 74 per cent of their value,” he told a Super Ratings conference in Melbourne.
“I contest the funds should be investing in government assisted AAA housing bonds instead of these liabilities.”
Keating proposed the RBA buys mortgages to put into the housing bond, which would be seen as a government backed security.
“These government secured mortgages would pay 8 per cent,” he said.
“They are not as liquid as the listed trusts, but who wants to lose 74 per cent of the value of an asset?”
Keating said the RBA could trade options on the bonds to increase liquidity.
However, he said trustees of funds would have to be more flexible on their investment strategies to include this type of investment.
“One problem with these bonds is the trustees who can’t think of something different,” he said.
“There is no reason why this cannot happen.”
Keating continued his push to increase compulsory superannuation payments to 15 per cent.
Predictably, he blamed former Prime Minister John Howard and former Federal Treasurer Peter Costello for not making this happen in the past 10 years.
“We lost a whole decade with Howard and Costello because they were not committed to superannuation,” he said.
“They didn’t lift contributions to 15 per cent, which has cost every fund member about $250,000 in lost savings because they couldn’t benefit from the boom in global markets.”
However, Australia is in a better position for dealing with retirement savings than many countries including the US, UK and most of Europe.
“I put in place a two-tiered system for dealing with retirement,” he said, which is superannuation and the age pension.”
Keating argued that the 9 per cent contribution to superannuation is not enough and welcomed the Government’s proposal to lift it to 12 per cent.
“People argue 15 per cent contributions will be costly, but there will be many baby boomers who will now have to rely on the pension instead of superannuation,” he said.
“If you work from the age of 22 and retire at 60, then 12 per cent superannuation might be enough.
“But if the baby boomers have only being contributing for part of that time, then 12 per cent will not be enough.”
