*This video was filmed at Livewire Live 2023. LiveWire has authorised the release of this video. Watch the full session here.

Video Transcript:

Are we still a lucky country? Absolutely. Are we going to be the luckiest? That’s what I’m talking about today. I’m going to talk about the disruptive power of superannuation, how it’s distorted the nation, but more importantly, how it actually affects you as individuals.

So we need to wind back the clock firstly, 30 years to when SG contributions first came compulsory. Back then we had a meagre 146 billion in the superannuation system. We now have 3.5 trillion, 23 times the figure. Now that is going to have some significant effect on society. The first thing is around our wealth. Our household wealth has gone from 2.5 trillion to 14 trillion just in the last 20 years.

And most importantly, it’s actually rocketed us off the charts in terms of wealth per adult, globally. We’ve gone from a ranking of 15th to now 4th in the world in terms of the most wealthy nation on the planet based on wealth per adult. So my shocking prediction, apart from the Broncos winning NRL, is that we will be the wealthiest country on the planet, wealthiest nation on the planet, and we will go to number one within the next 20 years.

Now, it’s not rocket science. We talked about compounding with Miller today. The power of compounding. The average member balance will go to 439,000 over the next 20 years. That’s more than double the superannuation pot or more than triple to 9 to 10 trillion from where we are now. Three and a half trillion. So who cares? What’s this all matter?

We all know about superannuation. We know the power of compounding. But what does it mean to you? The first thing is if you own an advice business or you own an asset management business, don’t sell it. Whatever you do, don’t sell the business. If you do want to sell it, we’ll probably buy it. But if you don’t want to, don’t sell it.

If you’re an adviser or you have an advice, asset management business, you must be targeting millennials now. Millennials will have the biggest pool of real assets in superannuation in the world or in the history of super in Australia. The reason is I’ve grown up with super. We’ve got 12% SG contributions going in for that generation. They’re typically dual income households and they will be the longest living.

They’ll live into mid-nineties as a generation as well. So the compounding effect is enormous. You must target millennials. Forget about Macquarie. Superannuation is the millennial millionaire’s factory. In terms of asset management business, you can be really bad at distribution. In asset management, you can have whatever FUM you’ve got now and do nothing and you’ll have three times the value of your business.

So don’t sell it. The second thing is around the property and equity market bears. And let me talk – that Christopher gave me a little nod there, Christopher. Now, in terms of property market bears, the often quoted “debt to disposable income ratio” really gets the Chicken Littles wings of flapping about the outlook for the Australian residual property market. And for good reason.

We have borrowed more money 187% of our disposable income from 110. But one ratio that we never get quoted, for some reason, is the debt to assets. The explosive growth in our asset pool has meant the debt to assets ratio is going absolutely nowhere. 16% to 17%. So the problem in Australia with household debt levels is we’re not borrowing enough.

Now I’d like to call out a special mention to those of you in the Sydney eastern suburbs because, you know, you’re doing a great job for the nation to get that ratio up. In terms of equity market and the outlook for equity market, 30% of flows from super go into the equity market in Australia, domestic equities. So the issue is not about whether the equity market is going to be up in 20 years time, it will be up.

The issue that we have is ASX is going to cope with that. Will there be enough companies or do we have to buy CSL on a 100 times earnings? Consumer spending, we’re talking about battling around consumer spending. Why is it so resilient? The reason it’s so resilient is when you don’t have to save, you can spend. So if you’ve got 12% going to super, you can spend 100% of your income.

I mentioned the millennials and how they’re going to be a massive cohort in terms of superannuation. They are going to have a massive balance. In 20 years, they are going to start drawing on that balance. And superannuation is going to drive consumption. And superannuation is millennials. So millennials will drive consumption in Australia. So I envisage a future of 20 years where we’re all wearing Lululemon activewear.

You mentioned avocado toast, acai bowls everywhere and pursuing life experiences, whatever that is. In terms of monetary policy, it becomes ineffective. If we ended up in some sort of the bizarro world of monetary policy, where Superman is bad and everything is opposite. We put interest rates up that increases people’s incomes, increases consumption, and actually drive the economy.

If you want to put the brakes on the economy going forward, you actually have to reduce interest rates. And then we saw a recent example. This is not in the mega future. Commonwealth Bank pulled this out of their result around the change in behaviour by cohort. So the 55 year olds plus are actually spending more and the reason is they’ve got more income.

And lastly, which is not that surprising to anyone in the room. But industry funds will dominate the honeypot of superannuation. 50% of the honeypot. 9, 20% of the equity market. They’ll deepen the bond market in Australia, which needs deepening. They’ll control property values. They’ll move together in syndicates to hoover up private assets and private companies. And if you’re a listed company and an industry super fund owns your equity and your debt, then what does that mean for the board composition?

What’s that mean in terms of management and what’s that mean in terms of governance going forward? So that’s it. We will go from being the lucky country to the luckiest. We will be the number one in the world. So you do need to worry about some of those distortionary impacts of superannuation. You do need to be aware of some of these opportunities.

If you would like more information, please call 1300 ELSTON or contact us.