After-Tax Returns: Filling In the Productivity Commission’s Report
In a new report released by the government in January, the Productivity Commission left the superannuation industry in no doubt about its views on the importance of managing investment portfolios diligently. In a series of simple, striking visuals or ‘cameos’, the commission suggested that a member earning 1% higher returns each year could be $255,000 (23%) better off in retirement; similarly, a member who pays 50 basis points less in fees each year could be $100,000 (12%) better off in retirement.
The commission also revealed its thinking on the impact of better (or worse) tax management. Reducing the annual tax hit on a superannuation fund’s investments is analogous to higher returns and lower fees—every extra dollar systematically banked for the member helps in retirement, regardless of the source of that dollar. Yet the commission stopped short of calculating the impact of tax naivety (what one might call the traditional pre-tax investment focus) on a member’s retirement outcomes, omitting this from its provocative suite of cameos.
This paper attempts to fill in this missing cameo. Our aim is not to offer new material to the commission. Rather, it is to reposition genuine after-tax investing in the minds of superannuation funds as a relatively untapped area of opportunity as they respond to the commission’s findings and government’s final recommendations in 2019.