When Paul Keating addressed federal parliament the day after Australia’s compulsory superannuation system was born in June 1992, the message was simple.
asserted
message → address → June
“For the first time … ordinary Australians will be able to build a decent nest egg for their retirement,” said the then-Prime Minister.
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Minister → build → retirement
“People now on average weekly earnings will be able to retire on an income twice the old-age pension ... with the passage of the legislation last night, a decent level of superannuation provision becomes the right and expectation of every Australian employee.”
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level → retire → employee
Super has since become a financial behemoth.
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Super → become → ?
Australians’ collective tally of $4.8 trillion is the world’s fourth-biggest pool of private retirement savings, and it could rise to second place during the next decade.
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it → rise → decade
But as voters grapple with a housing affordability crisis and the worst cost of living crunch in living memory, Keating’s vision for superannuation is increasingly contested.
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vision → grapple → superannuation
The sheer scale of the super pile has made it an irresistible political target.
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it → make → pile
At the past two federal elections the Coalition has proposed using super to address the housing crisis; it promised home buyers would be allowed to withdraw a portion of their superannuation and put it towards a home deposit.
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buyers → propose → deposit
Shadow housing minister Andrew Bragg, trenchant critic of compulsory superannuation, has indicated the Coalition is again considering policy options to allow early access to super, including using it as collateral for a mortgage.
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Coalition → indicate → mortgage
Pauline Hanson wants to use super to ease cost of living pressures.
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Hanson → want → pressures
Last month she announced a One Nation government would allow renters and home borrowers to withdraw up to one-quarter of their regular superannuation contributions for up to three years.
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renters → announce → years
“One Nation wants to give people some breathing room” Hanson said.
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Hanson → want → room
For Labor, Australia’s superannuation system has become an article of faith.
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system → become → faith
It claims One Nation and Coalition will destroy the universal character of the scheme.
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Nation → claim → scheme
Treasurer Jim Chalmers has even framed the next election as, in part, “a referendum on super”.
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Chalmers → frame → super
So Labor, the Coalition and One Nation are now locked in three-way political combat over the future direction of retirement savings policy.
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Labor → lock → policy
Dr Ben Spies-Butcher, chief executive of the Centre for Future Work, said current economic challenges, such as housing affordability and cost of living pressures, have focused public attention on super in the hope it might provide some solutions.
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it → say → solutions
“Super has a long history of playing a bigger macroeconomic role.
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Super → have → role
It makes sense to consider how it might now.
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it → make → sense
But I think that is less about its size and more about ensuring it can be more easily put to public purposes to address new economic problems.”
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it → think → problems
One Nation’s proposal met with fierce criticism, especially from big super funds.
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proposal → meet → funds
Analysis by the Super Members Council, a peak body, found a median full-time worker withdrawing 3 per cent of their contributions for three years would be $25,000 poorer by retirement.
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worker → find → retirement
“Turning super into an ATM is a reckless idea that would make battling Australians poorer,” the council’s chief executive Misha Schubert said.
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executive → turn → ATM
Additional modelling by the Super Members Council, released on Friday, drew attention to budget cost of One Nation’s plan – it showed today’s 20-year-olds would each pay an additional $3,700 in income tax over their lifetime if the policy became law, mostly due to paying higher aged-pension costs for people who withdrew their retirement savings.
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who → release → savings
The annual hit to the budget would be about $750 million in the 2030s and rise to around $4.5bn annually by the 2070s, according to the modelling.
But Hanson’s proposal has also focused attention on the level of the superannuation guarantee, the minimum percentage of an employee’s earnings that employers are legally required to pay into a superannuation fund.
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employers → rise → fund
Compulsory contributions started out at 3 per cent of an employee’s ordinary time earnings back in 1992 but have risen gradually, reaching 12 per cent in July last year.
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contributions → start → July
Some question whether 12 per cent of income is an appropriate level for compulsory contributions, including several independent think tanks.
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cent → question → tanks
A new study by the e61 Institute found that with contributions set at 12 per cent, people will on average, have more cash income per year in their retirement than they did during their working life.
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they → find → life
“We think it’s a little bit odd to compel people to save so much that they have more income in retirement than they did during their working lives,” says e61 economist and study co-author Jack Buckley.
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Buckley → think → lives
The superannuation system was set up to solve a problem of “undersaving” for retirement, but the study suggests it may have now “created an oversaving one”.
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it → set → one
As lifespans increase, this is exacerbated by uncertainty about how long people will need to fund their retirement.
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people → increase → retirement
Faced with this “longevity risk”, people have an incentive to save more than they need to avoid running out of resources towards the end of their life.
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they → face → life
This is linked to another contentious outcome of Australia’s compulsory retirement savings system: a growing share of Australians are dying with a large superannuation balance.
“What was designed as a system to support people in their retirement is slowly turning in part into an inheritance scheme,” says e61.
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e61 → link → scheme
A federal government retirement income review published in 2020 found that one in every five dollars paid out by the superannuation system was an inheritance, and it predicted that would rise to one in every three dollars by 2059.
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that → publish → 2059
That review, chaired by former Treasury official Mike Callaghan, also found a 9.5 per cent superannuation guarantee (the level when the report was published) would allow most people a comfortable retirement.
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report → chair → retirement
It also estimated that incomes during working life would be 2 per cent higher in the longer run with the guarantee set at 9.5 per cent compared to 12 per cent, although superannuation balances would be lower.
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balances → estimate → cent
The Grattan Institute, another well credentialled think tank, has also argued the 9.5 per cent contribution level is adequate.
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level → argue → ?
However, independent economist, Saul Eslake, argues there are good reasons to set the super guarantee at 12 per cent.
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Eslake → argue → cent
He says models that find 9.5 per cent an adequate level for the superannuation guarantee normally assume workers have 40 unbroken years of full-time work.
“That proposition is not true, especially for the majority of women who typically take time out of the workforce to care for children or the elderly,” he said.
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he → say → children
Super funds also argue that idealised assumptions about long full-time work histories underestimate the necessity of a 12 per cent superannuation guarantee for the majority of workers who face career interruptions.
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who → argue → interruptions
…and 15 more, not listed.
The Aporia
