We should increase superannuation without delay | Greg Combet’s 2020s vision | Greg Combet | Opinion
Australia’s universal superannuation system is one of our greatest success stories. After more than 25 years we are seeing its truly transformative effect not just on the lives of working Australians but on the broader national economy.
We now have an entire generation retiring with the benefit of decades of compulsory superannuation, delivering them dignity in retirement, helping to ease the burden on the age pension, and mitigating wealth inequality.
Rewind 30 years and millions of Australians were retiring with little to no savings, no super and only the meagre age pension and other government concessions to support them.
Not only has our superannuation system fundamentally improved the standard of living in retirement for so many Australians, it is a cornerstone of our economic and financial systems. With a capital pool of savings expected to reach as much as $6tn by 2030, it is a key driver of growth, jobs and productivity and is increasingly improving Australia’s current account by investing overseas and repatriating dividends and capital gains.
The retirement income review is the first wholesale review of the retirement system in nearly three decades and presents a significant opportunity to reform and improve it. It should aim to build on the success of our universal super system, ensuring the pension and super are working together as efficiently as possible so that Australians get the most out of every dollar in retirement.
Although our superannuation system is widely regarded as one of the most successful in the world, it is still maturing, and there are areas where its efficiency and equity can and should be improved.
In its submissions to the review Industry Super Australia, which advocates on behalf of 15 industry super funds and their more than 5m members, will set out a clear pathway to improve efficiency, equity and adequacy.
Underperforming super funds are the single most costly drain on members’ retirement savings, with the productivity commission finding that the difference between a person being in a good fund and a dud fund over their working life was more than $500,000.
The government, regulators and the sector have a responsibility to deal with underperformance wherever it occurs. Underperforming funds need to leave the system and there must be a mechanism to connect workers with a single, quality-checked, high-performing fund with good returns and low fees. A strengthened default system that protects workers is critical.
The expectation that the super system will do the right thing with people’s money while they get on with their busy lives was central to the royal commission, and a key guiding principle.
Super has been a great economic leveller in retirement but there is work to be done. On average women retire with half the amount of super than men, and low-income workers are also more likely to retire with small balances. More must be done to stop people being left behind.
To close the gender super gap, the $450 monthly earnings threshold below which super contributions are not paid should be abolished, and super should be paid on parental leave.
The efficiency and equity of government supports including tax concessions must be examined to ensure they are targeted at those who need it most. The taper rate must be lowered to remove the disincentive to save that exists for a cohort of working middle-income Australians.
There is a reason the parliament has legislated for the super guarantee to rise to 12%. It is because workers need more than the 9.5% of their earnings they receive as super contributions (on top of their wages) to reach an adequate, dignified retirement.
The prime minister, treasurer, finance minister and assistant minister for superannuation have all publicly committed to keeping the scheduled increase to 12%, and we welcome that commitment.
With too many Australians – particularly women – retiring with not enough super, sticking with the promised and legislated increase to 12% is central to improving the adequacy of the system. What we can’t afford is for the retirement income review to be used to contrive a case for delaying the increase to 12%.
Research shows that if the parliament was to repeal this legislated increase to 12%, families would be significantly worse off. People would save less for retirement and thus receive a lower income during retirement. After a lifetime of working hard for less, workers will face a lower standard of living in retirement. Furthermore taxpayers would foot the bill for the millions more people drawing on the pension. With the proportion of the population aged over 65 rapidly increasing, the burden on those of working age would also escalate.
For example, a 30-year-old couple on average earnings would have $240,000 less in savings when they reach retirement age if the super guarantee rate doesn’t increase.
During retirement they would lose up to 20%, or between $7,000 to $10,000 a year in income, if the rate doesn’t increase. This is money that can make a big difference to the everyday quality of life in retirement. It means being able to pay medical bills, pay for heating in winter, going out for dinner every now and then or visiting the grandkids interstate.
To ensure the super guarantee is delivering the level of support needed for a dignified retirement, the rate must increase to 12% as the Morrison government has promised.
Dignity in retirement
What is key when considering matters of efficiency, equity and adequacy is the universality of our super system. To date the universal nature of our system is what has made it successful. Superannuation is there to give everyone dignity in retirement, regardless of your background or how much you earn.
Yet there are some who have been advocating against universality. These voices want to stop the legislated increase in the super guarantee and undermine the compulsory system by allowing some cohorts of Australians to opt-out – for example those earning less than $50,000 a year. These ideas would take us backwards. They ignore the damage they would do not only to the quality of life of Australians in retirement but to our economy.
Everyone would pay in the long run. Millions of Australians would end up with less money at retirement, and everyone, future generations in particular, would pay more tax to support a flood of people relying on the pension. With an ageing population it would be madness to undermine the universality of our super system.
Those claiming this lost super would be replaced with an equivalent amount in wages defy real-world experience. As a former leader of the trade union movement, I can’t imagine anyone seriously believing such nonsense. People would simply lose their super contributions and get nothing in return.
The only way to build and grow the retirement savings of Australians is to build and grow our universal super system – not dismantle it.
The treasurer has said this will be a fact-based, evidence-driven review. If this is true there should be no grounds for those who oppose our universal super system to try to use the review as a vehicle to undermine it.
Our retirement savings system is among the best in the world. Now is the opportunity to build on the system’s foundations to ensure it will continue to deliver to each Australian the best chance of a dignified retirement.