It’s really no surprise they’ve been attacked. More than $160bn in wages and salaries is siphoned into super accounts every year, generating roughly $34bn in annual system-wide fees. In short, it’s the biggest racket in the country.
Those fees, equivalent to about half the defence budget or the entirety of Victoria’s health spending, may not be counted as taxes, but they might as well be. They sustain a vast bureaucracy that otherwise wouldn’t exist. Most of the $3 trillion in APRA-regulated funds is actively managed when much of it should be sitting in ultra-cheap indexed options, which are conveniently buried in the fine print.
Now, more than ever, the case for reform is overwhelming. Workers are being forced to save too much during the years when they most need that money – to buy a home, raise a family and enjoy life while they are still young enough to do so. The so-called working man’s paradise has increasingly become an economic purgatory, where purchasing power is steadily eroded by higher taxes, inflation and forced saving. Amid the biggest fall in living standards in a generation, the least we could do is give people the option to save a little less now.
Former Treasury secretary Ken Henry – the last truly exceptional and independently minded economist to hold that office – concluded in his 2009 tax review for the Rudd government that the compulsory saving rate should remain at 9 per cent. “This strikes an appropriate balance for most individuals between their consumption opportunities during their working life and compulsory saving for retirement,” he wrote.
That judgment has been vindicated in spades, yet it has been ignored by both major parties, too lazy or too beholden to vested interests to resist the inexorable rise to a ridiculous 12 per cent.
The government itself knows the rate is excessive. In its 2020 Retirement Income Review, Treasury found that when retirees die, most leave behind the majority of the wealth they had at retirement. Members who died had left about 90 per cent of the balance they held at retirement. In other words, retirees tend to live off the income from their assets, not the assets themselves.
Treasury also projected that aggregate death benefits would rise from around one dollar in every five paid out by the super system in 2019 to around one in every three by 2059. That is an absurd outcome. It suggests Australians could enjoy a better quality of life when they are young without materially sacrificing their incomes later in life.
Henry also made a devastating point about the public finances. The system, he said, is a “net cost to government even over the long term”, puncturing the common claim that forced saving somehow saves taxpayers money. As he put it, the loss of income tax revenue from the various concessions would not be fully offset by higher super tax collections or lower Age Pension costs. Put plainly, all other taxes are higher than they need to be because of this system.
There is also a serious governance problem. Big super funds now control almost 40 per cent of the Australian sharemarket, creating an unelected parallel government that votes on company direction according to environmental and social fashions the vast majority of members are unlikely to care much about. As Bragg asked in his National Press Club speech, why tolerate all this complexity when “there is no public finance benefit and minimal personal benefit”? Even “minimal” may be generous.
None of this will be easy to change. Compulsory super is one of the few policies that unites the two most powerful vested interests in the country: the union movement and the finance sector.
But if there were ever a time to push for reform, it is now. People rightly feel poorer. Yet the Prime Minister has been boasting that super could become a “national asset that can be used more appropriately”, while the Treasurer said in 2023 that he hoped to maximise its potential through “greater investment in our national priorities”.
And what exactly does that mean? Five per cent of your retirement savings tipped into Snowy 2.0 or Melbourne’s Suburban Rail Loop? Of course, allowing workers to withdraw their super balances in full would be unwise. The resulting wall of cash, eagerly leveraged by the banks, would wash into the housing market and drive prices even higher.
But workers should at least be allowed to opt to receive three percentage points of their gross income as wages instead of having it funnelled into super. That would be entirely their choice. It would harm no one else. It is their money, their employer would not care, and it would not cost the budget a cent. If anything, the reverse is true. Australia is the only developed country with a means-tested pension sitting alongside a massive compulsory, privately managed, defined-contribution savings scheme. Rather than congratulating ourselves on how clever that makes us, we might pause to ask why.
Hanson and Bragg deserve credit for reigniting a debate that should have been raging for years. It’s is more than can be said for the dozens of seatwarmers in the upper house. Senators, with their long terms and broad state constituencies, are meant to speak plainly and challenge orthodoxies, not merely parrot party lines. That is what we pay them for. And there is no bigger issue on which to do it than super.
Adam Creighton is chief economist at the Institute of Public Affairs.
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