No more wage gar­nish­ing by fund man­ager lobby

Work­ers are up against fee-gougers and rent-seek­ers

The Australian - - COMMENTARY -

There is a strong case for putting on hold the bi­par­ti­san plan to lift com­pul­sory su­per­an­nu­a­tion from 9.5 per cent to 12 per cent by 2025. A new re­port from the Grat­tan In­sti­tute of­fers fur­ther ev­i­dence of the self­in­ter­est of the $2.7 tril­lion su­per­an­nu­a­tion sec­tor. Gar­nish­ing the wages of work­ers cer­tainly has been lu­cra­tive for the funds man­age­ment be­he­moth but this has been at the ex­pense of re­tirees and the com­mon­wealth trea­sury.

A quar­ter of a cen­tury af­ter Paul Keat­ing’s “su­per­an­nu­a­tion guar­an­tee” was ush­ered in, about 80 per cent of peo­ple still re­tire on at least a part Age Pen­sion or ben­e­fits. Back in Au­gust 1991 Mr Keat­ing’s trea­surer, John Kerin, said: “Su­per­an­nu­a­tion is the cor­ner­stone of en­cour­ag­ing greater self-pro­vi­sion. That will help im­prove re­tire­ment liv­ing stan­dards and will re­duce the bud­getary cost of the pen­sion sys­tem as the pop­u­la­tion ages into the next cen­tury.” The 2014 com­mis­sion of au­dit led by busi­ness­man Tony Shep­herd did a re­al­ity test, its re­port con­clud­ing: “Even al­low­ing for a de­cline in the pro­por­tion of peo­ple re­ceiv­ing the full pen­sion, a rise in the num­ber of peo­ple re­ceiv­ing the part-rate pen­sion will see the pro­por­tion of older Aus­tralians el­i­gi­ble for the Age Pen­sion re­main­ing con­stant at 80 per cent over the next 40 years or so.”

The Grat­tan re­port ar­gues that an end to fee-goug­ing by su­per funds and an im­prove­ment in their in­vest­ment per­for­mance would be bet­ter for re­tire­ment in­comes and the pub­lic purse than a com­pul­sory step up to 12 per cent. It says a 12 per cent su­per levy would cost the fed­eral bud­get an ex­tra $2 bil­lion a year. In any event, the re­port au­thors main­tain the re­tire­ment sav­ings cri­sis is man­u­fac­tured to serve the in­ter­ests of su­per funds. It’s true that the in­come nec­es­sary for a com­fort­able re­tire­ment can be ex­ag­ger­ated, es­pe­cially if the fam­ily home is owned out­right. The re­port does point to the plight of the grow­ing num­ber of peo­ple who still will be rent­ing ac­com­mo­da­tion as they ap­proach re­tire­ment — es­pe­cially those on low in­comes — but sug­gests the rem­edy is more gen­er­ous rent as­sis­tance, not more com­pul­sory su­per.

More gen­er­ally, how­ever, it still makes sense for govern­ment to set in­cen­tives so the max­i­mum num­ber of peo­ple can be self-re­liant in re­tire­ment. The task of mak­ing the Age Pen­sion sus­tain­able can­not be evaded, only post­poned, and the so­lu­tion will not get any eas­ier po­lit­i­cally as time goes by.

The su­per­an­nu­a­tion pic­ture emerg­ing af­ter work by the Pro­duc­tiv­ity Com­mis­sion and the bank­ing royal com­mis­sion is one of vast amounts si­phoned into of­ten poorly man­aged funds — es­pe­cially re­tail funds — and sub­ject to myr­iad opaque fees. The re­sults are re­tirees with fund bal­ances dras­ti­cally lower than they ought to be; young work­ers mov­ing be­tween jobs con­scripted into mul­ti­ple funds, some­times pay­ing more than one life in­sur­ance pre­mium; and lowwage work­ers de­prived of in­come they could have spent or in­vested more prof­itably than in su­per, or put to­wards a home de­posit. The econ­omy has for­gone con­sump­tion while the fi­nance sec­tor’s share of out­put has grown from 4 per cent in the 1980s to nearly 9 per cent, the big­gest share in the de­vel­oped world. This looks like ev­i­dence of rentseek­ing, as new Pro­duc­tiv­ity Com­mis­sion chair­man Michael Bren­nan said this week.

If the su­per in­dus­try had its way, we would be on track for 15 per cent to be skimmed off wages, gen­er­at­ing more rev­enue for fund man­agers. The cause of or­di­nary wage and salary earn­ers has few cham­pi­ons. Su­per is com­plex, fi­nan­cial il­lit­er­acy is wide­spread and peo­ple take an in­ter­est in re­tire­ment in­comes late in life and long af­ter in­formed de­ci­sions could have led to far bet­ter out­comes. Mean­while, the com­pul­sory su­per lobby has won sup­port from the ma­jor par­ties, the fi­nan­cial sec­tor and the union move­ment, which ben­e­fits from var­i­ous rev­enue streams be­cause of the nexus be­tween in­dus­try funds and the awards sys­tem. So the in­ter­ven­tion of the Grat­tan In­sti­tute is wel­come. There is no good rea­son for yet an­other ratch­et­ing up of com­pul­sory su­per — cer­tainly not be­fore funds boost their per­for­mance and stop fee-goug­ing.

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