No more wage garnishing by fund manager lobby
Workers are up against fee-gougers and rent-seekers
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.