22 July 2019
After decades in which successive governments have shifted the superannuation goalposts, the last things savers want is the Morrison government’s forthcoming review to recommend changes that could shrink their nest eggs. But savers would be the winners if reforms are enacted to save them fees and make the $2.8 trillion sector more efficient. As Adam Creighton reports today, Josh Frydenberg is facing concerns from a broad group of Coalition backbenchers who believe the government should ditch the legislated rise in the compulsory superannuation guarantee. The guarantee is scheduled to increase to 10 per cent in July 2021 and reach 12 per cent in July 2025. The group includes the chairmen of two influential parliamentary committees — Victorian MP Tim Wilson and West Australian MP Andrew Hastie.
If the size of the guarantee is to be reviewed it would make sense to factor the matter into the review, which will have much to consider. A recent study by the Grattan Institute showed that raising compulsory superannuation in stages would leave many workers poorer, as they would forgo wage rises, some of which would stimulate demand and economic activity. On the other hand, almost 30 years after the Keating government brought in compulsory super, taxpayers are still carrying most of the burden of providing retirement incomes for our ageing population. In 1992, 80 per cent of retirees received government income support; the same percentage still receive full or part pensions. On current settings, Treasury analysis shows the proportion not drawing a pension will remain static at 20 per cent in 2047. What is changing slowly is that fewer people are receiving full pensions. So far, despite vast growth in the super savings, the goal of more Australians becoming financially independent remains elusive.
Part of the problem, as Nobel prize-winning economists Eugene Fama and Richard Thaler identified recently, is that Australia’s funds have some of the highest costs in the world.
Any systemic changes must put workers’ and retirees’ needs first, which has not been the case for a long time.