Does compulsory #superannuation benefit lower income earners?


There are many commentators in Australia who engage in their own particular battle of the history wars by claiming that superannuation was a Paul Keating invention that has provided great benefit for the lower income earners. If only life was so simple.

It is not obvious that compulsory superannuation has helped the lower paid in the community. Clearly, on retirement everyone who has been employed since the introduction of the compulsory Superannuation Guarantee (SG) will retire with a sum of money that they may not otherwise have had. But what have they given up to obtain that sum? Not many history warriors even acknowledge the sacrifice involved, let alone try to measure the net effect.

Each person under the compulsory superannuation regime gives up two distinct assets. First, they forego cash income during their employment years. Second, they reduce their entitlement under the age pension by virtue of means-testing. 

On the first point, employee costs are measured in totality when businesses structure their capital and labour inputs. The introduction of the SG did not make labour more productive. It just made labour more expensive. The adjustments that followed were some people at the margin remained unemployed rather than getting their foot on the first rung of the labour market. Then, those employees already in employment had their real wages adjusted downward to reflect the higher superannuation cost. In total, the aggregate additional cost of superannuation was paid for by an aggregate reduction in real wages. 

So, the superannuation was funded by the people themselves. And the sting in the tail was that the age pension would be less on retirement as a result.

Hence, my question. Does compulsory superannuation benefit lower income earners? Possibly, but it not as clear cut as the history warriors boast.

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3 thoughts on “Does compulsory #superannuation benefit lower income earners?

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