Shooting kites

UPDATE (Feb 15): The kite referred to below has been shot down. The Government has announced it is not planning to freeze the SG at its current rate.


The Government has done little to quell the press speculation this week that the Superannuation Guarantee rate of contribution, currently 9.5% of earnings but scheduled to increase to 12% over time, will be frozen at 9.5%. The lack of a smack-down suggests the Government truly is considering this option and allowing the media speculation to check for community reaction. It is called kite flying.

Goodness, the self-interested are quick off the mark – slings and arrows at the ready to shoot down that kite. Superannuation industry associations and rent-seekers have become too used to a guaranteed revenue stream coming in under the compulsion of law. It has become a sense of entitlement and they squeal when confronted with even the slightest perception of a threat to that money. They all lined up last week to squeal about how bad an idea that would be. It really is tiresome.

The cancellation of further increases in the compulsory rate of superannuation contribution is a good idea. I hope it is implemented. Then, I hope the Government realises the logic that if future increases in the SG should be dumped, the current rate is also too high. It should be reduced to zero. That’s right – the whole SG regime should be dumped.

To be clear, superannuation is very important. By and large, the products on offer to the Australian people are worthy and cost efficient. Note, they are not risk efficient, which is the greatest current failing of the whole system. Despite years of sabotage by Government regulation, super remains important and valuable. I do think that young workers entering the workforce should save throughout their working lives for retirement and super should be a backbone of that saving for most. I think Mr Micawber would share a similar view.

The problem with the SG is therefore the compulsory nature of it. It is possible to contribute to super without a law compelling us to do so. That’s how it used to work before a centralised wage fixing judgement in 1985 hit upon the bright idea of how to give a wage rise without contributing to inflation. From there, it grew and expanded and became what we know as the SG. I know lots of people who are not financially sophisticated, and left to their own devices probably won’t make the best financial choices in life. But all of these people are better judges of their own interests than is the Government. They should be allowed to decide how much to contribute to super, when, how to draw it down, and how to spread the mix of savings dollars across different types of investments. If super is attractive, then it will attract the contributions. If not, alternative savings vehicles and methods will prevail. What is not to like about that?