Is it just me or have others noticed a plethora of voices claiming that superannuation is unfair? ‘We must make super fair’ is the typical tone of the claim. Usually, this is followed by some ideas for more regulation, compulsion, tax, affirmative action and so on. To date, I have not observed people complaining about lack of fairness coming to the obvious conclusion and easiest way of fixing a system they believe is broken: remove the compulsion to participate.
But first let’s examine the argument: is it the case that super is not fair? What constitutes fairness? If two people of identical age, income, pattern of work, net investment returns and age of retirement have contributions made at the level of the compulsory Superannuation Guarantee (SG), then they will accrue exactly the same super benefit at retirement. There is no racial, ethnic, gender, religious or sexuality factor involved. The identical outcome will emerge for both people. That sounds like fairness to me. What would be surprising would be a different outcome based on one of those other characteristics.
So who claims unfairness, and on what grounds? Two general claims are common: low income earners and women. For low income earners, the main argument stems from the logical outcome of a progressive income tax scale. The marginal rate of income tax for high income earners is higher than that of low income earners. As a consequence, less income and more superannuation contributions result in a greater rate of tax saving for higher income earners. To argue that is unfair would logically require the argument that progressive tax scales are unfair. Would a flat rate of income tax across all incomes then not work better? Strangely, that logical conclusion is never reached. Instead, punitive tax measures have been imposed on the super of higher income earners.
With retirement income for women, the evidence that women typically enter retirement with a lower average balance than the typical man is cited as proof of unfairness. Why is the average balance lower? Does it not have more to do with the work pattern of women compared to men than any inherent unfairness based on gender? To change the outcome would require different policy based purely on gender.
There is one genuine aspect of super that is unfair. It is the compulsory SG. It is the SG that forces the deferral of income into a retirement savings pool inaccessible until age 60 when that money could have been put to other uses. Low income earners do have a legitimate gripe but it has nothing to do with the progressive income tax scale. The SG is the fundamental cause of the discontentment. If it were abolished, then only those people who genuinely wanted to use super for retirement savings would do so. The rest could make their alternative arrangements.