There is an old joke about tourists in Ireland stopping a local in Dublin to ask for directions to Killarney. ‘Well,’ the local replied, ‘if I were going to Killarney, I wouldn’t be starting from here.’
At least those tourists stopped to ask. There has been little obvious evidence that the critics of the Australian superannuation system, and there are many, have stopped to ask themselves what is super’s purpose before criticising it and calling for change in policy. Super policy is easy to criticise when there is no articulated reason for its existence. This vacuum then results in an Alice in Wonderland response – the critic can criticise anything or everything because they make up their own idea of what super is for.
Is the compulsory rate of contribution too high, low, or just right? Is the tax rate on earnings right? Is insurance in super a necessity for manual workers or is it a rip-off by evil insurance companies? Should employers choose default super fund for employees or should an expert panel of ten people have the control over which funds are viable defaults? Should the Future Fund, an institution established purely for the investment management of sovereign wealth, becoming a deposit-taking institution for retail clients?
These are the current on-going arguments going on in Australia about the future of superannuation policy.
Not much is likely to change until we can agree on the purpose of superannuation. It wasn’t always like this – it was clear decades ago, long before Governments became interested. It was a relatively plain part of financial services intersecting labour economics and moral sentiments. Employers found it necessary both morally and economically to allow old employees, particularly those that had spent a long period of employment with the same employer, to retire and live out their lives with adequate resources. Further, the dependants of workers injured or dying needed financial support. These needs were the original reasons that employers maintained superannuation programs.
In recent decades, many people have come to believe that super is a wealth accumulation tool. If you take that approach, what you think makes good policy sense can differ, and in quite significant ways, from policy designed to administer the original purpose of super. Super was a mechanism to meet needs. It has morphed into a mechanism to meet wants.
Wants-based wealth accumulation mechanisms already exist. There is no reason why they need to be replicated under the prudential and tax laws of superannuation. Yet I have witnessed over 30 years a non-stop Punch and Judy show: tax wars, choice wars, default fund wars, SG wars, gender wars, culture wars. Early release of money to assist first-home buyers buy residential property. Early release to all weight-loss reduction surgery. You name a crazy idea about the purpose of super in this Alice in Wonderland era and don’t be surprised to find it has already been publicly argued for by someone.
Not often mentioned in all this argy-bargy is the sobering assessment of Government offices that the demands on the publicly funded old-age pension are not expected to reduce materially in the next 30 years, despite what will then be 50 years of the compulsory system. That would suggest that the objective of making Australians less reliant on the taxpayer and more self-reliant in retirement has not worked. This is probably because Government policy makers forgot to start with the obvious question – what is the purpose of super?