Much of the Election 2016 hype centres around the supposed ‘real’ purpose of superannuation and the burden that our ageing population places upon our economy. So it’s time to take a step back and consider the real goals of super and the so-called ‘generosity’ of our welfare payments.
This past week the changes to superannuation proposed in the Turnbull Government’s Budget 2016 have come under heavy fire from all sides of politics. The Labor Party has attacked the retrospective aspects of the superannuation cap, the Greens have said that the tax rate should be increased for those earning over $100,000 and both Foreign Minister Julie Bishop and Greens Senator Sara Hansen-Young have fumbled and bumbled while trying to explain their parties’ Transition to Retirement (TTR) policies, claiming that the complexity of super was the reason for their inability to articulate their policies. Meanwhile the conservative think tank, the Institute of Public Affairs (IPA) has declared war on the proposed changes to super.
Within this debate, there are many claims being made about the purpose of superannuation. Most, from the conservative side of politics, state that superannuation was designed to replace the Age Pension. Claims from the left of politics tend to support the notion that superannuation is in addition to a pension, rather than instead of.
Here are the facts.
Superannuation was introduced in Parliament in the Superannuation Guarantee Bill in 1992. It was a long time coming; the early moves toward universal mandatory super going back to the union movement in the 1960s. The history of Australian superannuation is well documented in Christine St Anne’s excellent book A Super History. To summarise, the union movement was seeking a more secure and dignified old age for workers by incorporating a lifetime pension in their agreements. Such a pension was already available to public servants and many professional male workers. But the rank and file would typically finish work at age 65 and then have only their own limited savings and a meagre Age Pension upon which to make ends meet.
It took about 30 years for a mandatory super scheme to be introduced and this was because such a solution helped solve another economic problem for the then Hawke-Keating Labor government. This was galloping inflation – and many of those old enough will remember the days of nine per cent inflation and 17 per cent interest rates. In order to rein in wages growth which was feeding this inflation, the Labor side of politics, in particular Paul Keating and Bill Kelty (head of the Australian Council of Trade Unions) persuaded the union movement to trade off future wage rises for a guaranteed three per cent contribution to a portable superannuation account for all working Australians. Thus the Superannuation Guarantee Contribution (SGC) was born and for the first time many men – and even more women – saw a retirement savings nest egg with their name on it.
The intention of this superannuation was NEVER to replace an Age Pension, despite what our current batch of politicians declare. They should check the history before they open their mouths. For the record, here is the then Treasurer John Dawkins’ statement on the night it was introduced:
“The increased self-provision for retirement will permit a higher standard of living in retirement than if we continued to rely on the age pension alone. The increased self-provision will also enable future Commonwealth governments to improve the retirement conditions for those Australians who were unable to fund adequately their own retirement incomes.’ (superannuation guarantee bill 1992).”
So to paraphrase, super is to enable a higher standard of living in retirement than the Age Pension alone – not to replace it. It is also intended to help those who will never earn enough to put aside private savings.
The Turnbull Government is currently seeking to ‘enshrine’ in legislation the real purpose of super. As per the above statement, you would think it was clear enough, so beware any attempts to change this original purpose.
The second problem with Election 2016 discussion of retirement income centres on the notion that spending on our Age Pension is unsustainable and so our ageing population is creating a burden on our economy.
Give me a break! This hoary old chestnut is trotted out daily and photos of rich old white men with junior girlfriends on expensive yachts usually illustrate the point. But this ‘greedy baby boomer’ belief is simply factually incorrect.
Australian governments enjoy quoting our economic achievements in relation to other developed nations, usually the 34 nations which comprise the OECD. So it is important to be consistent when it comes to our spending and to use the same yardstick for our government contribution to our ageing population in the form of an Age Pension. And here we are woefully short of the mark. The percentage of the Australian GDP which is spent on the Age Pension is currently 2.9 per cent. It is projected to rise to 3.6 per cent by 2055, according to the most recent Intergenerational Report. This makes us the third meanest nation in the world, sitting behind Korea and Mexico. Our older people are not a burden on our economy. In fact, our spending on Age Pensions is so woefully low and insufficient to make life dignified for any recipient.
Something has to give. Sooner or later the day-to-day ideological argy-bargy and ‘he said, she said’ of federal politics has to be challenged and a long hard review of the fundamentals of retirement income needs to be initiated. Until we have such a review, which should incorporate taxation, pensions, superannuation, the contribution of volunteering, housing affordability and the ramifications of increased longevity, we are only ever fiddling around the edges. And such fiddling results in short-term electoral cycle moving of the goal posts yet again, further confusing increasingly disenchanted and disengaged retiree voters.
In the meantime, don’t get sucked in by the spiel and spin. The Age Pension is your entitlement and superannuation was only ever designed to permit a higher standard of living – never to replace it.
What do you think? Do you agree with the above, original, definition of super? Or do you feel it should be redefined as proposed by the Turnbull Government? And is the Age Pension an entitlement? Or is it only for some?
