Advanced Australia by Mark Butler

Author:Mark Butler
Language: eng
Format: epub
ISBN: 9780522868944
Publisher: Melbourne University Publishing

A Retirement Income Supplement through Superannuation

Mick, aged sixty-four, told me, ‘I had a payout after I left work, which paid for the Winnebago. I do have superannuation and the sale of our house has left us financially comfortable. Our finances allow us the flexibility to travel’. Compulsory superannuation was introduced as a supplement not an alternative to the Age Pension, to build a system of private savings that would underpin a higher standard of living in retirement than can be delivered by the Age Pension alone. In the 1980s, only about 40 per cent of private sector workers had access to superannuation, with no portability of entitlement if a worker changed employment. Compulsory superannuation gave close to universal access as well as a level of portability that better suited the modern labour market that sees workers change employer many times over the course of their working lives. At the time, the Liberal Party and many other business and media commentators opposed the new system, including its element of compulsion. A few media commentators still argue that workers should be able to take the money today rather than be compelled to defer it until tomorrow. But compulsion is central to the system, dealing with the likelihood of what economists call ‘myopic behaviour’ where people fail to prepare sufficiently for events far into the future. Australians have long expressed strong support for the system, reflecting their understanding that the Age Pension alone will not deliver a standard of living in retirement that they desire.

Experts on retirement incomes generally agree that Australians should be contributing (through their employers) somewhere between 12–15 per cent of their wages to guarantee that standard of living. Paul Keating’s 1992 legislation established the superannuation guarantee contribution at 9 per cent of a person’s wage. In the 1995 budget, Keating announced plans to increase that contribution to 15 per cent by 2002, with the additional 6 per cent funded jointly by the government and employees themselves. Although the Liberal Party dropped its policy of winding back the 1992 legislation after the rejection of Fightback in the 1993 election, John Howard repealed the 1995 changes on his election the following year, keeping the superannuation guarantee contribution at just 9 per cent. The Gillard government later legislated for the employer contribution to increase to 12 per cent gradually between 2013 and 2019. In 2014 the Abbott government deferred the increases beyond 9.5 per cent for several years. That deferral alone will mean that a 25-year-old worker today on average earnings will have $100000 less in superannuation savings by the time of their retirement than they would have had if the previous timetable was kept in place.

Alongside the stick of compulsion, the superannuation system provides a number of carrots to workers. Firstly, superannuation accounts have earned substantial returns over long periods, even accounting for the losses that funds suffered during the Global Financial Crisis. Secondly, the system attracts lower rates of taxation (known as concessional taxation) than those that apply to most wages.

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