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Hedge Clippings | Friday 26 July, 2019
We'd love to have been able to read ScoMo's mind as he listened to Andrew Bragg's maiden speech in Parliament on Wednesday. The newly elected Senator from NSW suggested that Australia's compulsory superannuation regime, rated by many to be one of the best in the world, should be made optional, particularly for the young and lower paid members of the workforce.
Whilst not doubting that a significant majority of workers would happily opt for a 10% pay rise now (equivalent to a bird in the hand) rather than wait for 30 or 40 years to be self-funded in their retirement (equivalent to 2 in the bush), the reality is that superannuation was set up to reduce the budget's age pension burden from an ageing population. Furthermore, it is precisely the lower paid members of the workforce who are most likely to need both capital and income in retirement.
Bragg was out of order on a number of other fronts. Firstly, using one's maiden speech to lob a contentious idea likely to cause your own party some embarrassment probably wasn't that smart - unless you are just seeking attention. Secondly, it is completely at odds with Bragg's previous arguments in 2016 when working for the Financial Services Council when he wrote "The fact remains that lower superannuation savings would force more Australians onto the age pension, pushing the cost of an ageing population onto future generations."
What a difference three years makes! However the Prime Minister subsequently reiterated that there will be no changes to superannuation even if recommended by the upcoming review into retirement incomes. We take this to mean that under his government the incremental increase in the SGL from the current 9.5% percent and, commencing in 2021, taking it to 12% by 2025 is safe - or as safe as anything is in politics.
That doesn't mean to say there aren't some necessary and meaningful changes that could and should be made to the superannuation system. In addition to many of the 31 changes recommended in the Productivity Commission's report into superannuation released in January - such as reduced fees, removing multiple accounts, and poor performance estimated to make workers $3.8 billion a year, here's a few more from Hedge Clippings just for good measure:
For a start simplifying the complexity of the rules and regulations surrounding super might make it easier for the majority of the workforce to understand it. Encouraging or incentivising workers to make additional superannuation savings would be another. Ensuring that at least a portion of a worker's superannuation balance on retirement is taken as a pension, rather than a lump-sum, would also be on our "must review" list. Finally, given that superannuation balances accumulate over 40+ years, ensuring that a significant portion of all superannuation is allocated to appropriate infrastructure projects, which also share a long-term timeframe and are in the national interest, would also seem to be a win-win given there's almost $3 trillion in super now.
Of course, being able to use a portion of one's super to assist first-time buyers to get into the property market would be a great idea - if it can be achieved. However unfortunately in the early years super balances are not that high, so in practical terms the level of assistance that affords might be limited.
Superannuation is simple in concept, but complicated in practice, and has been further complicated over the years by successive governments tinkering with the rules. After almost 30 years Australia's superannuation system needs reviewing, updating and simplifying to ensure it meets current and future objectives. Let's just hope Senator Bragg is not part of the decision making process.
In other news this week global politics just became more interesting (if nothing else) with the election of Boris Johnson as Great Britain's 77th PM. Whether he manages to achieve its objectives we will have to wait and see, but boring he is not. Donald is not boring either, (although he probably does qualify as a boor) so between the two of them, apart from a mutual admiration society, expect to see plenty of head (and hair) lines.
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