Finance Finance News Beware of politicians peddling superannuation myths

Beware of politicians peddling superannuation myths

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Voters disaffected with the major parties are often easily swayed by flawed populist policies. Photo: Getty
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One of the scary things about the current Turnbull government in-fighting is the way it transfers power to populist, right-leaning groups and their often nonsensical policy ideas.

While Coalition MPs trade blows over same-sex marriage, a banking inquiry and energy policy, minor parties such as One Nation, Cory Bernardi’s Australian Conservatives or the Katter Australia Party are using emotive topics to sweep up disgruntled right-leaning voters.

We’ve had Asians/Aborigines/Muslims are ruining your life, immigration is ruining your life, Chinese investors are ruining your life, climate change scientists and/or windmills are ruining your life – so it’s natural to wonder what will be next.

A worrying answer to that question was raised this week by Martin Fahy, chief executive of the Association of Superannuation Funds of Australia (ASFA).

He told the Financial Review that he fears Australia’s exemplary superannuation system “… is vulnerable to short-term populist thinking, where somebody would try to appeal to people with an offer to have a sudden increase in take-home pay at the cost of long-term retirement funding”.

Those fears are not helped by mainstream politicians, including the last two federal treasurers, periodically telling Australians that super is “your money”, with the strong implication that it’s somehow been unjustly locked up by the government.

Mr Fahy added: “We need to push back hard against the myths that are out there about super. The idea that super is not going to amount to much, or we are still going to end up paying a lot in aged pension, and you are better off outside the super system and it costs a lot of money, are wrong.

“If you don’t challenge those myths very quickly they become accepted wisdom and they become the basis for poor public policy decision making.”

Sadly, he’s right. It’s easier to whip up indignation about the government ‘taking your money’ than to explain how the super system makes the entire nation better off.

Context is everything

The first thing to note about Paul Keating’s creation of the ‘super guarantee’ in 1992 is that the new mandatory saving/investment scheme was designed to gradually replace an equally mandatory tax/transfer scheme – the pension.

But rather than take tax dollars and hand them straight to pensioners, the super system hands the money to a worker’s nominated super fund to invest for the future.

The point is that a mandatory investment scheme, over time, helps Australians afford a more comfortable retirement than could be covered by a tax-transfer system – especially given the rapid ageing of the Australian population since 1992.

The second major economic plus flowing from the super guarantee is the way it helps fund Australian businesses, infrastructure, social housing or the venture capital sector – or at least should do.

Industry Super Funds Australia CEO David Whitely told me on Wednesday that proposed reforms to the governance of super funds, or calls for greater transparency around the fees they charge members, have squeezed out bigger debates on how the nation’s $2 trillion pool of savings could be used to unlock more economic growth.

A third advantage of the super guarantee era is that it has forced up the national savings rate – a vital indicator of a nation’s ability to invest for the future.

Because a portion of most super funds is invested offshore, the higher savings rate also helps to balance Australia’s persistent trade deficits.

When we import foreign goods – which we do hand over fist – they are paid for in one of three ways: by borrowing money from abroad; by selling off bits of our productive enterprises (inward investment); or by investing abroad and repatriating the earnings generated.

The latter of those three options is not often discussed, but it should be. As economist Saul Eslake told me a couple of years ago, the overseas investments of super funds have helped to “over-finance our trade deficits” for years.

All those advantages could be picked apart if a convincing populist leader sinks their teeth into the super guarantee.

So while it’s right to keep policing the way all types of super funds operate, and perhaps even quibble a bit about how high super contributions should be in future, voters must be vigilant for political opportunists peddling super myths.

If they convince you that ‘taking your money’ away actually makes you poorer, then poorer is exactly what the nation will become.

• Disclosure: The New Daily is owned by industry super funds

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