Finance Your Super Five solid reasons why super needs boosting to 12 per cent

Five solid reasons why super needs boosting to 12 per cent

blocks numbered 1 to 5 on coins.
Increasing the super guarantee can do a world of good, writes James Pawluk. Photo: Getty
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Lifelong opponents of Australia’s superannuation system are currently pushing hard within the federal government to abandon the scheduled super guarantee lift from 9.5 per cent to 12 per cent.

The Prime Minister has called for discipline, but new Senator Andrew Bragg used his maiden speech on Wednesday to argue superannuation should be made voluntary.

Stoking the fire is the Grattan Institute, who have made the bold claim that there is no argument for the increase to 12 per cent.

This nonsense should be put to bed. If Grattan can’t come up of any reasons on their own, here’s five for them and Senator Bragg to use free of charge.

Dignity in retirement

At the heart of the Grattan Institute’s argument is the claim that “just about all of the extra income from a higher super balance at retirement would be offset by lower pension payments,” thereby making the increase pointless.

Why increase super savings when the government will just scale down your pension?

But even if pension payments could cover the gap in super savings (which they wouldn’t), that’s hardly a situation anyone would want.

At retirement, would you prefer to know you had a lump of your own savings or rely on the ongoing benevolence of the federal government for 30 years?

You’d have to be a brave punter indeed to relax on that kind of arrangement.

I wonder if the Grattan Institute would consider itself no worse off if the Victorian and Federal Governments provided it with an annual appropriation in each budget, instead of the initial upfront endowment of $30 million. I suspect not.

Greater diversification of household wealth

It’s easy to understand why someone aspiring to own their first home might like the idea of putting less of their income into super. But if everyone tipped the difference into the housing market it would become self-defeating, as house prices were pushed even higher.

Increasing the guarantee is therefore a way of ensuring lower and middle income households aren’t forced to concentrate all of their wealth in just one asset and thereby avoid overexposure to downturns in the property market.

This makes it a mechanism for improving intergenerational equity, since it lowers the amount of future income younger generations will have to use for acquiring the property portfolios of the baby boomer generation (a handover that has to occur at some point).

Bigger savings pool to invest in productivity

By diverting less of our hard-earned into property speculation, we can also increase the pool of savings available to invest in things that will actually boost our economy’s productive capacity.

This will include increased investments in new public infrastructure, as seen with the industry super involvement in proposed AirRail Melbourne project. It would also allow for upgrades to existing assets like the completed new runway at Brisbane Airport, where super makes up more than one third of the ownership.

It will also increase the capital available to businesses looking to invest for growth, most visible in the trend towards direct investment by industry funds participating in private equity transactions.

Of course, a more productive economy will lift national income and wages, which will ultimately outweigh any short-term reduction in wage growth to pay for the super increase.

Long-term sustainable returns

When we think about investing in shares, we tend to think of some trader focused on short-term returns, selling shares in a company when you they think it’s peaking and using the proceeds to buy into another that’s undervalued.

For a super fund things work differently. They need to make sure they have the right portfolio to generate great returns, but they also need to plan how they’re going to invest the future contributions that will flow in the door tomorrow on for both current and future members.

As a consequence, they have less appetite for stocks that might be doing well in the short term but at risk of taking a dive because they’ve been doing the wrong thing by their customers or staff. Pulling money out and reinvesting it is a huge task when you are dealing with so much of it.

For funds as shareholders, it’s much more appealing to invest responsibly for the long-term. Basically, distributing our savings to superannuation means it is more likely to be spent in a way that stabilise and improves our economy and society.

Collaborative industrial relations

Unlike old school company pension programs, industry funds have helped to increase worker mobility by making it less costly to change employers. This puts upward pressure on wages and boosts competition across all industries.

What’s more their governance arrangements bring employer and union trustees to the table to make decisions in the best interest of members.  The 50/50 representation model ensures neither group can make a decision without the agreement of the other. This means rather than being a threat, as some partisan observers worry, the growing size of these funds will become an increasing vehicle for stability and collaboration between capital and labour.

None of this is to suggest there isn’t need for improvement. There are inefficiencies and inequities that must be tackled.  But if we’ve learned one thing from the climate debate in this country, it’s that we should be very wary of taking a rare oasis of bipartisan agreement and turning it into a barren ideological battleground.

James Pawluk is the executive director of the McKell Institute

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