New research has claimed increasing the superannuation guarantee (SG) will help super funds create hundreds of thousands of jobs, after former prime minister Malcolm Turnbull described the system as “a great Australian achievement”.
Research released by Industry Super Australia shows industry funds plan to invest $33 billion into the economy by 2025, in a capital expenditure drive that could create as many as 660,000 jobs.
Planned investments of $19.5 billion by 2023 will alone create over 200,000 jobs, according to the peak industry group.
ISA chief economist Stephen Anthony said: “We have calculated the job creation at about 110,000 a year, which is conservative. Treasury would say it could be as high as 170,000 jobs a year.”
The group said the investments would play a crucial role in our economic recovery, but hinged on stable policy settings and would suffer if the federal government backflipped on the legislated SG hikes.
In an interview with the ABC on Monday, Mr Turnbull said “we would be better off sticking to the legislated increase”.
“This is a vexed issue because there are people who say the money is better in people’s hands now than down the track,” Mr Turnbull said.
“I think that is all a bit patronising, to be honest.”
Mr Turnbull also criticised the government’s early super access scheme, which has now seen members withdraw $32.6 billion from their retirement savings.
“These are desperate times, and governments have to make decisions very quickly, but frankly, I think with the benefit of hindsight that will be seen to have been a poor-quality decision,” he said.
Halting SG rise will hurt
ISA’s research found delaying or cancelling the scheduled rise of the superannuation guarantee (SG) from 9.5 per cent of wages to 12 per cent by 2025 would curtail its investment plans.
Any delay in the legislated SG hikes would combine with early superannuation withdrawals to reduce funds available for investment, it said.
Delaying the scheduled rise of 0.5 per cent from July next year would cut $1.8 billion from not-for-profit fund inflows, which would change their investment plans.
Moving the SG to 12 per cent by 2025 is expected to put an extra $20 billion into the super pool annually by then.
“Funds have investment plans in place and the worst enemy of such plans is uncertainty,” Dr Anthony said.
“It is always bad news for the confidence to make those investments.”
ISA found that industry super’s superior performance in comparison to retail funds has had a positive effect on federal government finances.
Overall, the performance has delivered $151 billion in extra super savings for the economy, which averages out at an extra $30,250 per member by retirement.
New economic model
Long-term investments from super funds would help build the economy of the future, Dr Anthony said.
“The Hayne banking royal commission marked the end of the economic game being driven by the banking system,” he said.
“In future, the economic model will be driven by pools of equity delivering long-term assets at the right price,” Dr Anthony said. “That will be a sustainable model.”
The industry fund model is growing in importance.
In 2018-19, superannuation investments of $20.1 billion created 111,257 jobs, ISA’s research found.
But of that, only $6.6 billion came from industry funds – a figure that is expected to have risen to $7.1 billion in 2019-20.
The research also found that the industry’s investment plans would save the federal budget $2.7 billion via higher tax receipts, lower pension payments, and lower interest costs on the national debt.
ISA CEO Bernie Dean said super fund investments would help get the economy back on its feet.
“Our economic recovery and workers’ dignity in retirement both hinge on stable and optimal policy settings including the promised super guarantee rise and preserving savings for retirement,” he said.
“Industry fund members are deeply invested in Australia’s future, which is helping to rebuild their retirement savings, keep businesses in business and Australians in jobs.”
Super funds today invest heavily in traditional infrastructure, such as roads, airports, ports and public buildings, but significant opportunities for investment lie in new areas.
These include agriculture, affordable housing, business lending, private equity, venture capital, and retirement living and aged care, the report found.
More bang for their buck
Moving into these new areas would boost the effect of each investment by increasing the multiplier, or the amount of dollar returns, over 25 years created by each investment.
“Traditional infrastructure investments have multipliers of say 2.5 times,” Dr Anthony said.
“But when you invest in social housing it can be more like six times.”
Jobs created by super fund investments will “overwhelmingly be in construction,” Dr Anthony added.
However, the multiplier effect will see a range of other job types created as a secondary effect.
Not so important
Brendan Coates, household finances program director at the Grattan Institute, said superannuation investment was not the most important need at the moment.
“On the broader question, the household savings ratio has jumped to 20 per cent, the highest in 50 years. It’s well established that in a recession households need to spend to aid economic recovery,” he said.
“If you increase the super guarantee by 2025, it is $20 billion a year.”
Mr Coates said it would be better to encourage household spending by abandoning the SG rises, which in turn should encourage wage increases.
“Inflow to superannuation is already about $100 billion a year, so I don’t think a small change will influence the amount of superannuation investment,” he said.
The New Daily is owned by Industry Super Holdings