Proofing the Australian economy from the budgetary burden of an ageing population is just one reason why the Superannuation Guarantee should be raised to 12 per cent, writes John Brogden, CEO of the FSC. The turmoil on world financial markets has had a negative impact on the superannuation balances of all Australians. But while it is tempting to criticise the system for exposing Australians to volatile share markets, now is not the time to blink on the need to increase the amount we save for retirement. Indeed, the debt crisis faced by European countries such as Greece and Spain is all the more reason to push ahead with increasing superannuation contributions from 9 to 12 per cent. The failure of most European countries to deal with the rising costs of their ageing populations through private pension systems has in fact contributed to the debt problems they face. Australia has been fortunate to have some visionary leaders over the past 20 years who have helped us lead the world in dealing with ageing.
The introduction of compulsory superannuation under the Hawke/ Keating Government and the increase in contributions to 9 per cent – a policy retained under Howard and Costello – and the commissioning of the intergenerational reports have all contributed to Australia’s strong economic and budgetary position. As a result, Australia already has one of the lowest expenditures on age pensions as a proportion of GDP in OECD countries. The Australian Government spends 3.2 per cent of GDP on the aged pension – the fifth lowest percentage in the OECD – compared to 11.5 per cent in Italy and 10.7 per cent in Greece. Increasing superannuation contributions from 9 to 12 per cent is the next step in proofing the Australian economy against the budgetary burden of an ageing population and the risk of debilitating government debt.
Treasury has estimated that increasing compulsory superannuation from 9 to 12 per cent will result in a reduction in total budget expenditure on the aged pension of $10 billion each year by 2030. Superannuation also serves an important macroeconomic function by increasing national savings. As a result of the introduction of compulsory superannuation, Australia’s funds under management have grown from $260 billion in 1992 to $1.8 trillion today, and are expected to grow to $5 trillion by 2030. While companies around the world struggled for capital during the financial crisis, Australia’s superannuation funds were available for Australian companies to draw on. It is estimated that Australia accounted for 10 per cent of the world’s total market recapitalisation in 2009 – a staggering figure given the size of the Australian economy. For individuals, it is important to remember that superannuation is an investment for decades, not years or months.