Dear Prime Minister
In January 1999 you gave a highly persuasive speech about the folly of Australia swapping its current constitution for an unproven model.
In the speech, which appears in a book entitled Men and Women of Australia, our greatest modern speeches, you recognised that the current constitution had some alarming incongruities, but for all that you said it worked and changing it would be the “equivalent of experimental surgery on a living patient”.
If I may be so bold to stretch the analogy, there are a lot of incongruities in the governance of superannuation which, despite its far from ideal system of governance, has become the fourth-largest system in the world, larger than current Australian GDP et cetera.
The coalition’s Policy for Superannuation paper states that “Labor has failed to deliver on its promise to introduce genuine competition and transparency into the default superannuation market” and that “real competition would help maximise value for all Australians whose savings are directed into a default superannuation fund”.
An attack on the default system that favours industry funds is expected, but the logic is odd as industry funds have achieved 10-year returns superior to retail funds.
You argue that the market knows best, but I fear you have overlooked behavioural finance. When the free market is let loose on retirement savings, the public and employers are inclined to act in ways they will come to regret. In a totally free market, there will be winners and losers; the employees of Enron who had their entire 401k plans invested in the shares of their employer come to mind. The losers will blame the market that allowed this to happen and they will blame the government. The reputation of superannuation will also suffer irrevocably.
Editor of Investment Magazine