There is a global pension underfunding crisis and yet Australians are set to lose $128 billion in savings because the Federal Government has tied up superannuation policy with the repeal of the mining tax. Superannuation policy should not be part of the political system and it’s time the industry did something about it.
The Financial Services Council has calculated that working Australians will have $128 billion less in their superannuation savings by 2025 due to the delay of the 12 per cent superannuation guarantee for seven years.
According to Jim Minifie from the Grattan Institute, for an average worker who has recently joined the workforce that could reduce retirement balances by about 5 per cent, or $40,000.
This is at odds with Prime Minister Tony Abbott’s statement on the ABC’s 7.30 that “no one is going backwards” and that delaying the SG increase is not “an adverse change”. Even my nine year old son understands compound interest.
Pension policy should not be a political tool. By its nature it requires long-term thinking, something politicians with 4-5 year electoral cycles are not wired to do.
Further, when superannuation policy is mangled with other finance and business issues – such as balancing the budget or mining industry deals – its purpose is not only diminished but completely lost.
One wonders what is happening in Australia when finance minister Mathias Cormann, has to do a deal on the mining tax with a man who has made his wealth from mining.
Clive Palmer, who is ranked number 28 on the BRW rich 200 with personal worth of $1.22 billion made from resources, promised last November that he would abstain from voting on the Coalitions’ bills to repeal the carbon and mining taxes to prevent a perception he is doing the “wrong thing”.
Clearly he changed his mind, and his party’s backing of the repeal has allowed the bill to be passed in the senate, so are we to conclude he is now not worried about being seen to do the “wrong thing”? How is it that retirement savings of working Australians is tied into this mess?
Palmer does not have to worry about his quality of life in retirement, but broadly Australians have a savings gap of $727 billion according to the FSC. In the US it’s a $4 trillion gap, with similar stories in every country building to trillions of dollars globally that is absent in funding retirement savings. This will have intergenerational impacts that should be addressed by public policy, but seem incomprehensible to today’s politicians.
Palmer’s take on longevity is high on conjecture: “We know as a fact that 50 per cent of Australians will be dead by the time they get access to super.” (The Actuaries Institute has come out since to say that 89 per cent of Australians will live to 65).
And both he and Abbott have made comments about Australians being better off having the money in their pockets now.
“We think it’s more important to have access to those funds now not in 50 years,” Palmer said.
It’s not long-term policy they have in mind.
Damian Hill, chief executive of REST, says the Government’s move marks a deeply concerning day for many Australians saving for retirement. And he’s right, this is serious.
“If there must be changes to the system,” he says, “we back a full review and structured debate around the issues, rather than the constant tinkering with the system and short-term policy making that we saw yesterday, which results in making super confusing to Australians and undermines confidence in the system.”
So what is the industry going to do about it?
Obvious ideas include more effective, coordinated lobbying, sensible collaboration by the industry, and informed advice to government particularly by actuaries on the seriousness of the problem.
But it could also be time for something more radical, the industry needs to be more vocal in the media, rally its members and create hype around the need for a public and open debate on the future quality of retirement for Australia’s citizens. Should we organise a public forum?
One of Palmer’s reasons for agreeing to repeal the mining tax was that he was worried it “would give a perception to overseas markets that people are penalised”.
I wonder if he has given any thought to the overseas perception of the Australian superannuation system?
Get real Amanda, anyone would think that super contributions
are a “magic pudding”. Do you (and the industry) not realise that
compulsory super contributions come at the costs of disposable income. The retirement income industry is obsessed with the amount that goes into super funds (one wonders why?) but not concerned at all with the quality of a person’s life up to when they retire. It would be great if everyone had more than enough to live the quality of life to which they aspire both before and after retirement but that is unrealistic. Further, the Government is not saying that people cannot make higher contributions but they simply are not compulsory. If people choose not to do so (which is the fear of the industry), then they are saying that such people have a preference for current consumption over consumption in retirement. Of course, the industry will say that those who choose consumption now (like buying a house) do not know what they are doing
and so we must force them to contribute more and more. Maybe the boot should be on the other foot and we are already requiring contributions at too high a rate. Professor Blake (Director of the Pensions Institute at the Cass Business School, London) has looked at what should be the age-related contributions to a defined contribution scheme for someone wishing to maximise their life time utility. He found that a male who follows an average salary path throughout his career should make a zero contribution until his mid-30s with the rate of contribution increasing at an exponential rate as he gets older. Your nine year old son
might know something about compound interest but clearly you (and an industry that feeds on compulsory contributions) have little or no concern with the quality of life prior to retirement
Anyone would think Clive Palmer was an employer….oh, wait….
Were changes by the previous government to reduce the super co contribution cap political or in the best interest to support the impending global pension underfunding issue?