The superannuation industry has a larger ethical responsibility than most to reduce inequality in the political economic system because it is there for the long run, says master of Ormond College in Melbourne, Rufus Black.
“The stability of the system is more important to you than virtually anybody else,” says Black, putting forward that the lack of trust in both political and financial systems could result in significant damage over the long term.
“Your ability to ensure that we have a stable, trusted, political economic system is critical to what your entire industry is about, and equally, you have obligations to people and their lives a long way down the track.
He adds that there are four areas in which the superannuation industry can fulfil its important role of reducing mistrust in the system.
Firstly, it can advocate for ways to increase the length of time people work – to support older workers to stay in the workforce.
“This is good not just for individuals, but the whole economy, because increased participation rates reduce dependency rates and help it through an era of demographic transition.”
In his analysis, the gap between when super can be accessed and when the age pension can be claimed should be closed, as according to the Financial Services Inquiry almost a third of assets are withdrawn in this time.
‘The right thing’ also ‘the good thing’
Black suggests that part-time work might help extend the participation in the workforce. To this end, it would help if super funds provided products with an income stream that preserves capital to enable older and lower income workers to supplement their income in that period of transition.
“This is the classic case of when doing the right thing is also doing the good thing for the industry.”
Secondly, studies across a number of countries demonstrate that periods out of the workforce make it very difficult for people to catch up. As such, contributions to low-income workers should be maintained through periods of unemployment. In a volatile or disruptive economy, this becomes even more important to address, as periods out of the workforce are likely to increase.
“We already recognise this in part. The government address it with the low income super contribution [LISC] which is a very good notion of addressing this kind of inequality.
“That suggests we have crossed the line and can address issues of inequality, in part, through the superannuation scheme.”
As with all these type of discussions, the issue of funding needs to be addressed.
For Black, he sees it as appropriate to raise some income taxes for very high income earners and to increase taxes on capital gains.
“Other countries and economies have done a better job of not seeing inequalities undermining trust because they are prepared to do that, and I think Australians should have conversation about this.”
Supporting low-income earners
Thirdly, a step that “needs to occur” is to help people move forward with their incomes. This is particularly pertinent if disruption occurs in the economy, with people needing to retrain for the higher paid jobs to avoid a glut of unemployed workers.
“Low-income earners who are retraining should be eligible during those days for superannuation support,” Black says. “It should be designed in such a way that it is more advantageous to be retraining than being unemployed, just to make sure that people engage in reskilling.”
“[One of the advantages is] the ability to draw a larger stream of income in the late working life will help make sure they don’t fall behind. And that’s a real thing we have to deal with as lives lengthen.”
Finally, the super industry can play an important role in encouraging the broader business community to be tackling the issue of how to ensure people are not going backwards in their living standards.
“Even if businesses don’t see it as an ethical need, they need to think about it because there are medium-term self-interested reasons. Flat and falling incomes have direct impact on businesses, and decline[ing] purchasing power of the middle classes is not good for consumption driven economies.”