What is the economic impact of super? Is the world’s fourth-largest pool of retirement savings being put to good use?

These oft-asked questions will be answered by Susan Thorp, a finance professor at the University of Sydney Business School, at the FEAL national conference which will held in  Melbourne on 8 August.

Thorp will propose a new way of thinking about the Aussie superannuation system at the conference and examine whether it is truly being used to promote sustainable economic growth.

“Savings are good for economies when they are used to build productive capacity through investment,” she says, ahead of the Fund Executive Association Limited conference.

“If savings are transformed into higher productive capacity and combined effectively with labour and technology then then they can grow the economy,” Thorp says. “Conversely, if savings are used unproductivity, if they are chewed up through inefficiency or consumed by fees etc, there is a problem as we are not using them effectively.”

Thorp argues recent reviews have shown that superannuation savings could be better used to boost productivity.

According to the economist, there are two ways of looking at the superannuation system. Does it actually increase net savings – which is one of the goals it was originally designed for – and if the system does increase net savings, how does the super system change the way that they save? In other words, what’s different about superannuation savings relative to other savings?

“For example, what sorts of assets do they acquire, how does it change the household portfolio, what do our balance sheets look like because we are contributing to superannuation?” she will ask. “We see that super has added to the financial assets of lower wealth households, but we also see a trend to high household debt ratios for middle-wealth households as they leverage into property.”

From the time superannuation was first legislated, or even at the time it was introduced through the wage accord in the late 1980s, its goal was to try and address Australia’s economic problems At the time the economic climate was very different from what it is today. According to Thorp, back then, there was a build-up of inflationary and wage pressure and increasing concern about the level of international borrowings.

But now the climate is very different. Australia is looking to support economic activity in a low inflation/slow wage growth environment.

To Thorp, this raises the question of where are we going. “Are we in a different situation now and does that imply that we need to reconsider the regulatory settings?

At the conference she will also return to the topic of whether we have solved the problem that super was originally trying to address. As well as what that means for the future.  “Are we moving along a healthier trajectory or are we going towards a different set of troubles?  Where do we go and what are the alternatives?,” she adds.

Elizabeth Fry has been a financial journalist for more than 25 years and has written for a number of publications, including CFO, The Financial Times and The Australian Financial Review.
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