Superannuation overhaul is overdue
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Superannuation overhaul is overdue

Australia's superannuation guarantee scheme is second only to Medicare as the most significant social and economic reform introduced here since World War II.

It has generated trillions of dollars in savings, given millions a degree of financial security they once would never have dreamt of and simplified the transition from work to retirement for ordinary workers.

As recently as the mid-1980s superannuation was something only politicians, public servants and bosses could take for granted. It is now a basic right enshrined in legislation and payable at 9.5 per cent of your gross salary.

Compulsory superannuation made its first public appearance in 1983 during the Hawke Government's negotiations with unions and employers as part of the Prices and Incomes Accord.

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It was formally introduced by the Keating government in 1992 as one of several initiatives to cushion the impact of the ageing population on 21st century budgets.

The results have been remarkable. As of June 30 last year Australians had $2.7 trillion in superannuation assets. We are the fourth largest holder of pension fund assets in the world. Not bad considering we are ranked 14th in terms of Gross Domestic Product per capita and 13th in terms of Gross Domestic Product overall.

Unfortunately, as is the case with all schemes no matter how visionary, circumstances change. That is now the case with superannuation which was conceived when union membership was running at 51 per cent compared to 14 per cent today.

This is why the proposal by the Productivity Commission, which has handed down a 1000 page report into the sector, to kick unions and employers out of the $600 billion default super system makes eminent sense.

While the unions, which are already in the midst of an existential crisis as a result of declining membership, will likely oppose this, it would be hard to argue such a stance would be in the best interests of Australia's workers.

The expert panel would be tasked with identifying the top 10 super funds to be listed for "default" status; that is for recognition as funds into which a person entering the workforce could be placed in the event they opt not to make a personal choice.

Under the recommendations multiple superannuation accounts, the bane of the current system, would be automatically consolidated and chronically underperforming funds, identified through mandatory APRA performance reviews, could be barred from accepting super payments made to workers by their employers.

This, it is hoped, would go a long way to narrowing the gulf separating the returns from the best and worst performing funds.

The commission believes if these, and a raft of other reforms, are implemented, members could save $3.8 billion a year. An employee starting work for the first time today would retire with an extra $533,000.

It would be wrong to interpret the wide ranging reforms identified by the commission as a sweeping condemnation of the Superannuation Guarantee or of the concept behind it.

The real message is that Australia has created a national and social asset that is far too valuable to neglect. There are problems but they are not insurmountable and they need to be fixed.

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