In the 1970s and 80s demographers and politicians started looking at projections for Australia's population and the impact those changes would have on the economy. What they saw worried them.
Subscribe now for unlimited access.
$0/
(min cost $0)
or signup to continue reading
Like many Western countries, our population was ageing, people were living longer, and most were failing to save sufficiently for their retirement. The government saw an unaffordable burden on the age-pension system looming, threatening to hang like an anchor on the economy.
The result was the prices and income accord, a deal under which unions agreed to forgo wage increases in exchange for a superannuation system that instead diverted funds to workers' retirement savings.
That system, and the superannuation guarantee it led to, was heralded widely as a success. But the report released by the Productivity Commission this week highlights the need to update it, and refocus the benefits on workers rather than the industry bodies that now dominate the $2.6 trillion sector.
The report, two years in the making, shows some workers lose about $400,000 thanks to poorly performing funds, some of which they fell into by default when starting a new job, and many pay unnecessary fees as a result of multiple accounts.
One commission recommendation is to nudge those workers towards a list of the top-10 performing funds and establish a tightly governed independent expert body to oversee that list. The government would be wise to consider this, and resist pressure from vested interests to simply tinker with the status quo.
Despite its importance, super remains out of sight and out of mind for many people, who aren't always well equipped or motivated to make decisions in their best financial interests. Relatively minor changes to the options they face when they establish a super account could prove life-changing.
These options need to be uninfluenced by vested interests and reviewed regularly to ensure they are helping workers make the right choice for them.
The previous default option – falling into an industry fund – has generally worked out well for most workers, at least compared to retail funds. But it hasn't worked for everyone.
While workers have had, for many years, the power to move their savings, many don't, perhaps because doing so is confusing or sometimes difficult. Competition among funds has also failed to weed out the worst performers, forcing those who do try to make an informed decision to sift through a sea of options.
Uncoupling superannuation savings from employers and unions and making workers choose from an independently tested list of better-performing funds makes sense. Whether the government – and Labor – will be able to resist ideology, and pressure from unions and industry, to devise a better system remains to be seen.
But with 9.5 per cent of workers' wages already going into superannuation, rising to 12 per cent in future years – assuming those increases aren't further delayed – there is a strong imperative for the government to act.
