The Australian Labor Party is proud of introducing national compulsory superannuation, and it should be proud of aiming to provide workers with a comfortable retirement by ensuring retirement planning is part of workers rights. However, there are two significant problems with superannuation that do not align with core Labor values and call into question the system’s continuing existence.
Superannuation primarily benefits the private sector
First, the superannuation system shifts too much money from workers to a profiteering and inefficient financial sector. Outsourcing the management of retirement funds to the private sector, like all outsourcing, means a large amount of the capital becomes profit for the private sector. Each year, the financial sector collects more than $20 billion in fees.
Ironically, much of the cost of financial planning relates to the overly bureaucratic structuring of people’s financial affairs to maximise their access to the age pension - the same pension the superannuation system is designed to shift people away from. As a result, approximately 80 per cent of retirees (3.2 million of the 4 million) still receive either a full or partial age pension.
Overall, the superannuation system costs $32 billion per year to produce $40 billion in retirement incomes. By comparison, the rest of Australia’s entire welfare system (including administering the age pension, disability, unemployment benefits and Medicare) costs just $6 billion per year to produce $45 billion in age pension benefits.
In addition, the strong investment returns to date from the Government’s Future Fund demonstrate that the public service can be just as effective in building capital as the profiteering private sector.
Superannuation favours higher paid workers
Second, superannuation ignores large segments of the population and disproportionately favours higher paid workers.
Unpaid workers do not get superannuation. This includes carers, parents doing home duties, volunteers and interns. These Australians (who are mostly women) are doing work that provides invaluable benefit to society. However, they cop a double whack of not only missing out on a wage but also missing out on a superannuation-funded retirement income. This symbolises a concerning fact of modern life - there is too much focus on (paid) jobs and (economic) growth.
Also excluded from superannuation are those who cannot do paid work because of a disability or a condition, and those unable to find paid work. If future predictions prove to be correct about automation replacing many jobs, the number of unemployed people and therefore the number of Australians without superannuation could significantly rise.
Some paid workers also do not get superannuation. Self-employed workers and freelancers (which includes many contractors and many in the growing gig economy) are not forced to provide superannuation for themselves. This means many of them probably do not because they are trying to financially survive in the present and do not have the luxury of saving money. If the trend of the gig economy continues to increase, the number of paid workers without a superannuation will increase.
Further, private or domestic workers (such as residential cleaners and nannies) and under 18 workers are not required to be given superannuation, unless they work more than 30 hours a week.
For those paid workers who do receive superannuation, there is a significant inequality in the system, as the superannuation payment is a minimum of 9.5 per cent of a wage. This means that, just as unpaid workers are double-hit in not receiving a wage or superannuation, lower paid workers are double-hit in receiving lower wages and therefore a lower amount of superannuation. Higher paid workers win on both occasions.
To rub additional salt into the wound of lower paid workers, superannuation is taxed at the flat rate of 15 per cent. It is not a means-tested tax like the individual income, which collects an amount of tax broadly commensurate with the wage and is therefore designed to ensure a fairer collection of taxes.
As a result, anyone who earns less than $48,000 a year is paying more tax on their superannuation than they are for their individual income, and conversely those who earn more than that are getting a better tax deal through their superannuation. Therefore, lower wage earners are pulling more of the weight despite being less able to do so. The Grattan Institute estimates that this flat tax structure for superannuation costs Australia $17 billion a year.
Retirement should provide greater equality
Labor’s current policies on superannuation are merely tinkering around the edges of some of these problems. They are not addressing the root cause, which is the system itself. Given the inherent inequalities in superannuation, it is time to remove it and transition to a universal age pension.
A universal age pension would provide retired Australians with a more equal living standard and remove the current bias against unpaid workers and many paid workers. It would also be a simpler and cheaper system and therefore be a better use of workers’ hard-earned wages and taxes. As part of the transition, employer superannuation contributions could be transferred into higher employee wages as well as higher company taxes for use in funding an increased age pension and increased pensioner rental assistance. That speaks more to Labor values than superannuation.