The super system has been let down by both sides of politics for too long. I know because before I entered Parliament I was at the coalface of the business sector at the Business Council of Australia.
I could see the major finance players had too much influence over Liberal Party. They argued that more super was always a good thing. Too many vested interests were putting their own interests ahead of workers and the nation. And getting the policy settings they wanted.
Today, I see the union/super fund influence over the Labor Party which demands more super so the funds can funnel more money to a dwindling union base. Finally, we have an independent report which has my side of politics looking more critically at super for the first time in 30 years.
The response from Labor leaves a lot to be desired. Even before the 600-page report was released, Labor and the super lobby said it was “wrong”. Labor defends the status quo even though the system costs more than it saves, doesn't get many people off the pension and has among the highest fees in the world.
When I was elected to Parliament in 2019, I was determined to take a fresh look at super, an idea Australia is heavily invested in. We must make super work and I said as much in my first speech and my 2020 book, Bad Egg: How to Fix Super.
I have never said super was a bad idea, just that the system was broken and needed to be fixed. My policy ideas have now been vindicated by the Retirement Income Review. There are two consequences which should flow from the review. First, superannuation has damaged home ownership and this trend must be reversed. Home ownership is more important than super. The report states that private property ownership should be the focus of the retirement system with home owners having better retirement outcomes than renters and more equity to draw down on in their later years.
As I report in my book, more Australians are struggling to buy a house and pay off their mortgage than ever. The average deposit for a first house doubled between 2000 and 2015. The review demonstrates the reality that more super means less wages or a smaller deposit for a first home. “About one-quarter of retirees who rent privately are in financial stress, primarily because of high housing costs,” it reports. The facts and figures speak for themselves:“Twenty-eight per cent of early retirees are in financial stress. Renters who retire before Age Pension eligibility age have the highest level of financial stress in retirement.”
Second, superannuation is too expensive for Australian taxpayers. The report says: “The cost of superannuation tax concessions is projected to grow as a proportion of GDP and exceed that of age pension expenditure by around 2050. This is due to earnings tax concessions. The increase in the super guarantee (SG) rate to 12 per cent will increase the fiscal cost of the system over the long term.” Super concessions will balloon and the system will never pay for itself. We should adopt a clear objective and framework to ensure it becomes a net positive to budget scheme.
How could we have a system without an objective or a framework after 30 years of operation? Is it any wonder the system costs more than it saves with no real prospect for a positive budget contribution. The high budget cost is in addition to another major flaw which has been allowed to fester for too long. The fees are too high.
Yes, we addressed this in the budget with reforms to cut fees but I have long advocated we should go further and establish a cheap and cheerful government default fund. This could cut the average fee from around 1 per cent down to 0.3 of a per cent and negate the need for a higher mandatory contribution rate.
On the mandatory super rate, the report is critical: “Maintaining the SG rate at 9.5 per cent would allow for higher living standards in working life. Working-life income for most people would be around 2 per cent higher in the longer run.”
It’s ludicrous that Australians pay more in super fees than they do on their power and water bills. We pay $30 billion a year in super fees. This Retirement Income Report adds facts to the debate which has been polluted for too long by foul self-interest. There is too much self-interest, far too much waste and not enough delivery on key objectives.
Australia is so heavily invested in super – we should make it work. And when you hear someone defend the status quo, don’t forget Jack Lang’s quip: “Always back self-interest. At least you know it’s trying.”
Andrew Bragg is a Liberal Senator for NSW and author of Bad Egg: How to Fix Super.