Only one month ago, the Productivity Commission (PC) delivered its scathing final report on the efficiency and competitiveness of Australia’s $2.8 billion superannuation system, which noted a multitude of failures ranging from a proliferation of poorly performing funds, excessive fees, unnecessary and costly insurance products, and multiple accounts.
Most importantly, the PC final report also recommended a sweeping public review of compulsory super “in advance of any increase in the Superannuation Guarantee rate”:
RECOMMENDATION 30: INDEPENDENT INQUIRY INTO THE RETIREMENT INCOMES SYSTEM
The Australian Government should commission an independent public inquiry into the role of compulsory superannuation in the broader retirement incomes system, including the net impact of compulsory super on private and public savings, distributional impacts across the population and over time, interactions between superannuation and other sources of retirement income, the impact of superannuation on public finances, and the economic and distributional impacts of the non-indexed $450 a month contributions threshold. This inquiry should be completed in advance of any increase in the Superannuation Guarantee rate.
Yesterday evening, the final report from the financial sector royal commission was released, which also delivered some bitter medicine for the superannuation industry. Seven of the 76 recommendations relate directly to the superannuation sector, some of which are in the process of being implemented following the PC review, whereas others could be introduced quickly if they are backed by Labor.
Most importantly, the royal commission’s final report recognised that Australia’s superannuation system must act primarily in the best interests of fund members, give priority to the interests of members above all others, as well as avoid conflicts of interest.
Over recent months, Labor and the union movement has been agitating to increase Australia’s compulsory superannuation rate (the Superannuation Guarantee) to 12% or beyond as a matter of urgency. This has been strongly opposed by MB on the grounds that it would directly lower employee wages, and would particularly harm lower income earners.
MB are not alone. The Henry Tax Review explicitly noted that compulsory superannuation is paid for by workers:
Although employers are required to make superannuation guarantee contributions, employees bear the cost of these contributions through lower wage growth. This means the increase in the employee’s retirement income is achieved by reducing their standard of living before retirement.
Accordingly, the Henry Tax Review explicitly recommended the superannuation guarantee be retained at its current level, not raised to 12%, so that it wouldn’t adversely impact lower income earners:
The retirement income report recommended that the superannuation guarantee rate remain at 9 per cent. In coming to this recommendation the Review took into the account the effect that the superannuation guarantee has on the pre-retirement income of low-income earners.
In light of the widespread faults identified across the superannuation industry – as identified by the PC and royal commission – the absolute last thing the union movement and an incoming Labor Government should advocate is lifting the superannuation guarantee.
Pouring even more funds into super would merely heighten the myriad of problems that already exist, lower the take home pay of Australians at a time when wages growth is near historical lows, and damage the federal budget (given the cost of superannuation concessions far outweighs any gain from lower aged pension costs) .
Indeed, the only winners from raising the rate of compulsory superannuation would be the superannuation industry itself, which would get to ‘clip the ticket’ on more funds under management and earn fatter profits.
In short, Labor must heed the PC’s key recommendation and establish a public review into compulsory superannuation before even considering raising the superannuation guarantee.