Peter Costello admits compulsory super is failing

By Leith van Onselen

Former Treasurer, Peter Costello, claims that Australia’s compulsory superannuation level of 9.5% will not generate anywhere near enough funds for retirement, even for workers that contribute for the entire of their working lives. From The ABC:

Former treasurer Peter Costello says Australians will not have enough money to become self-funded retirees if they rely solely on employer contributions to superannuation.

“If you truly want to become independent of the government, a self-funded retiree, live off superannuation, you’re going to have to put your own money in,” Mr Costello told 7.30. “The occupational superannuation is not going to do it”…

“For most people they don’t choose to go into it. The money is taken out of their wage by law. They know they can’t get hold of it for 20 or 30 or 40 years,” he said.

“They don’t feel as if it’s theirs, they don’t feel as if they own it.

“The government concentrated on getting money into superannuation by law, but didn’t show much interest in what happened to it. Basically said, now it’s someone else’s responsibility.”

Meanwhile, Professor Susan Thorp from the University of Sydney Business School believes people would need to contribute 18% of their wages to superannuation to become self sufficient in retirement:

“If it were the case that people actually wanted to become entirely independent of the age pension, for example, they would probably need to start contributing about 18 per cent at the beginning of their working life and contribute that all the way through their working life,” she told 7.30.

“Most of us are, I think, probably realistically not prepared to do that”…

According to the Department of Social Services, 42 per cent of Australian retirees receive the full age pension. Since 1997 the proportion of Australians receiving full or partial age pensions has fallen from 79 to 70 per cent.

What a damning indictment of the system. Because of the exorbitant fees and gouging, as well as superannuation concessions being outrageously skewed towards higher income earners, compulsory superannuation is badly failing the ordinary Australian worker.

That said, the answer to the problem is not to double down and increase the superannuation guarantee, since this would rob workers of disposable income (lowering take home pay) and would blow a massive hole in the Budget (since super concessions cost the Budget more than they save in pension costs).

Rather, the solution is to address the inequities and inefficiencies rampant in the current systm.

This should start with a warts-and-all review into compulsory super, as recommended by the Productivity Commission’s (PC) final report on the efficiency and competitiveness of Australia’s $2.8 billion superannuation system:

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.

Labor needs to ditch its 12% compulsory super fetish and proceed with the PC’s recommended review as one of its first acts in government.

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Comments

  1. PassingInterest

    What a damning indictment of what a fool Peter Costello is. This idiot was our Treasurer for 12 years, in possession of all possible analysis and modelling as to the efficacy of superannuation policy. He had ample time and power to address this issue, and what did he do ? Made sure that the very wealthiest in our country could exploit super as a tax minimising tool (they’ll all be retiring comfortably thankyou very much), and stymied attempts to increase the contribution rate. All the while igniting an asset bubble that has ensured most people will never generate enough income to both pay down a monster mortgage, PLUS have enough savings to retire comfortably. What a fool this man is – he is every bit the blithering, clueless ex-barrister that rose well above his capability.

    • proofreadersMEMBER

      Based on the 7.30 interview last night, he seems to be developing a pronounced double chin? Too much of the good life?

  2. The vast majority of people will have what little super they have drip fed back to them in lieu of a pension, and will never own their own home to boot.

    Super really is s total fail, it costs more than the pension to run and is purely a tax minimisation vehicle for wealthy investors. Scrap it and give us our money back.

    • Not to mention the billions that get syphoned out of it so Keating and Costellos mates in finance can keep up their lifestyles.

      • Yep. Something the politicians and those in the industry were well aware of at the time of design.

  3. They are lining up the populace for “hey, no pay increase but more of your salary to banksters and co.” Will check out the story but guessing no one showed the comparative graph of how much Aussies are gouged by global standards? As usual there should have been a low cost/low risk/‘low return’ govt option as default from the start. If private lives up to its superior claims then let the people CHOOSE them. Talk of ‘more choice’ but it never really is. Too many hands stuffed in the giant Aussie cookie jar now. We are royally screwed and irredeemably corrupt.