Superannuation: a “resource wasting” tax avoidance scheme for the rich

Discussions about Australia’s retirement income system typically begin by reciting the political slogan that there are “three pillars” to the system — the age pension, compulsory super, and voluntary savings.

It was the way the Abbott and Turnbull government’s tax inquiry looked at retirement incomes, and a frame of reference used by this government’s retirement income system review.

Missing is discussion of what makes something a “retirement pillar”.

It’s possible to think of other retirement pillars. Moving to India for a cheap lifestyle would be one.

Requiring retailers to provide the elderly free goods and services, with the cost absorbed in the prices paid by others could be another.

To be a pillar, something would have to allocate goods and services in retirement to people who are no longer earning wages.

In my recently released report I argue that superannuation fails this test.

Super isn’t a retirement pillar

Among other things, super can be spent many years before retirement, beginning anywhere from age 55 to 60, even though the retirement age specified the pension legislation is 66 to 67.

Many financial planners advise intending retirees to spend a lot of their super quickly in order to shelter it in income-test-exempt assets such as housing and qualify for the pension.

The super system also can’t guarantee retirement incomes for people who are self-employed, casually employed, homemakers, have chosen their super fund unwisely or lost the proceeds in things such as online romance scams.

As a system, super comes with unnecessary financial risks, such as suddenly losing 21% of its funds, as happened between September 2007 and March 2009 during the global financial crisis.

It is better thought of as a growth-sapping, resource-wasting, tax-advantaged asset purchase scheme aimed at the already wealthy, which is unlikely to do much to reduce reliance on the age pension.

We would be better off abandoning it and letting workers spend or save their money as they see fit.

The super system is inefficient

The superannuation system employs 55,000 people at a cost of A$32 billion per year to produce $40 billion per year in retirement incomes. This is nearly as many people as the enlisted Australian Defence Force (58,000) with a similar total cost ($34 billion).

The rest of Australia’s entire welfare system, including administering the age pension, disability, unemployment benefits and Medicare, costs just $6 billion per year and employs 33,000 people, while providing $45 billion in pension benefits.

It directs money where it isn’t needed..

Each year the superannuation system takes in $117 billion and spits out $80 billion in payments (including lump sum withdrawals), leaving $38 billion in asset markets, sapping spending and economic growth. That’s roughly as much as the $40 billion stimulus package introduced during the 2009 financial crisis. Unlike it, the super system depresses rather than stimulates the economy.

Unlike the super system, the age pension system is likely to stimulate the economy because it takes purchasing power away from high-income taxpayers with a relatively low likelihood of spending extra dollars to to lower-income pensioners with a high likelihood of spending them.

…and away from those who do need it

Unlike the age pension system, the super system can’t provide poverty relief, or broadly adequate retirement incomes.

For the bottom 40% of earners it does the opposite of smoothing income, making them poorer than they would have been while working, and somewhat richer than they would have been while on the pension and retired.

The $18 billion of tax breaks on super fund contributions and $20 billion of tax breaks on super fund earnings are predominately directed to high income earners.

In a comprehensive study released this week the Grattan Institute has demolished the claim that super contributions come out of employers pockets. Instead it finds that, on average, 80% of each super contribution comes out of what would have been wages.

Here’s how to escape it

Scrapping the system altogether would massively improve Australia’s economic performance, including the performance of our only true retirement income system, which is the age pension.

It can be done by forcing employers to pay what are now super contributions directly into wage accounts and allowing super fund holders to withdraw up to a maximum amount each year during a transition period, after which all super balances would receive no special tax treatment.

Read more: 5 questions about superannuation the government’s new inquiry will need to ask

The tens of billions saved in the budget could be used to enhance the size and scope of the age pension. It could incorporate appropriate rent assistance and begin at age 60 instead of 67.

It’s possible. Certainly, there would be job losses, but in other industries we have come to accept that there is no point in continuing to pay people to do things that aren’t needed, and especially no point in making those payments compulsory.

It’d be one of the best things we could do to enhance the working of our economy.

Article first appeared in The Conversation.


  1. Stewie GriffinMEMBER

    Who wants to pay taxes to support people who are not culturally related to yourself, moved to the country enmass, brought their parents with them, largely live in their own siloed communities, have different values and expectations in regards to the social contract and vote for politicians who are willing to call you racist and scold both yourself and your culture in order secure their vote?

    Superannuation (beneficially tax treated private savings) plus a wafer thin public pension (at best) capable of sustaining by not offering a meaningful retired life of decency, is the inevitable retirement policy that a Multicultural society made up of fractured communities, that are distrustful and resentful of each other, will inevitably embrace.

    Trust is dead, long live the Meritocracy.

    PS: Personally I believe all Superannuation accounts should be immediately converted to private savings accounts and the beneficial tax rules around them abolished with zero grandfathering. Any tax savings should be redirected to increasing the pension…. but it will never happen because of the above.

    • Tassie TomMEMBER

      Stewie Griffin are you aboriginal or are you a white-trash immigrant yourself?

      LVO & DLS – This is your website and you’re responsible for this racist trash posted on it. The problem with you Sustainable Australia people is that while you claim not to be racist dog-whistlers (and I believe that you’re not), the racist dogs still hear the whistle and come running. And you do nothing to dissuade them.

      The behaviour you walk past is the behaviour you endorse.

      • Stewie GriffinMEMBER

        Acshuallly little Tommy I happen to be 7th generation Australian on my Father’s side with probably about as much indigenous ancestry Bruce Pascoe… not an uncommon outcome for someone whose ancestors carved Australia’s farms out of the dust and founded our regional towns and farming centres along our frontier. Of course that ancestry might have been a result of an ancestor brutally rap!ing some indigenous woman, or it could be that she shacked up with him because he offered her a better standard of living and treated her better then her tribal options…. but in Popeye’s words, “I am what I am”.

        Unlike yourself “Stewie Griffin are you aboriginal or are you a white-trash immigrant yourself?” I have made no reference to race.

        This seems to be a central factor in how you see the world and the legitimacy that someone has in regards to casting an opinion on this debate. I have friends from many different races – people I look up to. My complaint and primary focus has always been in regards to the pursuit of Multiculturalism as opposed to fairer and more moral social programs such as Integration and Assimilation.

        May I ask are you aboriginal or are you a white-trash immigrant yourself?

        I would presume that if you aren’t indigenous or don’t have any indigenous ancestry then by your rules of life you should immediately acknowledge your white privilege in the face of my lived experience and racial history should probably just STFU.

        But as I was saying, my complaint is and has always been, primarily one of CULTURE and the mass importation of population groups who come to Australia with the view of sustaining their own cultural values from whichever particular sh!t hole they’ve crawled out of, with a view of perpetuating them within MY country.

        I don’t believe in Multiculturalism – I believe it is THEFT. By definition the forcing in of different cultures and population groups will, to varying degrees, displace the existing culture. I also believe it is extremely harmful in terms of reducing the level of trust in our society, and most importantly the ability for it to function and meet the needs of its existing citizens.

        Societies are basically a collection of people living together and seeking to solve the collective problems they face – in order to agree upon those solutions, or even acknowledge that a problem may even exist, largely requires that they have shared values. Multiple cultures introduces multiple values, which makes it that much harder for society to function they way it should.

        Now a whiny little b!tch like yourself seems to think that the fact that because some past historical crimes may or may not have been committed, by people who are as primitive to myself today as the indigenous Australians must have appeared to them when they first arrived in Australia, then that seems to justify remaining silent while a second dispossession occurs today.

        If you had the slightest bit of culture, instead of the moralising progressive grandstanding that you use as your framework, then you would realise that two wrongs don’t make a right. Displacing existing Australian culture and giving away the social capital that my parents and ancestors built for the benefit of themselves and their children, so that a bunch of property developers and politicians can grow obscenely rich, is just plain wrong.

        The owners of this site are free to ban me, or censor my posts when I overstep the mark – but IMHO Leith and David are by and large social libertarians who believe in the freedom of speech and that an individual is free to speak or be condemned and hung by their own words, and that hopefully through good faith debate, the ‘Truth’ if there is such a thing, will emerge.

        Now other people, especially cousin phucking inbreds from Tasmania such as yourself, are of course free to “think” whatever the hell they want, but frankly I don’t give a rats arse what you think – you have already shown that not only you disagree with my legitimately and fairly held views, but that you want to see them silenced, simply because you don’t agree with them…. which would make YOU a BIGOT:

        a person who is intolerant towards those holding different opinions.


        • Lucifer Morningstar

          Thank you Stewie. I could not agree with you more. Being an imported Australian, I settled in this country for what it once was and the different (better) life it offered, not the sh!t hole it is becoming.

          • Stewie GriffinMEMBER

            Thank you Lucifer,

            while I may not sugar coat my opinions nor present them in the most agreeable fashion, they are truly held and morally defensible, and emerge from a rightful anger at seeing my own culture deliberately smothered and the stability and cohesion of the society and nation I intend to see one day be handed over to my children being imperiled.

            No doubt my regular postings on different topics drawing and them back to Multiculturalism and immigration, may see tiring and obsessive, but it is simply because I view these issues as being the central issue to a cohesive, stable and fair society for existing Australians.

            I have no issue with the individual immigrant, regardless of where they are from, it is the intentions and attitudes they hold in moving to Australia and to become Australian as opposed to simply an Australian passport holder, that is the issue – I have no time for anyone who defines their Australianess with a hyphen.

            This is the immigration policy I support:

            Conditions of immigration into Australia
            Australia’s immigration policy is directed towards the maintenance of a socially cohesive and homogeneous nation. It seeks to avoid the creation of permanent minority groups resistant to integration even through successive generations. The policy does not exclude persons of any ethnic origin; but it does exercise prudent caution in the matter of accepting large numbers of people with substantially different backgrounds, characteristics and customs who may resist general integration even in the long term.

            …and if Two headed Tassie Tom finds this rac!st then he can GFHS.

  2. Negative gearing worse – need to get the price of housing down to assist low income earners – more of a priority than superannuation IMO.

    • negative gearing is the wrong place to attack housing costs. Restrictive Zoning is the secret sauce of that particular quandry.

      • Jumping jack flash

        Tell me more.

        We already have zoning laws, at least to some extent.
        How can more zoning affect house prices that are governed by a free market that has unfortunately been distorted by unthinkable quantities of debt?

        Buying a house after saving the total price out of an average income over a reasonable period is virtually impossible except for the most dedicated and frugal saver, and even then the house purchased would be most likely located in the most undesirable and useless location, or the length of time required for saving would be prohibitive for the average person.

        For everyone else, acquiring as much debt as possible is now essential to purchase a house. “Housing affordability” becomes meaningless in its original sense, and must now be viewed under the lens of “debt availability” and “debt accessibility”.

        If we want to return “housing affordability” to its original definition, that is presumably that a house may be able to be purchased completely after a reasonable savings period of say, 30 – 40% of income saved over 5 years or not much longer than that, then the only way is by restricting debt manufacture and distribution, or restricting the allowable allocation of debt to houses.

        But since debt manufacture and distribution has been privatised and debt factories have no problems standing up to the government – in fact they control the government, good luck with doing that!

        • LESS zoning laws. You just have to remove the restriction on places to build. Simple supply and demand.
          Create more building blocks than there are people and the cost will drop to the actual cost of construction no matter how much debt there is. Competition for scarce resources is what pushes up the amount of debt people are using.

          • Jumping jack flash

            ahh I see.. thanks

            it still doesn’t fix the problem of debt pushing the prices up, but it may allow the argument of “there’s not enough houses” to be removed as a reason as to why they’re so expensive.

          • Debt can only push prices up if multiple people are competing for the same house. either increase supply or reduce demand and prices will crash. Go check prices in a mining town compared to a few years back. Debt machine hasn’t been turned off, just the demand for houses there reduced for a fixed supply and prices crashed.

          • Anecdote : neighbour has 68 acres . Wishes to subdivide and excise 5 or so and put a house on it and sell it. Create a new rateable property . Nope. Can’t subdivide unless the parcel is 40 Ha that’s right 100 acres. Madness. The area is a mix of cattle country forest hobby farms and so much camphor laurel and lantana. Let someone create a little clean block with koala habitat and some weed control

          • Strange Economics

            Well then zone Toorak and Vaucluse to 50 storey developments.
            Conveniently located, good transport, facilities, etc..
            Not going to happen (therefore we essentially have restrictive zoning by income areas)

  3. It is the only way in which I expect to be able to afford a home for retirement. You need to see it in terms of a huge segment of the population who’ll otherwise never own a home.

    • Jumping jack flash


      After roughly 50% of my working life is now behind me I realise that when extrapolated over the remaining 50% my super will not come even close to sustaining me for more than a handful of years after retirement, even after factoring in compound interest, etc, and notwithstanding any major injury where I would need to draw on it, or external shock that would wipe out a significant percentage.

      Given that I would live for perhaps 20 to 30 years after retirement there is little advantage for the government, or myself, holding this tiny amount of super. The only advantage is for the leeches that suck on my super every month.

      Its not like I have been earning minimum wage either. My wages have been certainly above average. There would be many, many people in the same, or worse, situation as me, and the paltry savings the government would make on not paying me a pension, or paying me a part pension after retirement, pales in comparison to the amount of debt I could leverage if I were to use that meagre amount of super as a house deposit and then utilise guaranteed* debt growth-induced capital gains to then leverage more debt, ad infinitum, until it comes time to liquidate my house-of-cards property portfolio and then retire.

      * guaranteed because if the debt doesn’t grow then the banks will collapse and super will be largely moot anyway.

      • Pretty much unavoidable for average workers, 10% contribution over 40 years working life gets you a 4 year of salary saving.
        Returns can improve that a bit but realistically the entire population can’t be earning more than inflation as an investment return, or where does it all come from?
        How long is that 5 years salary nest egg going to last an average wage earner for their 30-40 year retirement?

        • You are assuming real economic growth zero. Which means per capital economic growth negative under current immigration levels. Past history would suggest we can do better than that, although the last 10 years have been pretty garbage. Also capital structure trades at the top end cash flow security for returns, and concentrates returns at the risky equity end. Which is how real GDP growth at say 1% can be concentrated into equities earning cpi plus 3. This process works much better when you have more growth! In more recent times earnings have been outstripped by asset prices because so much liquidity has bid then up and future earnings yields down. So the next 10 years looks weak for future returns with prices so high, but for a 40 year outlook one would expect the general run of growth to kick in sometime, pretty miserable otherwise.

  4. One other point … 30-40 year retirement … something my parents generation have enjoyed but not the normal run of things and I very much doubt that my generation will be that lucky. We are already seeing some seniors defer retirement into their 70s with the expectation of living well into their 80s. Having conquered sexism we will need to have a crack at ageism.

  5. Tassie TomMEMBER

    Fantastic article as always Cameron Murray. Absolutely correct of course, but so far removed from our collective ingrained dogmatic beliefs that it would take a “courageous and bold” government to even suggest this.