Reform Agenda Series: Fairness and Sustainability: The Real Superannuation Agenda, 25 March 2015

Thank you to everyone who attended our Reform Agenda Series public forum on superannuation reform on 25 March.  It was a very interesting discussion and a very lively Q & A session on this topical subject.

Stephen Koukoulas opened the forum with a basic statement about superannuation “it’s a good idea”, but said there are some problems, and mentioned the high fees and charges charged by some funds, and people’s lack of knowledge about where their money is going.  The system, he reminded us, is designed on the understanding that you know what’s happening with your money.

Ian Verrender, ABC Business Editor, opened his comments about reform of the superannuation system by talking about intergenerational theft. It’s a topic we hear a lot about, but never in reference to superannuation and unfair super tax concessions. He highlighted that when the system was first set up under Keating, it was a bold initiative, and was set up at a time when the prevailing opinion was that the market would manage it.  He noted the irony that when the Howard government set up a fund to cover the superannuation liabilities of public servants, he didn’t put it out to market but set up a government run fund, the Future Fund.

Emily Millane focused on the policy aspects of the superannuation system, and when talking about the unfairness and the unsustainability of the system, highlighted what a ripe area this is for progressive thinking and policy.  Very often in progressive policy thinking, we are talking about a trade-off between fairness and cost, but in this case, the unfairness of the system and the unsustainability are connected.  We need more than just tinkering around the edges, we need to substantially reform the system to make it both fair and to make it work as it was originally designed, that is, giving people control over their retirement income and decreasing the welfare burden.  But the system at the moment isn’t working this way.  Stephen noted that in the recent Intergenerational Report, that the number of people on the aged pension in 40 years’ time is forecast to be the same as it is now.

Moreover, an unintended consequence of compulsory superannuation is that it has made people complacent about funding their retirement.  Most of us think it’s just taken care of, and we don’ pay much attention to it.  Stephen pointed out that as superannuation became compulsory and increased in the 1990s, from 3% to 6% to 9%, household savings decreased, as people stopped putting other money away or making personal plans for retirement.  Compulsory super has diminished our own sense of personal responsibility for our retirement income.

This lack of interest and lack of knowledge of where our own superannuation money is going was the focus of much of the discussion.  Ian made the point that people who most need financial advice are the ones who don’t seek it.  He also really underscored the lack of transparency in the financial planning industry with a revealing analogy.  If we went to a doctor and had a drug prescribed to us that the doctor received a commission for prescribing, we would be outraged.  But much of the financial planning industry is structured this way.  He says it really shows how “hands off” politicians and policy-makers’ attitudes have been towards financial planning governance.

Several audience members said we need to educate people, particularly young people, about where their money is going.  Emily suggested an App that shows people how much money they would have in retirement.  Stephen suggested a Masterchef or Gruen Transfer type show about financial planning and superannuation.

One of the problems, says Emily, is that it’s linked to how we think about ageing generally. We don’t think about it as ourselves, it’s as if it’s our other self.

On the positive side, there was general consensus among the panel members and the very knowledgeable audience that the need for reform in this area is gaining traction.  There is a very strong sense among players in this industry that reform is inevitable.  In addition,  reform of super has become connected to the broader conversation around fairness and intergenerational equity, and issues such as housing costs, negative gearing and capital gains tax.  The structural problems around the Federal Budget have brought discussion of these issues to the top of the national agenda.

Thanks to Ian Verrender and Stephen Koukoulas for join our panel, and thanks for Maurice Blackburn for hosting us.