Posted November 16, 2018 05:00:54

Photo: Super seems like a good idea, but is it really?

A new skirmish has opened up in the ongoing debate about retirement policy.

This fight reveals some interesting things about how corporate and financial power influences Australian policy.

Last week, the Grattan Institute released a report that blew the cover of some of the superannuation industry's key claims.

"Savings for retirement" is often considered synonymous with superannuation. This is wrong, argues The Grattan Institute.

It found that people don't need to be forced to save more to enjoy a comfortable and secure retirement.

Current policy settings are already making people put enough aside for retirement, and superannuation will only play a supporting role.

This finding contradicts the superannuation industry's view that contributions must go up and people must retire later.

So, what are outsiders to make of this dispute?

There are two clues here — power and money.

Big Super likes to rule the debate

The superannuation industry thinks of itself like Machiavelli's The Prince and fiercely rules the debate about the direction of super policy.

It doesn't like outsiders, even fairly conservative outsiders like the Grattan Institute, moving into its terrain.

Readers might expect the super industry to be laying low after the banking royal commission, which revealed more than a billion dollars in rip offs and rorts from the super industry.

On the contrary, the Coalition government is pushing through new legislation that would re-institutionalise the industry's business model.

Superannuation's champion, Paul Keating, attacked the Grattan report and one of its authors, John Daley, in an ABC interview on Tuesday.

He referred to Daley's views as a "nasty polemic" showing a "miserable view of two Australias" (rich and poor).

The message is clear — criticise the superannuation complex or its chief architect, and war will be declared on you.

While the superannuation industry spends millions on advertising, inviting us to love them, it also practises the Machiavellian politics of political capture and intimidation.

The Grattan Institute is not sharing the industry's love, so it's being made an example of.

Our super system is a white elephant

The second clue to this debate is the money — who bears the costs and receives the benefits of retirement policy.

The Grattan report makes two arguments about the costs and benefits of superannuation.

Firstly, that superannuation makes only a modest contribution to retirement security.

Secondly, superannuation is an expensive and risky way to finance retirement.

The industry charges about $30 billion a year in fees, the government forgoes more than $30 billion in tax concessions.

Most superannuation savings are invested in volatile asset markets and are exposed to investment risk. If these characteristics described a publicly run system, it would be called a "white elephant".

A relic from a bygone era

From today's perspective, compulsory superannuation looks like an artefact from a different era. Compulsory super was implemented at the end of the period when most workers had permanent full-time work, free education and affordable housing. The idea was that workers could afford to put a bit of their discretionary earnings aside to top up the age pension.

How many people have discretionary income at every phase of their life today? We are entering the workforce with education debt and face increasingly insecure work, unaffordable housing and a rising cost of living.

The Grattan Institute makes the valid point that home ownership, the age pension and access to healthcare are the keys to retirement adequacy for most, especially those with low lifetime incomes. And Grattan suggests the focus should be on improving these elements.

But the superannuation industry, along with Mr Keating, wants to ramp up compulsory super contributions instead.

Finding the best super arrangement can be complicated. But it's an important part of you and your family's financial future — and taking steps to improve your retirement savings may be easier than you think.

More insurance is not the answer

Mr Keating also floated the idea of a "longevity" insurance scheme, where a portion of our super contributions would insure against the risk that we live longer than our super savings last.

In this proposed scheme, we are being invited to insure against the risk that the super system can't deliver the retirement security it is mandated to. Readers may be forgiven for thinking this sounds like paying twice for your retirement.

And as the Henry Tax Review noted, the age pension is already a very efficient way of providing retirement income and a great way of managing longevity risk.

Privatising your retirement

Let's leave aside Mr Keating's increasingly Captain Ahab-like approach to his superannuation white whale. What is at stake in his proposal is three key things.

Firstly, he wants retirement provision to be increasingly an individual responsibility. In his view, retirement needs to be funded primarily by individuals' super savings, with the age pension simply a safety net against what Keating calls "destitution".

This is a paternalistic policy, where Australians are forced to save in a specific way for their future, when they might be much better using any savings for mortgage repayments or paying down student debt.

And lets be clear this forced savings is foregone wages. As the Henry Tax Review noted:

"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."

Wealthy Australians get more

Secondly, let's note the irony of Mr Keating's criticism of Mr Daley as a "two Australias" elitist.

If we rely on the superannuation system for retirement, rich Australians will always end up with more than poor Australians, as they have earned more across the course of their lives, and can access the very generous tax concessions for additional contributions.

Super is risky and expensive

Finally, the Keating vision of retirement funding is risky and expensive.

It requires people to engage with financial markets, and we now know we are sitting ducks against these massive financial conglomerates.

To paraphrase the philosopher Slavo Zizek, increasing the share of national income going to the finance industry is like rewarding a thief operating in broad daylight.

We have enough to go round

Compulsory superannuation is premised on the idea of scarcity: that we can't afford the age pension and public healthcare to support retired Australians. But there simply is no ageing crisis, now or looming, that requires imposing more scarcity.

The big question that this debate doesn't get to is actually the opposite: what do we do with the increasing social wealth and productivity we've produced in recent decades?

And what do we do with the increasing social productivity of the future?

Currently, we are seeing the government talk of scarcity for pensions, education and healthcare, while prioritising tax cuts for corporations and continuing tax concessions to the wealthy.

This is not scarcity but a conscious decision about who is able to make claims on our social productivity.

Michael Rafferty is an associate professor in international business at RMIT and co-author of Risking Together: How Finance is Dominating Everyday Life in Australia.

Topics: business-economics-and-finance, superannuation, government-and-politics, budget, tax, australia