Opinion & Commentary
Should super contributions be raised to 12 per cent?
Some compulsory saving is sensible. People will rationally save too little when they know taxpayers will help support them in retirement.
But 9 per cent is enough. It is unfair, costly and inefficient to increase the rate further.
Claims people don't have enough in superannuation must be put in context. We have only had a 9 per cent compulsory rate since 2002. When the existing system matures in the late 2030s, a worker on a median wage can expect a post-retirement income of about 75 per cent of that of their working years. That neglects any voluntary saving, expected inheritances or property he or she might have to sell or downsize.
The government's inquiry into the tax system, the Henry review, advised against lifting the rate from 9 per cent. “For most employees on low to middle incomes”, it argued, “the 9 per cent superannuation guarantee rate can provide a reasonable balance between before and after retirement incomes”.
Of course, it is open to any individual to save more; and tax concessions costing more than $30 billion a year are already a hefty inducement. The government claims lifting the superannuation guarantee is a win for “adequacy and fairness”. How is it fair to forcibly siphon another 3 per cent of workers' wages into accounts they can't touch until they are retired? Australians might prefer to spend now and retire more frugally, pay off their mortgage faster, or put their savings into bank deposits. Workers on low incomes bear a heavier burden from any increase in compulsory superannuation: they are less able to offset the increase in forced saving with lower voluntary saving. Extra super might be the difference between renting or buying a home.
Increasing the levy also damages business, which, in the short run, is lumbered with higher labour costs.
Superannuation is called a "guarantee" but returns are uncertain, performance has been poor and fees are too high. With average real returns of minus 5.6 per cent a year over the past few years, our pension assets are among the worst performing in the world.
Superannuation is a "guarantee" only for unions and banks, whose incomes and power are sure to grow along with any increase in the compulsory saving rate. It is not often you see unions and banks in agreement, but on this issue they are curiously united: that superannuation be increased to 12 per cent.
Adam Creighton is a Research Fellow at the Centre for Independent Studies. Read all comments
