WORKERS AGAINST SUPER

For many progressively-minded people who want a fairer Australia, this can be surprising to hear. Isn't super one of Labor's greatest and most progressive achievements, along with Medicare? Don't the Liberals hate super because it's so good for Australian workers?

There's a lot of misleading rhetoric around super - luckily this page deals exclusively in facts. Here we answer your questions and bust the myths. Some of the numbers can be downright astonishing, so we've linked to sources for everything we mention so you can check them yourself.

Oh so you're one of those liberals like Andrew Bragg or Tim Wilson who want to attack unions and help employers get away with paying less?

No, quite the opposite. We hate those guys.

Super is a fundamentally broken system that must be replaced with something better - but the employer obligations aren't the broken part.

The proposals we make below for replacing super would retain employer obligations, increase union/democratic participation, eliminate tax breaks, reduce inequality, and slash poverty - all of which Bragg and co would presumably be horrified by.

But super is just extra money on top of your salary. What's wrong with getting extra money?

Superannuation isn't magic free money - super is a forced savings scheme. The basic concept of saving is that a dollar saved is a dollar not spent.

A more accurate way to think of super is a consumption shifting scheme - it forces you spend less in working life so that you can spend more in retirement.

That means workers who haven't retired yet have less money to spend than if their super pay went into the same bank account as the rest of their pay.

That can reduce their quality of life, increase their financial stress, and even push them below the poverty line.

It's often claimed that lowering incomes before retirement is OK because super will "even out" incomes before and after retirement - also called "consumption smoothing". But economist Cameron Murray found that for low income earners, superannuation achieves the opposite:

The superannuation system achieves consumption smoothing for the top 60% of earners but does the opposite for the bottom 40% of income earners. This is because many low-income households earn less than the age pension prior to retirement. The age pension is a pay rise for them, and yet the superannuation system forces them to have 9.5% less income when they are poorer than age pensioners.

It might give you a little less to spend while working, but at least super guarantees everybody a comfortable retirement in return, right?

Unfortunately, no. It fails miserably at this.

This is because of superannuation's fundamental design flaw: The amount of super you retire with is closely linked to your lifetime income. The higher your lifetime income, the more super your save.

Those who an effective retirement system should be helping the most, those with lower lifetime incomes, are thus helped the least by superannuation.

Thus Super's design systematically, deliberately leaves low lifetime income earners with insufficient super for a comfortable retirement. The result: Dire poverty for many.

This particularly affects those who experience extended periods outside the labour market (women, unemployed, sick, caregivers, etc).

Elderly single women are in widespread poverty, thanks in large part to a national political obsession with superannuation.

From the Retirement Income Review:

A recent Guardian article describes the grim reality many women in Australia are facing thanks to this poverty-perpetuating system:

"I don’t mind camping, but I won’t sleep in the car"

It also means that those who worked most of their working life before super, or outside of Australia are left worse off.

But when I read the stats about average balances, they seem pretty good. What's going on there?

Superannuation balances as reported in the media are highly misleading for two reasons:

1. They are reported as averages or means, rather than medians. Most of the super wealth is held by relatively few well-off people, whose big balances push up the average. Meanwhile the median balance, which describes the balance of the typical or middle person, is much lower.

2. Most sources of this data exclude those with zero balances, or those without accounts at all. This means that those very worst off don't get represented in the figures - and this is the reality for many. According to the super industry's own reporting in 2017:

   Around 27.0 per cent of males reported nil superannuation in 2015-16, and 32.7 per cent of women with no superannuation. Around 45 per cent of females aged 65 to 69 reported having no superannuation.

   The fact that a very substantial minority of that group had no superannuation would be a result of some in the age group never having had super, while others would have had superannuation at some stage but had taken their benefit from the superannuation system.

While these may seem like small nitpicks, they distort the figures massively. When the data uses medians and includes zero balances as it should, this results in much lower medians. According to the same report, ~$110 000 for men and just $36 000 for women for the 60-64 age group.

The actual distribution of balances among over-65s makes the rampant level of inequality clear. The ABS 2017-8 Survey of Income and Housing found balances were distributed as follows:

Put another way - if you lined up everybody aged over 65 in Australia from lowest to highest balance, you would need to get over half way along the line before you got to somebody with any superannuation at all.

You would need to get to 70% of the way along to meet somebody with a balance over $100 000. You would need to get 92% of the way before you met somebody who had enough savings to give a single person a "comfortable retirement" according to the superannuation industry's own comfortable retirement standard.

If, even by the industry's own standards, not even 10% of over-65s are getting a comfortable retirement guaranteed, then the system is failing ordinary people.

The vast bulk of the money would be right down the far end of the line. Even this chart is perhaps misleading as to the true extend of the imbalance: The person at the very end of the line would have $544 million.

If the purpose of the system is to give ordinary workers a fairer share of capital ownership, it has clearly failed miserably.

Sure, a lot of people have low balances. But what about for high earners with stable careers? Don't they at least do well out of super?

Sadly, even those who are fortunate enough to accumulate a healthy super balance for retirement are failed by more problems with super's basic design.

Even those who retire with plenty of assets are hesitant to spend their accumulated savings. This is due to fear of running out.

One core reason saving for retirement is stressful is that you don't know how much you're going to need in advance.

You might live to over 100, in which case you'll need enough savings to last decades to cover your living costs. Or, you might die the day before you retire, in which case you'll need zero.

Because of this uncertainty, the fear of depleting one's savings, and the desire to leave behind wealth for surviving relatives, there is strong pressure to build as much savings over a lifetime as possible. That pressure causes immense harm - it makes us over-save and over-work. That is, we end up spending much more of our lives at work than we need to, and don't even get to spend the money we make by doing so.

The Retirement Income Review concluded that:

In general, retirees do not consume their retirement savings.

And:

As a result, when retirees die, most leave the majority of the wealth they had at retirement as a bequest.

Data provided by a large superannuation fund found members who died left 90 per cent of the balance they had at retirement. Another study found a similar result: at death, age pensioners leave around 90 per cent of the assessable assets they had at the point of retirement.

A helpful analogy is to think about going on a road trip. You don't want to run out of fuel (or battery charge), that would be obviously bad. But you also don't want to spend all your time at the petrol/charging station - that would make for a bad journey too, because you won't have much fun.

Likewise, it's bad if we run out of money - we want to have enough money to avoid disasters and live the kind of life we want. But we also don't want to spend more time at work than we have to - or we won't get the time to enjoy life or spend all the money we made while working.

Unfortunately, super doesn't really help much here. There's no less pressure to build an enormous pool of savings over one's working life - in fact, super forces you to do exactly that, while increasing your financial stress during working life too by cutting your spendable income.

Then, all that money never gets spent - it most likely gets inherited, increasing intergenerational wealth inequality, causing even further harm!

Super's second fundamental flaw, its individualized design, means it can't fix these issues effectively.

A better retirement system would pool the money and the risk between retirees, and offer them a stable income that keeps them out of poverty for however long they happen to live.

Happily, such a system already exists in Australia! It's called the Age Pension. If the money flowing into the super system flowed into higher pensions (above the poverty line) instead, everybody could look forward to a stable, poverty-free retirement no matter their circumstances. The pressures of asset-building and inheritance-leaving would be much less.

Not only would there be no retiree poverty and drastically lower inequality - our financial lives could be much more of a road-tripping adventure and less of a grind.

I can see a higher Age Pension would be much better in theory. But at least super saves the government money, right?

Nothing could be further from the truth. The government spends much more on superannuation tax concessions than it saves in pension costs. The Australia Institute found these tax concessions total up to $40 billion a year.

Worse still, the lion's share of those tax concessions flow overwhelmingly to the already wealthy with high balances and high incomes.

This graphic from the recent Retirement Income Review illustrates the situation aptly:

$40 billion a year is roughly the size of the military budget, over $1500 a year for every Australian, and in total, over $1000 every second of every day, flowing overwhelmingly to the already wealthy.

Meanwhile super saves the government a comparatively paltry $9 billion in pension costs.

In fact, super tax concessions cost the government nearly as much as the entire cost of the Age Pension each year.

It's clear that tax concessions are out of control and that super doesn't fix poverty. But I'm still skeptical about the idea of a higher pension. I keep hearing about the ageing population and how we're all living much longer - putting pressure on pensions, healthcare, and aged care. Won't that make a pension system unaffordable? Isn't it better if we can live off our own savings rather than being a burden on the public purse?

Yes, we have an ageing population - but super doesn't help the country or the economy prepare for that. Neither does any other form of savings, for that matter.

No matter how they are funded, all retirees live off current economic production.

When a retiree goes to a restaurant, they use the resources (ingredients, food preparation, service, restaurant space, etc etc) just the same whether they are living off a pension or off superannuation.

In fact, to the extent super gives people a wealthier retirement, it increases the burden on resources, because wealthier people consume more resources.

So savings can't really help us prepare from an ageing population at all.

Thinking of old people as a burden in the first place is simply wrong - Australia already has a large, advanced economy with plenty to go around for everybody. We can easily afford a zero-poverty Australia - what's missing is political will to solve it, not any kind of real resource constraint.

Why would supposedly a progressive party would support this stupid system in the first place?

Superannuation was much smaller when it was first created - an Accord-era compromise, accepted by many at the time as a way to deliver pay rises that wouldn't worsen inflationary pressures.

One of the negative legacies of the Keating era was mass privatization - and superannuation was part of this. Keating is open about the fact that he could have created a public pension system, but wanted super to be a privatized system simply because he thinks privatization is better.

Framing superannuation as a "perk" for workers was a clever (albeit sinister) way to convince the labour movement to go along with his plans.

As we've seen, super is now a failure from any kind of progressive perspective, but many in the Labor party and union movement still support super because of cultural/tribal/political allegiances to it, because they haven't thought very hard about policy, because they have big superannuation accounts themselves, and because they're perhaps more conservative and less progressive than they might claim.

Is it true that most wage theft in Australia happens via the super system?

Yes, by far. Superannuation non-payment is estimated to total about $5 billion a year. Meanwhile, regular wage theft, is estimated to total around $1.35 billion. That means super-related wage theft is around 80% of all wage theft in Australia.

What about fees? Aren't they effectively wage theft?

Yes - because the superannuation system consists of so many different funds, and because of its privatized, bureaucratized nature, the super system is extremely expensive to run. Over $30 billion per year, so large that it is twice what Australian households spend on electricity each year.

Better, publicly run pension funds in other countries such as Norway have fees around 20x lower per invested dollar. That means there's no good reason for these fees - they are pure waste, stolen from workers' retirements.

What would a better system look like?

Norway's trillion dollar state-owned pension fund is a great example of how a different and better super system might work.

Instead of individual accounts, this wealth is held collectively, to benefit all citizens, rich and poor alike.

The returns are just as good and the fees are much, much lower: Roughly 0.05% of the total assets, compared to roughly 1% a year for super - so about 20x lower.

Because the wealth is held collectively, it inherently avoids most of the other problems associated with super that we've just discussed, like inequality, wage theft and tax dodges.

So how could we start fixing things? Super is an enormous institution and you can't just turn it into a $3 trillion dollar pension fund overnight.

That's true. For starters, we propose:

• An end to all superannuation tax concessions, with the savings invested in a higher pension, and higher welfare more broadly.

• An end to means testing of the Age Pension, or at the very least, a removal of the exception on primary residence (with asset limits raised accordingly).

• Lowering of the pension age/raising of the super age to make the retirement age the same for all, ending the two-tier class-based retirement age (60 for those with high super balances, 67 for those without).

• Make all further SG increases shared wealth, not individual wealth. Anything over 10% should go into collective, public ownership and higher pensions, rather than creating further private wealth.

• Create a true "public option" for superannuation, that gives real democratic control over the funds managed. This could offer very low fees and be the default option for all new workers unless they chose otherwise. People's Policy Project's Social Wealth Fund proposal is a great example of how such a fund could work.

• Freely allow withdrawals from superannuation accounts, and the option to have your superannuation paid into your regular bank account.

What are some links to further reading on this topic?

Cameron Murray: House now, super later: Life is too short to delay purchase

Key quotes:

In 2020, I had a health scare with suspected bowel cancer. I was only 38, but it is genetic. My father had a similar scare in his early 50s. What’s that got to do with super? Dead people don’t need super. One in 11 men don’t make it to age 60, and one in seven don’t make 66.

A happy life is not one where you can’t enjoy your money while you are young. It is a life in which you create great memories and social connections in your youth that stick with you when you are old, one in which you raise great children.

...

Super also amplifies every financial inequality that exists, whether that is a gender pay gap, or any pay gap between workers and cities and towns. The age pension remedies all these gaps.

The only mystery is why our apparently left political party seems so intent on a high-fee privatised retirement system rather than boosting the only retirement system that actually works — the age pension.

Warwick Smith: Australia’s first compulsory Ponzi scheme

Why do I think this is relevant to superannuation in Australia? Super is clearly not solving the problem that Keating claimed it would, and yet we are planning to pour more and more of Australia’s wages into it.

Warwick Smith: A super con

When we get to 2040 and the majority are retiring with a nest egg from a lifetime of Paul Keating’s compulsory super, the retirees are going to spend that money on goods and services. Those goods and services will have to be supplied by the remaining people of working age. Starting to see the problem?

Our collective standard of living is determined by our capacity to produce goods and services at the time they are required. Saving money is not the same as saving goods and services. If those who are still working can’t supply all the things that the retirees want to spend their money on, prices will go up. This inflation will devalue the superannuation savings and the whole thing will have been for nothing.

Robert Lechte: Australia’s Superannuation System Enshrines Inequality

Like other market-based schemes, superannuation has reinforced and accelerated existing inequalities. Because super is primarily funded by employer contributions, it is self-evidently terrible for the unemployed or those out of paid work due to disability, sickness, or caregiving. They earn a 9.5 percent contribution on zero — namely, zero. By contrast, professionals, managers and other high-income employees earn 9.5 percent super on six-figure salaries — earning increased interest.