Why compulsory superannuation benefits the financial industry and the rich at the expense of everyone else
Published at The Monthly
Superannuation is mostly a con. It involves the funnelling of vast amounts of wealth from wage-earners to the financial sector, and continues the neoliberal project of fracturing and individualising our hopes and ambitions.
The primary beneficiaries of our super system are fund managers and other financial parasites. Second to them are the very wealthy who are best placed to make use of generous superannuation-related tax concessions to minimise their tax. This financial year alone we are expected to pay $17 billion in superannuation tax concessions to the wealthiest 10% of the population.
Meanwhile, stay-at-home parents and carers, who are overwhelmingly women, are short-changed because their work does not contribute to their standard of living in retirement. Women are currently retiring with average super balances close to half that of men. That alone should be enough to make us rethink the entire system.
Thanks to compulsory superannuation, every payday a substantial proportion of everybody’s wages gets funnelled into speculative markets. This is akin to a Ponzi scheme, where investments only derive returns as long as new money keeps rolling in. Something has to be done with all the cash, and there are few good options outside the stock market, where at least a third of the funds ends up.
It’s no coincidence that the super industry is keen to ramp up compulsory contributions – from 9% to 12% – just as the baby boomers are retiring. The super industry is afraid its gravy train will grind to a halt. It wants to maintain the flow of funds coming its way even as the proportion of wage-earners falls. But that’s not the end of the super con.
We’re all familiar with the economic threat posed by an ageing population. As the population ages, the dependency ratio climbs – fewer and fewer workers for each retired person. Compulsory super is one of our principal strategies for coping with this. We’re told that if most retired Australians can be self-funded, then the burden of supporting them will not be too great for those left in the workforce.
But a growing number of economists around the world, including the University of Newcastle’s Professor Bill Mitchell, argue that this narrative is fundamentally flawed. 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. Alternatively, the retirees could import many of the goods and services they desire. This would have an impact on our balance of trade, driving the value of the dollar down and once again reducing the purchasing power of the retirees.
The important lesson from this is that the financialisation of the economy has gone so far that we often can’t see the real economy for all the money. Looking at the real economy, it’s obvious that no matter how much money retirees have, it’s the remaining workforce who will have to provide for their needs. Same is true if they’re all on government pensions.
If we want to improve our capacity to support an ageing population, then our focus should be on full employment and productivity improvements so that those remaining workers can produce enough to maintain everybody’s quality of life. Productivity improvements come from three main sources: investment in education and training, investment in research and development, and investment in infrastructure. If we focus our spare capacity on making our workforce more productive as the population ages, then we can deal with the demographic time bomb. We’ll also defuse the inflation time bomb of superannuation.
Despite the hysteria around government budgets, we could easily afford to dump compulsory super and all super-related tax concessions and dramatically increase the pension to provide everybody with a dignified life after retirement. Putting all that super back into incomes will increase government revenue through taxation, increase home ownership on retirement and improve the material standard of living of many wage-earners. So long as we focus on real problems and real solutions, the ageing population is well within our power to manage in both a sustainable and civilised manner.
We can work together to look after our retired citizens, rather than giving in to the notion that every person must either fend for themselves or live below the poverty line on miserly government pensions. We’ll find that getting up off our nest egg and caring about others also makes us happier and healthier. It’s win-win. Let’s dump compulsory super.