19/07/2024
Australians are living healthier and longer lives. But that presents a new scale of policy challenge: how do we fund a dignified retirement for a growing retiree population with significantly longer post-working lives? Can we do so without raising taxes or eroding living standards in our later decades?
The creation of superannuation has put Australia ahead of the global pack to do so. And it will continue to keep us ahead of the fiscal, social and economic policy challenges – but only if we keep the foundations of Australia’s super system strong.
As a policy innovation, super is Australia’s superpower. Foresighted policy leadership led to its creation three decades ago. Before the advent of universal super, only a small fraction of Australians – mostly public servants, the military and executives – had some form of super. Others mostly relied on the age pension and any personal savings they had managed to put aside during their working years.
But then along came super. Like Medicare, it’s a national institution and part of Australia’s social compact. Just ask any retiree who has super and they’ll tell you how much they love it.
Over the past 30 years, we have watched the super system power up towards full maturity. Super guarantee contributions have risen over those three decades to reach the legislated 12 per cent next July.
Already, the system is enabling millions of Australians to accumulate retirement savings to fund a dignified standard of living in retirement that was simply out of grasp for their parents or grandparents. By the time they retire, today’s 30-year-old is projected to have a $500,000 nest egg.
Super enables people to build savings over their lifetimes by automatically provisioning for their retirement and by pooling capital into funds managed on our behalf by investment teams. And it means Australia has created the world’s most impressive share-owning democracy through the structures and scale of super.
About half of Australia’s $3.5 trillion super system is invested in the Australian economy, fuelling growth and productivity.
Super is already taking pressure off the Budget and age pension, and upholding living standards. If the Federal Government had tried to provide the same living standards through the pension, Parliamentary Budget Office modelling shows the Budget would be $56 billion worse off a year, growing to $102 billion worse off each year by 2032.
Yet, thanks to the creation of super, by 2035 Australia will spend the lowest amount on the age pension as a proportion of GDP of the 38 advanced economies in the OECD.
These remarkable social, economic and fiscal achievements are built on three key policy foundations.
Universality – every worker should get super.
Compulsion – super guarantee contributions are a mandated part of people’s working entitlements.
Preservation – super is taxed lightly because it must be saved for retirement, with strict exemptions.
If these policy foundations are eroded, the consequences would be damaging to all Australians, reversing the gains super has made to our savings, standards of living and reduced budget pressure.
Yet we see an increasing temptation in policy discussions to breach preservation and raid super to fund other policy problems, rather than fixing those other challenges with their own solutions. Early withdrawals from super set off a chain reaction of damaging consequences – as we saw from the cautionary tale of the early-release scheme during the COVID-19 pandemic.
These policy proposals leave people with less money in retirement, push up the age pension bill for taxpayers and weaken investment returns from super – and that affects us all. The latest of these ideas is the Coalition policy to allow first homebuyers to tap their super for house deposits. Australia’s economists and housing experts offer a compelling critique of the proposal’s flaws.
The message from the experts is clear: it would just push up house prices, making it even harder for young Australians to afford to buy a home in future, as their retirement savings are absorbed into higher house prices. Meanwhile, people will be left with less savings for retirement, and it would create a bigger age pension bill for taxpayers to cover. That’s why we’ve implored an urgent policy rethink and want to see economic responsibility prevail.
Australia has built a transformative policy miracle in super. Both major parties of government have contributed to the creation of that remarkable policy achievement – and have a duty to safeguard it. Super is now delivering dignity in retirement for millions of everyday Australians, reducing fiscal pressure on the pension and powering Australian businesses.
Now we need to secure our world-leading super system so it can continue to deliver for Australians.