‘Security and comfort in retirement’: Preserving the success of super

What makes super truly super is the magic of compounding returns year upon year on a growing pool of funds.

What makes super truly super is the magic of compounding returns year upon year on a growing pool of funds. Photo: Getty

In the mid-1980s when the ACTU launched its campaign to reform the nature of superannuation and spread it to all workers, the prime objective was simply to make a meaningful and lasting improvement to working people’s welfare.

It aimed to do it in a manner that would not automatically translate into higher consumption given the prevailing economic problems of high inflation and a chronic balance of payments deficit.

A subsidiary goal was to address the then-incipient problem of an ageing population.

Superannuation was not in those days a rational component of a comprehensive retirement income system.

Rather it was a tax-preferred benefit for corporate executives and a means of binding white-collar public servants to their employer.

Superannuation assets totalled only about $60 billion at that time.

Today, with participation of the entire workforce and with compulsory employer contributions on their way to 12 per cent of wages, the system has grown to $3.3 trillion and is a major powerhouse of capital formation as well as a key plank, together with the aged pension, of our world-leading retirement income system.

Fully-funded advantage

Unlike the age pension and the systems operating in many countries, our superannuation system is almost entirely fully funded, i.e. it is not a burden on future generations but rather an asset of the working people and retirees in whose names the funds are invested – provided of course that those funds are preserved for retirement purposes.

Preservation and increasing encouragement of drawing down benefits as an income stream in retirement have been prime social goals of policy makers for decades. Indeed, what makes super truly super is the magic of compounding returns year upon year on a growing pool of funds.

When that growth is disrupted e.g. by unemployment, or actually reversed, as with the former government’s pandemic relief measures, it is difficult or impossible to make up the loss.

Of course, the system has always allowed for withdrawals in circumstances of extreme financial hardship, but this has been seen as a last resort.

What was most concerning about the Coalition’s policy was the alacrity with which some of their members saw the opportunity to destroy super by turning it into some sort of unemployment self-insurance scheme as a substitute for government support.

Having failed to destroy the system in that way, the Coalition now appears to want to re-raise the idea of withdrawing super to buy a house rather than developing a strategy to address the supply side of affordable housing for ownership and rental.

Surely we have seen enough evidence to show that facilitating more demand simply inflates house prices.

Home before egg? Breaking open super accounts to fund deposits will supercharge housing prices.

Where will it stop?

Importantly, once the idea takes root that super may be used for purposes other than retirement, what is to stop further short-sighted politics from extending it?

If a house, why not a carport? If a carport, why not a car? And so on.
Surely this nation can devise a set of policies that simultaneously address the need to preserve and grow our ability to provide security and comfort in retirement while also tackling the growing inequalities in respect to housing access.

I think the superannuation sector itself can play a growing role in relation to the latter by putting more energy into developing investment strategies that are directed at affordable housing supply with an appropriate level of risk-adjusted returns.

Clearly then I support the government’s intention to enshrine preservation of super for retirement as the key legislated purpose.

The proposed wording also embraces the phrase “in an equitable and sustainable way”.

It will be interesting to see who may wish to argue against those terms. I certainly will not be one of them.

Indeed, the only quibble I have with the government’s proposed wording is that I think it should say “preserve AND GROW savings”.

After all, when we’re talking about a starting point of $3.3 trillion, excellent investment returns over the medium and long term are an absolutely vital ingredient of success.

Garry Weaven is a senior adviser to Tanarra Capital and
founder and former chair of IFM Investors and The New Daily

The New Daily is owned by Industry Super Holdings

Topics: Inflation
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