There were 300 members of the super industry at the Association of Superannuation Funds Australia lunch, in the big city hotel for their "great debate" on whether the Government should raise compulsory contributions from 9% to 12%. The industry wants the rise but the interim Henry report suggested that current contributions were enough to give an adequate base to this pillars, with the age pension and own savings, of retirement income. I was the wild card, the only non super industry member of the panel and a serious long term critic of the basic inequities of system.
My main criticisms is that super subsidises higher income earners' retirement by foregoing taxes at a ridiculously high level and overtaxes those on incomes below $32,000. So adding another 3% was basically adding insult to injury. The industry people are not bad people but it was hard for the 300 there to consider the ill effects of raising the contribution because it's against their interests: they make more money if they manage more funds, and most would personally benefit from the inequities of the current tax advantages to higher income earners. There are a few dissidents in their ranks and one was part of the panel, but these find their positions uncomfortable.
How can we stop a bad policy move, if the well heeled super industry (45% of the finance sector) and the ACTU combine to promote it? Try evidence! So here are some of the points that were raised by me and other panel members.
- The current system of a flat 15% tax on contributions and earnings is unfair to those who pay less on their income. (all agreed something needed to be done to fix this).
- Current tax concessions massively went to the better off (top 5% got 40% of gains) (all agreed but less enthusiasm for fixing it).
- We need and will retain the aged pension because 70 % will still draw on it by 2050 ( all agreed but believe its inadequacy pushes investment in super so not advocates for a big rise.)
- There were many unpredictable risks ahead and it was hard to assess what would be needed by very diverse population groups (agreed but divided on what this meant).
There was little agreement about the following:
- 9% would be enough ( Andrew Boal and me).
- It would be bad for lower income people who could not afford more savings. One panel member though everyone surely could afford $15 a week, and has obviously never had problems meeting basic living costs. (Andrew Boal and me).
- Pooling resources to deal with unforeseeable risks was preferable to forcing people individually to save more (me, mainly.)
- Forcing people into savings was the nanny state and could crowd out some alternate saving options, e.g. buying a home, having kids.(I never thought I'd use free market arguments against the finance industry!)
- We can't afford our ageing population (the other 2 plus most of audience which ignored OECD data that showed we were low spenders and could manage the population costs.)
I also raised wider questions on why privilege retirement income saving over other life time demands for time out and earning. The superannuation push for funding retirement suggests pre-retirement is a time burdened rat race so most pleasure and leisure will only be possible, post retirement. Ergo people are not encouraged to allocate both time and money over the life course but are pressured to ever more contributions to their "retirement" funds despite no consumer group pushing for higher contributions. Workers don't push to have 3% of their incomes diverted. (Note, the unions are not impartial advocates in this area as they too run funds).
Does the move to privatise/individualise retirement income make it harder to get public support for decent pension rises? As more people see themselves, usually fallaciously, as self funded retirees, they may show less empathy towards those dependent on pensions. Certainly, except for the last budget rise for single pensioners, most recent extra public funding of retirement has gone in concessions for those on higher incomes.
What is needed is encouragement for savings to be used for life cycle redistribution to deal with other cost pressures that need to be addressed. Younger people need income to pay education debts, save for deposits for housing, for the costs of child bearing and rearing. We need time out of the workforce to care, take sabbaticals or deal with crises. This doesn't happen if there are only sequestered funds with limited capacities to be drawn before age 60.
Watch this space to see whether this lobby succeeds in changing Henry's mind!