Whenever the Coalition mulls policy changes on superannuation, it’s important to remember its long-term goal on retirement incomes: to undermine the industry super sector, jointly run by employers and unions, and promote the interests of the retail super sector, run by the big banks — which donate heavily to the Liberal Party.
The proposal to dump compulsory super for low-income earners — revealed by News Corp’s Sam Maiden on the weekend — is ostensibly about giving low-income earners an effective income boost by allowing them to opt out of compulsory super contributions.
If you ignore the long-term impacts on the cost of the aged pension of reducing super for low-income earners, and if you ignore that this would be a kind of long-term bring-forward of future expenditure to provide a sugar hit to the economy now, you might be able to pretend this was sound policy. But that argument’s so feeble, an alternative has been advanced: that compulsory super is unfair to low-income earners because the concessional tax they pay on super contributions is higher than the total tax they pay on their income. For low-income earners, what is a concessional tax rate for everyone else is a higher tax rate for them.
Barnaby Joyce, who is already demonstrating he’s prepared as Deputy Prime Minister to sound off about pretty much anything he likes, whether it’s government policy or not, likes the idea because low-income earners could spend the money on buying a house rather than their retirement.
All of this concern for low-income earners and super would be easier to believe if the Abbott government hadn’t ended the low-income super contribution that specifically addressed the problem of concessional super contribution tax rates for low-income earners. The repeal formally doesn’t kick in until 2017, but it’s a curious approach to remove the mechanism that repaid low-income earners’ super contribution tax liability and then complain that super is unfair to low-income earners.
But step back and you can see the appeal of the proposal to the government.
Enabling low-income earners to opt out of compulsory super would directly hurt the industry super sector, because they are much more likely to be in industry super funds than retail super funds.
There’s no ready data breaking down super fund membership by income, but there is data on the age of members in each fund, and younger members are more likely to be low-income earners. According to recent data from the Australian Prudential Regulatory Authority, industry super funds have more than 5 million members under 35, while retail funds have just over 3 million. The impact on contributions flowing into super funds will therefore be predominantly borne by industry super.
And, incidentally, the proposal would also disproportionately affect women, who earn less than men, and who already face a massive retirement income gap due to lower pay and taking time off for parenting. Industry super membership is roughly balanced between men and women, but retail funds are skewed strongly to men — there are 6 million male retail super members and only 3.6 million women.
Such an attack on industry super contributions would come at a time when retail super is under the hammer from the burgeoning self-managed super fund sector. In 2015, retail super had $536 billion under management and industry super $434 billion. But retail super funds lost $3.8 billion, in net terms, to SMSFs in the year to September 2015, compared to just under $1.9 billion that flowed from industry super to SMSFs.
The government has tried a number of ways to look after the retail sector and undermine the industry sector — repealing Future of Financial Advice legislation, imposing retail super-like governance arrangements on industry super, using a trade union royal commission to suggest corruption within industry super. But abandoning universal compulsory super would be the Coalition’s boldest attack yet on the much-hated industry super sector.