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Increasing the superannuation guarantee

The half-million-dollar distraction

The current debate about whether or not to lift the 9.5% super guarantee is a distraction from measures that could be introduced today that would see workers retire with $500,000 more in their superannuation.

Journalists, pundits and politicians are focused on debating whether every worker should forgo more of their pay into superannuation, up from 9.5% to 12%.

Rather than focus on changes that may or may not happen in two to seven years' time, consumers would be better off if we were discussing reforms that could be implemented today.

Whether changes to the super guarantee rate occur between 2021 and 2025 is an important debate; but why not fix the holes in our retirement savings bucket now, before tipping even more of our salaries into it?

The Productivity Commission identified twin problems in our superannuation system — unintended multiple accounts and entrenched underperforming funds — that it estimates is costing people entering the workforce $533,000 by the time they retire in 2064.

The elephant in the room during any discussion about our superannuation system is our poor performing funds. It is mind boggling that we allow these duds and laggards to continue to receive compulsory superannuation contributions.

One of the top priorities of the Treasury ministers should be getting people out of poor performing funds; calmly merging or closing them down; and keeping shonkys as far from people's compulsory retirement savings as possible.

The parliament has taken decisive action to reduce the number of unintended multiples (despite some squealing from funds enjoying passive income from multiple fees), but our current superannuation policy framework is punctuated with other quirks, idiosyncrasies, disincentives, inefficiencies, and actual legislative loopholes that are costing people money now.

These include:

The public can't identify dud funds This might seem odd, but our regulators don’t collect the right data to allow an apples to apples comparison of poor performing funds. The Productivity Commission described these gaps as 'yawning', but six months on we’re still in the dark about which funds are the 29 'serial underperformers' that are hinted at throughout their report.

There is no purpose to superannuation This also might seem odd, but previous parliaments have failed to agree on the objective of superannuation. Do we allow people to reduce tax now to take the pressure off future pension outlays? So people have *some* income in retirement? To provide a certain level of comfort in retirement? Are we talking chardonnay comfort, or the occasional champagne? Where should limits kick in, and why?

Fixing the default system Both the Productivity Commission and Royal Commission into the banking sector urged parliament to stop allowing people to be defaulted into terrible funds, or multiple funds. It was pretty much the headline imperative of both.

Payment rules are archaic Employers have got up to four months to pay super, which means people are forgoing months of extra earnings on their contributions. Super should be paid on a normal pay cycle.

There are no accounting standards There are no clear requirements or accounting standards for how funds need to report whether their investments are in growth or defensive assets, making it nigh on impossible to compare hundreds of funds and thousands of products.

Pass the PMIF bill There is a bill in parliament right now that will have an immediate impact on superannuation balances, and boost retirement incomes into the future. The Treasury Laws Amendment Putting Members Interests First (PMIF) Bill was introduced on 4 July, has been through a committee consultation, and will soon be up for debate. It prevents funds from charging people for insurance that they don’t want if they are under 25 or have a balance under $6,000. But since this bill has been introduced, the superannuation policy debate has been totally dominated by whether or not to lift the 9.5% superannuation guarantee in two years.

All of these suggestions have been identified repeatedly over the past decade.

They have been picked up in parliamentary inquiries, departmental and regulatory reviews, and over the past five years, in the Murray Financial Systems inquiry, the Productivity Commission inquiry into Superannuation, and the Hayne Banking Royal Commission.

Legislation and amendments have been introduced, sometimes repeatedly, but been rejected or lapsed.

These ideas have been shoved around, mainly by disagreements between superannuation funds, insurers, employer groups (large and small), accountants and tax advisers. 

Never mind the losses to consumers.

Tidying up the superannuation system would put more money into people’s super balances immediately - at far less cost to employers than raising the superannuation guarantee.

Debating the superannuation guarantee is a half million dollar distraction.

Addressing the 'holes in the bucket' now will add hundreds of thousands of dollars in cumulative earnings to people’s incomes in retirement.

Media contact: Xavier O'Halloran, 0415 823 607.