Aged pension more effective in retirement than ‘failed’ super
Scrapping the super system would massively improve Australia’s economic performance, new analysis shows. Picture: iStockSuperannuation has failed and should be slowly dismantled, allowing workers to spend up to $20,000 a year until they exhaust their accounts, according to a new analysis of the retirement system.
The analysis, by Sydney University economist Dr Cameron Murray, finds the age pension is over twenty times more efficient at delivering retirement incomes.
Dr Murray contrasted the super sector’s 55,000 workers and $36bn a year in fees with the less than 7,000 staff and $1bn in administration costs for the Age Pension which provides greater levels of annual retirement income.
“Scrapping the super system would massively improve Australia’s economic performance – it’s costly and inefficient, unnecessary, and incredibly unfair,” he said.
The analysis, titled Scrap Superannuation, estimated compulsory super removed the equivalent of 2 per cent of GDP in buying power — around $40bn per annum — from the economy with little offsetting benefit in reduced age pension dependence.
“Instead of channelling incomes through asset markets, decreasing demand and soaking up a workforce the size of the military on an accounting exercise, the 28 million superannuation account holders could spend up to an additional $20,000 per year,” Dr Murray said.
“That is $530 billion per year, or about 23 per cent of GDP, that will be made available. Most people will not spend the maximum from their super account, but there is no doubting the stimulatory effect of this change for the real economy — something that is sorely needed as wages reach nearly a decade of stagnation,” he added.
Last year superannuation funds paid out a little over $40.1bn in benefits to 1.4 million retirees, while age pension payments totalled $45bn to 2.5 million retirees, the analysis noted. For every $1m of benefits, super required 1.4 workers compared to 0.16 for the age pension.
“Super does not fulfil the requirement of a retirement income system; it’s better thought of as a growth-sapping, resource-wasting, tax-advantaged asset purchase scheme for high income earners, that may ultimately have little effect on reducing reliance on the age pension system,” Dr Murray said.
The superannuation system has faced a barrage of criticism in recent years for excessive fees, complexity and ineffectiveness, culminating in a Productivity Commission inquiry that called for major reforms ahead of a legislated increase in the compulsory saving rate from 9.5 per cent to 12 per cent by 2025.
“People spend twice as much each year managing their super as they do on electricity,” Dr Murray point out.
On the commission’s recommendation, the government announced a review of the retirement income system last year, including the Age Pension and superannuation, with a final report due in the middle of 2020.
The Grattan Institute has also recommended against increasing the compulsory rate of superannuation, arguing the system made low to middle income earners worse off while enriching the financial services sector.
Dr Murray said super had survived because of “myths” perpetuated by the industry, including a supposed lack of resources to fund the age pension and the idea compulsory super generated a “pay rise” for workers.
“Otherwise intelligent people have been convinced that taking poor people’s money, to make them even poorer, and giving it to expensive investment managers is a great solution,” he added.
