If you asked 10 people on the street what super is for – they’d all likely say, ‘money for your retirement’.
The community knows what super is for and it is time that policy makers catch up.
That’s what Treasurer Jim Chalmers is attempting to do with his move to enshrine in law super’s purpose.
It’s an admirable and frankly long-overdue change – as for 30 years changes to our $3.3 trillion system have been made without formal agreement on what super is trying to achieve.
At times this lack of a guiding set of principles may have led to policies that have delivered poor outcomes for workers’ retirements.
So, it might sound like one of those typical Canberra debates, all bluster but little impact – but there is much at stake for the average worker. Industry Super Australia modelling shows that a 30-year-old on average wages could expect to have $500,000 by the time they retire.
That’s a life-changing sum of money that, along with the aged pension, will deliver most Australians the standard of life at retirement that they crave.
It must be safeguarded so that the promise of a decent retirement can be delivered for future generations – that’s what this debate about the objective of super is about.
To kick the debate off the government has proposed the following wording:
“The objective of superannuation is to preserve savings and deliver income for a dignified retirement, alongside Government support, in an equitable and sustainable way.”
It is an excellent start. The wording includes four important principles – preservation, equity, sustainability, and dignity in retirement – which are worth unpacking.
Previous failed attempts to legislate an objective of super did not include preservation. The Labor government should be congratulated for not making this mistake.
Preservation is the cornerstone policy of the super system – it’s inclusion in a legislated objective is critical and ensures super is saved only for retirement.
Raiding super early in life materially erodes savings and dramatically harms a workers’ quality of life in retirement.
Policies that undermine preservation – like the previous government’s COVID Early Release of Super Scheme – have long running ramifications for both individuals and the community. ISA estimates that a 30-year-old who took out $20,000 during the Pandemic-era scheme would have up to $80,000 less in retirement.
They would also be far more reliant on the aged pension – which future generations would fund through their taxes.
A goal of this system should be that it is equitable – everyone must have the opportunity to save for a good retirement.
As it stands, too many people are being left behind – especially women and those on lower incomes.
Because women do most of the unpaid caring work and still suffer from the gender pay gap, they are retiring with about a third less super than men, the gender super gap is forecast to persist for at least the next four decades.
And up to 3 million Australians miss out on an average of nearly $5 billion a year through unpaid super. Most of those missing out are on lower incomes, while women who retire with less feel the loss of unpaid super more keenly.
To make the system more equitable the unpaid super scourge must be address – starting with paying super with wages - and super should also be added to the government’s parental leave scheme.
Super must continue to be sustainable. The burden should not be handed to the next generation to pay.
And the system should be working towards the goal of creating the best possible retirement outcomes for all Australians – delivering them dignity in retirement.
These four principles - preservation, sustainability, equity and dignity - would be the guiding light for future improvements to the super system.
The community’s expectation is that super is there as savings to be used to fund a good life in their retirement.
It is now over to politicians, industry bodies, super funds’, and everyone else who works in the system to meet that community goal.
Bernie Dean is CEO of Industry Super Australia, which manages collective programs on behalf of Industry SuperFunds.
This opinion piece appeared in the New Daily on February 21: https://thenewdaily.com.au/finance/2023/02/21/four-principles-true-purpose-superannuation/
*The above material, whilst correct at the time of publication may include references or statements which are no longer current.