Super system is failing retirees, says economist

The super system is failing and has no noticeable benefit for retirees, according to an industry expert.

Economist Cameron Murray, a research fellow at the Henry Halloran Trust at the University of Sydney, is calling on the government to take a close look at the necessity of compulsory superannuation.

The Labor government, under Paul Keating, introduced the Superannuation Guarantee Act in 1992. It required employers to make prescribed contributions on behalf of employees to a complying superannuation fund.

But some parties believe super is the product of political tribalism and has provided very little benefit to the majority of retirees.

Dr Murray says: “Having studied superannuation and housing for a decade, it seemed obvious that the super system was failing, and taking super out for other purposes might be good.”

Read: Pay off the mortgage or top up your superannuation?

Dr Murray was referring to the defeated Coalition government’s proposal to allow first home buyers to withdraw up to $50,000, or 40 per cent of their total super, to fund a deposit for their first home purchase.

That call came after the government allowed Australians to withdraw up to $10,000 from their super during the pandemic to help them through lockdowns. The offer was taken up by more than three million, who withdrew a combined $36 billion from their super accounts.

The $50,000 first-home proposal received fierce criticism from financial institutions, unions and the Labor party. But Dr Murray says the criticism relates to the crux of what he thinks is the problem – a tribal approach to superannuation.

Read: Super set to end the financial year in the red

Dr Murray believes Paul Keating “had a bargain with the Prices and Incomes Accord in the 1980s and he didn’t want wages to go up to stimulate inflation”. “So, the political bargain was, ‘You can get these wage rises in the future, as a special delayed pay rise, and we are going to call it superannuation’.”

“Things just spiralled from there,” says Dr Murray. “That’s how tribal politics operates over time. You get entrenched in your position, and you spiral into this vortex of storytelling to support your view.”

Dr Murray says the same thing would have happened had the Liberal Party introduced super.

When it was introduced, the super guarantee was 4 per cent of employees’ eligible earnings. That figure is now 10 per cent, and it is due to rise to 12 per cent by 2025.

Mr Keating believes it should rise to 15 per cent.

Read: Friday Reflection: When ‘pension’ is simply the wrong word

But there is a fundamental flaw, says Dr Murray: “If you don’t earn income during your life, you don’t get any super when you retire. If you get injured, sick, must care for your partner, whatever the case may be.”

Australia’s focus, Dr Murray says, should always have been on the Age Pension system, which, he says, supports more individuals than the super system. “The super system is predicated on this idea that somehow the Age Pension is unsustainable, bad or unreliable.”

Dr Murray says the combined value of superannuation’s yearly fees ($30 billion) and tax breaks ($40 billion) has “swamped” the cost of the Age Pension.

On the notion of advance withdrawals from super accounts, Dr Murray believes that might be a good thing, and not just for the purposes of buying a house. “Who’s to tell someone whether buying a house is better than sending their kids to day care, or fixing their car, or paying rent?” he asked.

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Andrew Gigacz
Andrew Gigacz
Andrew has developed knowledge of the retirement landscape, including retirement income and government entitlements, as well as issues affecting older Australians moving into or living in retirement. He's an accomplished writer with a passion for health and human stories.
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