The success of Australia’s compulsory super system has come despite not having a clearly legislated objective over its 30-year history.
Australians have accumulated more than $3.7 trillion in savings for retirement. Workers 60 and over who are nearing retirement have a median super balance of $205,000 ($173,000 for women and $244,000 for men) while the average 30-year-old can look forward to having about $500,000 in savings when they reach retirement age. These are life-changing sums, which – alongside the age pension – will deliver a dignified retirement with stronger financial security to millions of Australians.
By enshrining super’s purpose in law, policymakers will now have a guiding light to ensure all future changes are in members best financial interests.
Australia’s ‘objective of super’ legislation (2023) reflects super’s clear and compelling purpose, by defining super as: “…to preserve savings to deliver income for a dignified retirement, alongside government support, in an equitable and sustainable way.”
A legislated objective protects the system
The COVID-era Early Release of Super Scheme illustrates how poor policy can undermine superannuation. The scheme, announced early in the pandemic in 2020 before JobKeeper was in place, allowed about 750,000 mostly younger Australians to effectively drain their super accounts.
SMC analysis shows a 30-year-old who withdrew $20,000 from super could be left with about $93,600 less at retirement – leaving them dramatically worse off in their retirement years.
And because so many people wiped out their retirement savings, taxpayers will be hit with up to $85 billion in accumulated costs – most from higher pension costs – meaning today’s 20-year-olds will have to pay $3000 more in tax.
SMC modelling shows the Early Release Scheme’s costs in higher pensions and lower super tax receipts are expected to peak at $2.5 billion a year by the mid-2060s.
Breaking super’s preservation seal would have long-term costs and consequences
Proposals to access super to solve other policy problems are becoming increasingly common. All these proposals would similarly leave people with less super in retirement, push up costs for taxpayers, and risk weakening super returns for all Australians. These proposals have recently included using super for:
- to quarantine for health and aged care costs
- a house deposit
- to meet every-day cost of living expenses
- purchasing household electric appliances
- to pay off HECS and other debts.
What superannuation principles should be enshrined in law?
- Preservation: Time is your friend: The longer you save, the more your money grows thanks to compound interest, that’s why it’s preserved until you reach retirement age.
- Universality: Today, 9 in 10 working Australians get super, but in the 1970s only 3 in 10 did, this ensures a wider safety net for retirement.
- Compulsion: Everyone automatically contributes, making it easier to save for the future, and creating a strong pool of capital to generate returns for all of us.
- Equity: It’s important for our super system to help as many people as possible – and ensure everyone benefits strongly. Currently, low-income workers, many women, people from culturally diverse backgrounds and First Nations people typically retire with lower balances than other Australians.
- Sustainability: the system needs to be sustainable so it can support future generations. Tax concessions enable savings for retirement income but are not intended for not tax minimisation or estate planning.
- Dignity: The goal is to provide all Australians with a secure and comfortable retirement.