When this is true as it is for a lot of people - that is the over saving problem - the Super system ends up as an inheritance subsidy. That's engineering a type of society that is widely considered to be undesirable. In the mid 20th century the rationale for inheritance taxes was that inherited wealth should not play a large role in society. The role of wealth in Australia is increasing and I for one don't think this is a good thing!
I recognise that I actually 'feel good' about the fact that I have a somewhat ok super balance, which may be part of why everyone supports the super system. I think we may have all bought into the 'Keating is a legend fallacy' (because he's funny - no other actual reason) without understanding the full implications of our super system. The opportunities for rorting the super system are a big turnoff with it. This blog post I read a little while ago, or I listened to a podcast with you on super, and it's changing my thinking on super. One thing I do like about super is that it's like encouraging a form of public ownership of the means of production - everyday Australians benefit from the rise in profits. However this of course likely has political implications with people opposing corporate tax increases and still the largest proportion of people with shares being rich, so basically exacerbating income inequality.
I read your article and noticed it appears to be based on the following scenario
Person in a medium to high income bracket
Pays private school fees
Secure and regular work
Expecting an inheritance in middle age
Homeowner
As you say, in this scenario, it may not be important to receive a super guarantee payment, from their employers, into their superannuation fund, for their later years. They are likely to have enough resources to manage comfortably without this extra employer payment.
However, people who are low to middle income earners, who aren’t homeowners and not expecting any inheritance later in life will need a source of continual income later in life, without it they aren’t likely to be able to manage rent payments and their continuously increasing health and medication fees. In old age their costs are likely to continue, if not increase.
Also, there’s this continuing assumption that employers would pay the 10.5% they currently pay as the Super Guarantee, to their employees in wages.
Employers are very unlikely to pass on cost/savings benefits, and even if they did it’s more likely to be a low 1-3% of the savings, not the whole 10.5%
Therefore, removing the Super Guarantee wouldn’t give any worker more money now to spend. It would just remove their future income source, making them more reliant on a very low old age pension, and for some increased poverty.
The removal of the Super Guarantee appears to only benefit employers, and certainly not most low to middle income earners, with few personal assets.
Yes, I have certain assumptions about a "typical" worker. Obviously there are many different lifecyle income scenarios to considers. That is a valid point.
However, the situation is much worse for low income households.
A big issue is renting in retirement. This is why I supported the idea of using super to buy housing, because owning a home is a much better asset to have than anything in your super for your retirement.
Lastly, the assumption that employers continue to pay super when they don't have to is valid I think. The reason I say this is we can convert super into income at any time by just letting people spend out of their super account, with no risk that employers will stop paying. So it definitely will give you more money to spend when you earn it.
The easier solution is to just allow people to nominate their own bank accounts for their SG payments instead of a superfund. You could do this over night. Just give people an option on a form to fill out to allow them to change the bank details of where the SG is transferred to.
This would be a pretty massive change for a lot of people if they could do this. Even if the option were means-tested. Sure the SG payments might come in quarterly or a bit more lumpy than wage income, but that shouldn't matter if the purpose is to boost people's disposable income.
But the performance of a standard balanced account in one of the industry super funds looks *nothing* like that! What wretched fund are you in? Not one of the bankster funds I hope!? The Australian Super balanced account is down about 8% from its January peak. But it is up about TWENTY percent (yes, 20%) over the recent pseudo-ZIRP years. Super has a lot of problems, some of which you identify, but at the end of the day it is a tax-advantaged and performing accumulation vehicle for those with the spare income to take advantage of it.
"at the end of the day it is a tax-advantaged and performing accumulation vehicle for those with the spare income to take advantage of it."
I agree with this comment. I also think this is why it is a bad system, which is the main point of this post. You pay into super regardless of whether you are in low or high income periods of your life.
When this is true as it is for a lot of people - that is the over saving problem - the Super system ends up as an inheritance subsidy. That's engineering a type of society that is widely considered to be undesirable. In the mid 20th century the rationale for inheritance taxes was that inherited wealth should not play a large role in society. The role of wealth in Australia is increasing and I for one don't think this is a good thing!
I recognise that I actually 'feel good' about the fact that I have a somewhat ok super balance, which may be part of why everyone supports the super system. I think we may have all bought into the 'Keating is a legend fallacy' (because he's funny - no other actual reason) without understanding the full implications of our super system. The opportunities for rorting the super system are a big turnoff with it. This blog post I read a little while ago, or I listened to a podcast with you on super, and it's changing my thinking on super. One thing I do like about super is that it's like encouraging a form of public ownership of the means of production - everyday Australians benefit from the rise in profits. However this of course likely has political implications with people opposing corporate tax increases and still the largest proportion of people with shares being rich, so basically exacerbating income inequality.
I read your article and noticed it appears to be based on the following scenario
Person in a medium to high income bracket
Pays private school fees
Secure and regular work
Expecting an inheritance in middle age
Homeowner
As you say, in this scenario, it may not be important to receive a super guarantee payment, from their employers, into their superannuation fund, for their later years. They are likely to have enough resources to manage comfortably without this extra employer payment.
However, people who are low to middle income earners, who aren’t homeowners and not expecting any inheritance later in life will need a source of continual income later in life, without it they aren’t likely to be able to manage rent payments and their continuously increasing health and medication fees. In old age their costs are likely to continue, if not increase.
Also, there’s this continuing assumption that employers would pay the 10.5% they currently pay as the Super Guarantee, to their employees in wages.
Employers are very unlikely to pass on cost/savings benefits, and even if they did it’s more likely to be a low 1-3% of the savings, not the whole 10.5%
Therefore, removing the Super Guarantee wouldn’t give any worker more money now to spend. It would just remove their future income source, making them more reliant on a very low old age pension, and for some increased poverty.
The removal of the Super Guarantee appears to only benefit employers, and certainly not most low to middle income earners, with few personal assets.
Hi Suzanne,
Yes, I have certain assumptions about a "typical" worker. Obviously there are many different lifecyle income scenarios to considers. That is a valid point.
However, the situation is much worse for low income households.
A big issue is renting in retirement. This is why I supported the idea of using super to buy housing, because owning a home is a much better asset to have than anything in your super for your retirement.
Lastly, the assumption that employers continue to pay super when they don't have to is valid I think. The reason I say this is we can convert super into income at any time by just letting people spend out of their super account, with no risk that employers will stop paying. So it definitely will give you more money to spend when you earn it.
The easier solution is to just allow people to nominate their own bank accounts for their SG payments instead of a superfund. You could do this over night. Just give people an option on a form to fill out to allow them to change the bank details of where the SG is transferred to.
This would be a pretty massive change for a lot of people if they could do this. Even if the option were means-tested. Sure the SG payments might come in quarterly or a bit more lumpy than wage income, but that shouldn't matter if the purpose is to boost people's disposable income.
But the performance of a standard balanced account in one of the industry super funds looks *nothing* like that! What wretched fund are you in? Not one of the bankster funds I hope!? The Australian Super balanced account is down about 8% from its January peak. But it is up about TWENTY percent (yes, 20%) over the recent pseudo-ZIRP years. Super has a lot of problems, some of which you identify, but at the end of the day it is a tax-advantaged and performing accumulation vehicle for those with the spare income to take advantage of it.
"at the end of the day it is a tax-advantaged and performing accumulation vehicle for those with the spare income to take advantage of it."
I agree with this comment. I also think this is why it is a bad system, which is the main point of this post. You pay into super regardless of whether you are in low or high income periods of your life.