To paraphrase the great Thomas Sowell, the Australian Superannuation system is not really about the retirement income of the masses. It is about the income of the financial services elites.
Even the 1980s ABBA song Super Trouper had a prescient vibe to it:
In the crowed there’s you and your superannuation.
Following the release last week of the interim report of the Banking Royal Commission, a lot of people were crying into their pillows. Lots of different people were probably crying before, but the preliminary comments of Commissioner Hayne meant that a lot of holiday house and European holiday plans will be put on ice this week.
Whose plans? The plans of the lawyers, compliance advisors and accountants who make a very comfortable living from the scale and complexity of the Australian Financial Services system. And that Commissioner Hayne did not call for more legislation and regulation and more complexity may be very costly for these people.
But one thing that the Royal Commission had thus far indubitably highlighted is the power and scale of the Australian financial services industry. And why is this so? It is because of the Australian’s superannuation system. A system that manages to surreptitiously take from the poor and give the the rich. Much like most government designed and mandated schemes.
Although not everything highlighted in the Royal Commission is superannuation related, much of the power of the Australian Financial Services industry comes for the weight of superannuation and the rivers of gold that feed this system. And whilst the vast majority of financial planners are good and honourable people, way too many are just used car salespeople in nicer suits.
Just some context. The Australian superannuation system is the 4th largest pool of private pension savings in the world. On a per capita basis, Australia must rank pretty close to if not first.
Millions upon millions of dollars are extracted annually from this pool, irrespective of performance. Both the Murray Financial Services system inquiry and the Productivity Commission have highlighted the unbelievably large fees paid by Australian superannuants.
Earlier this year, Spartacus wrote about how a very small change announced in the budget to protect the savings of small balance holders had an $800 million impact on Link Market Services, just a tiny piece of this system of savings ticket clipping.
And recently Adam Creighton in the Australian wrote that despite its grand plans to reduce the number of Australians on the pension, even the Intergenerational Reports project some 80% plus Australians remaining on the pension.
From a cost benefit analysis perspective, the savings to the budget from reduced reliance on the pension are dwarfed by the cost taxes forgone. And yes Spartacus knows that foregone tax metrics have nefarious implications, but this is just a means to compare policy alternatives. Let’s also not forget the economy distorting impacts of too many people and too much capital being allocated to the financial services sector.
It’s time. Yes it’s time. It’s time that superannuation be made optional. Everything else can stay the same, but it should be made non-compulsory.
Yes. Paul Keating will scream to high heaven and will pull out what is left of his hair. But this is not about his legacy or ego. This is about the national interest.
Much like the ABC crisis, the Banking Royal Commission has presented Prime Minister Morrison another once in a generation opportunity. And this is one is where the politics and economics are absolutely on his Government’s side.
How can the Labor Party campaign against letting low to middle income workers getting an additional 9.5% in their salaries; workers who have not had a pay rise in a long time and workers who will almost certainly wind up on the pension anyway. If people want to keep paying into super, they can. The current tax and regulatory regime can remain as is.
And having grown to its current scale, if the superannuation industry cannot make its case to Australians to invest with them, especially given the favourable tax treatment of supernnuation, then that says something in itself.
The other benefit is that the flows to the Industry Super Funds will slow which will also slow the flow of political funds to the Labor Party, the Greens and GetUp. This is a win for workers and a win for the Liberal Party.
Yep. It might hurt the Libs through reduced political donations, but it will hurt Labor and the Greens much, much more.
Will Prime Minister Morrison do something about this? He should, but Spartacus suspects he won’t.