Sophistry

Australia has an ageing population – that’s well known. Over time it is likely to lead to higher outlays (medicare, pension etc) and fewer taxes and hence pressure on the budget balance.

Along comes Ian Silk of Australian Super who argues that the superannuation guarantee should be increased to 12 per cent to address the ‘economic time bomb’.

In an appearance before the House Economics Committee, Silk said

We don’t have members turn up to (Australian Super’s) briefings and say they don’t want any more super; the reverse is the case. They are very hot to trot on the issue. They’re telling me in loud and clear terms they want 12 per cent.

For a start, if people want to invest more in super they don’t need an increase in the super guarantee – just put more in.

But as Grattan and others have shown, an increase in the superannuation guarantee worsens the budget bottom line due to the lower tax receipts. Along with the excessive fees (outrageously high pretty much across the board), a higher superannuation guarantee leads to a worse budget position, a sacrifice in present income, poor net of fee returns and a windfall for the superannuation sector. Effectively the taxpayer and the worker are subsidising the financial sector.

What is the end result? The worker has to live a poorer life when young and middle age, and then when retired has a pot to spend on a nice overseas holiday while reverting to the age pension. It is well established that superannuation has not reduced the call on the age pension (it may have if it were in the form of a lifetime annuity rather than a lump sum).

So Silk is sprouting sophistry.

But no more so than various lobby groups including the Australia Institute and Mercer who want to pretend that an increase in the superannuation guarantee has no impact on wages. As if an employer is indifferent to the employer contribution to superannuation. What nonsense. They look at the total cost of employing a person including superannuation and other on costs. If it were a ‘free good’ such as the lobbyists assure everyone, why stop at 12 per cent? Why not 5000 per cent?

About Lucius Quinctius Cincinnatus

I'm a retired general who occasionally gets called back to save the republic before returning to my plough.
This entry was posted in Uncategorized. Bookmark the permalink.

32 Responses to Sophistry

  1. stackja

    Who created Super?
    I believe Paul Keating. Why?
    To help a Super industry?
    In particular trade union Super?

  2. We seem to be subsidising all sectors; the energy sector, child care sector etc, etc.

  3. RobK

    Super funds have had a dream run with regulatory and tax advantages. Many people have done quite well without them regardless. If there was more incentives to save, our economy might be more productive and less housing focused.

  4. Squirrel

    Can’t be bothered looking it up on a hot day, but I seem to recall that a review some years ago – perhaps the Commission of Audit established by Howard and Costello after the 1996 election, estimated that the cost of superannuation concessions to the Budget (even then) was greater than a non-means tested age pension.

    The scheme has already gone well beyond the original intent – and the re-writing of history on that point is quite blatant. It has also coincided with a marked fall in the (overall) savings rate, due perhaps to a false sense of security created by the constant talk of the multi-trillion savings pool.

  5. cohenite

    stackja
    #3234512, posted on November 21, 2019 at 5:20 pm
    Who created Super?
    I believe Paul Keating. Why?
    To help a Super industry?
    In particular trade union Super?

    And now the pillow biter is lick-spittling the chinks. He’s the personification of the case for executing all ex PMs. Along with turdball of course.

  6. Elderly White Man From Skipton

    Warren Buffet recommends to people with no great expertise that they choose index funds. There are many reputable index funds and fees at 0.25%. That ought to be the default benchmark for all compulsion. If the SGL had been tied to such a model we’d not have needed the complexity. Just a diverse mix of local and overseas index funds and simple bond funds.

  7. Bruce of Newcastle

    A 12% tithe to the unions? What’s not to like? /s

    The whole superannuation sector will be in their hands in the near future because SMSFs are persecuted and the banks are divesting their super arms due to persecution by APRA and ASIC.

    But the bruvvers are utterly trustworthy! How could anyone doubt them?

  8. Rust of Qld

    And that pot of trillions just keeps getting ripper and ripper waiting for the day our rapacious pollies get together and attck it as one.

  9. Roger

    Australia has an ageing population – that’s well known. Over time it is likely to lead to higher outlays (medicare, pension etc) and fewer taxes and hence pressure on the budget balance.

    The answer is not super reform, nor even increased national productivity, but more immigration from the developing world.

    Both major political parties actually believe this.

  10. stackja

    Bernie Fraser (economist)
    From Wikipedia

    He returned to the Treasury in 1984 and became Secretary from September 1984 to September 1989.[3]

    Fraser is an independent director of several industry superannuation funds[4] and is a director of Members Equity Bank.[5] He is the chairman of the board of the Climate Change Authority.[6]

  11. David Brewer

    Hmm. Agree unions and especially union officials profiting mightily from compulsory super. Also agree it’s easy to take super as a lump sum, give it to the kids or spend it on the house, and then stick your paw out for the age pension. However, not so sure that the guarantee isn’t already reducing the age pension bill, and likely to do so more in the future.

    Some numbers and evidence might be useful before rushing to conclusions. Here are a few:

    Public expenditure on pensions is currently 4% and will be 4% in the 2050s versus 9% and 10% for the OECD. Financial sustainability of the pension system therefore seems to be less of a concern in Australia than in many other OECD countries. Three-quarters of the older population (65+) receives an Age Pension (safety net) compared to roughly a quarter on average for OECD countries with safety net or minimum pensions. However, almost 42% of all recipients in Australia have their Age Pension benefits reduced by the means test. Moreover, the maturing of the superannuation system (introduced in 1992) is likely to reduce poverty rates.

    Retirement income replacement rates in Australia can be a problem. Net replacement rates for average wage earners in Australia are relatively low at 43% compared to 63% for the OECD on average. The old age income poverty rate in Australia is high at 26% compared to 13% across the OECD in 2015. This is partly related to the high prevalence of taking superannuation funds as lump sums rather than annuities at retirement, which obscures the comparison of relative income poverty measures between age groups and between countries.

    While taking out lump sums create flexibility in retirement it can also increase the risk of falling into poverty in case retirees outlive their assets, a risk which increases with higher longevity. However, it should be noted that poverty depth (the ratio by which the mean income of the poor falls below the poverty line) in Australia is relatively low. This is largely due to the Age Pension, which provides a floor for pensions, below but close to half the average wage (the OECD relative poverty line).

    Overall I am not sure that reducing or getting rid of the superannuation guarantee is a great idea, especially given all the other disincentives to saving currently plaguing the system, starting of course with ultra-low interest rates. A better approach may be to tighten up on age pension entitlements, especially by including owner-occupied housing in the income test, as Leyonhjelm recommended here the other day.

  12. BoyfromTottenham

    Superannuation is not black and white – the current rules have created a spectrum of superannuants which has two humps – those at the bottom end who know they will need the government pension with a little help from their accumulated super, and those at the top end that intend to be fully self-funded. Those in the middle have to decide whether to pour as much into super as they can (and suffer a bit pre-retirement) to join those at the top end, or enjoy a better standard of living pre-retirement, and let the government give them an indexed pension when they reach retirement age.
    Personally I would opt for making the current compulsory super contributions system optional – let everyone decide whether they want that extra 9.5% (or whatever) in their pay packet now, or in a super fund with a guesstimate of their investment returns until they retire.
    It would help if a simple calculator was available that would estimate your super at retirement, given your current wages and so on. The only value I ever got out of an expensive ‘financial advisor’ was just that – a simple spreadsheet that projected the value of my super at age 65, given my income and contribution level. I still use it today, 25 years later and retired!

  13. Snoopy

    Also agree it’s easy to take super as a lump sum, give it to the kids …. and then stick your paw out for the age pension.

    After five years.

  14. FelixKruell

    For a start, if people want to invest more in super they don’t need an increase in the super guarantee – just put more in.

    Exactly. How many 30 year olds are voluntarily contributing 12%? I’d wager very few. Watch what they do Mr Silk, not what they say.

  15. Mater

    How many 30 year olds are voluntarily contributing 12%? I’d wager very few.

    People might be more inclined to contribute more if changes to the conditions weren’t just a politicians pen stroke away.
    Politicians might be more inclined not to make regular arbitrary changes if their super/pension was treated in the same way.

  16. Spurgeon Monkfish III

    Anyone who thinks they’re going to be able to access their super via a lump sum when they retire (e.g. someone my age or younger and I’m 12 years off retirement age) is kidding themselves.

    You’ll have it allocated to you as a pension, to be paid out over a nominal period of say 30-35 years. If you cark it before then, the state will simply appropriate the remainder.

    Thanks to labore, this is your future, suckers.

    P.S. My super balance is now nominally significantly larger than my mortgage. Can I take it now to pay the mortgage off and then embark on a crash course of saving over the next twelve years of working life? Of course not. Then I’d end up as one of those evil parasites residing in a $1,200,000+ house grasping for a pension and we couldn’t have that, now, could we, Donkey Vote Dave?

  17. Siltstone

    Voluntary super. Nothing wrong with that as far as employees goes. It their money, not the Governments, not the super funds.

  18. Infidel Tiger

    Just what employers need, a huge increase in super payments.

    Another excuse to keep wages down.

  19. Jimf

    For all the BS media spend the govt pisses away, the best message would be to under 35’s on less than $100k explaining to them the magic of salary sacrifice . I did it early on and it was the best thing I ever did. The secret to wealth creation is the concept of compounding returns. And yes , contributions above 9.5% should be voluntary.

  20. mundi

    Super will just be politicial money.

    The preservation age will continually be pushed up, just like then pension age.

    The younger generation already have to work to 60 – even if they have MILLIONS in super. Work. Work. Work. In the years ahead they will pump this to 65. then 68. Why not? That’s what the pension is set at.

    Salary sacrifice into super for those 30 is insanity. Unless you have it in a SMSF and plan to abscond. You may never get to touch a single cent of that money until you are 70 and for many, dead.

  21. The BigBlueCat

    Superannuation was never going to provide 100% of people 100% of their retirement needs, and it’s not capable of achieving that. Everyone has a responsibility to do their own retirement planning. For some, that will mean including welfare unless their families are prepared to support them in retirement (which is what happens in other countries). Their incomes will never be high enough, or their spending so high that they can’t make money work for them.

    I have been fortunate with my super and other opportunities and I am now a self-funded retiree (since I was 56 when I took a redundancy). Others won’t be so fortunate; they will lose jobs, divorce, spend money unwisely, miss opportunities, not make their money work for them, etc.

    My advice is to plan early and plan to minimise reliance on the government because they keep playing around with superannuation (they, like the unions, think it’s their money, not yours) and the pension (which is rarely adequate). We need to keep government out of our pockets.

  22. Leigh Lowe

    We don’t have members turn up to (Australian Super’s) briefings and say they don’t want any more super; the reverse is the case. They are very hot to trot on the issue. They’re telling me in loud and clear terms they want 12 per cent.

    Good.
    So let them contribute as salary sacrifice rather than by mandate.
    How about this.
    Mandatory contributions are currently 9.5%.
    Make that, say, 5%.
    Any contributions between 5% and 9% are taxed at 20% (as against the current standard of 15%). Anything between 9% and 12% contributions are taxed at a 15% discount off marginal rate.
    Let’s see who of those masses clamouring for 12% take it up at the full 12%.
    Boost to taxes against the current system, but still a tax concession for those wanting to contribute full whack.

  23. TBH

    My main issue with super is the fact that I have to lock my money up in a fund for the next 20 years and the government of the day could unilaterally change the rules about how I contribute and draw down on those funds. I can’t really do much about it, other than ensure that my investments outside of super, which are more than the mortgage and roughly the same as the money in super, are well managed. I don’t trust governments not to confiscate part or all of the super, either in a brazen manner or by stealth. I stopped contributing any more than the statutory amount about a decade ago because of this.

  24. Mater

    I don’t trust governments not to confiscate part or all of the super, either in a brazen manner or by stealth. I stopped contributing any more than the statutory amount about a decade ago because of this.

    This.

  25. And right on cue:

    Superannuation fee hit for thousands of workers $$$

    In testimony before a parliamentary committee, Australian Super chief executive Ian Silk said his fund had transferred 30,000 accounts in May and 246,000 a couple of months later to AUSfund, which charges ­annual administration fees of $11.50 per account.

  26. flyingduk

    Australia has an ageing population – that’s well known. Over time it is likely to lead to higher outlays (medicare, pension etc) and fewer taxes and hence pressure on the budget balance

    There is another solution: start treating adults like adults and stop managing their lives. No ‘government’ provision of health care or pensions. You want it, you pay for it.

  27. P.S. My super balance is now nominally significantly larger than my mortgage. Can I take it now to pay the mortgage off and then embark on a crash course of saving over the next twelve years of working life? Of course not. Then I’d end up as one of those evil parasites residing in a $1,200,000+ house grasping for a pension and we couldn’t have that, now, could we, Donkey Vote Dave?

    I attest that David Leyonhjelm came into your house at night with an AK-47 and a balaclava and forced you to take out that mortgage in the dead of night.

    He also forced everyone in the 1980s to vote labor and for superannuation.

    Don’t ask me what I was doing with a time machine and at your house though, you bludging socialist with a hard on for a pension you did not earn.

  28. Nicholas (Unlicenced Joker) Gray

    There’s one fact that people seem to be ignorant of- old age is over! Don’t take my word for it. New Scientist has reported on rejuvenation treatments that work, not just for mice! You can buy NAD+ pills now to keep yourself healthy, and soon rejuvenation will be available- a ‘drug cocktail’ to restart the thyroid gland to set your biological clock back from old to early adult.
    What will all that do to the superannuation funds? Perhaps they will become branches of rejuvenation medicine, with people choosing to live and work longer?

  29. Spurgeon Monkfish III

    you bludging socialist with a hard on for a pension you did not earn.

    err what? You have completely misinterpreted my comment, Pol. I am resigned to the fact that I will in most likelihood not see any of my super, or if I do, it will be in the pension format identified in the first part of my comment above.

    If I could pay off my mortgage with my super now, I would still have significant savings and could then save well above the equivalent of my mortgage repayments (a significant slab of which are interest, which like rent, is “dead money”) for the remainder of my working life.

    I have zero desire to be financially dependent on or at the tender mercies of the state in my old age. Emigration is also an option if we continue down the utterly insane goat track we’re rapidly careening along.

  30. Mater:

    People might be more inclined to contribute more if changes to the conditions weren’t just a politicians pen stroke away.
    Politicians might be more inclined not to make regular arbitrary changes if their super/pension was treated in the same way.

    That’s the problem – no one trusts the government to leave the system alone.
    The Superannuation industry is one Parliamentary decision away from nationalisation when a government can declare a state of emergency.
    I’ve forgotten which election it was, but one of the State governments declared a SOE just so they could continue to get some kind of funding for its re election kitty.
    A SOE?
    It’s as easy as shitting in bed and kicking it out with your feet.

  31. herodotus

    Once super funds (union dominated) go fully woke the destruction of industries will continue at an alarming pace. Energy, mining, agriculture. All for the chop.
    Those who keep such minute watch on bank transfers will need to keep a close watch on where super funds go when the ship of state takes on a dangerous amount of water and starts sinking.

Comments are closed.