EDITORIAL TUESDAY 16.03.10.
While we don’t yet know the contents of the Henry Review of Taxation, the interim report indicated that Dr. Henry would not advocate an increase in the 9% compulsory superannuation guarantee. It is possible that the final report may make a different recommendation but that remains to be seen. Regardless of what the report might have to say about superannuation, there is a growing campaign to increase the contribution rate to 12% in order to better provide for retirement incomes. Even that doesn’t go as far as the plan originally created by Paul Keating which was designed around contributions at 15%. Thanks to John Howard, the gradual increases were frozen at the 9% level in 2002, and we’ve been stuck there ever since.
With the much talked about ageing population not only becoming older but also more numerous, the pressure on retirement incomes is obvious. The smart solution is to make sure that the superannuation system is sufficiently robust as to make individuals independent of the need for government income support, or to at least reduce their reliance upon it. That was Paul Keating’s intention and it remains just as pertinent now as ever, if not more so. The only hitch is the question of who should pay for it.
It’s no secret that employers feel that they already carry their fair share of the load, and are reluctant to pay more. And that’s fair enough. That leaves two more options: employees, and the government. A plan to combine both to boost superannuation contributions has been floating around in one form or another for years, and would seem to be a practical solution if everyone could be persuaded to agree to it. Interestingly, research by the Australian Institute of Superannuation Trustees has shown that more than 60% of Australians both believe that the contribution rate should be increased to at least 12% and they are prepared to pay for it out of their wages.
That leaves the government to kick in a further 3% to finally get the system up to the level originally prescribed by Paul Keating. Now, 3% sounds like a relatively modest amount, but when you consider that there are about 10 million people in the workforce it starts to add up. In fact, if it was introduced today it would cost the budget something approaching $20 billion. Interestingly, the bill for the age pension is not much more than that. Now, it’s just not possible to flip from one to the other instantly, but with the certainty that if nothing is changed more and more people will depend on the age pension, surely it makes sense to begin some sort of transition. By starting to invest government money now into superannuation there will be fewer people in the future who will depend on the government for a pension, and that’s a win for everyone.
Of course, there are other things that can and should be done to make superannuation more effective. Fees and commissions are already under scrutiny, and the taxation treatment of superannuation should also be overhauled to leave more of the nest egg intact for its owner. But even if the Henry Review does nothing for superannuation, it’s time to look seriously at improving the system to allow it to do what it was originally intended to do, and that is to give Australians security and dignity in their retirement.