Fix super first

At the end of last month, the government announced yet another retirement incomes review. That we have had so many inquiries by so many different bodies in recent years indicates there are real issues that needs resolution.

Superannuation is a prime example.

There are good reasons why  the compulsory superannuation model should be completely overhauled. The system is set up to channel fees and income to super fund managers. It does not deliver for many participants.

For young people and low income earners, superannuation is a pretty poor deal in reality. The tax benefits are fairly minimal. The high fees are particularly damaging. Unnecessary insurance erodes balances quite quickly.

Even more importantly, forced retirement savings may be undermining the ability of young first home buyers saving for a deposit. Yet, making superannuation voluntary — however appealing this may be — is almost certainly beyond the scope of this review.

However, there are two reforms that would make a genuine improvement to the super system.

First, the minimum income at which super becomes compulsory could be increased. Currently, as soon as someone earns more than $450 a month, they must pay into super. This level has not increased in a number of years.

Increasing the minimum level at which contributions become compulsory, perhaps as high as the full time minimum wage, would be a good starting point in getting people who shouldn’t be in the system out of its clutches. At a minimum, you shouldn’t both be eligible for welfare and be forced to save.

Another thing that should be right at the top of the agenda should be halting the increase in the guarantee rate. There is no case to increase compulsory contributions to 12% of income, and many good reasons not to do so.

Most importantly, as that money is coming out of workers’ pockets, is that the country could probably do with keeping its wage rises.

Further, the government should address the growing gap between age pension eligibility age and the age at which you can access super.

Currently you can access super at age 55, while the pension age is already on its way to 67. From a public policy perspective, it makes little sense to incentivise retirement saving, only to allow someone to retire early on their savings, blow through the cash, and then go onto the pension.

This is an edited extract from an opinion piece published in the Canberra Times as To fix retirement incomes, let’s start with reining in superannuation.