One outcome of the Hayne Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry is for some to call for compulsory superannuation to be scrapped.
There are two main arguments for this. Firstly, there are a number of institutions that have been behaving poorly in regard to their obligations and generally oversee funds that are poorly performing. In these cases, shareholder interests come before those of the members. Secondly, people on low incomes, say below $40,000 per annum, do not benefit to any significant degree. Generally, this is the case simply as contributions in dollar terms are not high enough.
So, what has compulsory superannuation given us?
It has contributed on a huge scale to our national savings which have now accumulated to $2.7 trillion. If you consider that there are approximately 12.5 million people of working age, the average saving per head is about $220,000. Part of the problem is the uneven distribution that leaves some people way overfunded and some underfunded. However, is the solution to leave everyone underfunded by abandoning compulsory superannuation?
The pool of assets created through compulsory superannuation has contributed hugely to investment in important national and international projects. Without compulsory superannuation, such an important pool of investment funding would disappear.
A better approach might be to address the real problem of compliance within the retail superannuation sector. Former Prime Minister Paul Keating said in a recent interview with the Financial Review “….what it requires, given it is such a high proportion of national savings, is tight and close regulatory oversight and more than that, deliberate regulatory action to actually close down funds or merge funds or put funds out of business for inadequacy or malfeasance.”
Change may, in fact, be driven by the market as the industry superannuation fund industry now provides serious completion to retail funds. For the first time assets in industry funds exceed those of retail funds by $632 billion to $622 billion respectively. The switch from retail funds to industry funds has accelerated recently as the events of the Royal Commission have unfolded.
To address the issue of low-income workers we have the aged pension, which needs to be protected to ensure it is available to those who genuinely need it.
Given the effect compulsory superannuation has on national savings I don’t think either side of politics is likely to seriously consider scrapping it. Hopefully one of the outcomes of the Royal Commission is better-regulated superannuation industry where the interest of the members always comes first.