OPINION: Super needs to be overhauled.
OPINION: Super needs to be overhauled.

Why super system desperately needs rethink

The virus and even more the government-ordered recession that has thrown hundreds of thousands out of work and damaged or destroyed tens of thousands of businesses will also effectively finish off our compulsory superannuation system.

No, I do not mean that it will be broken up and disbanded and the near $3 trillion sitting in super accounts will be paid out to the 16 million or so of us that have super.

The actual system with all its tax benefits and the 9.5 per cent compulsory - that's, compulsory to BOTH employer and employee - contribution of wages and salaries will continue into the foreseeable future.

Although these days, considering the 'foreseeable future' is now measured in days rather than months far less years, I should have written something like 'through at least the next budget cycle'.

No, what I mean is that any idea that the super system would grow over time to replace the old age pension for the vast majority, if not quite every single one, of the population is well and truly busted.

In the closer future, there is no way in my judgment that any half-rational government would be able to continue with the plan to progressively lift those contributions from the 9.5 per cent to the proposed 12 per cent.

Leaving it at 9.5 per cent will seal the system's fate.

The idea of super replacing the pension was always problematic. For the vast majority of Australians, it'll be a case of living with the compulsory saving and on retirement cashing super in and going on the pension. Or whatever is around by then.

Hundreds of thousands are out of work and many have dipped into their super as a result of the virus.
Hundreds of thousands are out of work and many have dipped into their super as a result of the virus.

It's not the plunge in the market that's 'done it'. The super system - and more importantly the returns it generates for savers - has survived (at least, so far) the virus and the recession, just as it more than survived the GFC a decade ago.

After plunging a sickening near-40 per cent in March, the market - both here and on Wall St - has made the great bulk of that back: and all within not just a fiscal year but within a fiscal half-year.

In any event not all that $3 trillion was/is in the market anyway. So the net outcome is that the average super fund will generate a return around zero for 2019-20.

That's not good, but it most certainly is not bad and absolutely not as disastrous as it was looking in prospect at the end of March.

It also means that the average balanced super fund will have recorded growth around 5-6 per cent a year, every year, for the past 15 years - a period that includes BOTH the GFC and the virus/recession and the recoveries from them; recovery "so far", obviously, from the latest bout.

No it's not the performance as such that will have 'done the system in' but two other things.

The first is the decision by the government to allow people to take up to $10,000 out of their super in BOTH the 2019-20 and 2020-21 years or up to $20,000 in total. A lot of people leapt at that.

The ATO tells us that 2.3 million people took some money out for 2019-20. Industry Super has estimated that just shy of half-a-million have emptied their accounts completely.

That's at last half-a-million that have basically committed to the pension when they retire; there is no way that 'starting again' they will ever build up significant balances over their working lives.

But maybe as many as the 2.3 million have also done that, and who knows how many more will do so in the new financial year.

More basically, even before all this, the 9.5 cent was never going to build up enough in the average super. Even the staggered increase to 12 per cent was probably not going to do it either.

It now makes absolutely no sense for ANYONE for that staggered increased to be continued.

It makes no sense for the worker, who needs the money now. It makes no sense for the employer struggling to survive. It makes no sense for the government - and the underlying taxpayer - to continue the budget-sapping tax benefits.

Sorry, it DOES make sense for the SUPER FUND INDUSTRY and all those sucking happily at the taxpayer tear, ripping away something north of $20 BILLION in fees EVERY year and growing bigger every year thanks to government compulsion.

Inescapable logic demands that we scrap the staggered increase. Logic also demands we now make the entire system voluntary: an employee can opt for super or opt for wage/salary.

But whether or not logic prevails, there is now absolutely no way we are ever going to reach a future where super replaces the old age pension.