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The elusive 12%: is superannuation at a turning point?

On Sunday 27 September 2020, sections of the media received an invitation to a 'summit' the next day, as if a crisis needed immediate attention. Indeed, the Australian Council of Trade Unions (ACTU) arranged an ‘Emergency Superannuation Summit’ because “We are at a major crossroads on the future of superannuation in Australia.” The focus was “on highlighting the economic benefits of superannuation and the impact that scrapping the increase will have on the Australian people, now and into the future.”

The esteemed panel included Bill Kelty (former ACTU Secretary and with Paul Keating considered the fathers of the super system), John Hewson (former Liberal Leader), Heather Ridout (former Chair of Australian Super), Emma Dawson (Executive Director, Per Capita), Sheree Clarke (aged care nurse) and Michele O’Neil (ACTU President).

This extract focusses on the introduction by Michele O’Neil, and the comments by Bill Kelty as an insight into where our superannuation system came from.

The full recording of the Summit is linked here.

There was nobody representing the ‘other side’ with arguments to delay the increase in the Superannuation Guarantee (SG), such as The Grattan Institute or the Productivity Commission. Validation for those pushing Scott Morrison to abandon his election commitment to honour the SG increase recently came from Reserve Bank Governor, Philip Lowe, who told a Parliamentary Hearing:

“The evidence is that increases of this form do get offset by lower wage growth over time. If this increase goes ahead, I would expect wage growth to be even lower than it otherwise would be. There will be less current income and if there is less income, there may be less spending, and if there is less spending, there may be less jobs.”

Every person on the panel rejected this claim, as they argued not only for the legislated move to 10%, but 12% by July 2025.

What’s happening with superannuation?

Despite the system being widely regarded as one of the best retirement policies in the world, super comes under continuous attack. Paul Keating even argues that the Coalition wants to end compulsory super:

“Not take a chink out of it, but to actually destroy it. They intend to do this in two ways. That is, they want to drain money out of the bottom of the system, and stop money coming into the top of the system ... This malarky they talk of, ‘if they take it in super, they won’t get it in wages’, there’s been no wages growth for eight years and there’s not going to be."

Some of its current headwinds include:

  • Early withdrawals of $34 billion from 3.2 million applications under COVID-19 relief, and while much of the money was urgently needed, billions were also spent on wants rather than needs. Across the entire super system, total benefit payments (ie withdrawals) to 30 June 2020 totaled $100 billion versus only $76 billion the year before, a rise of 31%. This meant that net contributions fell from $38 billion to $23 billion.
  • Markets struggling to deliver the numbers assumed in most superannuation modelling, with bond rates below 1% and future returns from equity markets hit by recessions and expensive valuations. There is a strong case that performance will not be as good as in the past, as explained here. As shown in the table below, superannuation assets fell in the year to 30 June 2020 despite the mandated flows. 
  • Doubts whether the Government will allow the legislated move from 9.5% to 10% on 1 July 2021 and then on to 12%. The Assistant Minister for Superannuation, Financial Services and Financial Technology, Jane Hume, recently told ABC Radio that she was ‘ambivalent’ to it.
  • The major banks have significantly exited not only financial advice but also wealth management, which were once considered jewels in the crown for the future growth of finance. There is now a shortage of business voices defending the super system.
  • Continuing criticism that the major benefits from superannuation go to the highest-paid workers, who are able to take advantage of tax benefits.

Superannuation statistics as at 30 June 2020 (Source, APRA)

O’Neil and Kelty on the social covenant of super

Here are some key statements made by Michele O’Neil and Bill Kelty at the Summit aimed at protecting superannuation and ensuring the 0.5% increase proceeds on the way to 12%. The discussion should be read in the context of the union movement’s close relationship with industry funds and the increasingly political battleground between Liberal opponents and Labor supporters of super, but also a genuine desire by unions to protect workers' rights.

Michele O’Neil (ACTU President)

“When it comes to the retirement prospects of Australian workers, there is no more important issue than protecting the retirement saving system from attack. At a time of great uncertainty, the Morrison Government and sections of big business have thrown back into question the legislated increase to the superannuation guarantee, and the fundamentals of the system itself. This does nothing but generate further concern and anxiety for working people …

Today, the average Australian will run out of retirement savings 10 years before they die. Over 70% of women have estimated balances under $150,000, and over a quarter of women have balances of less than $50,000. This has them retiring with half as much superannuation as men, which is one of the reasons why older women are the fastest growing group amongst homeless Australians.

The cost of delaying the legislated increase to the superannuation guarantee will be enormous. A typical nurse will be more than $120,000 worse off at their retirement, and a typical early educator would be more than $80,000 worse off on retirement. This shortfall only gets covered by people working longer into their retirement or having to rely on an inadequate pension to survive in old age. For many Australians the notion of working into their 70s is a frightening reality.

In 2014, Tony Abbott convinced the Parliament to delay the increase in superannuation from 9.5% to 12%. Like today, the delay was justified on the basis of promised wage increases. There was no mechanism set up by the Government to deliver that, no requirement on business to pay people more. The Government simply said it would happen, as if by magic. The problem is that higher wage growth did not eventuate … Even before the pandemic hit, our wage growth was anaemic with no growth in real terms since the super freeze started … super increases were delayed in 2014 and almost immediately we saw wages dive and profits soar.”

Bill Kelty (former ACTU Secretary)

“When we devised the system, we didn't have a minor objective. We wanted to develop the best retirement system in the world, or at least one of those, because the nation was aging, the pension system was inadequate, and too many people were falling off the edge as they got to retirement … The three premises were superannuation, the pension system and individual contributions, reflecting a social base, a pluralist structure and individual choice.

An Australian way of doing things.

How was it to be paid for was essentially out of the increasing productivity and economic capacity of the nation and wealth, and part of that wealth would be distributed into the retirement system. This was part of a widespread safety net system of high minimum wages, retirement systems, Medicare, and the right to education - four fundamental safety nets underpinning a market-based system. That's what set us apart.

We said then that if it comes out of the productive capacity of the nation, then you can make some judgments about what will happen. First of all, less people will be reliant upon the pension therefore we will be able to increase the pension in real terms. Secondly, because it's essentially capital for a long period, it will improve the capital base of the country, and therefore will reduce or remove the premium which existed in terms of equity for Australian shares. Thirdly, it will change the balance of payments in respect of its current deficit. We will move out of that dependency and move to a surplus.

Unheard of things, yet all of those things have occurred. That's the test. But most importantly, of course, the superannuation balances have increased and we have a decent retirement system with high levels of dignity. Now that means workers have choices when they retire, to buy a car or go take an overseas trip or to support the family. Increased dignity and capacity when they needed it most.

And in doing so, superannuation helped create new industries, in the finance industry, in infrastructure across Australia, the leisure and retirement industries that are part of the economic capacity for the nation. So that's how it's funded and that's why it occurred … When we introduced the SGC, in the first eight years, wages increased by an average of 3.5% and superannuation increased from 3% to 9%. In the last eight years, the SGC has increased by half a percent and wages have only changed 2%. So there's simply no basis for it.

In conclusion, the last point is why the 12%? Well, the 12% was a commitment. People frame their expectations and their obligations around the 12%. Companies went out and negotiated in advance of that, increasing superannuation from 9% to 12% on the basis that there was an expectation and a covenant with the Australian people that superannuation would be increased to 12. To my knowledge, not one candidate in this country said that they opposed superannuation going to 12%. Not one, and certainly the government did not. So it’s a covenant.

But most importantly, it is the extra dignity that is required in the generations ahead. It's the extra two or three years of retirement. The extra two or three years of security for people that is at stake here. It is the inequality that is removed for those people dependent on the SGC. The higher paid people are fine. They'll take it up to $25,000, they'll take their tax break, but those dependent upon the SGC are the vulnerable people who need it now and they will need it then. They are the vulnerable people. If you don't increase it, then they're at risk. It is their two or three years of extra dignity.

The best system was the system we were going to put in place. So you go to 15% and you allocate 3% of that for the extra aging, the people over 75 to 80, that was the best system … so we've got to increase the pension and increase super to 12%. I think that progressively over the next decade or more, as people realise they are living into the 80s and 90s, people will regret not going to 15%. People are already starting to regret not having the best health care system in terms of the recent crisis. That's what the best system looks like as part of a safety net, in which wages are adjusted regularly, superannuation is available and the Medicare system works. You have on display right now in the United States, the worst of a developed country. No decent national health care system, no retirement systems and an inadequate social security system.

We should aim for the best.”

(Editor’s note: Britannica defines a Covenant as 'a binding promise of far-reaching importance in the relations between individuals, groups, and nations'.)

Michele O'Neil summarised the Summit as follows, making it clear the battle lines have been drawn:

"I want you to know from the Australian trade union movement. This is a fight that we are not giving up. We understand that this is a critical issue we are not going to allow the government to remove those increases that are scheduled and legislated and in fact promised. We will be campaigning to ensure that we finish the job of building an adequate, fair, equitable retirement saving system for every Australian. So join with us in that, we'll be continuing this campaign."

The Retirement Income Review final report of over 600 pages was delivered to Treasurer Josh Frydenberg on 24 July 2020. He has yet to release it publicly, but look for the Review's stance on whether increasing SG comes with a wages tradeoff.


Graham Hand is Managing Editor of Firstlinks. Parts of the transcript are slightly paraphrased without changing the meaning.


October 06, 2020

"But most importantly, it is the extra dignity that is required in the generations ahead. It's the extra two or three years of retirement."................. "It is their two or three years of extra dignity." ....says Bill Kelty (former ACTU Secretary). THAT the 3 years which they spend confined to an institution because they have dementia or are so frail they must be 'cared for' in the old-age....or is it the time spent holidaying with family and friends when they were younger..... except they didn't have the money and couldn't afford to....because it was locked up in Superannuation until they were old and feeble to REALLY enjoy it ? . James says : "If the government were really serious about superannuation they would remove the contribution tax and the earning tax, thereby letting compounding do its job, enforce lower fees on the bloodsucking funds and then only tax the income in retirement." Dudley suggests : "Age pension for all age eligible." ........It can be made affordable and incentivising. David suggests : "Why not trust the individual tax payer to decide what to do with his/her income, instead of requiring the employer to add 9.5% or 15% to the wages bill as forced savings? The tax system already provides incentives for taxpayers to allocate some of their earnings into superannuation." My suggestion is : Get the government out of our hip pockets and allow the individual to use his own money as he sees fit....choosing responsibly or otherwise ........and accept the consequences of his actions , no matter how dire ! This "mollycoddling" from cradle to grave has produced the worst generations and it has to stop! The "future" has been jeopardised for them and for us because at the present rate "we" will have no highly educated , responsible , self-reliant and self-motivated people.....only demanding , self-indulgent , "entitled", dependent adolescents incapable of driving the next cycle of industry and creating the employment and tax-paying jobs required ! At present the entire structure is being financed by asset sales and mining, which, while substantial , will diminish or cease at some point in the future and then "we" will be moribund. The government "we" have evolved is un-productive, is too expensive , employs too many "duplications" and caters to an increasing number of non-productive people in a way that increases their dependency , removes their independence , their initiative and creates poverty and basically destroys them. Capitalistic Free Enterprise Democracy is only system that creates wealth and makes ALL the benefits affordable and available to everyone ! "We" need to stop this "political correctness" which is undermining "our system", call it out for the dangerous menace that it is , stop "fiddling around the edges". "Our" children are NOT being raised with a value-system that equips them for independence and resilience and so condemns them! Education needs a radical overhaul to restore its purpose. On superannuation, 20 to 25 % of earnings should be safely invested if "one" wishes to enjoy a good retirement, but first, get a job. Preferably, a long-term, worthwhile, well paying job ! Any qualification helps. A trade is not such a bad idea! Perhaps you can go to univesity?

Eddie SMSF Trustee
October 04, 2020

If the government were to nationalise the Super guarantee levy so it was managed by a fund such as the Future Fund or something like it then the industry and retails funds' naked self interest would be exposed. People wanting to place more into super could do so through additional contributions to existing funds but all new employees would default into a national fund.
In addition if everyone was provided a pension on an opt in non means tested basis, and all super tax breaks were extinguished what is the nett cost of that assuming pensions and super are taxed for those who opt in. If you have super and don't take a pension you retain tax free status. If you choose to take a pension you pay tax on that and your super. The savings in Centrelink would be significant.

October 04, 2020

Why not trust the individual tax payer to decide what to do with his/her income, instead of require the employer to add 9.5% or 15% to the wages bill as forced savings? The tax system already provides incentives for taxpayers to allocate some of their earnings into superannuation. Those incentives could be tweaked by government with a direct and known cost to society without creating a hidden burden on employers to boost the wages bill.
The more pressing issue for Australia is how to fund health care cost increases as the ageing population demands more hip replacements and dementia care. We should be thinking of a separate health-saver account (like Singapore's), with similar tax incentives or perhaps an enlargement of the scope of super to pay for health care before retirement.

October 03, 2020

Thanks for high lighting the plight of super.

It comes as no surprise that the business owned government which was forced onto us by the right wing media, which represents the big end of town, is trying to kill off the superannuation system. Its also tried to turn our health system into a clone of the American dog's breakfast of insurance to get health cover. And then there's the casualisation of our workforce.

The same theme keeps playing out including project approvals for the fossil fuel industry, the latest being the Narrabri gas approval. If they wanted gas then the Howard government should not have allowed our valuable assets to be flogged off to overseas owners. We are the biggest exporter of gas but apparently we can have none.

Sorry to digress. Its the big picture I'm trying to frame. What we have as a government has absolutely nothing to do with average citizens and everything to do with handing more and more public money to those who have no need of it. Superannuation is no exception. What's happening will see genY on the pension, assuming future coalition governments do not abandon the pension system altogether. I wouldn't put it past them. Its who they are.

Graham Hand
October 04, 2020

MJ, Thanks for your comment.

There’s little doubt that most people will still draw some level of the age pension 30 years from now, and rely heavily on a strong public health system … they had better hope the following generations are willing to finance them.

October 04, 2020

My thoughts exactly Graham. Especially if we have a coalition government whose track record is a bottomless pot of money for business and the top end of town and money ripped out of public services which average Australians rely on. I can't see a change to the model going forward.

October 04, 2020

What a load of nonsense. I immediately cringe at any response to anything where "the big end of town" is thrown up as having some sort or meaning. The government aren't trying to kill off the superannuation system - they've been in power for quite some time now, probably they'd have gotten further along, and not to be about to increase the SG rate were this the case. And it's the enduring conceit of the left that any election result that doesn't go their way is because a mistake has been made, because people are too stupid to vote for the people who will best look after their interests. No doubt on the far left there are still people who believe that communism will work, if only we tweak it a bit more.

Personally, I don't believe continuing to hike the rate must past where it is now - 10% is perhaps a good round number to stop at - is in anyone's interests. Nothing stopping people from saving more, outside the super system, or via voluntary contributions inside, should they wish to.

We live in a capital-based market economy, and it's the worst possible economic system, apart from all the others. 10% over a lifetime is enough for most.

October 06, 2020

Sounds like he has never been in business just like the unions, I have worked hard all my life sometimes 80 sometimes 100 hours a week & today I am a self funded retiree who costs the government nothing, try working harder have a crack go into business, work longer hours.
This super guarantee was on the Keating assumption there would be an increase in productivity never saw one in my time, & by the way if it does get to 15% the unions will want 20% just watch the number businesses that close & the jobs lost but I guess someone like you would want to blame the business owner because he failed to work even longer hours to support the employees.

October 02, 2020

The Australian superannuation system is a wonderful achievement for the nation, for which Keating and Kelty should be duly proud. However, whether compulsory contributions cap out at 10% or 12% is neither here nor there. It doesn't really matter. If people want to put more in on a voluntary basis they can. If the unions want to do something constructive they should set up education and mechanisms to assist their members with further voluntary contributions instead of whinging. If they wanted to do something to benefit retirement incomes they could support the Government in attempting to reduce fees and unwanted life insurance, which continues to be held up in the Senate by the ALP.

October 01, 2020

The continual increase in super contribution percentage in this day and age is suicidal. More money taken out of workers pockets now will crucify consumption and create a very difficult living environment
For younger workers who cannot see 35-40 years into the future of Australia (and who can reliably)would rather have money now to live adequately. Who knows what the country will be like in two or three decades. What will retirement policies be? Any increase in super contribution now will be out of existing wages/salaries-not a wage rise.
At present it is all benefits to the union movement first and last. The contributors get what is left in their fund what fees are not taken and hopefully there is a return. The primary beneficiary is the Union movement.

October 01, 2020

Quite simple really. When super was mostly the preserve of the wealthy via tax deductions at high marginal rates, the Libs never had a problem with super. Their objections only started when under Labor's SG the not so well-off were to receive some benefit. Ideology dies hard.

SMSF Trustee
October 01, 2020

That's not the issue for the Libs, Graeme. The issue is that the unions, on the brink of extinction and irrelevance, got involved by running super funds, providing jobs for the union boys. I don't think the Libs have any objection to the ordinary folk who invest in those funds growing some wealth, but they do object to the union lads getting paid a lot of money to manage it.

October 01, 2020

The issue is that the unions are on the brink of irrelevance, certainly not distinction!

Peter C
October 01, 2020

We should be celebrating our excellent system instead of the ongoing public battle. Super will make lives better in retirement and people will be grateful then.

Fran Akt
October 01, 2020

I am a small business owner and have been for 28 years. But as time goes by the cost of people and their benefits becomes an ever increasing costs. So much so we will not continue . I think this will be the case with some small businesses. I ask the question, why do we have offshore call centres, no car industry, very little manufacturing industry. The resounding answer is we have priced ourselves out of the global market. So the push for higher super is suicidal for employees. The big super funds that I pay into on behalf of my employees do not get good returns and put up their costs with no retaliation from anyone. They are not wealth creators. Unfortunately when people loose their jobs they have no voice. The unions and their cohorts are responsible for job losses as they pursue higher wages and benefits. No one calls them out for it. Just look at the debacle off Sydney with goods on ships. Shameful this pursuit of benefits instead of preserving jobs. We may want more money but we live in a global society

Tom the Tank
October 01, 2020

Great Comment. If times now were the same as when Keating was king fair enough but times are now tough and a change is necessary until normal transmission resumes. The big interest in maintaining this vacuuming of workers funds is from Union Super funds which are bloated by industrial agreements which suck super from workers.

October 01, 2020

Equally important is that the Government has now signalled you can access super early during tough times, so how often will this be rolled out as a 'stimulus' over coming years?

Ed Considine
October 01, 2020

How about the proper use of taxes that we pay now???
The government is continually putting their hand out for more and more.
Our taxes are meant to pay for the pension.
Double dipping as usual

Tom Harbrow
October 01, 2020

If company tax goes down to 25% and super contribution tax is increased and allowed amounts reduced, along with cash franking credits phased out, capital gains in sf taxed, the difference between a SMSF and a PL company will not be much, add the likelyhood of compulsory percentage to go to an infrastructure fund, covet 19 recovery fund, or similar ,probably yeilding slightly above bank hybrid rates but as an offset being confiscated at death then the only way super will be supported by the punters will be an iron fist approach, and seeing where governments are going with the virus that scenario is NOT unlikely.

October 01, 2020

It’s a sad joke! Most of the examples given will be people that will have insufficient superannuation anyway to not be at least partially dependent on the pension. They are strictly speaking better off in that they have a sum of capital they can draw on if needed. Their income however may not be much better off than the pension.

If the government were really serious about superannuation they would remove the contribution tax and the earning tax, thereby letting compounding do its job, enforce lower fees on the bloodsucking funds and then only tax the income in retirement.

October 01, 2020

Your suggestion is close to to how standard 401(k) retirement funds are taxed in the US. Our system is close to a US Roth IRA. But what would you do for those who don't make retirement or die soon after? You would need a thumping big tax on the inheritance to "catch up" with cumulative foregone taxes during the accumulation phase. You also need a Government willing to forgo tax revenue now. Never gonna happen in Australia.

Anthony Asher
October 01, 2020

Of all the issues facing the world, why is this so critical? Of the all the arguments that could be made for and against the increase, why do those above seem so emotional? It looks so much like an embarrassing grab by the super industry that is undermining adult debate over policy. The parallels with the "presidential" debate are telling.

October 01, 2020

Super to the union movement is like poker machines to State Governments.

John S
October 01, 2020

Business cannot afford the 15% - ask any busienss man and they can only afford salaries of $70k plus super. In case you have missed it salaries are going down due to "globalisation' or the improvement in living standards accross the world. General Motors relocared from Detroit to Tennessess and wages reduced by 33.33% or 67% I cant recall. If you want people employed in real jobs and advancing our society eg manufacturing we need a downward wage adjustment. Further the combination of ease of employee movt ie I'll get a govt job or I will go on the dole is causing problem in private industry as employers cannot keep employees and waste a hell of a lot of time in training them while their customers are ignored. Finally attitudes in the work place must change - the predominance in the meeja that employers are arseholes and employees are saints is a cop out, the most menial of tasks becomes too hard and the resignation follows. Finally the loss of manufacturing, coal , oil refinery jobs with the jingo of we need to concentrate on higher skilled jobs in these areas in a deflection of attention of the absolute failure of this thinking.

October 01, 2020

So it's wither or whither superannuation?

Gary M
October 01, 2020

If we can't even agree on 0.5% to 10%, Kelty's hope of getting to 15% is more than elusive ... it's impossible.

October 01, 2020

"increase the pension in real terms":

Now the age pension is generous enough to provide a modestly comfortable living for home-owners and allow them to save for depreciation and holidays and emergencies.

The Age Pension Asset Test Taper Rate is a strong incentive for home-owner couples to NOT have more than ~$400,000 in assessable assets.

Increasing the Superannuation Guarantee will 'push' more people over the Taper Rate 'cliff' resulting in more of them seeking ways to convert assessable assets to non-assessable assets such as running a mortgage until retirement then using superannuation money to pay off the mortgage or 'gilding' their home.

Simply straightening out (ie eliminating) that 'kink' would result in increased VOLUNTARY superannuation contributions.

"Age pension for all age eligible." It can be made affordable and incentivising.

October 01, 2020

"affordable and incentivising":

. Age Pension rate: $37,000 / yr
. Age Pension cut-off assets: $876,500

A home-owning couple, combined:
. Return rate required: $37,000 / $876,500 = 4.22%

Savings rate required:
. = PMT((1 + 6%) / (1 + 2%) - 1, (67 - 18), 0, -876500, 0)
. = $6,154.05 / yr

Minimum wage:
. = 2 * $753.80 / wk
. = $78,395.20 / yr

Savings rate / Minimum wage:
. = $6,154.05 / $78,395.20
. = 7.85%

Current Superannuation Guarantee:
. = 9.5%

Current Superannuation Guarantee Rate is enough to provide Age Pension rate of income for all full time WORKERS - including Minimum Wage workers.


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