Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 9

Debating the value of super

There is much debate about the superannuation system. Constructive and informed debate is welcome on any social and economic issue and in particular super, but we really need to raise the quality of the discussion. So-called facts and figures are quoted and relied upon by commentators, public figures, stakeholders and interested parties. I often feel there is not enough done to balance the debate, which is the aim of this article.

Some examples of misleading statements heard or read are in italics below.

  • The tax assistance for superannuation costs about $32 billion in 2012-13. It is actually about half that and the pool contributes many millions in both direct and indirect tax.
  • Most retirees are still on a full or part pension so the system is not doing its job. Without superannuation, the age pension bill might be some $7 billion per annum higher than it currently is. By 2037 it could be $55 billion per annum higher without superannuation on the basis that the growing pool of superannuation savings will reduce expenditures on age pensions by about 1% of GDP. Further, with compulsory superannuation, a single person who is on average earnings of $70,000 a year will retire with around $425,000 in today’s dollars and have an income in retirement which would be nearly 90% higher than provided by the age pension alone.
  • The very wealthy get the best deal from super. This was probably true in the past but the amount of government assistance provided to individuals at high income levels has been substantially decreased by lower caps for concessional contributions (reduced to $25,000). In addition, the majority of those on above average incomes will receive either no or only a part age pension when they retire. When all these factors are taken into account, the amount of assistance for retirement is broadly comparable across all income tax payers. The Treasury estimates that the present value of government assistance for both the age pension and superannuation is just under $300,000. A low income person will receive this mostly in the form of age pension, while a person at the top of the income distribution will receive it as tax concessions for super. The elephant in the room in this debate is the ability for people to put in $150,000 a year in after-tax dollars and then receive tax concessions in both earnings and withdrawals after retirement age. At this time, few people can and do take advantage of the opportunity – this may or not change in the future.
  • The super pool provides no real economic value to the Australian economy. Superannuation is projected to lift household savings by around 2.5% of GDP, thereby enhancing the ability of Australian businesses and governments to finance investment and infrastructure without undue reliance on foreign savings and investment. As well, superannuation will mean that an increasing proportion of retirees in the future will be important contributors to domestic demand. Current benefits boost domestic demand by over $50 billion a year and this figure could increase four fold by 2040.
  • The super pool is not used for infrastructure investment. About one third of large super funds invest in infrastructure with asset allocation ranging from 2 to 10%. Both figures are expected to increase as funds get larger, mergers occur and investments focus more on delivering post retirement incomes. There are however a number of stumbling blocks including liquidity requirements, portability and the fact that only about $400 billion of super is in default portfolios. The bulk of the $1.5 trillion is in SMSFs and choice portfolios where the investor decides the asset allocation. This is clearly the major difference between the Australian super system and overseas pension systems which are predominantly defined benefit.

There is no doubt that some of the rules on the transfer of business assets and the previous ability to put large amounts of money into super favour certain groups of people, particularly if all income and benefits (no matter at what level) remain tax-free in retirement. Any retirement system must have a ceiling as well as a floor. We need to review the anomalies that promote estate planning rather than retirement incomes, and we also need to fix the gaps (particularly for the self-employed), and move the system to an income-orientation. But let’s stop the hysterical and ill-informed debate.

 

Pauline Vamos is Chief Executive Officer of The Association of Superannuation Funds of Australia (ASFA), a Director of Banking and Finance Oath Limited (BFO), and a member of the Advisory Council of the Centre for International Finance and Regulation (CIFR).

 

RELATED ARTICLES

So, we are not spending our super balances. So what!

Global pension reforms and how Australia can improve

Should access to super and pensions depend on life expectancy?

banner

Most viewed in recent weeks

Australian house prices close in on world record

Sydney is set to become the world’s most expensive city for housing over the next 12 months, a new report shows. Our other major cities aren’t far behind unless there are major changes to improve housing affordability.

The case for the $3 million super tax

The Government's proposed tax has copped a lot of flack though I think it's a reasonable approach to improve the long-term sustainability of superannuation and the retirement income system. Here’s why.

Tariffs are a smokescreen to Trump's real endgame

Behind market volatility and tariff threats lies a deeper strategy. Trump’s real goal isn’t trade reform but managing America's massive debts, preserving bond market confidence, and preparing for potential QE.

The super tax and the defined benefits scandal

Australia's superannuation inequities date back to poor decisions made by Parliament two decades ago. If super for the wealthy needs resetting, so too does the defined benefits schemes for our public servants.

Meg on SMSFs: Withdrawing assets ahead of the $3m super tax

The super tax has caused an almighty scuffle, but for SMSFs impacted by the proposed tax, a big question remains: what should they do now? Here are ideas for those wanting to withdraw money from their SMSF.

Getting rich vs staying rich

Strategies to get rich versus stay rich are markedly different. Here is a look at the five main ways to get rich, including through work, business, investing and luck, as well as those that preserve wealth.

Latest Updates

SMSF strategies

Meg on SMSFs: Withdrawing assets ahead of the $3m super tax

The super tax has caused an almighty scuffle, but for SMSFs impacted by the proposed tax, a big question remains: what should they do now? Here are ideas for those wanting to withdraw money from their SMSF.

Superannuation

The huge cost of super tax concessions

The current net annual cost of superannuation tax subsidies is around $40 billion, growing to more than $110 billion by 2060. These subsidies have always been bad policy, representing a waste of taxpayers' money.

Planning

How to avoid inheritance fights

Inspired by the papal conclave, this explores how families can avoid post-death drama through honest conversations, better planning, and trial runs - so there are no surprises when it really matters.

Superannuation

Super contribution splitting

Super contribution splitting allows couples to divide before-tax contributions to super between spouses, maximizing savings. It’s not for everyone, but in the right circumstances, it can be a smart strategy worth exploring.

Economy

Trump vs Powell: Who will blink first?

The US economy faces an unprecedented clash in leadership styles, but the President and Fed Chair could both take a lesson from the other. Not least because the fiscal and monetary authorities need to work together.

Gold

Credit cuts, rising risks, and the case for gold

Shares trade at steep valuations despite higher risks of a recession. Amid doubts that a 60/40 portfolio can still provide enough protection through times of market stress, gold's record shines bright.

Investment strategies

Buffett acolyte warns passive investors of mediocre future returns

While Chris Bloomstan doesn't have the track record of his hero, it's impressive nonetheless. And he's recently warned that today has uncanny resemblances to the 1990s tech bubble and US returns are likely to be disappointing.

Sponsors

Alliances

© 2025 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.