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

Are LICs licked?

LICs are continuing to struggle with large discounts and frustrated investors are wondering whether it’s worth holding onto them. This explains why the next 6-12 months will be make or break for many LICs.

Retirement income expectations hit new highs

Younger Australians think they’ll need $100k a year in retirement - nearly double what current retirees spend. Expectations are rising fast, but are they realistic or just another case of lifestyle inflation?

Welcome to Firstlinks Edition 627 with weekend update

This week, I got the news that my mother has dementia. It came shortly after my father received the same diagnosis. This is a meditation on getting old and my regrets in not getting my parents’ affairs in order sooner.

  • 4 September 2025

5 charts every retiree must see…

Retirement can be daunting for Australians facing financial uncertainty. Understand your goals, longevity challenges, inflation impacts, market risks, and components of retirement income with these crucial charts.

Why super returns may be heading lower

Five mega trends point to risks of a more inflation prone and lower growth environment. This, along with rich market valuations, should constrain medium term superannuation returns to around 5% per annum.

Super crosses the retirement Rubicon

Australia's superannuation system faces a 'Rubicon' moment, a turning point where the focus is shifting from accumulation phase to retirement readiness, but unfortunately, many funds are not rising to the challenge.

Latest Updates

Investment strategies

Why I dislike dividend stocks

If you need income then buying dividend stocks makes perfect sense. But if you don’t then it makes little sense because it’s likely to limit building real wealth. Here’s what you should do instead.

Superannuation

Meg on SMSFs: Indexation of Division 296 tax isn't enough

Labor is reviewing the $3 million super tax's most contentious aspects: lack of indexation and the tax on unrealised gains. Those fighting for change shouldn’t just settle for indexation of the threshold.

Shares

Will ASX dividends rise over the next 12 months?

Market forecasts for ASX dividend yields are at a 30-year low amid fears about the economy and the capacity for banks and resource companies to pay higher dividends. This pessimism seems overdone.

Shares

Expensive market valuations may make sense

World share markets seem toppy at first glance, though digging deeper reveals important nuances. While the top 2% of stocks are pricey, they're also growing faster, and the remaining 98% are inexpensive versus history.

Fixed interest

The end of the strong US dollar cycle

The US dollar’s overvaluation, weaker fundamentals, and crowded positioning point to further downside. Diversifying into non-US equities and emerging market debt may offer opportunities for global investors.

Investment strategies

Today’s case for floating rate notes

Market volatility and uncertainty in 2025 prompt the need for a diversified portfolio. Floating Rate Notes offer stability, income, and protection against interest rate risks, making them a valuable investment option.

Strategy

Breaking down recent footy finals by the numbers

In a first, 2025 saw AFL and NRL minor premiers both go out in straight sets. AFL data suggests the pre-finals bye is weakening the stranglehold of top-4 sides more than ever before.

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.