Superannuation: Are you feeling lucky?

Your super portfolio could then purchase some of this “insurance” against your being in an unlucky generation. It’s a trade between two parties each with very different capacity to bear risk. On one side of the trade are individuals like you and me many of whom will prefer greater security of a good return rather than higher returns with much greater risk of bad returns. On the other side is the state, which can pool risks, and so bear them much more effectively.

And because it can be done within the existing “super choice” structure, it’s not “one size fits all” as government action often is - and as “defined benefit” funds often are. Each person’s preferences are taken into account - by themselves as they make choices - and they only take up the offer of “retirement bonds” to the extent they wish.

And, as is the way with trades, both parties win. Not only do you and I get a very important choice we’d otherwise miss out on, but the government could expect to make a profit over time. That’s because retirement bonds pay a yield that’s lower than the return the government would expect from investing the money in a diversified portfolio of high yielding assets - like the “Future Fund”. The expected government profit would be the premium for insurance that only it could provide.

If retirement bonds came to comprise - say - 15 per cent of super assets, they’d make a nice little earner. If, for instance, there was a 2 percentage point margin between payment on the bonds and the expected return on the government’s fund, this would generate over $1 billion per annum which would approximately double with rising super assets by 2015.

The catch?

Government as an entity would bear more risk. However that’s only because its citizens were bearing less - or rather lightening its burden by spreading it around.

Its another variation on economic reform, but rather than simple deregulation it would use both arms of the mixed economy - government and the market - to help us grow richer not by working harder, but by working smarter.