Compulsory super - not so super duper

It is time to scrap compulsory superannuation.

The proposal by Finance Minister Nick Minchin to use the government’s budget surplus to scrap the 15 per cent contributions tax on superannuation has received widespread support except from those who matter. Federal Treasurer Peter Costello has rejected the plan on the basis that superannuation is already concessionally taxed.

It’s a pity that the treasurer didn’t take the time to consider reform of the superannuation industry more generally. If he did so with an open mind, he would be very enthusiastic about scrapping the notion of compulsory superannuation which forces us to pay 9 per cent of our wages to a superannuation fund to manage for us until we hopefully reach retirement age.

The superannuation juggernaut that was introduced in 1992 by the Federal Government, against alarmist predictions that we can’t afford to sustain an ageing population, needs to be halted. The main winners from this meddling, coercive policy are the superannuation industry which makes hundreds of millions of dollars annually charging us fees for money we are forced to hand over, and public companies in whom fund managers are effectively forced to purchase shares due to an absence of other investment vehicles (thereby artificially driving up the value of stocks).

The government should cease the policy of compulsory superannuation and allow us to access the approximately $600 billion dollars that we have been forced to hand over during the past 14 years. Provision should be made for our old age by abolishing the erroneous notion of retirement and by providing a non-means tested pension to all Australians.

The ageing rationale which underpinned the move towards compulsory superannuation was flawed at the time. It is even more clearly flawed now.

First, it assumes that productivity per worker would remain constant in the foreseeable future. This is wrong. Increases in workplace efficiencies more than compensate for the proportionally fewer people of working age.

Being old isn’t what it used to be in terms of productivity. Technological advances have brought about considerable increases in work efficiencies. A process that in times gone by required considerable human exertion can now be accomplished with a push of a button - even grey-heads can do that.

As a result of these new efficiencies, a government paper in 2003 projected that GDP growth per capita in the next few decades to be between 1.5-2 per cent. This will ensure that in the future despite a smaller percentage of the population being in the workforce, total income per capita will remain similar to what it is today.

Moreover, while in the foreseeable future there will be proportionality more dependant old people, the community will make enormous savings by not being required to fund the education of the proportionally fewer young people.

Another problem with compulsory superannuation is that it compounds the problem it is meant to solve. One of the main reasons that couples do not have children is because they have insufficient means to support them. A 9 per cent reduction in income can logically only increase this problem. The best way to encourage more children would be to give more money to people during their child-rearing years. This is the reason for the success of the $3,000 “baby bonus”.

Third, the ageing rationale assumes static retirement patterns. The notion of going from 100 to zero work intensity the day one reaches 60 or 65 is a folly. Many people view their job as a defining aspect of their personhood. Surveys show that on average employed people are 17 per cent happier than those without jobs. It should come as no surprise that Citibank's latest retirement index shows that almost one million retirees have re-commenced work after retiring.