There’s a lot in the Productivity Commission’s landmark 722-page table-thumper of a report into Australia’s superannuation system, completed after nearly three years of invesigation. For now, I’ll make three comments.
The Commission gets the industry
First, it’s a very valuable report. The Productivity Commission (PC) has undertaken a deep analysis of the superannuation industry and collected a range of information that was previously unavailable. The research has been conducted with considerable care and diligence, backed by insight. I am confident the PC understands the industry. The report is a great resource that will probably be cited for years to come.
Yet sets itself against the industry…
My second comment relates to the gusto by which the PC has called out shortcomings of the system, and advocated for key changes. While the PC is aiming to be constructive, the report reads as quite critical.
It seems guilty of overstatement for dramatic effect, which I fear may inhibit moving forward. Many report headings read as if they are brickbats. It headlined two of its diagrams: “the character of member harm”. It sets the tone on page five:
The system delivers good outcomes for many members, but not all. The industry’s peak body submitted that “the Australian superannuation system is not broken, and is in fact a world class private pension system”. The evidence suggests otherwise.
In my view, the system is better described as being very good with room for improvement.
The PC has raised the ire of the industry, which will create a barrier to change as the advocacy ramps up.
While most of its recommendations are sensible, the idea of a panel selecting a “best-in-show” shortlist of 10 default funds is controversial.
The recommendation is being attacked on its potential shortcomings, when the debate ought to be around whether it is the best option among a set of imperfect alternatives. The simpler question of whether the PC’s recommendation is better than the current system is not being debated.
We are travelling down an adversarial path unlikely to build consensus around what needs to happen.
…and raises more important questions
Third, the PC has recommended further investigations going beyond its terms of reference. I will finish by focusing on Recommendation 30: an independent public inquiry into the role of compulsory superannuation in the broader retirement incomes system, including the net impact of compulsory super on private and public savings.
Surprising, there is no established position on how effective superannuation has been in working toward Australians supporting themselves in retirement. It is an open question whether the costly tax concessions attached to super provide an overall benefit to Australian society.
The Commission also wants the inquiry to examine who is hurt and who is helped by compulsory superannuation, both over time and at any point in time.Productivity Commission, December 2018
The PC is calling for an examination into the amounts being contributed into super, given that it called for the inquiry to be completed ahead of the the next scheduled increase in the compulsory contribution rate from 9.5% of salary to 10% in June 2021.
The PC was limited to examining the efficiency of the system under current policy settings. But the settings themselves are arguably the greatest barrier to the efficiency of the system, and its ability to serve the public. An inquiry into super’s place within the broader retirement income system would be an opportunity to work out how it can serve us best.
Too often the discussion is framed as if superannuation is the only resource supporting members through retirement. The call to lift the compulsory levy from 9.5% to 12% - some have argued for 15% or even 20% - epitomises this myopic perspective.
- ^ 722-page table-thumper of a report (www.pc.gov.au)
- ^ Productivity Commission, December 2018 (www.pc.gov.au)
- ^ Money in retirement: more than enough, November 2018 (grattan.edu.au)
- ^ Why we should worry less about retirement - and leave super at 9.5% (theconversation.com)
- ^ Productivity Commission finds super a bad deal. And yes, it comes out of wages (theconversation.com)
- ^ Superannuation: why we stick with the duds (theconversation.com)
Authors: Geoff Warren, Associate Professor, College of Business and Economics, Australian National University