However, this has raised concerns among commentators that people's retirement funds could be forced to invest in political projects with poor returns, which are at odds with super funds' requirement to act in their members' best interests.
The Australian compulsory superannuation system, which is meant to help Australians save for retirement, has been criticized for failing to meet almost every policy mark. The system is said to magnify income disparities in retirement and thereby perpetuate inequality. This is due to the fact that superannuation contributions and earnings are typically taxed at a flat 15% rate, which means that higher-income earners generally receive the largest superannuation tax concessions. This creates a lifetime taxpayer support heavily skewed towards higher income earners, as illustrated by the Australian Treasury chart.
The current superannuation system is projected to cost the federal budget $52.5 billion in 2022-23, almost as much as the aged pension ($55.5 billion). The high cost of superannuation concessions means that other taxes will need to be higher than necessary, or other social programs will need to be cut back. Furthermore, the superannuation system has transformed into a wealth accumulation and inheritance scheme that is increasing inequality. The Retirement Income Review noted that superannuation inheritances are not distributed equally and tend to increase intergenerational inequity.
It is time for Australia to consider shutting down its compulsory superannuation system, which suffers from poor targeting and massive costs. The aged pension should be considered Australia's genuine retirement pillar. The aged pension is universally available for those most in need, not based on how much one works or earns prior to retirement, and is not subject to adverse movements in financial markets. Shutting down the superannuation system and diverting the billions in budget savings into a more generous universal aged pension would make sense. Sadly, the superannuation industry has grown too large and powerful, and any government that dares to curtail it would face political backlash.
Published: Wednesday 1st March, 2023
Last updated: Wednesday 1st March, 2023
