Fund for thought amid compulsory super flaws

Contrary to alarmist claims of a more than a $100 billion slug to Australians' savings, this week's surprise announcement of the deferral of the phased-in increase of compulsory employer super contributions to 12 per cent of salary won't be a huge setback for ordinary Australians.

This costing is based on simplistic and unrealistic assumptions that compulsory super provides a net addition to national savings.

These figures assume that employers will meekly pay the additional contributions without reducing future wage increases or reducing the number of employees because of the additional oncost. Many, particularly those in the younger age groups and middle-aged home owners with mortgages, would, if asked, prefer to receive additional take-home pay to help fund their mortgages and other commitments.

Even more worrying for younger and middle-aged earners is the continuous pressure from the superannuation industry and Treasury to raise the preservation age beyond 60 to as high as the age pensioner eligibility age (currently 67 for younger people). With many more Australians with house mortgages and facing the threat or reality of redundancy, to have money tied up, untouchable in super (apart from limited access to up to $10,000) is a far from pleasant prospect.

Clive Palmer's claim that a large percentage of Australians will die before they can access their compulsory super is not accurate. However, the underlying message is very valid. Being forced to build up large super balances, untouchable till a late age, is not an attractive idea for many voters.

If it were to prove popular, the next federal government elected in 2016 could reverse the latest decision and speed up the timetable for the increases.

Most importantly, if compulsory super is really the best option to boost national savings, there are three major flaws in the current policy even at 9.5 per cent of salary.

First, there's no fail-safe way to ensure smaller employers actually make the required contributions on a timely basis.

Second, there's no compulsion for the self-employed and other non-wage earning taxpayers to contribute to super. Indeed, this is a major incentive for workers to become contractors and/or to operate in the cash economy.

Third, it reduces the scope for lower and middle-income taxpayers to achieve home ownership.

Instead of helping, as in Singapore and Canada, to achieve home ownership, our compulsory super contributions are invested domestically and overseas by the superannuation industry.

The industry's hostile reaction to Senator Nick Xenophon's limited proposal to allow first home buyers to use their compulsory super to help achieve home ownership demonstrates their interest in maximising funds under management rather than helping their members.

Hopefully, the delay in boosting the level of compulsory super contributions will provide the opportunity for policy changes to help fund members as well as to boost national savings.

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Daryl Dixon

Executive Chairman

Daryl Dixon is one of Australia’s foremost investment experts and a well known writer and consultant. He has provided trusted advice to thousands of personal clients over more than 25 years and is an acknowledged expert in the areas of tax, superannuation (including public sector superannuation), social security and investments.

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