Saving the young from superannuation

Of the many policy debates in Federal Parliament in 2011, one which gathered support from both major parties was the proposal to lift the superannuation guarantee employer contribution from 9 to 12 per cent.  Not surprisingly, this was wholeheartedly endorsed by the superannuation industry. However, superannuation contributions impose large burdens on young adults at a time when they can least afford them. With this proposed increase, it is time that the policy was amended to improve the match between retirement saving and costs across the life course.

More superannuation, it is argued, will increase intergenerational equity, relieve fiscal stress on governments and compensate for the myopia suffered by individuals when saving for their future retirement. Even though the superannuation guarantee is paid by employers, it is generally agreed by analysts that the cost of the employer contribution ultimately falls on wage earners via reductions in wage increases. This means that, while superannuation saving addresses one important issue of lifecycle resource transfer (low incomes in retirement), it exacerbates another. Uniform rates of contribution increase the financial stresses faced by families during the household formation stage of life.

The mis-match between superannuation contribution patterns and financial stress across the life course is illustrated in the figure below.

Financial stress and saving capacity by age, Australia 2009-10

The red line shows the percentage of households where people report being not able to pay utility bills on time over the previous year (people were interviewed across the 2009-10 financial year). These results are grouped by the age of the highest income earner in the household (using the ABS ‘household reference person’ gives very similar results). This measure of financial stress is highest for those aged under 45, then declines steeply, even past retirement. Measures of financial stress such as this are an imprecise indicator. They might reflect changes in resources relative to needs over the life course, but could also reflect other factors such as improvements in financial management skills, increases in aversion to the risk of utility disconnection, or more modest consumption preferences due to the lower income of one’s own age cohort.

A more direct measure is the ‘saving rate’ shown as a blue line in the figure. This is the excess of disposable income over expenditure (as a percentage of disposable income). This is imprecise because of measurement error in both income and expenditure and also because it omits key components of wealth accumulation such as capital gains. Nonetheless, it is a useful indicator of how saving capacity varies across the lifecycle. (The saving amount shown here is in addition to that due to existing employer super contributions and home purchase). Those aged under 30 are high savers, but this drops dramatically when people reach their 30s and start taking time off work to care for children, purchase goods for children and purchase housing. This is despite the substantial cash and service transfers that governments make to people with children in their household. Using this saving measure, saving capacity only increases again once people reach their 50s. Even in retirement, it is not as low as in the 30s and 40s.

Now, most people paying attention to superannuation are probably aged above 50. For the average pre-retirement person aged over 50, a larger contribution to super probably makes sense (unless they have some other preferred form of saving). But younger families might start to pay attention when they find a reduced growth in their pay packet.  Are the early adult years really the best time to be saving additional money for retirement – particularly when they are already saving via home purchase? How can we rescue the young from superannuation?

Within the current system, it is not practical to simply reduce the contribution rate for the young (or any other demographic group). Since employer contributions are effectively incorporated into wages, this would mean different wage rates for different employees. However, there are a range of secondary mechanisms that could be employed.

One that is often mentioned is to allow people to access superannuation balances for house purchase. This has been criticised as undermining the life course saving objective of superannuation, but can also be seen as a mechanism to redress a key flaw in the superannuation saving model. However, while this might make sense in the context of our current housing markets, housing is not the best means of saving for retirement. It is hard to liquidate and increases the amount of wealth passing to the next generation rather than being used for consumption in old age (see papers on my website).

If we don’t want to encourage housing investment, there are nonetheless other potential strategies. We could allow access to super for other life course-related expenditures such as childcare fees or to supplement paid parental leave. Finally, one could simply allow super funds to pay out some funds to people under certain ages. (In turn, decisions would have to made on whether and how to claw back the tax concessions associated with the initial super contributions).

The plan to increase the super guarantee to 12 per cent now makes the task of addressing these life course implications more important than ever.

40 thoughts on “Saving the young from superannuation

  1. Using super to help with housing could have the effect of enducing buyers into opting for that bigger and better house when less would be sufficient.

    The biggest argument for super is that represents forced savings and the young could do with a bit of that.

    I am not really keen on lumpsum super payouts as I have seen them get wasted in the heady rush into retirement. One guy I know blew the lot when he went into a business that went kaput and now he is on the pension.

  2. Thoughtless baby boomers strike again. Perhaps you should tell that to the NTEU as well given where you (and I) work. Either that or get ready to have a great big party for the last decade and a half of your life.

  3. Allowing super to be used for house purchases would merely increase the cost of housing. Banning lump sums makes more sense. And reducing the tax incentives for the higher paid.

    Given the $25 billion drain on the budget each year from super tax concessions, you wonder whether the government would be better off introducing a means-tested pension.

  4. There could be another line on the graph, though one more difficult to chart…

    This would be the chart of assumptions by age cohort about what are normal and everyday expenses.

    While the red line is sweetly about basic human needs of electricity, gas and phone, the capacity to pay is shaped by other patterns of expenditure, which seem constantly to expand.

    Rog speaks of house size, this is one indicator. The pattern of food consumption and waste; the increase in purchase of restaurant, take-away or pre-prepared foods (no time to cook while checking out social media) is an example of choices far more expensive than learning to eat fresh, eating at home, not rushing to the shop for the missing ingredient, etc. I am staggered by the size (and price) of slabs of spirit mixes that walk out of my local supermarket bottle shop. Our sense of economic well-being or failure has somehow become synonymous with the yelps of the retail sector whenever pulled off the tit. All such becomes essential, along with the third ensuite for the unborn child. So, yes, hard to find the readies for the less frequent pull of the utility bills. Put the bills on an iPhone Ap with a fortnightly drawdown with a 50c plunge on Lotto. Ditto the super? Hit the super button for your chance never to work again…

    Yes, I know my partly facetious remarks may relate more classes of people with more means than some others, but aren’t we told often enough that ours is an aspirational society… without much guide to ‘aspiration’: the nature of aspiration seems to get defined in terms of regarding more and more discretionary expenditure as core essential.

  5. Following on from the parental leave idea, we could allow people to direct their super contributions to their spouses as income – completely untaxed to the primary earner and completely taxed (but typically below LITO anyway) for the spouse, for say two years per child.

    This should (although I am only guessing) have the advantage of lining up with a period of increased financial stress, smoothing incomes and increasing the incentives to spend time with your kids.

  6. Could you have a variable rate? For example if your household income is less than $100,000 and you have kids, you could apply to have only 5% of your income deducted for super, by agreeing that from the age of 50 to retirement you agree that 20% of your income will be deducted into super?

  7. Patrick, I don’t really see why your suggestion would be any better than BB’s suggestion above to allow super money to be use to pay child care directly. In this case, super already has a better tax rate, and thus splitting it across a partner wouldn’t make that much difference and single people, who presumably need the money even more, could also benefit.

  8. because my solution would not discriminate against people who don’t send their children to childcare. Also for single-earner families my scheme would give them basically 15% of their super back as cash (ie difference between 15% tax and nil).

    However I would be very happy for singles to get theirs in cash too.

  9. Rog “The biggest argument for super is that represents forced savings and the young could do with a bit of that”. Well I guess my point is that I don’t think the young could do with that. Those under 30 seem to be already saving hard for house purchase, and those up to 50 can’t because they have other consumption needs (I guess my calling everyone under 50 ‘young’ is a function of my own age).

    Regarding allowing super to be used for housing: There might be some increase in house prices at the lower (first home buyer) end, but some of this super would effectively be diverted to other forms of consumption – and it would after all be simply going back to the situation before super (or before the 12% if this only applied to the extra 3%).

    Russell: I think variable rates are too difficult under the current regime because it is the employer making the contribution and it is defined as being on top of the standard salary rate. What you suggest would encourage employers to reduce salaries for older workers (or not hire them). I think something that returns money to the households outside of the employer relationship would fit better into our current system.

    If people had to explicity apply for this then many would simply stick with the default (a nudge effect) and so saving would be maintained.

  10. the big aspect with superannuation is not the life-cycle stuff, but the yearly overheads. If you are 20 and you have a normal superannuation fund that has a normal overhead of 1.5%, then you are effectively giving 50% of that money to the superannuation industry in overheads before you are 65. That consideration dwarfs any discussion on variable rates or the like. The real question is hence how to ensure there is a low-overhead superannuation as the default.

  11. Paul, you sent me scurrying to confirm that my yearly overheads are low. I’m in PSSap and they are low, but it took me awhile to make sure.

    The life cycle question is important. As a highly paid young worker being made to contribute 14%, i expect that i’ll have too much in super by the time i’m 60 and will take a look at dissaving through other means. And hopefully the government have removed the highly generous concessions for voluntary contributions by the time i’m in a position to take advantage of it.

    This wouldn’t be the case if i hadn’t been made to contribute to super since i started working. I’m a big supporter of superannuation from the forced savings angle, but i think the forced savings may be too high. I think that a mechanism to access super to top up a house deposit would help, though it brings its own problems.

    I have young family members who haven’t handled their financial affairs well and have big debts. They would be in the not able to pay utility bills category. If they were able to, i’d highly recommend they withdraw their super to pay off their debts. However, they would be amongst the people who would definitely not save anywhere near enough for retirement unless they are forced to do so.

    So some of the difficulties are due to the fact there’s no one-size fits all way you can deal with the tension between forced savings and flexibility.

  12. It is firstly a question of equity: the old have all the concessions and the benefit of higher house prices; the young have all the debt.

    The issue of increasing house prices is also important: politically a little more difficult . The challenge to us babyboomers is to get our mothers out of their houses so that our children can have our grandchildren in them. Removing/amending ridiculous subsidies and asset test rules would be a start.

    Poor spending decisions are another matter – not sure who has the right to interfere except that it is clearly wrong to support lenders who lend too much.

  13. It makes most sense for forced super savings to go into putting a roof over families’ heads with some important qualifications. Clearly there needs to be a reasonable ceiling to that (ie perhaps the median house price level which moves each year with inflation, etc) For retirees to have a roof over their head negates the need for rental subsidy at least.

    For most FHBs with mortgages it makes no sense to invest in super whilst paying mortgage rates out of after tax income and to the extent that super contributions reduce the principal rapidly there is the benefit of high gilt edged returns(no risk plus less need for costly mortgage insurance) and increased net savings via faster payoff. As these funds are for retirement clearly the ‘super’ component up to the threshold needs to be quarantined as such. ie sell the home and the quarantined super component is rolled over into a conventional super fund and is again available for another purchase of a principal place of residence. Here any FHOG could also be paid into that quarantined amount and it would make sense to change any FHOG to a per capita amount, rather than available for one purchase per couple as at present(ie current $7000 could be split $3500 each whenever they purchase and the super could be split accordingly, no matter who is paying most or nil from time to time)

    Now this scenario ignores the current malaise of the highest home values in the world and we all know why that is and so a super move in this direction would only exacerbate the problems. It’s why we need to move toward a complete reliance on carbon and resource taxing only and all such reservations disappear, as well as producing superior economic and environmental outcomes. To put it bluntly- It’s the constitution of our marketplace stoopids!

  14. There is a further inequity that we could address here and that is the payment of Youth Allowance for study OTOH, whilst HECs tries to overcome it OTO. A superlative churning of taxes by the graduazzi while they take their admin cut off the the top as public servants for the purpose. Naturally if you’re a smart graduazzi in biz and the kid wants a gap year off after school, you make sure you pay them (or top up their casual wage) from your biz to ensure they qualify as ‘independent’ for YA thereafter. Only graduazzi kids can afford a gap year of course and well, you know how smart the graduazzi are?

    Which leads me to the total inequity of all this graduazzi rubbish, vis a vis the kid who leaves school to go to work in the dark satanic mills or perhaps join the family biz, etc. Well the obvious solution presents itself. We have a hard core 3Rs compulsory education for all until yr10 end and then all that current funding for Yrs11-12, TAFE, apprenticeship training, tertiary ed, etc plus that per capita FHOG could all be rolled into a Life Grant (whole or part funded by we oldies super at present)and be available for that quarantined super amount when purchasing a home or used for their own further education at the time of their choosing. Ahhhh, how that word choice has such a delicious equity ring to it, rather than all the vested graduazzi snouts in the trough we have now.

  15. “…lift the superannuation guarantee employer contribution from 9 to 12 per cent…. superannuation contributions impose large burdens on young adults…”

    Gee, you don’t reckon it will impose a bigger burden on Employers?

    It will impose NO burden upon “the young”.

    An increase to 12% will cost me $100,000 per year, greater than my take-home salary. I’ll have to fire at least 3 people.

    To repeat: An increase in employer superannuation contributions means I will have to fire Three people. The sacking part is easy, the hard part is working out how to achieve the same result with 3 less people.

    I suppose that is what is meant by “competition enforced efficiency”.

    I’m rather of the frame of mind to flatten anyone who suggests that it is “the young” who “bear the cost” of an increase in Employer Guaranteed superannuation contribution.

  16. The 1995-96 Housing Survey shows 45% of those aged 15 to 35 had purchased a home33 – compared to 32% for the 18 to 35 year olds that took part in the REST survey who said they were paying off a mortgage

    ..a third (32%) of respondents reported they have made additional contributions to their superannuation fund beyond the compulsory contributions. This was highest in those aged 31 to 35 years old (45%)

    http://www.rest.com.au/getdoc/7fdc04b9-cf0e-4903-a194-3f2a7115f037/REST_GenY_Wealth_WhitePaper_FINAL

  17. Steve at the pub

    If you sack three people that means the SGC is paid by them. However, if you were anticipating giving any wage increases between 2013 and 2020 which is when the 3% increase will be fully phased in, then you could reasonably say to your employees that part of the wage increase is coming through super increases and offset it – which means that the cost is paid by all your emplyees.

  18. “Offset it” – Interesting phrase.

    By itself a 3% pay rise (in effect more like 4%) can be coped with. But what do I get in return for giving a pay rise? If it is just employers paying extra, then something is going to have to give.

    As with anything that increases in price, people will buy a bit less of it. Net result: Workers lose jobs!

  19. Steve

    Presumably you negotiate with your employees about their wage rates and in the normal course of events over the period 2013 to 2020 you would expect that workers wages would in any event go up by about 3-4% a year, assuming that historic wage increases coninue to apply. So at the end of a six year period their wages would be at least 25% higher than they were at the start of the period. well as the SGC increases come along in a fairly gradual way over this period – less than half a per cent a year, in a negotiation you tell your workers that part of the increase is in the SGC.

    Now if you don’t negotiate, but leave it all up to awards, you and the employer organisation that you are part of need to put in submissions to make sure that the award increases take account of the SGC increases – this is what happened in the 1980s and 1990s.

    Peter

  20. Nothing I’d disagree with in this post. I’ve always believed compulsory superannuation was founded in some very poor economic analysis – there really was no intertemporal general equilibrium thinking at all.

    But the really important point to grasp now is that compulsory superannuation’s downsides rise with the rate, while the upsides are subject to diminishing returns. 3% super did little good, but also little harm. 12% will modestly but permanently reduce many battlers’ living standards.

    The only people that super FORCES to save are those who are credit-constrained. All others, insofar as they are rational, will just borrow more – not as a deliberate, conscious calculation (no economist has that crude a view of decision making) but simply because they now can and it will seem reasonable. For example, if you now have an assured retirement income (or even better a big lump sum coming) then both you and your bank are going to be a bit less desperate to have your mortgage fully paid off before you get towards retirement age. So you’ll either borrow more for the house you want (some of compulsory super has probably popped up as higher house prices) or pay it off more slowly.

    For those who are credit constrained – ie cannot borrow extra – then it is far worse because almost by definition they need the money NOW, not later. This is the group Bruce’s post is about. We risk taking their money from them when they need it most and giving it back when their kids are grown up and they don’t need it as much. The higher the contribution rate the larger this group will be – in fact the size of the group grows disproportionately with the amount withheld from them as the reduction in real current income exhausts their borrowing capacity.

    And please, no-one say that it’s all about age pension expenditure – the lost tax revenue from higher superannuation swamps the saving in age pension even in the long run. Whatever the arguments for a modest compulsory super scheme (the claims of systematic irrationality might, at a stretch, justify it) 12% is far too high.

  21. Why not close the tax distortions, get rid of the family home exemption, get rid of capital gains tax and put a very small %age tax on wealth, for all, every year. The wealthy providing a greater share of government incomes, pensions more maintainable; super could cease to spiral up; income tax and GST greatly reduced. The black economy shrinking.

    Why fiddle with the margins? Reduce the complexity. No harder to count Mrs Packer’s pearls than follow the money trail of diverted super.

  22. glen,

    most of the costs are hidden from view, most notably in the costs of investing the funds. They dont even appear as costs but are implicit in a lower-than-market return.

    From a macro-perspective you should see superannuation policy as partly an employment program for the thousands of workers in that industry and partly as forced savings.

    The superannuation industry loves additional flexibility and exemptions. The more choice they are ‘forced’ to offer, the more money they make and the less on average the saver gets.
    Its therefore important to keep the default option simple and uniform.

  23. I’d agree with your sentiments Dennis- “Why fiddle with the margins? Reduce the complexity.” The fly in the ointment here as always is income tax and its confounded complexity and negative externalities, which has now degenerated into the ATO approach of give us a ring and we’ll tell you whether we like it. I stay on their email list to keep up with their latest balloon squeezing efforts and you just shake your head at it all. Got some overseas income and deductions? Well naturally you’ll need the official exchange rates and rules to calc it all-
    http://www.ato.gov.au/content/22855.htm

    Almost every area of reform you you identify trips itself up on the income tax system and it’s way past its use by date. Total reliance on carbon/resource taxing with an annual nett wealth tax for some real top end equity would nail just about every conceivable problem and address the new environmental paradigm to boot. The Govt are heading in the right direction with carbon/MRRT taxing and lifting the tax threshold, except it doesn’t go far enough. Also unleashing the Morgan Sachs crowd on thin air derivatives trading is criminal and futile in terms of outcomes. Straight CO2E taxing it should be.

  24. Bruce Bradbury has presented, as is his usual practice, some interesting research results. The debate online in response to this has also been interesting, highlighting issues related to the phasing in of the SG increase.
    However, what would be even more informative would be information on the financial stress faced by people in full-time employment receiving the benefit of the SG. For the significant proportion of households wholly or mainly reliant on Centrelink payments it is quite likely that the incidence of sometime in the last year not being able to pay a utility bill will be high. As well, having a teenager or young adult in your household having trouble paying their mobile phone bill is quite common as well. That is why pre-paid accounts have prospered, amongst other reasons. In this context the percentages Bruce has presented are actually reasonably low.
    Individuals who have superannuation and who have been on Centrelink benefits for 26 weeks or more can already access their superannuation. Broadening the criteria for release further would leave many individuals impoverished after age 65 while doing nothing to address the fundamental causes of the individuals having a low income and/or unable to meet current commitments.

  25. Bruce Bradbury has highlighted a couple of important points:

    1. the likelihood of contributing a constant proportion of income to superannuation through one’s life cycle being optimal is almost zero

    2. the likelihood of an increase in the universal contribution rate being optimal across the community is almost zero

    We have to recognise that there has been a huge industry created that lives off the spoils of the ever-increasing pool of money that is directed towards superannuation. These people want nothing more than higher contribution rates and they will be very vocal in putting down any proposals that have negative implications for the size of this pool. It is about time that we stopped listening to those motivated by self-interest and start doing some genuine research with the objective of designing a superannuation system consistent with achieving optimal life cycle consumption patterns.

  26. Ron Bird’s argument relates to just about everything we have done in mad privatisation of too many things.
    See these arguments, skip to the last several paras:
    http://www.nybooks.com/articles/archives/2009/dec/17/what-is-living-and-what-is-dead-in-social-democrac/?pagination=false

    Observa, thanks for your comment… may I suggest though, that in reducing tax on income we have to have a resources rent tax, as it were, on ourselves, not just on miners. That is, a wealth tax, a tax on personal resources. Taxing assets would tend to drive the money to earn, not sit in puddles of comfort.

  27. I am not sure whether Ron Bird is including me as somebody who is putting down proposals that are negative for superannuation but I clearly am of the view that the compulsory superannuation system has delivered many benefits and will continue to deliver benefits.
    Both the current 9% SG and the proposed increase to 12% have strong community support. Polling indicates that a majority of the population would prefer the increase to be phased in more quickly. Australians understand that without compulsion their savings for retirement will be sub-optimal.
    Contributions to superannuation actually do change over the life cycle for many people, with a substantial minority making salary sacrifice contributions as they get older.
    Having perfect knowledge about the entire life course (both current and future) of every individual might permit customised life cycle contribuiton patterns. However, we do not have that and in any event you would not be able to have customised wage tradeoffs for every employee. A flat rate of the SG is necessarily a compromise, but it is a solution that it much better than any feasible alternative. That said, I am all for further research. In the post-retirement area there is a clear need for policy settings and products that better deal with consumption requirements over what can be several decades of retirement.

  28. First I was suggesting that the government had produced a huge pot of honey which has not surprisingly attracted the interests of a huge lot of people, most of which individually feel that they are making a positive contribution to the welfare of beneficiaries but it proves in aggregate are simply a drain on the system. I was not wishing to typecast anyone in particular as being part of this lucrative game and that includes Ross. A they say in the classics, “you know who you are”!

    However, it is important to point one thing that Ross says that is endemic in the industry:

    “That said, I am all for further research. In the post-retirement area there is a clear need for policy settings and products that better deal with consumption requirements over what can be several decades of retirement”

    Not surprisingly, the concentration within the industry is on the post-retirement years which as Ross points out can run for several decades but start (say) around 60. In other words for most of us these years represent less that a third of our time on this earth. You cannot try and derive good policy for (say) one-third of our life without considering the impact that it has on the other two-thirds of the time that we spend on this earth. To my knowledge this work has never been done in a comprehensive fashion nor is it likely to be done if we have to wait on the actions of those that are benefiting from the current system.

  29. I am not persuaded by majority opinions on issues of taxation and interference in others’ lives; I understand that this was rock on which the original Athenian democracy failed and that we do not want to go there again
    .
    For those interested in a comprehensive approach to lifetime financial planning, I have tried in http://www.actuarialsociety.org.za/Portals/1/Documents/04afb4a7-026e-46a0-92f1-2f411ea62a46.pdf
    to make the case for a minimal level of compulsory contributions and annuitization – on the grounds that those who do not contribute free ride on their families and community. My recommended levels are however lower than 12%: just 7% for retirement savings with the option to use for house purchase if under the age of 40.

  30. When you imagineer clearing away income tax (and axiomatically company tax, etc as well as all other taxes) for total reliance on CO2E and resource taxing with an ANWT for top end equity, you can immediately see the remarkable benefits for the topic of savings and investment. Essentially that is all about demographics whereby the aged lend to the young to fund the former’s retirement and to facilitate the latter’s household formation and ultimate takeover of the reins of capital.

    Now a shift to resource taxing immediately addresses the important environmental paradigm(ups the private cost of new resource use to the maxm, short of increasing the overall tax take which is a another argument)but notice in the important area of housing investment, absolute investment neutrality is immediate, as well as ridding all the current impetus for the world’s most expensive housing. Without even tax deductibility for interest for any investment, personal saving is rewarded and indeed is not taxed at all until spent. Notice compulsory super would be rewarded likewise.

    Now I said an ANWT would deliver top end equity and it must be a regular wealth tax to avoid the iniquitous impact of inheritance taxes, death duties/gift duties and the like. Clearly an ANWT for extra tax deeming purposes needs to have an individual threshold as well as be life cycle adjusted(ie an 18 year old with $2mill vis a vis a 65yr old with same) However there’s no reason why wealth for tax deeming purposes shouldn’t be shared among family or accepting adult friends in order to reduce the impact of the wealth tax, albeit that sharing affects possible Centrelink benefits as do assets now. It may be that we allow high wealth individuals to top up anyone’s super and that becomes quarantined up to a reasonable threshold until retirement.

    Get rid of income tax and all these reforms are relatively simple and the benefits immediately apparent. (payroll tax, land taxes and stamp duties and obviously GST all go naturally except that land use as a resource is taxed under the resource heading)

  31. Oh and of course if you don’t swipe 15% of their 12% savings going in, you only need 10.2% compulsory super and perhaps some of that ANWT rolling in can be used to top up/subsidise quarantined super for low income earners. Also without any impetus for RE investment there is that opportunity to allow the young to use their super (and that Life Grant?)to purchase a modest roof over their head instead of renting. All these things become possible when you let go of that 10000+ pages of Income Tax Act.

  32. It fails to take into account that with the demographic impact of most young people having children later which means there is no 10 year period of high savings rate between 55 and 65, linked to the increased pressure for people to send their children to private education instead of public education, it is essential that we spread the funding of retirement over as long a period as possible. So the sooner and the younger we go to 12% the better. Whether such fuding comes from the employer or employee is a second order issue but it has to have an automatic quality. The UK has proved that making pension funding optional dosen’t work with a very low take up for under 30 year olds.
    We should be focusing on the fact that the Industry Fund movement is doing little on post retirement funds management and advice and we are not providing an effective pension which will combat mortality risk.

  33. Does it occur to Mr. Darwin that the fact that people under 30 do not choose to contribute to super is evidence against his own case? We do not work purely to provide consumption opportunities after we retire but also over the much longer period pre-retirement.

  34. In response to John Darwin:
    1 People are having children later, but over 80% are still born before mother is 35 (68% for fathers), so there will still be a significant period before retirement (which may well be after 65). Statistics can be found at:
    http://www.abs.gov.au/AUSSTATS/abs@.nsf/DetailsPage/3301.02010?OpenDocument

    2 Increased private school education increases cash flow problems at younger and middle ages and makes 12% of gross income a ridiculously high number. Lifetime income and expenditure for upper middle income could look something like this:

    Lifetime income 6,000,000
    Tax 1,000,000
    House 900,000
    House interest 360,000
    School fees 480,000
    Other children 480,000
    Super contributions 540,000
    Balance available for other living expenses 2,240,000
    Target ratio 37% of gross

    3 It is a good idea to look at post retirement longevity insurance, but it is not just the industry funds …

  35. Great cases for:

    [a] using state school system, which, with an influx of special children would be super doopered
    [b] a determined push for using the internet to enable decentralisation of the population away from too-expensive housing (there are many finer places than Sydney)
    [c] again, reducing income tax and taxing resources: mineral and CO2 and wealth.

    I’m 68, have to say I leave it to younger generations deep in consumptive political apathy catalysed and given seal of approval by Howard to rise from sloth and make radical policy through democratic process before the democratic processes crumble.

    Oh and having just receive crappy brain MRI pictures I’d love to know where to get that “post retirement longevity insurance” to which Anthony refers, but the idea seems as remote to me as the idea that high cost housing and private schooling will produce world peace and/or a happy nation.

  36. It is interesting to read the variety of responses that the initial posting generated.
    I suspect that research will only take us so far in developing policy positions on compulsory saving for retirement. There are over 17 million articles on optimal lifecycle consumption when you do a Google search and reading them all (or even some of them) is unlikely to lead to a clear conclusion.
    Being able to access super to assist housing purchase gets a run every year or two in public debate, normally at the initiative of the residential real estate industry. The Treasury has been dismissive of such proposals, generally because there is no evidence that they would lead to significantly greater levels of home ownership. Basically the cost and complexity of such a measure is high relative to any reasonable assumption of increased take-up of home ownership. Those who currently are unable to get into the housing market generally would not be able to get there by having access to an additional $10,000, which is often all the younger and lower income person will have in super.
    If mobile phone bills or childcare expenses are things that justify a public subsidy then direct action to deal with the cost of such things is a better policy response than introducing a new condition of release for superannuation.

  37. good comment, Ross, I agree with much.

    However, while I am weary of people writing using pseudonyms, with which we can never expect commentaries to have any policy impact, I think it is important also that people mention their interests and affiliations when appropriate. And assuming that you are not the Canberra architect Ross Clare, I guess you are Ross Clare who is or has been Director of Research at the Association of Superannuation Funds of Australia.

  38. I would be quite pleased to be a Canberra architect, I lived in Canberra for a good bit of my life and I have watched a few episodes of “Grand Designs” lately. I have even measured up some rooms last weekend so I could get paintings evenly hung for my son in his new house.
    I am new to these online discussions and was just following the practice of others. Also I am on first name terms with around half of the contributors to this discussion so did not really feel I was concealing anything. As well there is some online banter above with Ron Bird on whether he thinks I have sold my soul to the superannuation industry.
    As Dennis has discovered from the internet I am indeed the Director of Research at ASFA. This is not a big bit of detective work as if you put in my name and the word superannuation you get around 70,000 references on Google. Actually knowing something about superannuation is not actually a bar to commenting on the topic.
    And by the way are you the Dennis Argall who had a child or children at Mawsom Primary School in the early 1990s? I may have met you then.

  39. Hi Ross

    This gets further off topic, eh?

    Yes and I am fearfully visible in internet search.

    I don’t participate much in these things as it’s really irritating (to me) to be wedged between ‘Bodger’ and ‘Dodger’.

    Indeed, briefly a son and a daughter at Mawson Primary then, a pretty much as usual vagrant moment in life. She who now is http://www.lizargall.com was then in third class and established her feminist credentials in the playground.. approaching a weeping girl in the playground she said “what’s the matter”. The young girl replied, sobbing: “That boy over there called me a bitch.” Liz, a lover of canines, replied warmly “I’d be proud to be a bitch.”

    Back slightly to topic, but also feminist bent. I see in many discussions of child care costs, super burdens, that it has big gender biases. Yes, the law does do things to even super now, but on the matter of child care, even ambitious women seem to speak of the cost of child care, on their return to work, as their, the woman’s expense.

    Dennis
    http://www.dennisargall.blogspot.com

  40. If contributing 12% to super makes you unable to afford a house, then you can’t afford it! Tough!

    The alternative is to live your later years in miserable destitution.

    People who complain about not being able to afford a house need to be willing to defer gratification or downsize. A big house is not a necessity!

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