Spotlight on Superannuation

By Nick Coates, Sacha Vidler and Frank Stilwell (eds)

How is compulsory superannuation working in Australia? Superannuation is the subject of ongoing policy debate.

Key issues include:

· the effectiveness of the system in meeting its original goals, especially adequate retirement incomes, and increased national savings and investment

· the uniqueness and desirability of the system, given an aging population

· new reforms, particularly increased choice and competition

This issue of the Journal of Australian Political Economy (no 53) begins with an interview with Paul Keating, one of the architects of the system. Keating believes that the fundamentals of the system have not wavered. Also the adequacy of the system would not be under question, in his view, if the Howard government had carried out the planned schedule of contribution increases.

Greg Combet, secretary of the ACTU presents their view. He sees a success story, with the industry funds delivering reasonable returns for a lower cost than retail funds. He also seems to have faith in the financial markets to continue to deliver these returns. Sacha Vidler and Natalie Gallery, Gerry Gallery and Kerry Brown assess the role of competition and choice in superannuation administration and fund management. This issue is central to the current debate with legislation having recently been enacted on choice. Vidler points out that fees that are higher than necessary reduce retirement savings by 25%. Consumer apathy, product and pricing complexity, inadequate disclosure, misleading representations by financial planners, and misleading marketing prevent adequate price competition and allow the more expensive funds to gain market share to the detriment of retirement incomes and national savings objectives.

Gallery and co-authors analyse the default investment option in shaping investment choices, and the implications of this for the debate on choice. Increased choice seems to be meaningless as a high proportion of employees use default fund and investment options.

The contribution of superannuation to savings, investment and growth is a key area of debate. Nick Coates here argues that the expectation of an increase in national savings and thus expanding the investment pool is based on unsound foundations.

Boris Frankel takes a different approach, exploring the potential for the growth of superannuation savings to fund employment creation, community services, social infrastructure and environmental projects. Tony Ramsay tackles a similar theme, linking superannuation to an alternative, national economic strategy. He draws upon Keynes' notion of the socialisation of investment, and builds on the original notion put forward in Australia Reconstructed. Nick Coates takes issue with this approach.

Dick Bryan looks at the concepts in a different way. Drawing on Ricardo's theory of rent and developing a surplus theory for interpreting the stresses arising from an aging population. Aging is here represented as a crisis in the (re) production of surplus, lowering capital accumulation. This paints a much more complex picture of the fiscal crisis of the state that the self funded retirement approach was designed to solve.

James Gifford reviews the impact of socially responsible investment (SRI) on superannuation funds. He reviews the modern history of pension funds and SRI.

The adequacy of the superannuation system is a particular issue with the changing structure of the workforce. John Burgess and Martin O'Brien look at how superannuation is based on the assumption of a full working life, but that full working life is becoming a rarer thing, with a rapid rise of casual employment, labour hire and permanent part time. The life course studies of women in particular show that a large proportion of the workforce have many gaps in employment periods, due to child baring, child rearing and other responsibilities, which impact on the rate of accumulation of retirement incomes. Diane Olsberg emphasises this with particular reconcentration on women, non-English speaking migrants and Aboriginal women.

The issue concludes with articles on the issue of the aging population. Jerry Heavey reviews the debate in the USA, where the public system is now in surplus but is predicted to fall into deficit in a decade. He suggests a range of practical measures to reduce the fiscal imbalance, including raising the ceiling on pension contributions, which would increase the tax base at the top end of the income distribution. Jens Meyer considers the process of reform in Germany, where the public system provides over 80% of retirement income, and consumes 22% of income for the average worker. The system is in deep deficit due to an aging population and structural unemployment. Reforms have reduced public pensions and created tax incentives for voluntary and occupational private pensions for the first time.

(Journal of Australian Political Economy. no 53, June 2004)