James Kirby: Jim Chalmers, Canberra ignoring super realities

The Treasurer is again seeking to engage ‘big super’, but ignoring how the system really works. 

The super sector’s talkfest in Canberra this week is ignoring the realities for both investors and big funds.

Sparked by a ‘discussion paper’ issued from Treasurer Jim Chalmers and flanked by a string of reports from various stakeholders, the latest roundtable has offered much talk of ‘nation building’ for big funds and ‘guidance for small investors’.

But talk is cheap and when it comes to a $3 trillion sector it makes a lot more sense to follow the money.

The reality is every fund wants to have and hold as much money as it possibly can, which will be underpinned by two things: successful investing in the market and ensuring mandatory superannuation contributions remain in place.

Canberra’s super talkfest, led by Treasurer Jim Chalmers is ignoring realities for all concerned. Picture: Martin Ollman

Every fund member rightly believes what they have in super is ‘their’ money and they have the right to do whatever they want with it within the rules — including not spending it.

Whatever comes of this week’s discussions — if anything — there are three outstanding issues that should be highlighted.

1. Investors do not ‘misunderstand’ super, they understand it all too well.

Capturing the arrogance we can get from senior bureaucrats — who are often on defined pensions — when they review the outlook for super, the tone of the recent Retirement Income Review is telling.

The report bemoaned “a major misunderstanding” on how retirees believed income should come from returns on their capital “rather than drawing down those balances to fund living standards in retirement”.

Wrong, they don’t misunderstand. The vast majority of investors in super are not hoarding money, they are trying to gauge how long they will live — and they are not going to eat into their capital unless this concern is utterly resolved.

Many middle-income retirees detest the drawdown rules requiring them to take a certain percentage out of super each year depending on their age. Needless to say, many retirees also don’t like being told what to do, not to mention being told they are ignorant.

What’s more, most retirees are genuinely disturbed by the recent outbreak of inflation which makes it even harder to guess how much money they will need — otherwise known as longevity risk.

Separately, the increasing popularity of reverse mortgages shows while some retirees don’t want to drawdown from super, others clearly do not have enough and are tapping into home equity to release cash.

2. The performance tests for super are imperfect, but they are good enough to keep.

The very fact we have publicly available performance tests where the everyday super investor can compare and contrast the performance of super funds is a minor miracle pulled off by the Coalition in 2021.

For decades people had no way at all of finding out how their super fund performed against rivals.

This week the funds have been complaining about the imperfections of the test. They have also complained it is halting their investing in green energy, which is not a convincing argument.

When an industry performance indicator is inconsistent then any fund that is making rubbish results will be able to argue its way out of the predicament.

Investors are only beginning to learn how these relatively new performance tests work and the overall quality of the industry is beginning to improve with them. Better still, weaker funds have been disappearing through mergers.

Even inside ‘big super’ there is strong debate over whether the performance tests should be left alone.

(Key performance tables can be seen here at www.mygov.au).

3. Nation building is for the government — not super funds.

The big super funds have made it entirely clear they will not do anything which does not make them money. After all, the relative performance of big funds is now exposed by these performance tests.

And to be fair, they must act in the ‘best interests’ of their members.

From the moment Treasurer Chalmers mentioned the mere notion the sector could be employed to improve infrastructure or ameliorate the housing crisis, the big funds have been calling for tax concessions.

The majority of big funds have no intention whatsoever of helping with nation building, and if they did they could be jeopardising their licence to manage the money of millions of Australians.

Originally published as James Kirby: Jim Chalmers, Canberra ignoring super realities