How superannuation system has changed our retirement outlook

Assistant Treasurer Stephen Jones. Picture: NCA NewsWire / Gary Ramage

For proof that strong leadership can change the course of history, look no further than 1992.

That year Ukrainian president Leonid Kravchuk split from Russia and established a new national defence force.

Deng Xiaoping implemented far-reaching pro-market reforms in China. And F.W. de Klerk ended apartheid in South Africa.

In Australia, 1992 was the year Paul Keating introduced universal compulsory superannuation.

When it came in almost 30 years to the day ago, it didn’t exactly capture world headlines.

But it did profoundly change the economic destiny of every Australian family, just as Kravchuck, Deng and de Klerk’s leadership did in their countries.

As Keating himself said in the lead-up, the issue of “critical importance” to the Australian economy then was “retirement, and how we pay for it”.

The population was ageing, the current account deficit had ballooned and Australians’ expectations for a comfortable retirement had radically shifted.

Explaining the problem to a class of MBA graduates, the then 48-year-old Prime Minister observed: “When my generation begins to retire after the year 2010, you will be the taxpayers who will have to have to provide for us.

And let me tell you, my generation does not have the frugal habits of our parents, who remembered the depression. We have lived well, and there are a lot of us. We will want to retire in the style to which we have become accustomed.”

One number above all illustrates the fiscal iceberg which Keating was attempting to steer the economy away from – the ratio of taxpayers to retirees.

In the early 1980s there were six taxpayers for every retiree. Today it is closer to three taxpayers for every retiree.

Yet our living standards in retirement have significantly increased. Today the super systems delivers around $110bn in retirement income per year, more than twice the $51bn of the annual aged pension bill.

It has also transformed Australia into a nation of savers and investors, solving the current account deficit problem by creating a national savings pool of $3.5 trillion, around 1.5 times our GDP.

In fact, our superannuation pool is now the third biggest in the world, giving every Australian a sizeable stake in capital markets here and abroad.

Unlike other countries’ government-directed sovereign wealth funds, our savings pool is invested by privately managed funds competing for returns in a competitive marketplace. This gives working families a huge range of choice about where their contributions are invested, rather than trusting a single government entity with those choices.

That is why my Labor colleagues and I are committed to preserving superannuation contributions for retirement incomes and retirement incomes only, as per Keating’s original vision. It should not be used to solve other social problems, as the previous government sought to do with everything from domestic violence to house prices.

It is also why we will not waver in our commitment to lift super contributions to 12 per cent by 2025 as legislated.

The quiet revolution Keating’s reforms heralded 30 years ago has come a long way in modernising our economy and lifting our retirement living standards. But much work still remains to be done.

Stephen Jones is the Financial Services Minister and Assistant Treasurer