Less to spend? Not a super idea

Put two economists in a room and you get three opinions. So goes the old joke, but a new survey of these not so much dismal as cautious scientists shows an unusual degree of agreement on the compulsory superannuation scheme that Paul Keating set up and still appears to run, at least in his own mind. Now at 9.5 per cent of ordinary earnings, this rather paternalistic culling of pay packets is due to rise to 10 per cent next July as it heads towards the legislated goal of 12 per cent by 2025. But two-thirds of the 44 economists surveyed about this by the Economic Society of Australia had only one opinion: not the right time for an increase. This is not an abstruse question like cryptocurrency. The reasons for pausing the long march of compelled retirement saving would be perfectly obvious to ordinary people, especially those whose livelihoods depend directly on business activity.

We are still in the early stages of profound economic dislocation driven by a public health crisis and radical restrictions on ordinary life leading to job losses, the collapse of businesses small and large, and a heavy blow to confidence and investment, with some people drawing down on savings and others desperately salting away any spare income because they simply do not know if their employment will be the next casualty. In these circumstances, the remote claims of retirement savings policy must give way to today’s imperative to give every possible support to economic activity. The enforced salary sacrifice next year may not be much for an individual but it represents an economy-wide loss of job-sustaining expenditure. It’s the kind of stimulus that might keep open the doors of business until an effective COVID-19 vaccine can be manufactured at scale and distributed rapidly so as to restore the good health and normal functioning of society and economy.

It’s true we shouldn’t blithely assume that by next year business prospects will have picked up enough for generous pay rises. Even so, whatever increases can be justified by productivity and a return to profits will still be better used recirculating in the economy than salted away in long-term retirement funds. Deferring the next hike in compulsory super should not be seen as a nod and a wink to unscrupulous employers who would try to pocket the employees’ share of successful trading. Companies would be foolish to attempt this because the social effect of pandemic pain is likely to be a refusal to tolerate greed.

This is something for superannuation funds to keep in mind as they protest against any slowing of the inflow of conscripted income on the basis that their interests are identical to those of workers heading for retirement. The perils of the principal-agent problem are hardly new but the Hayne royal commission last year showed too many super funds far more successful in looking after themselves with fees than in serving customer returns. They are ill-placed to resist the argument that the maintenance of the system that keeps them fat on fees should be made contingent on serious reform. Meanwhile, if the super funds really do offer value for money — and demonstrably serve our future interests — it should be possible to persuade punters to kick in some disposable income whenever possible. Nothing stands in the way of such voluntary contributions, although it would require more effort from funds to craft and sell an attractive product.