(Image: Mitchell Squire/Private Media)

Labor and the union movement spend a lot of time congratulating themselves about superannuation (or “super”). Made compulsory and “universal” by accord-era Labor prime minister Paul Keating, Labor frequently mentions super alongside Medicare as one of its two greatest achievements.

But for those who oppose inequality, poverty and privatisation, or simply like well-designed retirement systems, the truth is that super isn’t an achievement. It’s a disgrace.

Don’t confuse this as an endorsement of super’s opponents on the right. Liberals like Andrew Bragg and Tim Wilson hate super because it imposes obligations on employers — but that’s the good part. The bad part is what happens to the money once it enters the system: contributions go into individual accounts. That fundamental design makes any progressive outcome inherently impossible.

A grim reality

A system ostensibly designed for “dignity in retirement” should help those worst off the most — instead, our income-linked individualistic design replicates and amplifies the inequality and poverty that the poorest retirees experience throughout working life. 

Individual accounts mean no mechanism to redistribute. Any group that routinely experiences lower wages or time out of the paid workforce (women, Indigenous peoples, caregivers, those dealing with sickness or disability) has that disadvantage systematically and deliberately replicated in retirement thanks to super’s fundamentally broken design.

Elderly single women are in widespread poverty and financial stress, with many living in cars and tents around Australia — their lack of super punishing them further for the pay sexism and time out of the workforce they experienced in working life.

For Indigenous peoples, there is a further dimension of injustice: lower life expectancy on average means an increased unlikelihood of living long enough to spend savings. Per the Retirement Income Review: “Many of the Aboriginal and Torres Strait Islander participants in recent survey research viewed superannuation more as an inheritance, rather than a source of retirement income, as they had low expectations that they will live long enough to use it.”

The real story

Inequality in super balances is pervasively underreported and hides the extent of the problem by excluding those with zero balances or no account at all.

Even nominally inequality-focused think tanks get this wrong. For instance, a recent Per Capita report on women’s homelessness claims a median balance of $147,000 for women aged 60 to 65. But excluded from this figure are the 20% of women in this age group who have zero super. When these are included, the real figure is just $86,000 (and only $136,000 for men), according to the latest ABS data.

Remember, this is a median, meaning half have even less. Meanwhile, the super industry describes the minimum standard for a “comfortable retirement” as $545,000 for a single person. Of course, as retirees age, their savings dwindle further. The median over-65 person in Australia has no super at all.

But even if all inequality magically vanished overnight, super would still be a badly designed system. Even relatively well-off retirees worry about depleting their savings. This forces people to overwork to build up a huge hoard of savings, likely to be more than they need, and then underspend in retirement in case they live longer than expected.

A good retirement system should pool money in order to pool risk, giving you a stable income no matter how long you live. Again, super’s individual design precludes this.

Accordingly, the recent Retirement Income Review found typical retirees were overwhelmingly failing to spend their savings, and dying with savings mostly intact. That money then gets inherited, increasing multi-generational inequality even further.

It gets worse. Super interacts poorly with the age pension asset test. Additional (non-home) savings between a certain range ($280k-$620k for single retirees) result in near-zero additional retirement income, as additional income from those savings is almost entirely offset by a lower pension payment.

It’s important to remember that super isn’t magical free money. Each dollar saved is a dollar not spent. That means that super lowers the standard of living of all workers throughout their working lives, including during times of peak financial stress, such as when children are young. This reduction in income can even push them below the poverty line — often for no benefit later.

The bad design of the asset test (particularly the fact that the primary residence is excluded from the test) also creates an entire sub-industry of financial planning to help well-off people game the asset test by doing things like upsizing to unnecessarily large homes.

A costly system

It would be much simpler and fairer to just pay everybody the pension and raise taxes on the wealthy to make up for it. However, this would be too much of an embarrassing admission of defeat for those who’ve advocated for super on the grounds that it saves the government on pension costs.

Sadly, even that is a cruel myth. Instead, it costs the government $45 billion in tax breaks (which flow overwhelmingly to the already wealthy), while only saving about $9 billion in age pension costs.

Super costs the economy a further $30-$35 billion each year in fees — about twice what Australian households spend on electricity. The superannuation “industry” has roughly the same annual budget as the Australian military and employs roughly the same number. Per invested dollar, it’s about 20 times more expensive to run than Norway’s $1 trillion publicly owned pension fund. By comparison, total age pension payments (not administration costs, total payments) are only about $50 billion annually.

There’s more. Superannuation non-payment costs workers $5 billion a year. Wage theft of regular wages is about $1 billion a year, meaning that super is responsible for the vast majority of wage theft, in spite of being only about 10% of the country’s total wage bill.

Beyond the immediate financial effects, super undermines public ownership and enables large-scale privatisation, because all the wealth in super, even in the “good” industry funds, is privately owned and managed. Superfunds own many of the country’s natural monopolies that should be public (toll roads, airports, phone towers), whose returns, once again, flow overwhelmingly to the already wealthy.

Rethinking support

Fortunately, there’s a simple solution: pensions.

Unlike super, pensions reduce poverty and inequality by redistributing downwards. Unlike super, pensions solve hoarding and fear of running out because they’re paid out however long you live, and not inherited. Unlike super, women aren’t punished — pensions are paid the same regardless of gender. Unlike super, pensions aren’t vulnerable to wage theft.

There is upwards of $3 trillion in total super savings, more than $800,000 for every Australian over 65. But super wealth is so concentrated that only the top 3-4% have this much in their accounts.

Redirecting future contributions, or even a fraction of that excess wealth, away from individual balances into a publicly owned pension fund could massively raise and universalise pensions, eliminate retiree poverty, lower inequality, and reverse super’s legacy of privatisation.

Unfortunately, everybody involved in creating and running super is far too busy patting themselves on the back to bother themselves with such trifles.

Has super worked for you? Let us know by writing to letters@crikey.com.au. Please include your full name to be considered for publication. We reserve the right to edit for length and clarity.