Big Money: The reason our superannuation system doesn’t work

If superannuation was intended to help the financially unsophisticated save for retirement, it’s yet to have the desired effect.

Most people retiring now don’t have anywhere near enough saved to live comfortably through their retirement. According to a Deloitte report released earlier this week, they’re off by a factor of about four.

But perhaps that’s to be expected. The system’s only been in place a few decades.

But Deloitte’s report showed even a 30-year-old working at average wages today won’t have enough to retire comfortably in a few decades unless he or she makes significant contributions above the mandated 9.25%.

We’re living longer than ever, and it’s great that superannuation tries to force us to save for that. The state can’t support the elderly as they comprise more and more of the population, and living on handouts would never provide the lifestyle most of us want in our old age anyway.

But by taking superannuation out of the hands of employees and making employers manage it (one more thing for SME business owners to worry about), the system works to build a false sense of security. Most people assume they’ll be fine, because their contributions are what the government has implicitly endorsed as adequate for their retirement. Most people don’t pay too much attention to their fund or to how much is sitting in it, because their employer takes care of that.

But here’s the thing. Sooner or later, everyone has to take control of their super. When you leave a job, you have to actively take it with you, and when you retire, you have to do the sums.

By keeping people in the dark for so long about their super – by legislating a paternalistic attitude where our employers and our government takes care of our retirement savings – people never learn how to plan for their retirement. The system is failing for lack of interest – and most people aren’t even noticing.

It’ll get worse for my generation. I’ve had super paid for me my entire working life – beginning with my first job at McDonald’s. I’ve no idea where the money from that first super account has gone. No doubt it’s since been eaten up by fees. I’ve also got a few hundred dollars sitting in a UniSuper account, and the rest sitting in a bank fund I got talked into joining while applying for a bank account. Every time I talk to a financial adviser they shudder at my choice of fund, telling me its fees are outrageous.

Most Australians don’t use financial advisers in their youth. I’ve no doubt most Gen Ys will wake up in 40 years or so and cringe at the thousands they’ve wasted for not paying attention earlier. My generation will donate billions to Australia’s financiers and fund managers before we realise what’s going on.

Meanwhile, those of us who do want to take control of our superannuation are turning to self-managed super funds. But there seems to be little encouragement from the authorities to do so. This week, we’ve had the RBA echoing long-standing ASIC concerns that SMSFs are to blame for the recent boom in house prices. And we’ve also had new Assistant Treasurer Arthur Sinodinos give a lengthy interview to the Australian Financial Review saying he wants to keep track of SMSFs to make sure they don’t have advantages over other funds. “In the super space we need to make sure it’s a level playing field and that you get appropriate competition between the different funds, the industry funds, the self-managed super funds, and that’s the starting point,” he said.

SMSFs aren’t for everyone. But they’re undoubtedly better than retail or industry funds for one simple reason: their existence allows some Australians to take charge of their retirement instead of leaving it to others to sort out. We should be encouraging more Australians to take up the SMSF mentality, not fewer.

Superannuation would work so much better if we all paid it a bit more attention. But with a system that encourages us to forget about it, it’s little wonder we don’t.