The debate we should have on superannuation

Does this latest furphy over superannuation taxation give you déjà vu? It does for me.

Every year it seems we in the business press report on and sometimes take part in a flurry of outrage about the latest tweaks to the way superannuation is taxed. Last year, the government announced it would up the tax on those earning over $300,000 (the legislation will be tabled in Parliament next month), and in this year’s budget it looks set to announce another set of superannuation taxes on those in the same bracket.

Many are rightfully concerned that the government undermines the legitimacy of the superannuation system every time it makes another change to how it taxes it. But as Alan Kohler wrote so convincingly this week, focusing on taxation misses the most important question.

If your political philosophy leans towards believing people won’t save for retirement unless you make them, superannuation is a wonderful, if flawed, idea.

Superannuation suffers from the utter lack of agency most people take towards it.

For most workers, it’s a complex, far-off thing they don’t think they have to worry about. For young people, like myself, who hopefully have decades left in the workforce, the thousands of dollars nominally to my name is little more than an abstraction.

Few Australians can tell you exactly how much money they need to retire, and most have no idea if the fees they pay on their superannuation are competitive (plenty suffer from outrageous fees, not that they know it).

In 2010, there were just under half a million self-managed super funds, showing only a small (but growing) minority of Australians directly look after their own super or have the funds to make an SMSF worthwhile. The rest of us? Well, we look at our statements once every few months and hope for the best.

And that’s if we even know where all our money is! Research by consumer advocacy group Choice has found the average Australian has money with three different superannuation funds, thus spending a fortune on fees.

This only touches on some of the many problems with superannuation. The varied pitfalls of the system, however, all stem from the same flaw engendered in its design: the government makes us save for our retirement, and so we assume it’s keeping an eye on things and we’ll get a decent return at the end of it.

For the vast majority of Australians who don’t manage their own super, very few do anything to check this assumption, leaving them to be taken advantage of by Australia’s ever-growing superannuation industry.

The Gillard government has made two main changes to superannuation. It’s legislated to increase the super guarantee to 12% (all employers will have to cough up an extra 0.25% to tip in from July 1), and it’s begun increasing the taxes paid on super by high earners. Neither of these are structural reforms to the system. They’re just tweaks at the margin and don’t tackle the central conundrum of the whole thing, which is how to get all Australians to take a more direct interest in their superannuation.

It’s time we had a discussion about what we want out of our super system. One that’s got nothing to do with tax.