Call to scrap Australia's superannuation system sparks heated debate

News.com.au

a day ago

Should Australia's superannuation system be scrapped?
Two financial experts have gone head to head over this question, with one claiming we would be 'better off without it' and the other branding the notion 'insane'.
This is one of the questions posed during Tuesday night's episode of SBS's Insight, eliciting impassioned responses from two of the program's guests, Cameron Murray, chief economist at Fresh Economic Thinking, and Andy Darroch, independent financial adviser and director at Independent Wealth Advice.
Dr Murray believes superannuation is 'heavily skewed' to the top 20 per cent of Australian earners.
'It's skewed to the people who would never be on the age pension and would be independently wealthy at retirement age anyway,' he told Insight.
Asked by host Kumi Taguchi if he believes the super system should be scrapped, he proposed that, on average, Australians would be 'better off without it'.
He noted that one in seven men will die before they are able to access their super, adding that is already a significant number of people who are not benefiting from the system.
Speaking to news.com.au, Dr Murray said there are multiple issues with superannuation, with the problems outweighing the positives.
He also noted that the current system soaks up a huge amount of economic resources, saying much of the country's top talent is taken up by this 'unnecessary industry'.
If you want to access your super as soon as you turn 60 you have to stop working, with the economist saying this system encourages early retirement and therefore less labour force participation.
'Super doesn't help the poor, who generally will still need to rely on the pension because of disrupted work and family life. It doesn't help the rich, as they have enough wealth to support themselves,' Dr Murray said.
'It only increases the retirement income of the middle by making them poorer when they are young and poor with a family to support so they can be richer when they are old and rich with no one to support.'
It's a very different view to the one held by Mr Darroch, who told Insight that Australia's super system was the 'envy of the world' and 'you would have to be insane' to want to get rid of it.
While he accepted that the scheme needs tweaks, he doesn't believe there is anyone that has been disadvantaged by compulsory superannuation.
'I think Australia is the only country on Earth that you can have a nurse and a diesel fitter get to age 65 with close to a million dollars in super,' the financial adviser said.
Speaking to news.com.au, Mr Darroch said scrapping super would be the 'single most destructive thing you could do to middle class Australians'.
'In doing so you'd probably condemn half or a third of the population to poverty in retirement,' he said, reiterating that getting rid of it would be the 'stupidest economic decision of the millennium'.
'You could get rid of super tomorrow and it wouldn't solve a single issue in society, financial or otherwise – not a single one,' he said.
'What you would guarantee in causing is significantly bigger problems for ordinary people, for tax payers, for the government and for the economy.'
When it comes to pressing issues like housing and the cost of living, Mr Darroch said we need to be careful not to conflate these problems with superannuation.
While super and housing are the biggest financial assets and decisions for any Australian, he pointed out they are different and serve completely different purposes.
There are circumstances where the two can crossover, such as your homeownership status impacting your retirement or whether, when you reach retirement age, you need to pay off the cost of your home with your super.
However, Mr Darroch said they are still separate.
'Understandably, people see their superannuation balance and have a desire to use it to assist with housing. The issue is, superannuation is can't and won't fix housing, any of the suggestions won't even move the dial,' he said, adding that, if anything, it may make housing less affordable.
'Worse still, it would create systemic issues with poverty in retirement later on. You'd have squandered your financial security in over 60 for no gain.'
The financial adviser said the same applies for the cost of living.
While there are existing provisions in place for those in extenuating circumstances to access their super early, he said super is not the driver of the high cost of living leading to financial struggles and, therefore, can't act as a solution.
However, Dr Murray believes Australians should be able to access their super at any time and spend the money on anything they want, not just in certain circumstances.
So, what would unwinding the current superannuation system actually look like?
Well, the chief economist suggested current superannuation payments could be instead required to be deposited into a worker's regular bank account so they can do with it as they please.
'From existing super balances, a maximum withdrawal of, say, $15,000 per year can be allowed over a transition period of five years, then after that, all remaining super funds will retain their asset portfolios and be converted into non-tax-advantaged investment funds,' Dr Murray said.
'During the transition, income tax rates can be ratcheted down and income tax bracket ratcheted up to account for the shifting of income from super to take home and taxable.'
Once the superannuation system is completely scrapped, Dr Murray believes there would be no need to replace it with something else.
His argument is that, much of what people are saving in superannuation would still be saved outside of superannuation.
'The age pension already keeps the elderly out of poverty and most people will voluntarily save regardless,' he said.
'We can quibble about the adequacy of the age pension, but we should do it in the context of all welfare payments including families and the unemployed.'