Journalist Adam Creighton, economics editor for The Australian Newspaper in his weekend commentary has highlighted an interesting study into Australia’s compulsory superannuation scheme.
A recent analysis by Sydney University economist Dr Cameron Murray has suggested that the current compulsory Superannuation scheme has failed and should be dismantled.
Interestingly Dr Murray found that the superannuation sector employs 55,000 staff at a cost of $36bn per year compared with the Age Pension system which employs 7,000 staff at a cost of $1bn which provides greater levels of retirement income. For every $1m of benefits, super required 1.4 workers compared to 0.16 for the age pension!
Dr Murray concludes that the age pension system is twenty times more efficient at delivering retirement incomes.
“Scrapping the super system would massively improve Australia’s economic performance – it’s costly, inefficient, unnecessary and incredibly unfair” Dr Murray says.
“Instead of channelling incomes through asset markets, decreasing demand and soaking up a workforce the size of the military on an accounting exercise, the 28 million superannuation account holders could spend up to an additional $20,000 per year” Dr Murray said.
“This would make about $530 billion per year, or about 23% of GDP, available. Most people will not spend the maximum amount of their super account, but there is no doubting the stimulatory effect of this change for the real economy – something that is sorely needed as wages reach nearly a decade of stagnation,” he added.
Dr Murray also added “Otherwise intelligent people have been convinced that taking poor people’s money, to make them even poorer and giving it to expensive investment managers is a great solution.”
This is indeed an interesting study, particularly as the industry has been roundly criticized in recent times over excessive fees, insurance cover and its complexity. It is certainly not a report that the $3 trillion dollar industry will like, especially the industry controlled funds.
Rightly or wrongly this along with the Productivity Commission enquiry and the Hayne Royal Commission into the financial sector intensifies the need for a review and overhaul of the superannuation system. A final report, commissioned by the government into the Age Pension and superannuation system is due in mid 2020. No doubt this will make interesting reading.