More super profits, less risky business

Government won't reform the super system, even though it's costing them a fortune. So it's up to the industry to structure savings plans that provide more certainty and less risk.

Let’s face it, defined benefit super – that is, indexed pensions provided by employees – is not coming back. And having introduced the most recent set of reforms this government is reformed out: it’s only interested in the cash. So it’s up to the industry to take the next step, and that requires focusing on super’s main purpose.

Superannuation isn’t just a tax avoidance vehicle, or even a savings vehicle, although it’s definitely those things. Its main purpose is risk management – that is, to alleviate the risk of a destitute dotage.

And the problem with super in this country is not that it’s taxed too much, or that people have lost confidence in the tax regime. Yes, there’s been some tax tinkering, but it’s still a very good way of not paying tax. The problem is that it’s a lousy risk management tool.

Retirement is more risky for individuals now than it ever was before 1992, when the Keating Labor government introduced the compulsory super guarantee system instead of a 3 per cent national pay rise. Actually the rot had already begun before that with the mass desertion by Australian companies and life offices from the business of providing employees with defined benefit, indexed, retirement pensions. As a result it is now much less risky for companies and governments.

The government continued to provide some indexed pensions, especially to politicians, and American companies continued to do it as well, eventually sending many of them broke, but Australian companies stopped, en masse. The decline in bond yields after 1982 made the capital requirement prohibitive and the 1987 stock market crash sealed it.

Defined benefit super, where individuals know what they’ll get when they retire, is gone and never coming back. Companies aren’t going to offer it to employees – and with unemployment above 5 per cent they don’t have to.

If unemployment got back to 1 per cent or less, as it was in the golden days of indexed pensions, maybe they would offer it again to attract staff, but that’s not going to happen either. Central banks, the Labor Party and even unions have embraced the idea of a pool of unemployed to keep down inflation and protect the value of the money.

And anyway, didn’t the government take it off their hands with the so-called 'three pillars' system of retirement savings – the old age pension, compulsory private savings and voluntary savings encouraged by tax deductions. No place, or need, for the corporate sector to get involved any more, beyond sending the 9 per cent of salary off to the chosen super fund account.

In any case the corporate defined benefit pension system discriminated against the self-employed and small businesses and sent big companies broke (General Motors for one ended up with more people on retirement benefits than on its workforce).

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