THE architect of Australia's compulsory superannuation scheme says it has become "inequitable" and should be changed to reduce its bias towards the better off.
Vince FitzGerald, whose advice underpinned federal Labor's dramatic retirement policy overhaul two decades ago, said tax breaks for those wealthy enough to make extra superannuation contributions skewed the system towards higher income earners.
The superannuation system set to balloon with the forthcoming increase in compulsory contributions from 9 to 12 per cent is "not a terribly wonderful deal" for people on low incomes, said Dr FitzGerald, a director of the Allen Consulting Group.
They could get barely any tax concessions by making extra contributions and they had more immediate needs than superannuation, such as paying for housing and their children's necessities, he said.
Mike Rafferty, a senior research fellow at Sydney University's Workplace Research Centre, said superannuation was an extraordinary piece of social engineering, which had not attracted the dissent it deserved.
"There are two systems. One for the rich, who make use of the massive tax concessions and the punters who have 9 per cent taken out whether they like it or not," he said.
Critics of the system say the rise in compulsory contributions will also tip the benefits of the scheme even further towards men.
"If the objective of the government was to close the gap between women's retirement income and men's, it would be hard to imagine a worse way of doing it than relying simply on a shift from 9 per cent to 12 per cent," said the executive director of the Australia Institute, Richard Denniss.
The chief executive of the Australian Council of Social Service, Cassandra Goldie, said: "The superannuation system benefits people who are able to be in full-time paid work on a high income. And who would that be? That would be men."
Dr FitzGerald said attempts to mitigate inequity in the system had been only partially successful.
"Women don't do well out of it, but it is not entirely due to the system. If a couple stay together throughout their family-raising life, presumably they share the superannuation if one has more than the other, but that is not the way everybody lives," he said.
People earning $100,000 to $150,000 a year "are not Kerry Packer or his son James, or one of the Murdochs", but they had good reasons to save for retirement and could be taxed less generously, he said.
"The high income concession has been pegged back by putting limits on contributions you can make to superannuation and in one way you could say that addresses the issue, because the limits are pretty low for people on any substantial income. But in my opinion, it is the wrong way to go about it," Dr FitzGerald said.
"You should tax it properly, rather than put straight out restrictions on it."
But Dr FitzGerald welcomed the rise in compulsory contributions, to be phased in over seven years from July next year, saying it would mean working people's incomes would not drop as dramatically in retirement as in the past.
In about 20 years, through compulsory superannuation and the age pension, "life in retirement will be provided for", Dr FitzGerald said.
But there were still drawbacks for certain groups, he said. Extra money flowing into superannuation would make it harder for younger workers to pay off study debts and mortgages. Australian superannuation funds' heavy reliance on share investments would mean they performed well in the long-term, but had adversely affected some, he said.
"If you retire when funds have been low on average for a few years, it's the last throw of the dice that goes against you. By the same token, if you are lucky and retired before the global financial crisis, when the sharemarket had been booming for a decade, you would have done well," he said.
The chief executive officer of the Association of Superannuation Funds of Australia, Pauline Vamos, said that 90 per cent of tax concessions go to people below the highest tax bracket and people in the lowest tax bracket get half of all the concessions. "It is equitable because it allows most people on middle and low incomes to have retirement income," she said.
Frequently Asked Questions about this Article…
Why do experts say Australia’s superannuation system has become inequitable?
Experts quoted in the article say the superannuation system favours people who can make extra contributions because tax concessions are more valuable to higher income earners. Vince FitzGerald and other critics argue those on low incomes get little tax benefit from extra super and have more immediate needs like housing and childcare, making the system feel skewed toward the better off.
How will the increase in compulsory super contributions from 9% to 12% affect everyday investors?
The rise from 9% to 12% (to be phased in over seven years from July next year) should help ensure working people don’t see as steep a drop in income in retirement, according to Vince FitzGerald. But critics warn it may also reduce younger workers’ ability to pay mortgages or study debts and could amplify existing inequalities.
Does the compulsory contribution rise make superannuation more or less fair for women?
Critics in the article argue the rise could make retirement outcomes worse for women. Richard Denniss and Cassandra Goldie say the system mainly benefits full‑time, higher‑paid workers — a group that is disproportionately male — so simply increasing employer contributions may widen the retirement income gap between men and women.
Do higher‑income Australians get the biggest tax breaks from superannuation?
The article presents two views: some critics say tax breaks disproportionately benefit those wealthy enough to make extra contributions, while Pauline Vamos from the Association of Superannuation Funds of Australia counters that 90% of tax concessions go to people below the highest tax bracket and that people in the lowest bracket receive about half of all concessions. The coverage shows the debate is contested.
Are contribution caps an effective way to reduce inequality in superannuation?
According to Vince FitzGerald, contribution caps have been used to limit generous concessions for high earners and are a partial fix, but he believes caps are the wrong approach. He argues it would be better to tax super contributions properly rather than rely mainly on strict limits.
How does a super fund’s investment mix, especially shares, affect retirees?
The article notes that Australian funds’ heavy reliance on shares tends to deliver strong long‑term returns, but it also increases volatility. That means timing matters: retiring after a market downturn can hurt your balance, while retiring after a long market boom can boost it.
What are the short‑term downsides of forcing more money into super for younger Australians?
Vince FitzGerald warns that channeling extra wages into super could make it harder for younger workers to pay off study debts and mortgages. For people with immediate financial priorities, mandatory higher contributions may reduce available cash for everyday needs.
Will reforming how super is taxed be better than imposing stricter contribution limits?
The article reports FitzGerald’s view that properly taxing super is preferable to simply putting strict caps on contributions. He suggests taxation changes could be a fairer way to address generosity for higher earners, rather than blunt contribution restrictions — though this remains a policy debate.
Call 1300 880 160
Start a chat
Schedule a call
