Why an end to compulsory super would be a win-win for workers
As the debate on hiking compulsory super contributions continues, it’s well worth revisiting Liberal NSW Senator Andrew Bragg’s suggestion to advocate for voluntary superannuation under an ‘opt-out’ system for lower-income workers.
Under Bragg’s plan, workers earning less than $50,000 a year can simply tick a box and claim a 10 per cent hike to their wages instead of seeing that money go into a superannuation fund. Although it has been branded as a savings measure, set to deliver $1.8 billion to the federal budget in its first year alone, the most important thing about the proposal is that it supports freedom of choice and opportunity for those who deserve it the most.
Let’s do away with some myths. Making super non-compulsory doesn’t mean that workers miss out or will be hit with a tax hike. It simply means that we can either choose to leave the money in our super accounts where it benefits from the range of tax concessions which currently exist for super, or we can invest it ourselves in other assets or things that mean something to us. Rather than undermine retirement security, this means unparalleled opportunity: unparalleled opportunity not only for financial security, but for social mobility.
Take the opportunity to own a home. Access to super contributions makes it immensely easier to save for a deposit and enter the property market ahead of time. Thousands of retirees would be better off today if they had the chance to invest their super in Sydney’s housing market over the course of their careers. A home in our big cities isn’t just a place to live. It’s an instrument of intergenerational wealth which can break a seemingly endless cycle of moving between rental properties that awaits so many young Australians today, with its ongoing sunk costs for their finances.
Some workers may decide to more directly spend their earnings for their family’s benefit. A hike in take-home pay for lower-income workers could make the difference that lets a parent send their child to a better school, or to provide them with extra-curricular opportunities that make a huge difference over the course of their lives.
The most seemingly reasonable argument against Bragg’s proposal is that some workers will end up with less money in the long run since using super contributions may not be the best choice for them. Especially considering the tax concessions that they would miss out on.
Yet this would entirely depend on their individual decisions. Even if those decisions leave them with less retirement income, what right do we have to force our own decisions on others because we think we know better than them?
Applying this logic consistently, perhaps we should ban alcohol and smoking since these ‘vices’ take years off people’s lives regardless of their voluntary nature. Why not do away with earnings entirely and invest all of a person’s income in their super fund with just enough set aside to meet their basic needs today, ideally in a figure pre-determined by Canberran technocrats? Clearly, the propensity of people to make decisions we don’t like is no reason to deny them freedom over how they choose to use their own earnings. And clearly, the fact that so many of us, four out of five workers, in fact, will remain dependent on the pension by 2055 even with our super shows the merits in a more flexible approach.
To this, economists might argue that those on lower incomes are more likely to spend money which they have access to due to more pressing needs such as rent, food or other expenses. Yet this ignores the fact that these workers are already covering these expenses with their existing income and additional income means either more freedom to invest in their own retirement security or a boost to their living standards today: both of which can make an appreciable and positive difference over the course of a life for both individual workers and families.
Even accepting that those on lower incomes are statistically more likely to spend rather than invest their money, the same behavioural economics principles offer an easy fix.
University of Queensland researcher Dr Brendan Markey-Towler notes that people are unlikely to deviate from a decision if it is the ‘default’ since this involves a greater degree of cognitive effort. That’s why the ‘opt-out’ model proposed by Senator Bragg is likely to still leave a majority of lower-income workers with untouched super. Those who do decide to tap into this resource by ticking an additional box or filling out an additional form will have had the opportunity to carefully consider their decision, its implications, and how they could invest or spend the windfall.
The mean-spirited attacks on Senator Bragg from those who deem his reform to be an attack on lower-income workers and their security reveal deep-seated elitist beliefs. Namely that those who earn less can’t be trusted with their money and need bureaucrats or the managers of industry funds, that feed the trade union movement at a time when its membership is at record lows, to make decisions for them.
It’s true that Australia lacks the ‘savings culture’ of our Asian neighbours, resulting in high levels of household debt. But forcing the government to save money for us has only created an expectation that this will take care of our problems. Given that this isn’t the case under our current system, empowering people with the responsibility for their own decisions is a step in the right direction.
This article appeared in The Spectator on 16 July 2019.