1975, both later disbanded (Marriott 2009). But, since the 1980s, superannu-
ation has become an entrenched component of Australian policy—part of a
new‘Australian Settlement’.
Other countries should be wary to replicate it. Superannuation has distorted
the economy in favour offinancial services, artificially boosted the power of
trade unions and employer groups, and enriched the fund management sector
at the expense of ordinary workers, who inevitably pay little attention to their
compulsory savings. It has achieved higher national and personal savings
largely by reducing the standard of living of lower-income workers, who are
not able to offset the effects of compulsion. The existing framework could be
improved significantly by diverting all default contributions into a low-cost
index fund, either managed by a public agency or contracted out by govern-
ment tender. Anyone would be welcome to shift their savings to a (more
expensive) provider.
Most egregiously, superannuation has largely failed its core justification:
reducing significantly the share of older Australians in receipt of the age
pension. So long as the principal residence, emotively called the ‘family
home’in Australia, is excluded from the eligibility test, this is unlikely to
change. Because of this, all other taxes in the economy have had to be higher
than they would otherwise have been, with all the economic damage that
entails, even before the costs of complexity and administration are factored in.
Superannuation is the policy equivalent of using a sledge hammer to crack a
nut, where the nut is a supposed tendency to‘under-save’. This popular
justification is built on arbitrary and sweeping assumptions about what is
desirable or necessary in retirement as a share of pre-retirement income. It
crucially ignores the potential for retirees to draw on typically their biggest
asset, their home. Never has there been a grass-roots political movement
advocating forced saving to alleviate myopic behaviour. In fact, far from
being irrational under-savers, Australian retirees have been adept at arranging
theirfinancial affairs to maximize their receipt of the age pension and associ-
atedfinancial concessions.
Even if a significant portion of people do systematically under-save, it is
extreme paternalism to expect the government to try to correct such a habit.
A means-tested age pension already provides a basic level of income that
alleviates poverty. Beyond that, in a free-market economy individuals should
be free to save as much or as little as they like. Indeed, the very existence of
compulsory saving might discourage households from paying attention to
their saving habits, believing that the government has worked out the optimal
savings schedule for them.
Superannuation has also created powerful vested interests—with significant
influence in both Australia’s major political parties—that have popularized
the false notion that superannuation contributions are a burden not on
Adam Creighton