Australia recently passed a very significant milestone - 30 years of compulsory superannuation. Yet, despite its existence for all this time, it might surprise many that there has never been a legislated objective of superannuation. In response, the current Labor Government has indicated that it will legislate a superannuation objective, with Treasury tasked with consulting on the change required.
Understanding superannuation
Superannuation combines compulsory savings with compound interest to deliver significant saving benefits for people as they enter retirement. There is now more than $3.5 trillion dollars being managed in superannuation funds, and the sector has guaranteed growth.
However, compulsory superannuation does not enjoy universal support. Over the years, politicians of various stripes have made repeated attempts to modify it. The compulsory nature of the system has drawn critics, and there have also been attempts to widen the circumstances under which people can access their accumulated savings before retirement. Most recently, this occurred during the COVID pandemic, where people were allowed to access their superannuation early (up to $10,000 over two tranches) to deal with short-term emergencies.
Why an objective is critical
At its core, a legislated objective will mean that there will be a very narrow set of circumstances under which an individual can gain early access to superannuation savings. This principle is important, because we know that every drawdown has a disproportionate impact on long-term savings. As an example, a hypothetical 25-year-old who withdraws $5k from their super, forgoes more than $120k at retirement age, based on an 8% historical return.
A common argument against compulsory superannuation has been that people should be able to access their superannuation or the compulsory savings early for the purpose of purchasing a home. One of the assumptions underpinning this position is that property prices will increase at a greater rate than superannuation returns. You can cut the figures various ways, but research shows property value growth over an extended period is around 6.5% per annum compared with the 8% per annum growth of superannuation (a broad industry average).
So, superannuation stacks up very well as a savings tool, and supports the retirement incomes of millions of Australians. Legislating an objective for superannuation will mean that we keep early access to superannuation as an option only when severe hardship is being experienced.
Life insurance inside superannuation
Default insurance inside superannuation has been part of the framework since the system’s inception. Why does this matter? Because, put simply, when people have life insurance, they will be less likely to need early access to their superannuation if misfortune befalls them.
For policy makers and legislators, an objective for superannuation is optimised when there is a comprehensive insurance scheme to complement the objective, reducing the likelihood of people accessing their accumulated superannuation savings if they become terminally ill or suffer total and permanent disability.
MetLife supports legislating an objective for superannuation. Superannuation has made a large contribution to the wealth of Australians. Our superannuation funds are well managed, and provide billions of dollars in capital, while also investing in essential infrastructure.
Overall, the system has established the basis for millions of Australians to retire with dignity. MetLife has submitted to Government that the superannuation policy architecture should be protected and secured for the long term - for funds, their members, and Australian families.
Nathan Rees
Head of External Affairs & Public Policy
