"What is the point of Super?"

“What is the point of Super?” asked Dr Watson of Holmes.  Holmes replied “Quick, Watson, the games afoot”! 

This simple question was raised by the Murray Review (financial system inquiry) and the Review suggested that the answer should be “to provide income in retirement to substitute or supplement the Age Pension”.

To put this in context the current annual amount of the Age Pension (single maximum basic rate) is $20,664 per annum.

The current Government (that is the Government which is currently in charge until the next Government is in charge) has accepted that the purpose of superannuation should be specified so to be a yardstick (or, for those of a different generation, a millimetre stick) against which policies, proposals and discretions are to be developed, judged and exercised.

Consequently, this simple question is very significant and much will turn upon the answer which is given.

To hedge its bets, the Murray Review also suggested a shopping list of subsidiary objectives for super: some of which are motherhood statements (“Be simple and efficient” and “Be invested in the best interests of fund members”) others are hypocritical (“be fully funded from savings” – as in public servants, political and judicial pensions?) while some are simply Orwellian (“facilitate consumption smoothing”– to be equally improvised while working as being retired? Or to “help people manage financial risks in retirement” – possibly not changing the system would assist with this objective).

What is the outcome of all this?  If the primary objective of superannuation is to substitute for the Age Pension why would any rational taxpayer (voluntarily) participate in the super system?  The rational taxpayer would make no contributions to the system, accept the 9.5% contributions (which cannot be avoided or substituted) and then consume their super as quickly and delightfully as possible when it first becomes accessible – with at all times a strict eye on the asset deprivation rules – to qualify for the full age pension.  

If the objective of superannuation is to supplement the Age Pension then a rational taxpayer would again simply, quickly and delightfully consume their super as any non-consumed super will simply reduce their entitlement to the Age Pension by virtue of the means test.

If the purpose of the super system is to “substitute” or “supplement” the Age Pension what is the justification for public servants’, politicians’ and judges’ super systems?  If the purpose of super is simply to “substitute” or “supplement” the Age Pension then those schemes should be terminated (without compensation) and the current participants should welcome their entitlement to the Age Pension.

On a different note if the principal purpose of super is to substitute or replace the Age Pension, then it follows that all super benefits must be taken as income streams – either as super pensions or annuities (or a combination of both).  This would prevent super being used to pay off debt or being used to finance the acquisition of a retirement residence or that end of working life extravaganza.

Such a simple question – which has very significant implications.