Retirement
4 non-conventional reasons super is so important
Universal superannuation has the ability to deliver both expected — and unexpected — economic benefits to all Australians, so what are some of the less talked-about reasons why our retirement income system is so good?
4 non-conventional reasons super is so important
Universal superannuation has the ability to deliver both expected — and unexpected — economic benefits to all Australians, so what are some of the less talked-about reasons why our retirement income system is so good?
Economic Benefits of Universal Superannuation, from the McKell Institute, has taken a wide view to examine the ranging economic impacts of the Australian superannuation system.
“In raw terms, it’s seen the 13th largest national economy accumulate the third largest private savings pool with around $3 trillion in assets under management,” the report outlined.
It has allowed “millions of low and middle-income Australians to find greater dignity in their later years by entering retirement with a supplement to their age pension”.
For the McKell Institute’s chair, Dr Craig Emerson, the report is particularly timely given the Retirement Income Review currently taking place.
“The government’s Retirement Income Review should make a strong effort to understand the wider economic benefits of superannuation,” he said.
“Australia is considered to have among the world’s best retirement incomes system, comprising compulsory superannuation, voluntary private savings and the age pension.
“This report is a reminder of the macroeconomic benefits of compulsory superannuation reducing Australia’s reliance on overseas savings to fund investment opportunities.”
In its opening paragraph, the report does acknowledge “there are things that need improving”.
Namely, those shortcomings are that too many Australians find themselves in underperforming funds, others accumulate multiple accounts when they change jobs, while others are simply exposed to excessive fees or cost structures that eat into their returns.
“Some unfortunate Australians get hit with all three and it should be a priority of policymakers to fix this,” the report conceded.
But it goes on to outline four ways in which superannuation is actively increasing the financial independence of more Australians.
Here they are:
1. Superannuation helps Australian workers fairly benefit from the wealth they are helping create
According to the report, superannuation provides employees with recognition as stakeholders who are due a share of the productivity gains paid out when profits rise.
“Investing workers’ capital in the businesses where they work is an important mechanism to ensure that workers’ interests are represented regarding investment decisions.”
As a result, it considers superannuation as providing “a durable means to ensure long-term corporate prosperity”, where economic inequality can’t be solved through wage increases alone.
2. Superannuation expands worker benefits by adapting to a changing work environment
In an increasingly insecure work environment, universal superannuation is able to enhance retirement incomes and the wellbeing of retirees.
It’s especially relevant in an era where job opportunity matters more than job security.
The report flagged that “universal superannuation allows older workers to adapt to the forthcoming changes in the labour market without forgoing their retirement incomes that would have otherwise been impacted under a superannuation system with limited access and pension portability”.
3. Superannuation growth can increase value for money for members
While super fund fees are hotly contested at the moment, and inefficiencies are still far too prevalent, the report said that, overall, Australia’s superannuation sector is “continuing to improve its offer to members by improving services and benefits and increasing returns while reducing its headline fee rates”.
Over the last decade alone, significant economies of scale have been realised in the super system, according to the report.
4. Superannuation reduces exposure to financial shocks by diversifying Australian household assets
Last but not least, the report considered how a strong growth in super “has facilitated a broadening of the range of assets held by [each] Australian household”.
The report expressed how increased super investment “may help to diversify the household balance sheet, which in turn may lower the risk of the household asset portfolio”.
This is especially relevant as property prices continue their upward trajectory, which could otherwise leave Australians more vulnerable to adverse movements in property prices.
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