Where Self-Interest is Less than Super

In politics, as in life, it can be tempting to take a short-term outlook driven by self-interest. The longer term plans that are actually espoused by many of our political leaders are usually done to comply with the ‘vision thing’ – the need to be forward looking in order to achieve electoral success. Mr Rudd’s 2020 Summit and his 2050 emissions targets are clear examples of spin over substance.

There are, of course, some spectacular exceptions to this premise.

The Snowy Mountains Scheme, some defence projects and fluoridisation of water are just a few that spring to mind. However, surely one of the most important positive changes was the introduction of the compulsory superannuation system in 1992.

At the time, I recall thinking that placing additional costs solely on employers was not equitable and that the compulsory savings program should be split with employees.

I still believe this would be a better system but after a period of adjustment, superannuation is now incorporated into most salary calculations. The end result is virtually identical and many millions of Australians have benefited from its implementation.

Of course, the current superannuation system isn’t perfect and is not as well utilised as it should be. There are many reasons for this but most objections I hear relate to the Government continually changing the rules. In the early years, my friends in the financial services industry tell me there was an average of one change every week to the superannuation rules.

This resulted in an increasingly complex super structure that required professional advice to understand and truly benefit from. This actually diminished the confidence that Australians had in the benefits of investing in super.

Under the Howard Government, super rules were simplified and exit taxes removed to help encourage the long-term savings ethos of the nation. There was also an important subliminal message in this policy. It suggested that future changes to super will make it less complex and of even greater benefit to all Australians.

This message was removed with all the subtlety of a sledgehammer in the recent Budget. The Rudd Government reduced contribution levels that can attract a tax benefit. This is widely known as salary sacrificing.

In one blunt policy prescription, the Rudd Government threw millions of people’s savings and retirement plans into disarray.

Why did they do this?

Because they are focused on the short-term. Put simply, they want more tax revenue today, in order to pay for their unprecedented borrowing and spending binge. The fact that the cost of doing so is detrimental to our long-term national interest has either not occurred to them or has been wilfully ignored.

The result is that the public are, once again, suspicious of super.

Why shouldn’t they be?

Consider this scenario for a moment. An individual earning $127,000 per year who chooses to sacrifice 10 per cent of their salary into superannuation is actually $2000 better off than one who doesn’t.

However, the individual who chooses not to sacrifice their salary has around $8000 more in their pocket every year. This can be applied to mortgage debt, invested or used to finance an investment loan.

But the most important difference is that the taxpayer who doesn’t salary sacrifice remains in control of their money. It doesn’t have to be locked away for 40 years or more. If they don’t like any conditions that affect their investment, or if they want to retire early, they can sell up and do what they want to.

You can’t do that with superannuation. Once it’s in, you can’t get it back until the government says you can.

That worries me, particularly with this Government. Already the government pension age is being raised over the next decade or so. How long will it be before accessing your super follows suit?

I know that the financial experts can use complex calculations to demonstrate the financial benefits of investing through superannuation, but these often ignore the risk that a short-term government decision imposes.

Not only do short-term government decisions risk the nation’s financial future, they can have a dramatic impact on your personal financial health for decades to come.