What is Superannuation?

What is superannuation? What is its purpose? Survey a group of people on these questions and you’re likely to get as many answers as there are respondents. Superannuation has always been contested, and it has always served more than one purpose.

Presently, the Government is legislating for a superannuation objective which provides that superannuation exists to provide an income in retirement to substitute or supplement the age pension. This objective goes against the historical grain of what superannuation is, or has been intended to be.

Up until the mid-1980s, government proposals for superannuation were as a social security measure of the state. The Bruce Government in 1923, the Lyons Government in 1938, and the Whitlam Government in the 1970s all seriously considered introducing a state-based superannuation scheme akin to European social insurance schemes. The Lyons government even came as close as passing legislation, which was later abandoned. Under Whitlam, there was a national inquiry into national superannuation, along with several other inquiries, including on national insurance and poverty.

In a 1969 speech to parliament as opposition leader, Whitlam described superannuation as ensuring ‘dignity and comfort in retirement.’ The intellectual momentum behind superannuation, largely influenced by prominent Melbourne economist Richard Downing, was matched by a practical impetus: personal contributions towards superannuation would go some way towards financing the abolition of the age pension means test, which Whitlam was committed to. It is interesting to note that during this era, the union movement was not leading the charge for superannuation, their involvement being limited to occupational superannuation in several industries rather than national policy.

All this changed with the signing of the ‘Accords’ between the new Labor government and the trade unions, exchanging wage restraint for a ‘social wage’ that included public health care, and superannuation. With the Accord process, superannuation was wrenched out of the social security domain and became embedded in wages policy. As in the Whitlam era, superannuation policy was serving at least two purposes, to deliver a social good (higher income in retirement for working people), and a political one (keeping a lid on wages, and therefore inflation).

The shifting location of responsibility for superannuation policy development in the public service is a good indication of how it has been understood in public policy terms. Treasury has always had responsibility for superannuation in general, but different departments have taken the lead on policy reform at different times. The National Inquiry on Superannuation in the 1970s was handled by the Department of Social Security. During the early part of Keating’s prime ministership, in the lead up to the introduction of the ‘superannuation guarantee’ in 1992, superannuation was handled by a small group of senior officials in the Department of Prime Minister and Cabinet. Reform of superannuation policy now rests with a specially created division of Treasury.

Just as the introduction of superannuation under Hawke and Keating served a political purpose, the present government is trying to use superannuation to fulfil other aims. In keeping with its political leanings, the Turnbull government would like to see more people self-sufficient in retirement, reducing cost of the age pension. Keeping welfare spending down plays to the narrative of fiscal responsibility, something which Hawke and Keating were keenly attuned to as well.

One critical difference does emerge between the objective of superannuation before the parliament today and the way superannuation has been understood by policy makers in the past. This is the first time that a government is legislating for an objective of superannuation which refers to substituting the age pension. It matters little that the age pension will never be substituted by superannuation in reality. The interesting point is what this objective reveals about the government’s motivations for superannuation and the Australian welfare state more generally. With its objective, the government is seeking to put future policy on a footing which reduces the welfare budget.

It is curious that a government which has this approach has pushed out the timetable for increasing superannuation payments from 9.5 per cent to 12 per cent of annual wages. In theory at least, an increased superannuation guarantee would mean that more people have higher superannuation balances, meaning their reliance on the age pension would be reduced. One reason the government has likely delayed the increase to the superannuation guarantee is that the amount that workers pay in superannuation affects their living standards during their working lives, because the level of compulsory superannuation impacts on take home pay.

With the legislative objective for superannuation, are we any closer to understanding what superannuation is or, normatively, what it should be? The answer which history suggests is that the government is conforming to a long-run trend in superannuation policy: seeking to fulfill another political end with superannuation policy as the instrument. Raising the prospect of self-sufficiency in retirement plays to its traditionally wealthier constituency, and speaks to budget restraint. In reality, the objective of superannuation as drafted is probably so broad that future legislation is unlikely to be found in contravention of it. This is because the objective avoids the rather more important question of what standard of living superannuation, together with the age pension, should deliver.

This article was originally published on the Australian Policy and History on 14 November 2017. Read the original article.