When we look at the most dramatic changes in the superannuation world over the last two decades, the most exciting example always seems to be the Australians’ development of compulsory superannuation. But before we all charge off to implement similar systems, it’s worth taking a look at the changes they are currently making in Oz, as that’s a good indication of where ‘compulsory Super’ is not quite making the grade, at least when it comes to the all-important point of getting younger generations to think about, and plan for, their retirement.
The Cooper report has recommended 171 changes to the superannuation system, quite a large number for a relatively new system. The big changes are focused around Superstream and MySuper. Superstream is merely the automation of a system that is primarily manual and so will bring obvious benefits in terms of accuracy and cost. MySuper, however, is a different kettle of fish.
The problem that MySuper is trying to solve is that younger savers are not interested in the far off future and are disengaged, so they do not take an active involvement in the running of their own pension. MySuper is designed to provide a low-cost alternative to the current default funds on offer and to be the standard default option for all superannuation funds. This will prevent the disinterested being put into managed funds with high charges.
Surely this is treating the symptom, rather than the disease. The reason younger workers are switched off from superannuation savings is nothing to do with the fee levels or clarity of information from Superannuation funds; it’s the fact that they believe retirement is so far off that their more pressing needs; housing, travel, marriage, kids etc. are overwhelming.
So no amount of simplification or reduced charges is going to address the fact that long-term savings are a very low priority for people in their twenties. The fact that the problem is being addressed in this way just shows that the solutions are being devised by committees of experts in their forties and fifties, for whom retirement is the biggest looming issue in their life.
The MySuper proposals are an Elastoplast on the problem; using MySuper will reduce slightly the costs involved for those who aren’t actively managing their portfolio but will not get them incentivised to save.
The only sure method is to rethink the whole approach to long term savings by making retirement savings part of a single package that will allows withdrawals for other key financial events such as the purchase of one’s first house, educational fees for children etc. Only by integrating long-term and medium term savings goals, will we be able to make the younger generation fully aware of the effect of their decisions and the trade-offs they need to make between current consumption and long-term financial stability.
Tom Murray