05 February 2006

Scrapping Superannuation - An "Argument" For

Australian readers would know that compulsory superannuation exists for a reason.

For those of you reading from outside Australia, compulsory superannuation is an enforced savings regime for all employees with significant tax benefits attached to it.

At Deakin University's School of Law, two of the academics there, Mirko Bagaric and Rami Hanegbi, have suggested that it might be a good idea to scrap this system.

Mirko Bagaric, you might recall from early last year, was the sensitive soul who suggested that torture should be made legal.

Thanks to such flagwaving American propaganda as 24 and NCIS, we now have a population in Australia ready to embrace the no nonsense, "It'll never happen to me, only the bad guys," world of legalised torture.

I'll leave Bagaric's torture proclivities for another day.

Bagaric and Hanegbi (B&H) have moved in this recent stroke of genius that scrapping this will be the kind of thing that makes Australian society a much better place to live.

Let's look at their arguments one by one:

1. B&H contend that:
The superannuation juggernaut that was introduced in 1992 by the federal government against alarmist predictions that we can't afford to sustain an ageing population needs to be halted.
Let's look at this one right here. Hysterical use of words like "juggernaut" and "alarmist" are, well alarmist in the extreme. I so wish I had another word to use right now.

It works kinda like this - when one uses that term "juggernaut", the automatic vision is of a huge vehicle out of control and destroying everything in its path.

What's doubly ironic is that the authors then go on to use the word "alarmist" which implies that every word of warning related to this is exaggerated.

You can see the unintended consequence of having these two rippers of words in the same sentence.

Anyway, the word "alarmist" is used far too often these days - and usually only used by those with some agenda to push.

The most obvious example of this is the anti-Kyoto lobby.

Science has known for years that the Greenhouse effect is a legitimate environmental concern. Yet you chat to anyone who stands to be affected by applying some environmental standards and this quickly becomes "alarmist nonsense".

Anyway, our point with regards to this statement of B&H's (hmm, sounds suspiciously like a packet of cigarettes, doesn't it?) is that there is a hard sell at work here. For what reason that may be we'll have to see if we can nut it out.

2. B&H make the next rash statement:

The main winner from this meddling, coercive policy the superannuation industry which makes hundreds of millions of dollars annually charging us fees for money we are forced to hand over and public companies in whom fund managers are effectively forced to purchase shares due to an absence of other investment vehicles (thereby artificially driving up the value of stocks).

Whoa. Stop right there. B&H are literally accusing fund managers of paying over the top for investment assets.

If an investment that you or I see does not represent value for money, we don't invest in it, do we? A point that B&H appear to have not the slightest bit considered.

Fund managers do a similar thing. They leave their funds in cash. Of course, B&H won't be pointing this out.

It's here where B&H show their true colours. "Meddling, coercive policy," to appeal to free-marketers before bringing it home with a tirade against the fees that the superannuation industry charge.

I think I see where they're going with this.

3. The cards come out here:

The Government should cease the policy of compulsory superannuation and allow us to access the approximately $600 billion that we have been forced to hand over
during the past 14 years.
Provision should be made for our old age by
abolishing the erroneous notion of retirement and a providing a non-means-tested
pension to all Australians.

Here we are. Pensions for all. You mad, crazy, greedy schmucks.

What's the bet that they have parents in retirement with investment properties who are unable to draw a pension as a result of unfavourable means testing?

It's the old, "Let me at my super. After all, it's my money," combined with, "Can I have a pension? I swear I didn't just blow all my super at the races."

Towards the end of the middle bit, they just quote mindless statistics that don't necessarily defeat their argument. They don't, however, support their argument, either.

In fact, the use of these stats in the middle is so frighteningly inane, so bizarrely irrelevant, that I wonder how the hell these guys ended up as academics in the first place.

Have a read of this:

As a result of these new efficiencies [technical advances/workplace efficiencies], a government paper in 2003 projected that gross domestic product growth per capita in the next few decades to be between 1.5 per cent and 2 per cent. This will ensure that in the future, despite a smaller percentage of the population being in the workforce, total income per capita will remain similar to what it is today.
Or this:

Moreover, while in the foreseeable future there will be proportionality more dependent old people, the community will make enormous savings by not being required to fund the education of the proportionality fewer young people.

You get the idea? Yeah, me neither.

At no point do they address the original intentions of compulsory superannuation or means-tested social security pension. In fact, they appear to be absolutely oblivious as to why these things exist at all.

Lets' look at why they exist.

Compulsory superannuation exists to repair a situation that was identified in the 1980's. Our population is aging, and we aren't saving enough money.

So, as we are not going to have enough money to retire on comfortably, the Hawke/Keating governments legislated compulsory super into existence.

As we can't save properly, it is legislated that employers contribute an additional 9% of our salaries into super.

Not a bad solution as solutions go - It's only 9%.

And the pension - this is meant to be a safety net for those who cannot save for their retirement.

Why is it means tested?

This is so that only those who actually need it get it, and not those who don't.

Quite responsible, don't you think?

Anyway, B&H appear to think that this should all be abolished and replaced with non-means tested pensions for all. I smell the foul stench of Larouchians.

Here's a few good reasons why this should not even be thought about.

1. The government is about to venture into virgin territory as a saver. Prior to the creation of the concept of the Future Fund, it has mostly been a borrower. Given this appalling fact, the very thought that the federal government should be looking after our retirement savings is a little bit scary.

2. Financial Planners and, increasingly, Fund Managers are plugging diversification between different fund management styles. (I support this, as there is not a shred of evidence that one fund management style is best. I say this as an proud index trouser-wearer.) How is having just the one fund manager, the federal government, going to support this?

3. Why should we all receive the same benefit in retirement? Isn't this straightforward communism?

4. I find it fun managing my retirement savings. What is going to replace that?

5. You say that I don't have a life 'cause I'm into investment and personal finance. Yeah well, what are you into, stamp collecting or something?

6. B&H claim that quite a lot of families can't afford the extra amount that ends up going towards superannuation. Talk about an appeal to the lowest common denominator. Let's take a person earning $40,000 per annum. How in the name of FSM (may we all be touched by His noodly appendage) is an extra $69 per week going to do anything at all?

7. A Pension is meant to be a safety net. Given that under B&H's recommendations, everyone would be getting it, (pension that is) will we go on to complicate matters further by putting a saftey net under the safety net?

8. Speaking of safety net, how is the pension meant to operate as one if everyone gets it?

9. B&H plug a civil libertarian argument on compulsory super. Coming from someone who supports torture (Bagaric), I find this more than just a bit insulting.

10. They actually say this in the article:

Coercive laws are legitimate only where a government can demonstrate that it will encourage compliance with fundamental moral norms that affect the wellbeing of others or where they will promote the welfare of each individual. This test has not been satisfied in relation to compulsory superannuation.

We can all conclude from this that Sony's attempts to destroy Western civilization's braincells with their insidious Playstation are most certainly working.

B&H's recommendations are so far out there that they don't stand repeating. And it's not even creative out-thereness. This is purely reactionary propaganda spewed out by someone who is not disclosing a conflict of interest and arguing from authority.

B&H might be law academics - they're certainly not business ones. 1 star.


Anonymous said...

You are a most interesting young man Dikki. I was led to your blog from Claytons new webpage and I lived for a time in Aus land many years ago. We have an interesting system here in Canada that may be similar to what you have in Aus. First every person who holds a workers job (not self employed) pays into Canada Pension Plan and so does that persons employer. Once you achieve a min of 60 your qualify for a pension based on the contributions over the years. I for instance am 64 and get $460 a month for the rest of my life(plus cost of living increases). Once I arrive at 65 I then qualify for the Old Age Pension as well, that is based on income from other sources. Under 31,000 income for instance gives you a full pension of about 700 a month for the rest of your life. Assuming a good life span and reasonable investment during my life time in real estate, rif's etc we are comfortable but not well off as some are. There is much discussion in Canada over whether we can continue to afford cpp and much crying over all of us old goats retiring but there is one fact out that seems to be missed "You get older and you can not do a damn thing about it"
I would be fascinated to know who is B&H not that it matters a tiddle damn but just interested. Keep thinking Dikki people like you can change things and more power to you !!

Dikkii said...

Hi Bruce, and thank you for passing by.

I had a read about the Canada Pension Plan (CPP) and its sidekick, Old Age Security (OAS).

The CPP/OAS system follows a very different philosophy to what Australia's compulsory superannuation system follows.

Firstly, the employer and the employee pay a portion each into the CPP.

What this entitles the employee for is a guaranteed supplement upon retirement, based on what they have contributed and whether or not they receive income from a Registered Retirement Income Fund or RRIF which appears very similar to an Australian superannuation pension (the "drawdown phase").

An RRIF itself is where a Canadian would put any savings accumulated in a Registered Retirement Savings Plan, or RRSP which appears to be the Canadian equivalent of the "accumulation phase" of Australia's superannuation system.

Think of compulsory superannuation in Australia as where everyone is obliged to contribute towards the Australian equivalent of either an RRSP or the CPP.

Australia doesn't have an equivalent itself of the CPP which seems to be a centralised "pay as you go" defined benefit superannuation scheme.

Where it differs from what B&H are proposing is that B&H would like to see the same pension for all, regardless of what people have saved during their lives.

The OAS, similar to Australia's Age Pension provides the welfare plank as a safety net, and is means tested, same as in Australia. The difference is here, that the OAS appears to have less stringent means testing in place.

B&H have proposed that the Age Pension be not means tested at all - a significant difference.

The CPP appears to be very widely used in Canada - so much so that you have the one fund manager for most of the country's retirement savings.

This throws up some unusual consequences like this, where the lack of choice of investments is highlighted as a significant disadvantage.

You wrote, "I would be fascinated to know who is B&H not that it matters a tiddle damn but just interested."

The best I can do on this is this link for Mirko Bagaric (the current head of the Law School) and this one for Rami Hanegbi.

No terribly informative, but it helps.

Thank you for the words of encouragement, and trust me, it matters!

Anonymous said...

Good stuff Dikki works for me, I see you do your homework and actually have done the research. Impressive, enjoy your life and if it matters enough to you "go for it and bring about the changes" as all things can be changed if somebody has the balls to change things.

Dikkii said...

Thanks for that, Bruce.