Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 3

Do we really need superannuation?

It seems that no matter which way we turn, the government, regardless of which side of politics is in at the time, is stuck in a conundrum. As a nation, we have been told that the tax payer will not fund all our retirement, so we must save for ourselves, but the government has found it difficult to resist the temptation to increase superannuation taxes or wind back contribution limits.

Back in 1983, the Labor Government formalised the tax system on super and, with the cooperation of unions, started 3% award super (non-compulsory at that time). The framework commenced for a compulsory superannuation system which took 10 years to implement. We are better as a nation for it. Our country started down the path of a savings-based future rather than debt-based which we were facing in the days of the ‘banana republic’.

The superannuation era is therefore relatively new for Australia. Compulsory super is only 20 years old, or just one generation. In previous generations, the first investment people made was usually in their own home. This is no longer true. The day someone enters the workforce, their first investment is the 9% of their salary that goes into super. People who are entering the workforce today are the first generation born into compulsory super. We used to be told by our grandparents that in order to retire with the same lifestyle as when you were working, you needed to put away 10% of what you earned. It is little wonder that compulsory super will soon be at that level.

So do we need super? What really is a retirement asset? It’s not just me asking these questions. This was a focus of both the Henry Tax Review and the Cooper Review of superannuation.

A confronting statistic is that for every person on the age pension, we currently have about 7 people employed, but this number will fall significantly over coming decades, reaching about 3.5 people by 2042. After that, it is not expected to fall substantially more because the Baby Boomers will have passed away in large numbers by 2050, and the Gen Xers experienced a birth rate of less than two (ie there were fewer children than parents). Life expectancy depends on many factors such as the extent of further advances in medical science or rising obesity, but we know for certain that we will have a significant retirement funding problem for at least the next 30 years.

To put the outlay into perspective, the age pension for a male retiring at age 65 until normal life expectancy has a net present value cost of $400,000. In addition, it costs $440,000 for health benefits, giving $840,000 in total. This is our current age pension which we are told meets only subsistence living standards. Women are more expensive (no, not shoes!) because they are eligible for the age pension at a younger age and live longer.

We need super to reduce the future tax burden on those employed. Incentives must be provided to help us finance the next 30 years, targeted towards the retirees who this period directly affects. Otherwise, the remaining people who are in the work force will not be able to afford the increased tax required to fund the support system. Do we really want to create a nation where taxes are so high that there is no incentive to succeed, prosper and develop? There is benefit in being a tax payer if the money is well spent, and we must be careful to maintain the balance between overtaxing and taxation which creates value. This is a fine line.

Tax is inevitable, however, our administrators seem to have forgotten that our superannuation system is there to build a retirement asset. The legislative structure of our superannuation pension system says that all the money (plus or minus performance gains or losses) in the fund will be paid back to the people who put it in there and spent over their lifetime. Legislation entrenched that in the Simple Super changes in 2007. However, our age pension system needs to change to ensure people exhaust their own resources before drawing on tax-financed benefits. Tough call but change is needed. The Henry Review discussed this but no one was prepared to confront it.

There is no doubt that a larger tax base will be required over the next 30 years, but where from is the key. There are clear political problems in most alternative revenue raisers, such as an increase in the GST. For example, a 2% change in GST would fund the large majority of the current expenditure proposals but that’s not being considered.

The face of super is changing and will continue to do so. The expectation by 2020 is that we will have $3 trillion in super. Superannuation investments will change. We are likely have access to assets that we did not have before, such as an efficient mechanism for all super funds to invest in government or corporate bonds, or infrastructure projects, or investments that provide natural income streams rather than life offices actuarially creating them in a volatile market. We will have the ability through super to fund all of our banks’ home loans without foreign borrowing. Everyone is learning how collaboratively we can work together to ensure an effective investment and retirement system that benefits all.

So do we need super? Yes, absolutely. We can fund, grow and build a better nation together. We can better provide for the retirement of our people and reduce the burden on workers to support their forebears. Encouraging people to look after themselves, then taxing them for doing so, is not an appropriate answer.

The next five years of superannuation will be the most important of the coming 30 year conundrum. Let’s hope our legislators listen to all sides and create a balanced view.

 

Andrew Bloore is Chief Executive Officer of SuperIQ, a provider of administrative services for Self Managed Super Funds.

 

RELATED ARTICLES

Designing a world-class post-retirement system

Why systemic risks from ‘Big Super’ may be overplayed

Should I pay off the mortgage or top up my superannuation?

banner

Most viewed in recent weeks

16 ASX stocks to buy and hold forever, updated

This time last year, I highlighted 16 ASX stocks that investors could own indefinitely. One year on, I look at whether there should be any changes to the list of stocks as well as which companies are worth buying now. 

2025-26 super thresholds – key changes and implications

The ABS recently released figures which are used to determine key superannuation rates and thresholds that will apply from 1 July 2025. This outlines the rates and thresholds that are changing and those that aren’t.  

Is Gen X ready for retirement?

With the arrival of the new year, the first members of ‘Generation X’ turned 60, marking the start of the MTV generation’s collective journey towards retirement. Are Gen Xers and our retirement system ready for the transition?

Why the $5.4 trillion wealth transfer is a generational tragedy

The intergenerational wealth transfer, largely driven by a housing boom, exacerbates economic inequality, stifles productivity, and impedes social mobility. Solutions lie in addressing the housing problem, not taxing wealth.

What Warren Buffett isn’t saying speaks volumes

Warren Buffett's annual shareholder letter has been fixture for avid investors for decades. In his latest letter, Buffett is reticent on many key topics, but his actions rather than words are sending clear signals to investors.

The 2025 Australian Federal election – implications for investors

With an election due by 17 May, we are effectively in campaign mode with the Government announcing numerous spending promises since January and the Coalition often matching them. Here's what the election means for investors.

Latest Updates

World's largest asset manager wants to revolutionise your portfolio

Larry Fink is one of the smartest people in the finance industry. In his latest shareholder letter, the Blackrock CEO outlines his quest to become the biggest player in private assets and upend investor portfolios.

Economy

Australia's economic report card heading into the polls

Our economy grew by a nominal rate of 7% per annum from 2017 to 2024, but it benefited from the largesse of fiscal and monetary policies, both of which are now fading. We need a new, credible economic growth agenda.

Preference votes matter

If the recent polls are anything to go by, we are headed for a hung parliament at the upcoming federal election. So more than ever, Australians need to give serious consideration to their preference votes.

SMSF strategies

Meg on SMSFs: Tips for the last member standing

It’s common for people as they age to seek more help in running their SMSF if their capacity declines. An alternate director may be a great solution for someone just planning for short-term help in the meantime.

Wilson Asset Management on markets and its new income fund

In this interview, Matthew Haupt from Wilson Asset Management discusses his outloook for the ASX, sectors such as REITs that he likes, and his firm's launch of a new income-oriented listed investment company.  

Planning

‘Life expectancy’ – and why I don’t like the expression

Life expectancy isn't just a number - it's a concept that changes with survival rates over time. This article breaks down how age, survival, and societal factors shape our understanding of life expectancy, especially post-Covid. 

The shine is back on gold, and gold miners

Gold mining stocks outperformed in 2024 and are expected to do well in 2025. At this point in the rally, it's worth considering what has driven gold prices higher and why miners could still have some catching up to do.

Sponsors

Alliances

© 2025 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.