All hail the Australian super heroes
All hail the Australian super heroes
When you think of Australia’s greatest exports, our national treasures or our most beloved “heroes,” it’s natural to conjure images of sporting giants like Bradman, Waugh, Freeman and Thorpe. But the fact is none of them have affected our lives – or enriched our country’s fortunes – as profoundly as two men: one a collector of French antique clocks and the other an Oxford graduate with a passion for beer drinking.
Paul Keating and Bob Hawke came up with, and actually managed to implement, a policy of compulsory superannuation back in 1992 that Phillip Kingston, CEO of Sargon, describes as “transformational” and the financial foundation on which Australia’s record-breaking run of globally admired growth is built.
Making all workers save for their retirement was a response to the challenges posed globally by an ageing population and pressure on Australia’s age pension. But more than that, it created the “indigenous capital base” that literally allowed us to build our cities, fund our infrastructure and give us a “radically supercharged domestic economy,” Kingston says.
And yet, very few Australians realise what a profound effect compulsory superannuation has had on their lives.
A pay rise you can’t spend
A study by the ABS in 1974 revealed only 32 per cent of the Australian workforce was covered by super – and of this, most were men. In the early 1990s, wages were set to rise by 3 per cent. Keating wanted to curb inflation but still give employees their pay rise, so he made a deal with the Australian Council of Trade Unions for employers to give workers the 3 per cent – paid in superannuation rather than salary.
It is not commonly understood as the beautiful invention and the fantastic Australian export that it is,” Kingston explains. “It is a national treasure, and it is responsible for so many things we take for granted.
“Frankly, the heroes who helped get this set up – Keating and Hawke – should be revered as the people who fundamentally set this country up for the future.”
A $3 trillion nest egg
Kingston links the introduction of compulsory super to strong ASX performance. “If you look at the period of time the ASX has outperformed similar stock exchanges, in fact the vast majority of stock exchanges in terms of total returns to shareholders, it’s the period in which superannuation came in; it’s the last 30 years,” he says.
“And remember, the ASX has a market cap of $1.2 trillion to $1.3 trillion, which used to be a big number, but now superannuation funds alone are at close to $3 trillion.”
“Part of the reason we are able to run our economy largely in surplus is because of super; without it we’d have different terms of trade, the ASX would be a lot smaller, and we’d be less relevant on the world stage.”
Australia’s compulsory-contributions scheme is not only much admired around the world, Kingston points out that while other countries obviously have larger asset pools, our system is one of the best functioning, most structurally stable and the fastest growing in the world.
“It’s hard to imagine how we would have achieved the current state of Australia without super and you’d struggle to say we’d be in the same position because you can’t just turn up and borrow $3 trillion to build the nation, that money has to come from somewhere,” he says.
“Just think of the compound benefit to shareholders who have invested their (pre-retirement) capital alongside the super funds, those returns would have been affected; our national infrastructure would be in a different state and, vitally, we’d be carrying a lot more sovereign debt.
“Part of the reason we are able to run our economy largely in surplus is because of super; without it we’d have different terms of trade, the ASX would be a lot smaller, and we’d be a lot less relevant on the world stage.”
Where to from here?
In terms of what the future holds, Kingston believes the one change we’ll definitely see is a rise in the percentage rate of compulsory contributions by employers, from the current 9.5 per cent of a worker’s wage to at least 12 per cent – a figure that has already been legislated for.
“You’d definitely expect the percentage to rise and most actuarially minded people think the number needs to be higher than 12 per cent; closer to 15 per cent,” he says.
The big change that Sargon and other organisations want to see is a move towards more independence and oversight for superannuation funds – something the Royal Commission recommended.
“At the moment we have a situation where some of the super giants are their own trustee, promoting their funds, managing investments, and providing financial advice, so they’re a vertically integrated shop. And the banks have had very similar structures,” Kingston explains.
“This structure means you’re basically allowed to mark your own homework, there’s not a lot of independence. It is a bit unusual to have such large amounts of capital without strong oversight, and that’s why you need independence.”
Not all self-profiting
There are, of course, super funds that are run in different ways, and these are the companies that have an independent trustee, and adhere to the idea of strong oversight to avoid conflicts of interest. Think Virgin Super, ING and Max Super.
“We’re trying to build a free-market solution, by using our tech platform and market mechanics to improve oversight and independence.”
Heroes like Keating and Hawke don’t come along every day, but their contribution to the Australian economy and a better retirement for Australians will be felt for generations. At the time of its introduction, making all workers save for their retirement may have been viewed by some countries as government overreach but today, Australia’s superannuation system is the envy of many countries across the world.