In Summary

  • Opinion piece for The Australian by Professor Mirko Bagaric, Dean of Law, Swinburne University of Technology

The best way to keep the country out of a coronavirus-induced recession is to allow Australians to immediately access a portion of their superannuation.

This is consistent with the philosophy underpinning compulsory superannuation and commensurate with the financial capacity of the superannuation industry to prop up the economy in a time of economic crisis.

The government has accepted that the coronavirus outbreak is likely to have a more severe impact on the economy than the global financial crisis. This is now almost certainly the case, given the pattern of spread in other Western countries, such as Italy. The outbreak has the capacity to halt or slow almost every part of trade and commerce. What is worse is that there is no rule book for dealing with such economic fallout. The world has never witnessed a shutdown such as this and there is as yet no clear time frame for the development of a vaccine.

The one thing that is clear is that many businesses will shut down or suspend trading, leaving many of their employees either out of work or with reduced hours. Casual workers are especially vulnerable.

The government is about to roll out a stimulus package to assist with the looming economic crisis.

The parameters of that are at this stage unclear, but the superannuation plan is an economically sound solution which does not risk keeping the budget in serious deficit.

Australians have more than $3 trillion invested in superannuation funds. This is more than 1½ times our annual gross domestic product. Australia is in the minority of nations with a retirement system based on compulsory contributions being made into individual accounts, and this has placed us in the unique position of having massive private savings to enable us to deal with financial emergencies.

The key policy rationale which led to the introduction of compulsory superannuation in 1992 was to enable Australians to have greater financial security in times when they are incapable of supporting themselves.

This is precisely the situation that many thousands of Australians might find themselves in shortly and it is the reason that people need to be able to unlock their superannuation immediately.

It is economically and socially illogical and destructive to force people to undergo financial hardship now in order that they can hopefully live more comfortably in decades to come.

Many Australians are likely soon to experience severe financial distress. They need to be given the choice to alleviate this by accessing their superannuation funds.

And while the law does allow some limited withdrawal of superannuation funds at times of severe financial hardship, this is restricted to limited scenarios involving members being on social security benefits for an extended period.

The government should pass legislation enabling all people to access up to 10 per cent of their superannuation funds, and funds should be required to process these requests in no more than four weeks.

This would inject billions of dollars into the economy, ensure that most people still have money to pay their mortgages and other living expenses, and prop up thousands of businesses throughout the economy.

The additional taxation that the government would raise when many of us withdraw some of our superannuation money would enable the government to properly support people in the community who do not have sufficient superannuation to see them through these difficult days.

Allowing Australians to now access a portion of their superannuation funds is a policy with no downside. The only people likely to complain are the self-interested funds managers. We can ignore them.

Economic and legal modelling undertaken by us in 2004 (and discussed in these pages as far back as 2009) demonstrated that compulsory superannuation was a flawed concept. One of the main groups to have flourished under this model are the funds’ managers, who charge an average of 1.1 per cent for their services.

Incredibly, Australians pay more than $30bn in superannuation fees every year. This has a massive negative impact on our superannuation balances. Modelling shows that even a 0.5 per cent increase in fees can cost an average worker 12 per cent of their balance (or $100,000 at retirement age).

From a purely financial perspective, some modelling suggests that on a risk-adjusted basis our money is better off paying off our home loans than being placed in the pockets of the superannuation industry,
which does nothing to compete for our money and which is effectively unaccountable for how it invests it.

Furthermore, a system of coerced savings undercuts the concept of personal responsibility. Those who did not need to access their superannuation to see them through this challenging time would be free to keep their money there.

This would also give fund managers the opportunity to persuade people that they were financially better off in preserving their superannuation account. For the first time, they would be like every other business in the country in having to justify the value of their product. That’s long overdue. 

Professor Mirko Bagaric is dean of Swinburne Law School, and with Deakin’s Rami Hanegbi co-authored Super Blooper? Time to halt the superannuation juggernaut? This opinion piece was originally published in The Australian.