Forcing workers to have part of their salary invested for retirement is a policy envied by other countries. Photograph: Lukas Coch/AAPView image in fullscreenForcing workers to have part of their salary invested for retirement is a policy envied by other countries. Photograph: Lukas Coch/AAPAnalysisWhy rightwing critics are wrong to say the Australian super system is brokenPatrick ComminsSpending on aged pension will be stable for decades to come, experts argue, despite claims by Bragg and Hanson
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Is Australia’s superannuation system “one of the biggest policy failures since federation”? Is “the whole system broken”?
Australia’s $4.4tn compulsory super regime is generally considered among the best in the world, yet conservative politicians such as Andrew Bragg, the Coalition’s putative shadow housing minister, and Pauline Hanson, One Nation’s leader, seem to hate it.
Bragg last week told ABC radio that compulsory super “is one of the biggest public policy failures since federation, in the sense that it hasn’t helped the budget, and it has not really helped many people get off the pension”.
Hanson made a similar point on News24 at the weekend.
“A lot of people [are] pulling out their superannuation, spending it, then end up on the age pension anyway. I think the whole system is broken,” she said.
The key contention in Bragg’s National Press Club speech last week was that there is virtually no long-term budgetary benefit from compulsory super – so what’s the point?
Bragg published a chart from Treasury’s 2023 intergenerational report (IGR) which shows spending on the age pension “has been reasonably stable at just over 2% as a share of GDP over the past 26 years” and that “it will remain at 2% by 2063”.
Read more“Meanwhile, superannuation tax concessions as a share of GDP are projected to overtake age pension spending in the 2040s,” he said.
That sounds like scrapping super would actually make the budget more sustainable over the long term.
But what Bragg is not saying is that maintaining a steady total spending on retirement is actually a major achievement in the context of rapidly ageing populations here and overseas.
As Treasury says in its IGR (our emphasis): “The total projected annual cost of Australia’s retirement income system is expected to remain relatively steady over the next 40 years, at around 4 to 4.5% of GDP, despite population ageing.”
“The rise in total projected costs of tax concessions is driven by earnings tax concessions from the increased stock of funds, offset by a fall in projected spending on the age pension,” the report says.
And in direct contradiction to Hanson and Bragg’s assertions, the IGR predicts that a rising share of people will have enough money to retire without leaning on the age pension.
The share of people fully funding their own retirement income is predicted to rise from 29% to 38% by 2050, and continue to rise from there.
David Knox, a former long-serving senior partner at Mercer and one of the country’s leading actuaries, says by 2030, Australia will have the lowest aged pension cost of any OECD nation.
“With our ageing population, you would expect that [aged pension spending] cost to rise, but it’s not rising and if anything it’s falling,” Knox says.
“Around the world it has risen or is rising. And if we hadn’t done anything our aged pension cost would be higher than they are today.”
But to appreciate how other nations’ governments would love to have our super system, it’s worth a look at the OECD’s latest “pensions at a glance” report.
It shows that average public pension spending was expected to climb from 8.8% in 2023-24 to 10% by 2050 among its member countries.
Even including the cost of tax concessions (which Knox says significantly overstate their actual cost), that’s about two-and-a-half times what the Treasury predicts Australia’s retirement income system will cost the budget by the middle of the century.
Among European countries (plus Norway) average government spending on pensions is forecast to rise from 9.9% to 10.9% over the same period – and the OECD report says even that “would be a significant achievement given the demographic change throughout the period”.
