How 'guaranteed' is a rise in the superannuation guarantee?

Soon after the election Treasurer Frydenberg flagged there would be an inquiry into retirement incomes. Since then, no details have emerged.

But there is gossip around Canberra there might be some action in the next couple of weeks on a review that would report before the end of 2020.

This issue, with compulsory superannuation its pointy end, and that of industrial relations, on which minister Christian Porter is doing a stocktake, have common threads in political terms.

They will test the clout of powerful interests outside the parliament, and of backbench activists within the Coalition. Meaning, they will test the Prime Minister.

In another life, Peter Collins was a NSW Liberal treasurer and opposition leader. These days, he’s deputy chair of Industry Super Australia, which he previously chaired for six years.

Collins told a Rice Warner summit on superannuation in Canberra on Monday that Scott Morrison had the opportunity to “reset the relationship” with industry and public sector superannuation funds, after the negativity of the Turnbull government - which was preoccupied with trying to curb union power in the industry funds. (It was less than pleased when the industry funds emerged from a Productivity Commission inquiry a good deal shinier than the retail funds.)

Collins also recounted how a few weeks ago, US Commerce Secretary Wilbur Ross had invited IFM Investors, the infrastructure investment vehicle for many industry funds (and overseas pension funds of a similar nature), to join the US Investment Advisory Council. This is described as “established by the Secretary of Commerce to solicit private sector advice on the promotion and retention of foreign direct investment” to the US.

Read more: There is a problem with retirement incomes, but it isn't the super guarantee

It seemed the US administration had a rather more positive attitude to industry and public sector funds than the Coalition government.

Collins also points to the scope, under a “reset relationship” for these funds to do more on the infrastructure front in Australia. “There is no other pot of gold” for infrastructure, he says.

Not surprisingly, these funds are hanging out for the terms of reference for the retirement inquiry, in particular how they impact on the legislated rise due to start from mid-2021, to take the superannuation guarantee gradually from the current 9.5% to 12% by 2025.

The Productivity Commission saw the need for “an independent public inquiry into the role of compulsory superannuation in the broader retirement incomes system”. Others question the case for an inquiry when the various policy settings appear to be in place.

The PC has reported on necessary administrative reforms. Changes have already been made to the tax treatment of superannuation. Overhaul of the aged pension system doesn’t seem on the radar.

And, crucially, the rise in the super guarantee is baked into law - and, Morrison says, into Coalition policy.

But some are suspicious (and others hopeful) the retirement inquiry could pave the way for the government to seek to defer the July 2021 rise, and then put to the 2022 election the proposition that workers should be able to get the money through wage increases rather than having it locked away.

This would also set up a convenient issue for wedging Labor, which would be committed to the guarantee increasing. It’s easy to see the line – it could be portrayed as another case of the ALP wanting to “increase taxes” rather than giving employees their money.

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If it all sounds too Machiavellian, it is worth remembering the Coalition has form on the issue.

The Howard government proposed workers should be able to “opt out” of the compulsory scheme and receive wage increases instead, although this didn’t go ahead. The Abbott government deferred rises until 2021.

New Liberal senator Andrew Bragg, who addressed Monday’s conference (although he avoided the guarantee issue for political reasons) is one of a number of Coalition backbenchers who oppose the rise to 12%. They are looking to the inquiry to leverage change.

They have an ally in the Grattan Institute, which argues the increase to 12% should be abandoned, maintaining “it would effectively compel most people to save for a higher living standard in retirement than they enjoy during their working lives”.

The temptation for scrapping the rise, or having some “opt out” system, becomes stronger when wages are flat – a problem reinforced by the latest figures this week.

But there is a strong counter case that such a course would be bad in practical and policy terms.

There’s no certainty workers would actually get the extra money, or all of it, in wage increases. Attempting to compel that would be complex and fraught.

More importantly, failure to strengthen further the compulsory system would disadvantage many individual retirees in the future and be an added burden on a later generation of taxpayers, as more people would be pushed onto full aged pensions.

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While many Liberals don’t like the compulsory aspect of the super guarantee, it’s the history of the scheme (one of Paul Keating’s legacies) and most particularly the unions’ role - and the flow-on power that gives unions - that really rile them.

One would think, however, that much about compulsory superannuation fits with Liberal philosophy, which emphasises self reliance.

Admittedly the argument for workers having immediate access to their money, at a time of life when they face their most severe cost-of-living pressures, is seductive. But it short term thinking, from the points of view of both individuals and governments.

Much of the debate is being conducted around modelling, stretching out decades, calculating the competing financial implications for low income workers. But modelling, with its assumptions, carries a degree of false precision. It also represents one-dimensional thinking.

People on low incomes are naturally going to spend any extra money rather than save it. Yet for these people savings are what they need for the long term. This applies especially for women, for whom more, not fewer, ways should be found to augment their superannuation.

Forced saving might be unpleasant in the moment, but valued at the time of a more comfortable and secure retirement. Promises of the money being used for wage increases carry political appeal for a government now, but future governments would benefit if the aged pension burden is contained by a healthily growing compulsory super scheme.