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MySuper's justified paternalism


Last week there were cries that reforms proposed by the Cooper Review into Australia's superannuation system 'could devastate Aboriginal art'. The Review was handed down last week, and recommends an end to art, jewellery, wine and collectables as approved investments in self-managed superannuation funds. It views their inclusion as a tax dodge that benefits the rich but does nothing to enhance the material wellbeing of the average retiree.

As the year-long process was getting underway, veteran social services advocate Julian Disney described Australia's current superannuation system as 'a magic pudding for the wealthy, a poor deal for low-income people and a straitjacket for too many of the rest'.

Earlier last year, an Australia Institute research paper claimed that superannuation tax concessions for the wealthy would cost the budget $24.6 billion in 2008–09, rivalling the $26.7 billion annual cost of the age pension and constituting a fifth of income tax revenue.

It was clear that the super system needed to be transformed from being a tax rort into an instrument capable of ensuring working Australians have the financial resources necessary to enjoy rather than endure their retirement. Part of the problem was that the current system is incomprehensible. In a subsequent paper, the Australia Institute called for the universal default superannuation fund which the Cooper Review has now recommended.

The Institute's reasoning was that most Australians do not exercise their right to make choices about their super because it's too complicated, and not something they need to worry about in the here and now. The financial services industry exploits this indifference, and there are few complaints about the management fees it charges which the Australia Institute's researchers argue are 'simply not value for money'.

Most Australians have more immediate concerns, but essentially their future prosperity is being eroded to bolster the profits of the financial services industry.

Like the Australia Institute, the Cooper Review takes the indifference of Australians as a given, and recommends the default fund that it calls MySuper. Predictably the superannuation industry was unimpressed, and labelled the reform proposal 'paternalistic'. Review author Jeremy Cooper (pictured) told the ABC's Lateline Business that the whole concept of superannuation is paternalistic, but brilliantly so.

'It is paternalistic. We just have to accept that … given that it is compulsory, we're saying it has to work for people whether they're interested in it or not.'

That could be written off as a glib comeback on the part of Cooper. Moreover channelling people into a default superannuation fund could be compared with income management, which was criticised in Eureka Street last month. Andrew Hamilton wrote that the Federal Government's recently extended income management scheme is not ethically justifiable because of 'the inherent damage done to the human dignity of those included in this scheme and the slightness of the justification for it'.

But, by contrast, MySuper is geared to protect the human dignity of Australians in retirement against their own indifference, and also commercial exploitation. That is surely justified paternalism.

Michael MullinsMichael Mullins is editor of Eureka Street.

Topic tags: michael mullins, superannuation system review, jeremy cooper, mysuper, income management, julian disney



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Existing comments

'Paternalism' is used almost like a swear-word to denigrate proposals that are disliked by the over-inflated financial management industry.

Yet almost everyone accepts the need for,and some negative consequences, from laws and regulations in a range of areas of human activity - such as road rules, building codes, even taxation.

Similarly, we should acknowledge the need for the diversion of portion of income earned during our working years to provide reasonable comfort in old age. This is common-sense humanity, not 'paternalism'.

Bob Corcoran | 12 July 2010  

I think one of the best systems for old age care is the 3-pillar system in Switzerland. In Switzerland most retirees have not only more free time, but also more spending money then they had during their working lives.

The system is based firstly on a compulsory contribution scheme into which the employer and employee pay a certain percentage. This scheme is Government controlled and when workers retire, they are paid a pension out of this fund. Pensions are paid out according to the contributions made into the funds, but have a minimum level for low-income workers.

The second pillar is a system of private superannuation. Most companies provide these as an incentive to attract and retain good workers. In some cases worker may also contribute some extra money or they can contribute to a private superannuation fund.

The third pillar is private savings and real estate.

The benefits of this system are that income taxes do not have to be spent on welfare and therefore taxes for private individuals and companies can remain low. Retired people can live in dignity with a good income.

I think Australia should start moving away from taxpayer-funded welfare to a system of greater security and equality, which can provide for greater dignity for older people.

Beat Odermatt | 12 July 2010  

The system of superanuation rests on the concept of investment. The amount available to each individual depends on interest rates. At the moment interest rates are very low, so retirees canot rely entirely on their superannuation capital and rely on government pensions. What will the future bring?. there has to be a balance between interest rates and the incentive to invest and reasonable interest rates for those borrowing money

John Ozanne | 12 July 2010  

Sorry but I can't help hearing a double standard here...
Those who support income management ( I most certainly don't) would advance for it all the same arguments used to support a default superannuation scheme.
The best that can be said of the latter is that it treats everyone as incapable of managing their own income with an eye to present and future well being.In that sense it is at least less discriminatory than income management.

margaret | 12 July 2010  

We have Baby Boomers, Gen X, Gen Y and now gen "not responsible". This generation does not want to accept responsibility and are encouraged in this line of action. Recall the add that was run in support of reduced speed limits in school zones, a boy kicking a ball on the way to school and day dreaming. We have to slow down and look out for them. Extend this to its logical conclusion and don't allow children to ride a push big to school or anywhere else.

Recently a footballer accidentally run over his child, stated he knew his driveway was dangerous and government should legislate against garages attached to homes. Delegation of responsability.

I live opposite a school and mothers drive their children to school and walk them all the way to the school building. By the time they are 7 or 8 surely they can be trusted to walk along the footpath to the lolly pop controlled crossing and into the gate on the other side.

For crying out loud, we have to take responsibility for our own actions eventually and accept the consequence.
When do we start? How do we train children. How do we train adults?

Frederick | 12 July 2010  

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