Time to help super's left-behinds

When then prime minister Paul Keating radically reformed retirement income in 1992 by delivering mandatory superannuation payments by workers, the average life expectancy of an Australian was 77 years.

A quarter of a century later, that has risen to more than 80 years, and the pool of retirement savings has swelled to become the world’s fourth-biggest as the compulsory contribution has increased from 3 per cent of your wage to 9.5 per cent, en route to 12 per cent by 2025.

It’s a hefty amount by any measure. Including voluntary contributions, close to $3 trillion has accumulated – significantly bigger than the capitalisation of the entire Australian sharemarket and of the value of the nation’s total annual output. The magnitude is perhaps best appreciated when one considers that Australia’s population is less than a third of 1 per cent of the global total.

Sounds peachy, but we’ve got a massive, looming problem. The increasing contributions, fuelled by compound interest, are continuing to drive the expansion of this fortune – but not sufficiently to cover the needs of an ageing and expanding population. Children born today and beyond are going to need to fund a potentially far longer existence than people who were around when Mr Keating conceived the savings bundle that has become a investment behemoth.

The ostensible success of what is officially known as the Superannuation Guarantee has created a false sense of security. It’s a conundrum borne of a wonderful thing - the ongoing increase in average life expectancy, and of the actuarial reality that those whose working life occurred mostly before 1992 have not been able to amass enough to finance a decent retirement. The system’s architect is suggesting a redesign.

Mr Keating was part of a gathering of dozens of some of the nation’s leading financial engineers and policymakers last week  convened in Sydney by international businessman Anthony Pratt, co-hosted by the Herald and The Australian Financial Review. The main theme was the paradoxic immaturity of a market for corporate debt in Australia, one of the world’s key financial centres. This paucity reduces the scope for superannuation funds to investment across a prudentially diverse group of financial securities. There was hearty agreement this needs fixing, but the key moment of the ideas fest came close to the end, when Mr Keating segued to the demographic dilemma.

His solution is as simple as it is profound; a national insurance program to assist people to fund healthcare, accommodation and general expenses should they outlive their compulsory superannuation savings, which were not designed to cover the increasing number of people living into their 80s and 90s.

Mr Keating’s call merits careful debate. He contends: "We have no policy here in Australia for the 80-to-100 cohort. I don't believe that it should be left to superannuation. I think it should be a national insurance scheme. Only the Commonwealth can insure across generations."

Ignoring the issue for long is clearly not an option. A government-backed insurance scheme would, of course, need to be efficiently and effectively funded. One evident option is an income levy, such as that used to give Australia one of the world’s leading healthcare systems. Australia is one of the most prosperous nations, and has relatively low-taxing, low-spending governments. We can afford to rectify this problem. Doing so is in our communal interest.