Point of view: The real problem is ill discipline

In any situation, humans have a natural tendency to take sides and look for someone, or something, to blame when we hear some alarming or bad news. That’s certainly the case with some of the recent commentary on our retirement income system.

For instance, pundits were quick to characterise the Government’s recent policy initiatives as “the policy to make us work forever”, or tell the Leader of the Opposition that his proposed contributions tax cut shows he is “a victim of the super industry’s propaganda”.

It may be natural to dichotomise — to try to find an ‘us versus them’ angle in every story — it’s just that it’s not that clever.

Another example of this came up recently, with the launch of the AMP.NATSEM Income and Wealth Report on older Australians, aged 50 to 69 years.

It showed that around 70 per cent of 50 to 69 year olds who had retired were living on just $16,000 a year, or $320 a week. It also showed that the average super balance for a 50-69 year old was $83,000, or around one-fifth of what an average full-time earner in this age group would need to maintain their lifestyle in retirement.

The numbers show lots of Australians probably aren’t enjoying the kind of retirement lifestyle that they might feel they’re entitled to enjoy. And therefore it’s tempting — but too easy — to blame the retirement income system and say it has failed.

Australia’s retirement income system is among the best in the world, according to the World Bank.

But it’s a young system — one that is still in transition — and evolving in an environment that is changing rapidly. Unfortunately, one of the slowest things to change with it is Australians’ attitude to the need to save.

Arguably, the most potent implication from the AMP.NATSEM report is not that the retirement income system has failed — but rather, people have failed to take full advantage of it.

For many Australians, retirement planning does not occupy top of mind until they are in their early 50s, which by then is too late. This is partly because many of them have failed to plan for the longer term, preferring instead to “live for the moment”.

In last week’s Point of View column (MM, March 25, p16), Snowball managing director, Tony McDonald outlined the case well, saying: “(Planning for retirement) is not just about making the dollar sweat in retirement. It has to start earlier than that…”.

It would be easy to criticise the system and argue that the gradual progression in compulsory contributions — from 3 per cent in 1992 through to 9 per cent in 2001 — was not enough to help those Australians now facing retirement to save what they potentially need.

But the concessions in the system for voluntary savings have always existed — it’s just that people have chosen (for many reasons) not to take advantage of them. The truth is, if someone can make voluntary contributions and doesn’t make them, then they have no one to blame for a poor lifestyle in retirement — other than themselves!

Again, this is not a black and white issue. Our retirement income system is in a state of transition — from a taxpayer-funded right to a government-funded universal pension, to the three-pillar mix of compulsory employer contributions and voluntary employee contributions underpinned by a taxpayer-funded age pension safety net.

It’s easy to summarise this change in one paragraph, but it will take a generation for the retirement income system to achieve its potential.

Meanwhile, the Australian economy has seen major and fundamental change in the 11 years since the retirement income system began. We’ve moved in that short time from an economy focused on manufacturing and commodities, to one that is firmly focused on services.

That kind of structural reform doesn’t usually happen easily. And, while our economy so far appears to be holding up well, the AMP.NATSEM findings clearly show that some Australians in the 50-69 year age group, who may be victims of this reform, did not have the means to address retirement saving earlier in their lives.

But the system is not failing — it’s developing in a period of massive change. Calls for radical change to retirement incomes would be akin to throwing the ‘baby out with the bathwater’.

In the same way, commentary that criticises the Government’s policies on older Australians working longer fail to recognise that many older people who are skilled, capable and motivated are already seeking opportunities to work part-time.

And short-changing the Leader of the Opposition on his proposal to reduce contributions tax ignores the fact that, while tax is just one lever acting on the growth of superannuation balances, it happens to be one for which Parliament has the greatest control.

Neither the more flexible approach to super for older workers nor the reduction in contributions tax will — on their own — provide the big solution to our retirement income problems.

But together they provide part of the solution, they encourage the community to find more solutions, and they provide extra incentives for people to take advantage of the enormous benefits available to them in our retirement income system.

Steve Helmich is director of advice based distribution, AMP Financial Services .