Superannuation, Pensions
Superannuation, Pensions

Australia looks set to increase its compulsory pension/superannuation scheme from 9% of salary to 12%. There will be much cheering by the industry lobby group where big bonuses will no doubt be had. Industry players will also soon be richly rewarded thanks to the increase in the amount of money they will manage.

But those of us who are not government lobbyists or employed in finance will be the losers. People living in retirement in 20 years may be far worse off. As will all those in the interim unable to get a job because of the additional employment costs.

How we live depends on the production of the economy and revenue streams from overseas. It matters little how much our nominal superannuation accounts hold. Just as Americans found their retirement dreams crushed by falling property prices, so will Australians if the economy is not producing enough to cover their expected consumption.

More money poring into superannuation may increase asset values, be they shares or mortgage backed securities. The rising asset prices can create the illusion of wealth. The illusion may last for decades, as has happened throughout the developed world thanks to increasing credit/debts. This illusion may result in people spending more than they otherwise would. GDP may even grow.

But the growth in GDP will flow from mal-investment. When reality intrudes, these jobs will disappear. As will peoples dreams of retirement. Unfortunately it will be too late for many of them to work harder and save more for a comfortable retirement. Their golden years will be ones of deprivation and misery.

But the bankers and lobbyists will do well. As with the US bailouts the return on money spent getting the government to change the rules to favor you will be astronomical. It’s just a shame about the cost to the rest of us.

Don’t even get me started on the psycho-social effects of propagating a delusional view of reality. One in which your superannuation or pension account will enable you to live a long and comfortable retirement in 20 years.

At the least the superannuation scheme in Australia further divorces ownership from control. It will increase the influence of large funds and further diminish the ownership pressure on management.

For example, index finds mimic the composition of the index. They can have lower costs than more active funds. They can also outperform many of them. But they would not be acting in accordance with their members interests if they increased costs to follow what was happening in the companies they invested in. They simply mimic the index. The more shares held by such institutions, the less ownership pressure on management.

Self managed super funds might be a different story. But if people are going to actively manage their money for their retirement, why swamp them in superannuation related red tape?

The support for increasing superannuation is simply another example of Bastiat’s parable of the broken window and the mistake of focusing on the seen benefits rather than the hidden cost. Although in this case many of the perceived benefits will not eventuate for most of us.

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