Pensions and Superannuation

Pensions and Superannuation from the Search Foundation. What has happened? Total estimated superannuation assets decreased by 7.6 per cent in the period October December 2008 to $1.05 trillion. Over the 12 months to December 2008, there was a 14.8 per cent decrease. That is a loss of $183.3 billion in a year, with the biggest loss in the last three months. During the October – December 2008 period, industry super funds’ assets decreased by 8.0 per cent, but this was less than the fall in corporate funds, retail funds or public sector funds. Industry super funds, with 17.2% of total assets (or $180.9 billion), are performing better that other types on every score,
but the picture is still bad.

The majority of industry fund assets were managed by private finance sector firms – the people who gave us the ‘Great Recession’. For the October – December 2008 period, workers contributed $5.5 billion, and also rolled over $294 million into industry funds, and $1.8 billion was paid out in benefits. But losses on member’s funds were $18.9 billion, or more than three times what was paid in. (Australian Prudential Regulation Authority Quarterly Superannuation Performance report for December 2008, issued March 26 2009)

Workers close to retirement are traumatised. Many are now having to put off retirement because they can’t afford to retire as planned. Another group who have recently retired have seen their income dry up and have had to apply for the age pension. Why is happening? Some public sector workers on the old ‘defined benefit’ schemes are protected from the impact of the global economic crisis. Their benefits on retirement are linked to their final pay and indexed against inflation. But most employees rely on the Superannuation Guarantee Levy of 9 per cent of wages, plus whatever they voluntarily contribute and any government co-contribution for these voluntary contributions. The benefit is entirely dependent on how their super fund performs. Most contributions are invested into the share market, with a minority placed in property or cash. The Australian and global share markets have been falling since November 2007, and are now down 40 per cent or more from that peak. Australian superannuation funds have lost $183 billion in 2008, even after all the contributions are taken into account.

Most super fund assets are invested in the share market by private finance sector managers. The Australian and global sharemarkets are down at least 40 per cent from their peak of November 2007.

The Rudd government should require superannuation funds to buy Australian Recovery Bonds to help finance the re-building of a fair and green Australian economy. Australian Recovery Bonds would have a government guarantee and pay a return of about 5 per cent per year. The Age Pension and Unemployment Benefit (Newstart) and all other social security benefits should
be increased by at least $35 per week.

The Rudd Labor government has guaranteed bank accounts up to $1 million, but specifically said that it cannot guarantee super fund account balances, because they are ‘linked to the market’. The government is reviewing the system of social security payments and is expected to at least increase the basic pension by $35 per week. At present the single pension maximum payment is $284.90 per week and the couple maximum payment is $475.90 per week. There is a real danger that the unemployment benefit (Newstart) will not be increased. The single Newstart payment is $226.65 per week, and with dependent children $245.20 per week.

What can we do about it? – Australian Recovery Bonds Super funds – especially funds relying on the 9 per cent Superannuation Guarantee Levy can be better protected from impacts of falling share markets and can play a greater role in recovering from the ongoing collapse of Australia’s economy. The Rudd Labor government will have a budget deficit of over $140 billion in the coming few years, as it works hard to build infrastructure and housing, to stimulate the economy out of recession.

But there is little available loan capital on the global markets to finance this deficit. One source of finance can be the sale of government bonds to superannuation funds.

In particular, industry super funds can be directed to buy a certain amount of these bonds. These ‘Australian Recovery Bonds’ would be a way for the Rudd Labor government to extend its present guarantee on bank deposits to at least a part of the super fund accounts of employees, and also guarantee a positive return, of say 5%, on that part. If industry funds put 20% of their assets into these bonds, this would be $36 billion. If industry super funds put 80% of all new contributions into these bonds, that would be about $4 billion per quarter or $16 billion per year.

Such a significant commitment of workers’ funds, in a secure framework, would be very popular with ordinary people, but will be vigorously resisted by the private finance sector managers.

It would motivate employees to talk more about the type of infrastructure that is needed allowing more effective pressure for public housing, public health, public education, public transport, water recycling and renewable energy projects. Super funds can help underwrite a vision for a fair and green Australia.

Summary:
• Superannuation funds lost almost 15 percent of their value in 2008, despite all the members’ contributions
• Many workers planning retirement have to continue working
• Many retired workers have to go onto the age pension which is very low
• Age pension and other social security benefits must be increased
• The Australian government needs to sell bonds – Australian Recovery Bonds – to finance the big spending it has announced to help economic recovery
• Superannuation funds should be directed to buy Australian Recovery Bonds to help protect the value of their funds and develop a fair and green Australia.

Produced by the SEARCH Foundation

www.search.org.au. April 2009

capitalist crisis severe

capitalist crisis severe

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One Response to Pensions and Superannuation

  1. Don November 23, 2009 at 7:14 pm #

    I agree that the government will force super funds to hold government bonds. The situation is more dire than you realise as the states are also in quite a bit of debt as well – over 150 billion and rising. So this will definitely happen however the government will not pay these bonds back – I propose that they will kill two birds with one stone and instead of repaying they will increase your pension indexed to the number of bonds that your personal super fund is holding. Not a great deal but desperate times…..