By Lauren Townsend
Is the compulsory Superannuation we all know and love a benevolent friend or an over taxing fiend?
Superannuation is perhaps a necessary evil we must all live with in the current era. Funds deduct administration fees from members’ accounts with the amount and frequency varying. While you’re in steady work with money coming in regularly and your employer is making regular contributions, the fees don’t hurt that much; they seem fair enough given the amount of money being managed on your behalf. However, did you know that if you cease working and cease making contributions, the fees continue? Even if nothing is coming in to be managed and accounts are stagnant?
Why is this a national problem? Why do we have compulsory super? Why do we compel employers to pay it on top of wages? We introduced it so that people would have money set aside to retire on and be less reliant on government pensions when they cease to earn an income. Allowing fees to deplete people’s super during periods of unemployment is counter-productive to this goal; it means they will have less money in their super account when they reach retirement age, which means they will be more dependent upon government assistance.
Who does this hurt?
Young people; especially students who only work during uni holidays, or those who need to work for 18 months before uni so they qualify as independent for youth allowance when they start full-time study, as well as those who take a gap year and those with paid practical placements or who just work on a temporary basis. Young people especially will work for intermittent periods and on temp contracts due to study and travel commitments or while looking for full-time work. It is while they are not working and not earning and not making contributions to their fund that their funds will be depleted by fees.
The sick; who stop working for medical reasons for periods of time. Those who become unemployed or in between jobs for any other reason, are similarly affected, since they also experience long periods of unemployment.
Finally, this hurts the taxpayer. Australia has an increasingly aging population that is going to become increasingly expensive and, some say, unsustainable to support. Fees which deplete people’s super, reduce their ability to be self-reliant and therefore increase the burden on tax-payers. All of society is therefore impacted when government budgets must cater for pensions (currently our second largest expense in the 2015 budget) at the expense of other programs, initiatives or infrastructure.
We could allow people to withdraw some or all of their balance at the end of their employment contract. However, this could also defeat the purpose of having compulsory super as many people go from temp contract to temp contract throughout their working lives. This is also why exempting temp contracts from the payment of super would be counter-productive – not to mention offer an incentive to employers to transition workers onto temp contracts; threatening job security.
Allowing funds to charge administration fees to people’s super accounts during periods of unemployment depletes their overall amounts when they do retire and is detrimental to individuals, tax-payers and society. The only ones who benefit are the funds who collect the fees. There is currently no way for many people to avoid this by withdrawing their balances and other possible solutions come with accompanying risks. However, we could legislate to compel funds to freeze fees on members’ accounts when they become unemployed. Compelling funds to freeze fees on members’ accounts when they cease working would affect the funds financially; but not to the extent that would harm operations, as the majority of their members would still be working and contributing. It is therefore, in this writer’s humble opinion, a viable solution.