Superannuation

[Humodour]

We have had universal compulsory employer contribution to superannuation since 1992. The initial rate was a free 3% of your salary on top of your salary which was raised to 9% (soon to be 12%) with a free government contribution to match any voluntary contribution you make yourself up to a certain level.

 

As a result, Australia has the highest average superannuation savings per capita of any country. Superficially this seems perfect, and it might be, but I was wondering what impact this might have on Australia's economy? It's designed to counteract the old age crisis which will hit all Western countries once the Baby Boomers retire.

 

What I'm slightly worried about is - won't this increase inflation? All that capital flowing around so easily (cumulatively $1.2 trillion dollars atm) once the Baby Boomers retire will no doubt increase tourism, house, food, service and retail prices - aka inflation.

 

And inflation is essentially a silent tax nobody notices. If everybody retires on a couple of thousand grand as is expected, that's useless if, for example, inflation is so high, or becomes so high that a pizza costs $100.

 

I post this here because, as much as I like this policy, I know very little about it yet there's no real debate in Aus about it - it's taken for granted as a good thing by all three major parties. Why? Surely it's not that simple.

 

http://en.wikipedia.org/wiki/Superannuation_in_Australia

[Wrath of Dagon]

In real terms the savings are mostly illusory. You still have the problem of people who are working having to support people who aren't. It doesn't solve the societal problem, only changes the balance sheets.

[Gfted1]

So its a forced 401K? Sounds like a good plan to me. Better than Social Security anyway.

[Wrath of Dagon]

Yes, it sounds like the proposal to privatize Social Security that Bush got beat down for.

[Thorton_AP]

I don't quite follow. Why do you think it would increase inflation?

[Atreides]

Sounds responsible and encourages national savings.

 

Think the taxes set up to discourage huge withdrawals on eligibility may reign in your scenario.

[Tigranes]

NZ (as usual) copies this scheme with Kiwisaver, though it's opt-out rather than compulsory - and much smaller. I believe I have 2% of my pay going towards it, then the employer matching this, then occasional government bonuses. I can't believe the 12% figure, to be honest - what impact does that have on companies' bottom line & your salaries when the employer has to cop out an extra 12%?

 

Anyway, given that the baby boomers will all be spending money right up to their retirement anyway, and only a few are likely to go on sudden spending binges, I don't think the inflation impact will be that high.

[Humanoid]

The 12% is to be phased in, we only learnt about it in this year's budget. No impact on me though - I'm already getting 15% doing government work. The figure was not taken into account when discussing pay - i.e. the super entitlement is on top of regular pay negotiated. No idea how it works in other industries though.

 

I guess it's something I take for granted - I don't even bother reading the statements they sent me. Probably had a minor loss with the GFC and all but the account's worth about 1/3rd my annual pay now - and I've only been working full time for less than four years.

Edited October 29, 2010 by Humanoid

[Humodour]

The 12% is to be phased in, we only learnt about it in this year's budget. No impact on me though - I'm already getting 15% doing government work. The figure was not taken into account when discussing pay - i.e. the super entitlement is on top of regular pay negotiated. No idea how it works in other industries though.

 

I guess it's something I take for granted - I don't even bother reading the statements they sent me. Probably had a minor loss with the GFC and all but the account's worth about 1/3rd my annual pay now - and I've only been working full time for less than four years.

 

You just reminded me to fill out my super forms. Thanks! Arrg I hope this means I haven't lost the 9% contribution for the past few months.