Why rightwing critics are wrong to say the Australian super system is broken

Spending on aged pension will be stable for decades to come, experts argue, despite claims by Bragg and Hanson

Is Australia’s superannuation system “one of the biggest policy failures since federation”? Is “the whole system broken”?

Australia’s $4.4tn compulsory super regime is generally considered among the best in the world, yet conservative politicians such as Andrew Bragg, the Coalition’s putative shadow housing minister, and Pauline Hanson , One Nation’s leader, seem to hate it.

Bragg last week told ABC radio that compulsory super “is one of the biggest public policy failures since federation, in the sense that it hasn’t helped the budget, and it has not really helped many people get off the pension”.

“A lot of people [are] pulling out their superannuation, spending it, then end up on the age pension anyway. I think the whole system is broken,” she said.

The key contention in Bragg’s National Press Club speech last week was that there is virtually no long-term budgetary benefit from compulsory super – so what’s the point?

Bragg published a chart from Treasury’s 2023 intergenerational report (IGR) which shows spending on the age pension “has been reasonably stable at just over 2% as a share of GDP over the past 26 years” and that “it will remain at 2% by 2063”.

“Meanwhile, superannuation tax concessions as a share of GDP are projected to overtake age pension spending in the 2040s,” he said.

That sounds like scrapping super would actually make the budget more sustainable over the long term.

But what Bragg is not saying is that maintaining a steady total spending on retirement is actually a major achievement in the context of rapidly ageing populations here and overseas.

As Treasury says in its IGR (our emphasis): “The total projected annual cost of Australia’s retirement income system is expected to remain relatively steady over the next 40 years, at around 4 to 4.5% of GDP, despite population ageing. ”

“The rise in total projected costs of tax concessions is driven by earnings tax concessions from the increased stock of funds, offset by a fall in projected spending on the age pension,” the report says.

And in direct contradiction to Hanson and Bragg’s assertions, the IGR predicts that a rising share of people will have enough money to retire without leaning on the age pension.

The share of people fully funding their own retirement income is predicted to rise from 29% to 38% by 2050, and continue to rise from there.