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Interview with Kieran Gilbert on Bad Egg

Kieran Gilbert (KG): There’s a new book out today on Superannuation, and the flaws in the system, by Liberal Senator Andrew Bragg. He joins me now. Senator Bragg, thanks very much for your time. Your book ‘Bad Egg’, out today – let’s get straight to the point. Do you think the system as it is at the moment should be abolished?

Senator Andrew Bragg (AB): Well, Kieran, I think the system has worked very well for the insiders. It’s worked very well for financial institutions and for unions, but it hasn’t worked very well for workers. So the idea is good but the execution has been poor.

KG: But don’t you think it’s still, even if it doesn’t provide for a person’s retirement in full, doesn’t it help lift the standard of living for an individual if they’ve got some super to supplement their Pension?

AB: Yes it can improve living standards in retirement, but for many people super means that they won’t have a house, and I would rather people have a home than their super, if it has to be a choice.

KG: So what changes do you think need to happen in order to make this the best program possible? Because at the moment we have nearly $3 trillion aspart of a savings pool. Most people would look at that and think that’s a good thing.

AB: Well from a budget and from a macro view, I believe we should set an objective for super, and I think it should be something as simple as getting people off the pension. I also believe we should look to get the fees down through having a more competitive market structure. And more, you know, closer to home, in terms of people’s personal finances, I think we should make it possible for people to access their super for a first home.

KG: And is compulsory super contributions… is that something that in your view should remain?

AB: Well the compulsory super contributions and the rate is being considered by the Retirement Income Review, and I think that’s a good process which is being run through the Treasury Department under the auspices of theTreasurer. And I think the question for that review is how do we get more people off the pension? Because Kieran, this scheme costs more money than it saves. So over the long-term, we want to have a super system that helps our country with an ageing population, not a super system that drains the budget.

KG: And part of the argument you’re making I guess as well, and having read a little of your piece out today, and that is that you want a no-frills default fund basically to take people’s super.

AB: Australians spend $32 billion on super fees, which is more than they spend on power bills. So the best way to get the fees down is to have a competitive market. Now, super is created by government mandate, so it is already an artificial market. To make it really simple, and clear-cut, I think we could have a government default fund which would drive down fees.

KG: And if we look at some of the other elements, though, like in this crisis you point out the access to Superannuation early – that is $14 billion going into the economy that otherwise wouldn’t have been there if not for the super system. So, it’s not without its success stories as well, surely? 

AB: That’s right, and I think there’s a place for superannuation but the trouble in this area, Kieran, is that there is so many vested interests it’s very hard to have a conversation about it. I mean, people like me who have looked at how we can improve it have been called anti-vaxxers and the like. So it is a very very large scheme. But there’s no point having a big scheme thatdoesn’t get people off the pension over the long-term. We can’t just have a superannuation scheme that’s designed to inflate capital markets and the financial sector.

KG: Yes, that’s a fair point, but I guess the other argument that’s made in favour of having this pool of funds – I guess it doesn’t change if you have a default fund like you’re suggesting as well – but what the argument is made often in favour of superannuation as well is because we’ve got such a big pool of savings that that also provides for infrastructure investment and so on, so we’re not reliant on foreign capital as much.

AB: I think as you’ve seen during this crisis the super funds have been exposed as investing generally quite narrowly. A lot of them are index huggers and they charge a lot of money to manage the funds. So anything we can do to encourage the funds to invest more widely would be a positive thing. But as I say, this is an area where it’s very hard to have a conversation without resorting to sort of ‘name-calling’ because of the amount of funds and, frankly, the tentacles of this industry go everywhere.

KG: And those vested interests you referred to. So if we go back to that point you made about a default, no-frills, government-run superannuation fund – I guess the Future Fund would be part of the mix wouldn’t it, in terms of the investment strategies and so on?

AB: Yes. Well we already have investment management capability through the Future Fund. That scheme has performed better than the average super fund over the time it’s been in existence – so that is a capability we already have.And I think that would be absolutely worth looking at in an effort to get people’s fees down. I don’t think anyone would complain about lower super fees.The biggest problem in this area is a lack of engagement – I mean research that we did for the book shows that 25% of people have never looked at their super balance. So we want people to think about their super if we are forced to have it.

KG: Yes, indeed. And just finally, you know there’ll be a lot of people who will be saying “I want access to my money, I like this new program of early access”. Would you like to see that sort of thing broadened, or does that undermine the whole notion of universal super?

AB: Well the majority of Australians are on the pension anyway, and that is the case through to 2050. So if we can improve flexibility, if we can extend some of the early access measures sensibly beyond the crisis, I think we should look at that. The one policy I would like to see on the table is allowing people access to their super for a first home. As I say, you’re better off with a first home than with your super if you can only have one.

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