The Origin of Australia’s Superannuation System

Our superannuation system was not a gift. It was introduced only after persistent struggle by workers and their unions.

From the 1950s onward, the labor movement demanded “portable” retirement savings schemes — that is, savings that would move with workers between jobs, rather than being tied up with one employer. Previously this had only been available to senior company staff and some public servants. Unions argued that universal occupational savings schemes would help safeguard a more dignified retirement for workers, in addition to the aged pension.

Over decades, these campaigns put universal superannuation on the national agenda. In 1973, Gough Whitlam’s Labor government established the National Superannuation Committee of Inquiry (also known as the Hancock Inquiry), which called for the expansion of savings schemes in 1976.

The conservative Fraser government rejected these recommendations out of hand. Instead, Fraser set about pushing through industrial relations reforms — including Australia’s infamous secondary boycott laws — that created what experts, and the World Economic Forum, have described as one of the most anti-union jurisdictions in the developed world.

Then, in 1983, Labor PM Bob Hawke and his treasurer and eventual successor Paul Keating introduced the Prices and Incomes Accord, a wide-ranging series of industrial relations agreements. Many critics blame these reforms for further diluting union rights and rolling out neoliberalism in Australia. They were also crucial to the evolution of Australia’s superannuation system. Superannuation, Hawke and Keating claimed, would work alongside the aged pension as part of a “multi-pillar retirement system.”

In line with the Accord, in 1986, the Conciliation and Arbitration Commission stipulated that employers should pay workers a 6 percent increase in compensation for work, comprised of a 2 percent pay raise, tax cuts, and a 3 percent contribution to superannuation. With this ruling, the commission effectively ruled that superannuation entitlements formed part of workers’ wages. In 1992, as prime minister, Paul Keating made employer contributions to superannuation compulsory.

Neoliberalism and Superannuation

Unions fought hard to win universal superannuation. However, by the time the system took shape, unions found their collective power curtailed. In line with practice in the United States, workers were barred from using their industrial weight to democratically determine how their capital would be managed and invested.

Indeed, Australia’s superannuation system was shaped by neoliberal economic reforms that we’re still paying for today. This is important for three reasons.

First, it imposed on workers a trade-off between wages paid in the present and “deferred wages” in the form of superannuation. Second, the commission distorted reality by labelling these payments “employer superannuation contribution.” This misnomer stuck and continues to conceal superannuation’s real significance.

Thirdly, Keating designed and sold universal superannuation in neoliberal terms, arguing that it would ease pressures on government expenditure, restrain wage inflation, and boost private savings to help address Australia’s account deficit. He also argued that forced savings would assist with capital formation to fund productive investment.

Keating’s superannuation scheme did achieve the goal of “transforming capital markets” by enlarging pools of capital available for economic investment. Yet these funds were modelled on capitalist investment funds, leading to the financialization of retirement savings. This has meant that fund managers treat workers’ capital like private capital, investing and managing it accordingly.

The financial services industry took advantage of this to enrich itself, treating superannuation funds like a “financial product” to invest in order to maximize returns. A royal commission on banking recently exposed this practice. It found that for-profit superannuation funds have gambled their members’ money on the stock market and whittled their savings away with exorbitant fees. Over two decades, Australians have paid at least $362 billion in fees to the industry.

Slipping Through the Cracks

Compulsory and universal superannuation was a huge step forward for millions of workers who were previously excluded from occupational savings schemes. Yet, as an occupational savings system tied to employment, superannuation places a large part of the financial burden of retirement onto individuals. At the same time, as union power and workers’ rights have been eroded, more and more Australians have fallen through the cracks.

This is threatening universal superannuation. For example, increasing numbers of people in precarious work who work in the gig economy, in informal employment, or on “sham contracts” are denied superannuation. So are unemployed workers, disabled people, and those who perform unpaid care work. Women are particularly disadvantaged.

Meanwhile, superannuation tax concessions overwhelmingly go to the rich and are on track to exceed government spending on the aged pension. By failing to account for unequal access to superannuation entitlements, and by allowing the rich to use superannuation for further wealth accumulation, the current system works to entrench inequality.

Conservatives often claim falsely that superannuation was created to replace the aged pension. But this is part of a broader push to privatize all social services and welfare. Caring for our retired and elderly should remain a responsibility for everyone.

In addition to ending precarious work and rebuilding a strong, redistributive social safety net — for example, by raising the rate of unemployment benefits — we should expand superannuation payments, such as by extending them to cover parental leave. Scrapping superannuation tax concessions for the wealthy would allow us to fund superannuation payments for many more deserving people, like those receiving unemployment payments or the disability pension.

But fixing superannuation also means taking back control of funds and using these vast economic resources for our collective benefit.

Struggle Over the Future

The combined $3 trillion of Australia’s superannuation funds represents an enormous potential power, nationally and internationally. As major investors in Australian company shares, super funds are on track to dominate 60 percent of shares in the Australian Securities Exchange over the next twenty years. Nominally, Australian capitalism will be collectively owned by workers’ money — but this stake isn’t reflected in the legal framework or manifested in any meaningful control.

This is why the fight over superannuation isn’t really about retirement. At any rate, more retirees rely on the aged pension than on super. Rather, conservatives and employers see superannuation in terms of power and control. Whoever controls these funds controls where they are invested, and how much cream can be skimmed off by the financial sector.

It’s also why conservatives are desperate to attack industry super funds, which were first created by unions in 1983, and are comanaged by union representatives and mandated to benefit their members. Since then, industry funds have blossomed in scale and reputation, and remain on average the highest performing and fastest growing part of the superannuation sector, in stark contrast to their for-profit “retail” counterparts.

Although far from perfect, industry super funds have been invested to create jobs, to push for divestment from fossil fuels, and to hold to account major corporations such as Rio Tinto and AMP. This hints at their global power. Pension fund divestment was a critical part of ending apartheid in South Africa.

This power is another reason why the Liberal Party and employers are intent on attacking industry super — for example, by removing the mandated 50 percent union representation on the boards of these funds.

Defending Super Means Democratizing Super

Any reforms should go in the opposite direction. The mandated 50 percent representation on industry super boards reserved for employers is what should be scrapped, with full control given to workers’ representatives. After all, there’s no equivalent requirement that worker’s representatives make up 50 percent of for-profit super boards, or corporate or bank boards for that matter.

Superannuation funds are legally mandated to benefit their members, and this, too, is a site of struggle. The Liberals have proposed changes to superannuation governance that would restrict the definition of “benefit” to purely financial criteria.

This came shortly after a recent groundbreaking court case between a $57 billion superannuation fund that was linked with the notoriously conservative Shop, Distributive and Allied Employees Association (SDA) and a twenty-five-year-old fund member, Mark McVeigh. McVeigh accused the fund of failing to act in his interests by not properly considering the risks of ecological crisis in making investment decisions. The settlement required the fund to ensure its actions were consistent with a net-zero carbon footprint by 2050.

This speaks to a broader point. Although superannuation funds are collective, they are treated like private capital; they define members’ benefits on an individual basis rather than on a social, collective level. Even when invested as part of public-private partnerships, superannuation has entrenched the private provision of public goods.

If the labor movement doesn’t claim full ownership over super, we risk losing it. In 2020, Scott Morrison suggested that industry super funds should be used to bail out struggling air carrier Virgin, while at the same time letting individual members drain their superannuation accounts to pay their rent. Worse still, we run the risk that our super will be invested in projects that accelerate our demise — for example, to fund Scott Morrison’s “gas-led recovery” or the expansion of military industries.

Fighting To Reclaim Our Future

Defending super in its current form or calling on funds to divest from destructive sectors won’t be enough. Our capital should instead be invested to build a better future.

When the system first took shape, many in the union movement called for superannuation to be used to construct workers’ housing, in line with the idea of a “social wage.” Today, after decades of declining public investment in housing — not to mention other social services — there is a more pressing need to return to this proposal and others like it.

In view of the climate emergency and the economic collapse triggered by COVID-19, the almost $3 trillion of workers’ capital could be used to kickstart a Green Recovery. We could create well-paying jobs in community- and worker-run enterprises, raising living standards and reforming industry to mitigate environmental damage and inequality. This would mean reclaiming and broadening the term “member benefit,” and pushing it beyond narrow, individual financial criteria.

Establishing democratic control over super is one of the most urgent industrial issues confronting the Australian labor movement. We can’t trust corporate interests to invest our social capital. It’s time to mobilize our industry funds behind our members’ needs. We own the wealth — isn’t it about time we owned the future, too?