EDITORIAL

Follow the science

“Follow the science” is a phrase commonly used to encourage evidence-based decision-making. Frequently associated with topics such as climate change and the COVID-19 pandemic, it is just as applicable to superannuation.

Sometimes the science is missing. That is why I founded the Conexus Institute: to apply an independent research-driven focus on some of these complex issues.

Whether some of the science was missing is the question mark hanging over the Your Future, Your Super performance test. Did the Productivity Commission and Treasury undertake all the necessary research to be certain of the impacts the proposed performance test will have on the way super funds will manage their investments into the future?

Research released by the Institute this week suggests the performance test will create a strong conflict between managing for best member outcomes and prioritising the YFYS performance test. I hope Government and Treasury are reflecting on the new science made available to them and are open to change.

Labor and industry are challenged by the science detailed in the Retirement Income Review. The Review concludes that there is a (negative) link between SG (Superannuation Guarantee) and wages and that replacement rates (with an acceptable minimum dollar standard) are a sensible objective which balances working life with retired life experiences. On these foundations the Review considers 9.5 per cent sufficient if people draw down their savings through retirement.

By viewing SG as an instrument to improve employer total conditions in a low wage growth environment, Labor risks a square peg / round hole situation. In aggregate, the science says that if the SG is increased then all those households who could benefit now from higher income may instead be forced into over-saving for retirement. If Labor switched their focus to exploring solutions to address the (global) imbalance between returns to capital versus labor, then they may be able to deliver better outcomes for working Australians along with a good retirement.

Finally, the science presents a glorious opportunity for an industry often portrayed as self-interested. Broadly, the Review says that 9.5 per cent SG drawn down effectively through retirement could deliver as good an outcome as 12 per cent SG under present draw down behaviours (yes, I know this puts a zero value on bequests, but it is a retirement income system).

Reframed, this means that if industry were to lead the way and rise to the challenge of developing solutions and engagement strategies which instil confidence then they can prevent the over-save scenario and, as a result, improve working life experience.

What an opportunity for industry to set itself a purposeful challenge while re-setting a fractured relationship with Government and policymakers!

Science has no place for ideologies and agencies. Let’s hope that everyone can focus on the science and deliver better outcomes for Australians in working and retired life.

Colin Tate, founding chair, The Conexus Institute