fatvegan

Between the 10th May and the 30th June 2007 you can contribute up to $1 million of untaxed contributions into your superannuation account. So if you're rich, about to retire and looking for a tax haven just dump all your money into super. My guess would be that anyone able to put $1 million into super already has plenty savings tucked away, and isn't ever planning to live off the age pension. I wouldn't be surprised if this little scheme failed to save the government a single cent, but will probably cost it torrents of foregone tax revenue.

There aren't that many examples of truly regressive taxation in our social-democratic utopias, but superannuation is one of them.

Joseph Stiglitz wrote a pretty good paper called Rethinking Pension Reform. I agreed with most of what he said. He suggested that all the equity and efficiency features of privatised superannuation could be achieved with with public pensions and I thought he was probably right. With private pensions the poor are likely to retire earlier because they expect to live longer. A wealthy person with a good doctor and a strong heart will keep working, because they might live until they're 100. Assuming people's relative incomes will be the same in retirement as through their working lives, people are encouraged to work until they've found their own happy balance between length of retirement and annual retirement income (because those two things will be inversely correlated).

There is an implicit indexation to life-expectancy there. As people's life expectancies increase, they'll naturally choose to retire later. The public way of encouraging later retirement is to index the retirement age against life-expectancy. So each generation works for a given proportion of their life, and is in retirement for the rest. Which would work fine if everyone lived the same length of time. But they don't. You could conceivably have a retirement age of 70, because the wealthy had a life expectancy of 85 and the poor had a life-expectancy of 75. The government would pay for the poor to be in retirement for 5 years, and the rich would be in retirement for 15 years. It could even get to the point where the average poor person wouldn't even get a retirement. Particularly as health care becomes more expensive and more privatised, life-expectancy between the rich and poor is likely to diverge.

So I can't see how a public system can emulate that feature of a private system. Only a person themselves has a good idea of how long they're likely to live. It would be tricky for the government to have a different retirement age for different groups of people.

A nice solution would be to equalise incomes so that everyone lived for the same length of time. All these issues would be much simpler then.

I got 95% for my superannuation paper. That makes me so happy. It's the knew highest mark I've got for a critical assignment. She sent an email to each of us with our mark. It was in a Word document and took ages to open, and the longer it took the lower I saw my mark falling. But she liked it. So yay.

This is one of the problems with Australia's superannuation system. If all of the wealth bottled up in the richest 25% of this pie had been taxed and invested, the government wouldn't be nearly so frightened about the prospect of paying pensions to the poor half of the pie. There are some things I really like about superannuation. But there are other things which suck bad.

Usually, some pension is withdrawn once a relatively low earnings threshold is reached. These earnings tests can impose very high effective tax rates on working, ensuring that very few people work beyond a certain age.

Some countries have either eliminated or substantially diluted pension earnings tests as a way of encouraging older people to work. As with the actuarial adjustments, these reforms do not seem to have had much effect, usually because they apply at ages well after the majority has retired.

The World Bank

So they are saying that means testing stops old people from working. But when the means test is removed people don't go back to work. They sure are pretty keen to give everyone private savings accounts whether it makes sense or not. Why don't they just admit it? They hate poor people and want them all to suffer and die.

Managing superannuation funds is a bit like managing a central bank. There are benefits from having the government do it, but also some disadvantages. The benefits of having the government in charge is that government will hopefully keep the interests of normal people in mind. The disadvantage is, obviously, that the government can't do anything well and will screw the whole thing up. Which means that superannuation funds and central banks have to be managed by the markets. Yes! The markets! It's the only feasible solution.

There may be problems, but we'll just have to learn live with them. The markets may run off with our retirement savings, or run off with our foreign reserves, but surely that isn't as bad as having the government in charge. You can't give the government our retirement savings, because the government would own shares in our corporations. The government can't own shares. That would mean they were in charge of the economy. Which is preposterous. That would be no different to outright communism.

I suppose you could have an independent trustee for your central bank. Like the rest of the world. Maybe that would work. I'm not saying it's a great idea or anything, but maybe. But there's no way you could do that for retirement savings. Obviously it wouldn't work at all. Retirement savings are totally different. Central banks are central banks aren't they. And retirement savings have different needs. Only the markets can serve those needs. It should be blatantly obvious.

It's a freaking scam. The stock market can't grow faster than the economy forever.

They all say it will, and I got confused but then I drew boxes for the stock market and the economy, and imagined them growing. The stock market can't be bigger than the economy so it can't grow faster than the economy for ever.

I should go and rewrite some chunks of this essay now, but I'm not going to. It does make me feel dirty though.

Why are governments the least risky people to give your money to when it comes to bonds, and the most risky people to give your money to when it comes to superannuation?