We've mortgaged our children's future to protect health of ageing parents

Sydney Morning Herald
by Mark Carnegie
15 April 2020

When you spend a significant part of your life in private equity, as I have, you tend to learn a lot about what makes the industry tick. Half of that time I’ve spent working alongside the Australian superannuation industry and it has let me see with crystal clarity just how vital the long term decisions the super industry can take is to our nation.

It is also important to know that if it gets stopped from making those long-term decisions because of government policy then the just developed venture capital industry, our world-leading infrastructure finance sector and even people like me will go back to working for foreigners at a great cost to Australia.

I unashamedly concede that my opinions and my knowledge are forged on the anvil of self-interest but I also know that the profit motive can generate very sharp insight.

The battle to save Australia from the ravages of COVID-19 was no place for the timid and overall our government acted with admirable courage, speed and good sense. However, the decision it took to allow hundreds of thousands of people to apply for early release of their super funds disturbs me.

The decision has been taken and obviously cannot be reversed, and most of the people who get money from their super fund will desperately need it and use it well. However, when the fog clears, the truth will sink in that we mortgaged our children’s future to protect the health of our ageing parents. To make it worse we did it without asking either group for their permission.

Our children and the nation need the permanent capital base that superannuation provides to rebuild the economic infrastructure that has been so badly damaged by the crisis. The government will be severely constrained in what it can do as a result of the vast expense of the various programs it has had to fund to keep our nation together.

Whatever some people tell you, they can't keep borrowing or printing money without some vicious long-term consequences. The rebuilding of the nation needs long-term capital and the best place to get that capital will be from our own world-leading pool of savings. There will be other ways of financing long-term projects but we need to recognise that if it isn’t from superannuation the people at the front of the queue will be the Chinese.

The geopolitical battle looming in the wake of COVID-19 is not a fantasy and if we stop our retirement savings from investing for the long-term we have lost a very important battle. If you want successful innovation to stay in Australia and not go overseas you need a well-funded venture capital industry. If you want world-class infrastructure it needs to be funded by long-term pools of capital. Today it is only superannuation funds that do, and a very few public companies that ignore the pressure of the next earnings report.

When the government decided to introduce the Superannuation Early Release Scheme (SERS) it had not decided to introduce the JobKeeper legislation and the storm of COVID-19 had just started. It was trying to protect a budget balance and fiscal conservatism. Now as Treasurer Josh Frydenberg has said philosophy is out the window and economic survival is front and centre.

In addition the government and health authorities have done a great job of making us the envy of most countries for our response to the crisis. What is not needed is old acrimony by the anti industry super lobby towards the relevant super funds to cloud the policy debate about the Australian pool of retirement savings..

The changed rules caused by SERS have changed the funding structure of large numbers of superannuation funds and to say they should have modelled it is asinine. The super system had lasted intact for more than 30 years without people saying it was ok to access that money before retirement.

Australia needs a functioning economy for our children and to do that it needs a functional retirement savings industry. Before COVID-19 we had one that was the envy of the world. Let’s hope we can have that again by helping to put something in place that works to pay back the financial sacrifice our children have made and will continue to make for the next decade.

We can best do that with a way they can be encouraged to put back into super what they needed to take out to protect the aged from COVID-19 and have those retirement savings in turn invested for the long-term benefit. This is one of the few times that I feel the industry needs to come with me. We can go back to work for foreigners or we can solve this problem now.