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Superannuation Should Not Be An ATM for Every Financial Crisis (Parallels with the Marshmallow Test)

The Australian Superannuation system should not be an ATM for financial crises. There needs to be a separate mechanism for providing financial relief for those suffering hardship.

Superannuation should have just one purpose - saving for retirement.

The defining advantage of superannuation funds should be that they have patient capital and are investing for 20, 30 and even 40-year time horizons. As a result they can be the perfect vehicle to monetise the long term beta returns of traditional asset classes and also harvest the illiquidity premium offered by alternative asset classes including infrastructure, private equity, venture capital, private credit and real estate.

Unfortunately, and despite various efforts (legislating the objectives of the super system was a key recommendation of the 2014 Murray Inquiry and a Superannuation Objective Bill 2016 failed to be passed), it has been impossible to reach consensus on the definition of superannuation's purpose. Various governments, left and right, and a variety of industry participants have failed to resolve this problem. As often is the case, politicians are not even aligned with the general population - senators or members who have served for 12 years receive a pension payable for life. There is also the mismatch between the short term gratification required by politicians (staying elected every 4 years) and the long term vision required to optimise superannuation legislation.

Superannuation investing is not about instant gratification - it is patient investing for 30+ years. Dipping into that early on decreases your future wealth. Because the issue of superannuation's purpose is unresolved, the most vulnerable are at risk.

It is those who are suffering financially at the moment who are forced to dip into their retirement savings - the better off are much less effected.

There is a simple lesson to be learnt from new research into the (in)famous social-science experiment known as the marshmallow test - long seen as a test of willpower vs instant gratification. More recently, researchers have found that it is affluence - not willpower - that seems to be what’s behind some kids’ capacity to delay gratification. (Read the article "Why Rich Kids Are So Good at the Marshmallow Test")

Similarly, the current hardship rule allowing members to access superannuation before retirement favours the affluent and indirectly punishes the vulnerable.

It is time that this lesson is learnt. Superannuation needs to provide for a dignified retirement, and therefore needs to take advantage of compounding returns for the maximum time possible.

The government, and society more broadly, needs to find a separate vehicle/mechanism for providing financial support for the vulnerable during the not infrequent financial crises that we all endure over our lifetimes.

Conflating the issues of long term saving and short term liquidity, inside one vehicle, leads to poor outcomes now and in the future.



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