Why Our Super System Is Failing Young People Like Me

Opinion: Jessica Ellerm, CEO and Co-Founder at Zuper Superannuation

Like many people in the financial services industry, I’ve spent hours digesting the Productivity Commission and banking royal commission’s recent findings on super and the coverage each has attracted.  I’ve concluded that there is simply no longer an argument to be made in favour of today’s default super system, especially when it comes to helping younger Australians build wealth.

While it’s positive that each commission’s suggestions could stem what can only be considered the grossly irresponsible erosion of younger Australians’ balances, in my view neither set of recommendations goes far enough in addressing the root cause of the wealth-creation problem younger generations face; one which is tightly intertwined with growing social and environmental issues. Super is squarely at the heart of this wealth challenge, and could be at the heart of solving it. Few have truly realised this.

It’s time for a super reinvention

Today, large numbers of millennials and the generations beyond are staring down the barrel of a retirement burdened by debt and home ownership uncertainty, not to mention the ever-lurking shadow of increasing job insecurity that is present for many right now.

On top of that, many younger Australians are shocked to learn they are indirectly financing companies via their super that don’t align with their views on the environment, ethics, diversity and gender income equality.

Today, few superannuation funds or financial institutions adequately factor in these issues when designing investment strategies and products for younger Australians. This has to change.

We can’t fix the entire financial system overnight, but we can start by reinventing super. Its power to be the driving force behind broader change is incredible. As yet, this power remains relatively untapped.

Fixing the system isn’t about making tweaks to Environmental Social and Governance (ESG) screens on investment portfolios, or launching marketing campaigns with fresh-faced millennials. Instead it calls for a complete first-principles reinvention of super for a new generation. We have to ask our super system to go places it hasn’t gone before. If Madonna, Kylie and Cher can reinvent themselves, so too can super.

Super young people
“We can’t fix the entire financial system overnight, but we can start by reinventing super”. Image source: GoodStudio (Shutterstock)

It begins with young Australians demanding more

Given the heightened focus on the sector right now, it’s perfect timing to open up a much wider and franker conversation about what this reinvention could look like.

Industry and government seem unlikely to drive this conversation – the status quo and the political football of super make that near-impossible. Instead, young Australians must take the lead. The question, of course, is how? How do you get them to care enough to drive change?

Well, in that respect it’s fairly simple. Focus on what they care about first when it comes to creating financial freedom and living with purpose.

Younger Australians will engage when you give them a reason to

Top-of-mind wealth issues for many younger Australians are housing security, job security, and the ability to increase their earning potential over time. All three of these wealth creation strategies are getting harder to implement, yet unquestionably underpin the potential of your super and your ability to build wealth during your lifetime.

Let’s start with housing security. Under the current system, if by the time you retire you don’t own a home that’s fully paid off – an increasing reality for those millennials with mammoth mortgages, and who are buying later in life – any super balance you have built up will quickly be eaten up by rental or mortgage costs. For those of us who actively choose to not own a home, ongoing rental well into retirement paints an equally bleak picture. We still lack an accepted alternative social narrative around how to build wealth outside of the ‘great Australian home ownership dream’.

On top of that, in many industries the earning potential and job security of young workers is now being eroded at an ever-faster pace year-on-year by automation and digitisation. For those without a secure job and in-demand skills, the opportunity to maximise your super balance in the prime of your life can be lost. How much money never makes it into our super system thanks to a lack of investment in the skills of the future?

If younger Australians could turn to the super system to help solve these two wealth-creation problems first, before they turned to super for future income, engagement could skyrocket.

Super young people houses
“If you retire and haven’t paid off your home, any super balance you have will be eaten up by rental and mortgage costs”. Image source: GoodStudio (Shutterstock)

No surprise to see Kiwis ahead of the game

In New Zealand, this is already a reality when it comes to housing. The country’s superannuation equivalent, KiwiSaver, allows first homeowners to use their KiwiSaver balances to purchase their first property. Close to 35,000 New Zealanders used KiwiSaver funds to purchase their first home in the year to June 2018 alone, withdrawing just shy of $800 million in the process.

My uncle, who happens to be a bank manager in New Zealand, has told me this scheme opens up two fundamental financial conversations around saving behaviours with younger New Zealanders. Very early on, young Kiwis are motivated to understand how KiwiSaver works, so they can try to maximise its potential for their first home purchase. This knowledge then carries through to the second phase of their life, when they are looking to their KiwiSaver accounts to support a future income stream.

Australia’s super system could go one better

When it comes to housing, we can learn a lot from our Kiwi counterparts. We can also aim to outdo them. The Australian super system could lead the way in creating new sustainable home ownership models for younger Australians, using members’ money to enable them to access new housing infrastructure that could provide the foundation for a new approach to investing and wealth creation, all with the aim of producing a better retirement outcome.

In terms of new ownership models, co-living, rent-to-own and fractional ownership schemes are just some of the many new housing models that are booming overseas. Flexible long-term leases and debt-free models are also underpinning the housing infrastructure of the future in other economies for the incoming generations, just not in ours yet.

We can go so much further, though. What about housing that is energy efficient – properties that could earn an income for residents by supplying excess energy back to the grid? Or housing developments that are built with working parents and an increasingly flexible workforce in mind? These sorts of solutions could make significant inroads into the income inequality problem across the gender and contractor-versus-employee divide. Australian super funds could pioneer this type of housing infrastructure, just as they did transport, roads and power generation for our parents. We just have to ask them to. Maybe even demand it.

Use super to help protect young Australians from skills irrelevancy

Turning to the second challenge facing young Australians – that of job security and earning potential – how could super make a difference on this front?

University qualifications and apprenticeships are no longer the guaranteed job ticket for life they were once seen as. Young Australians are aware, more so than the generation before them, that they will need to invest in continuous education and skills enhancement throughout their lives. This will be necessary to stave off the threat of digitisation and automation, two macro-economic trends that are punching holes in the fabric of the traditional Australian jobs market, impacting a range of blue and white-collar industries alike.

Super funds can drive relevancy amongst younger Australians by playing a more active role in helping members access education benefits now, or even money to invest in increasing their earning potential. Today, super funds can allow early withdrawals based on severe financial hardship – going forward, does it not make more sense to stem the problem before it occurs, especially considering we can see it coming like a freight train?

Aside from the immediate engagement this type of initiative would generate, it could also act as an insurance policy for a super fund – helping to ensure steady and increasing contributions from members who may face less time out of the workforce than they would under the current system. At Zuper, we have made education and skills a fundamental part of our strategy through our Career Boosts program for members, however the possibilities here for product reinvention are enormous.

It’s time for a super rebuild, not a renovation

What the royal commission and the Productivity Commission inquiries have shed light on is how creaky and unfit for purpose our existing financial architecture is for the next generation. My peers and I are set to inherit this mess. But rather than continuing to retrofit our lives, ethics and aspirations around products that were designed for our parents, it’s time we asked for a complete rebuild that’s in our best interests.

This means all young Australians need to start challenging the idea that super sits passively on the sidelines until we retire. This ‘set and forget’ mentality can hold young Australians back from maximising the potential of their super accounts, as the royal commission has exposed.

We don’t need the banks or ‘fintechs’ to lead the way. Powered by us, and with a little ingenuity, imagination and an innovative mindset, the super sector could begin actively building the world we want to inherit. This could start as of tomorrow – the power truly is in our hands.

However, the only way this will happen is if young Australians start demanding more from the custodians they entrust their life savings to. It’s time to ask the people to whom we hand close to 10% of our income what they are doing with it to make our lives better right now. Not what they’ll do in the future, when the government changes or when the law changes. What they are doing right now to make our prospects better than those of our parents. Super isn’t just about the destination of retirement, it’s also about what happens on the journey there.

There is still time to redirect the super ship and avoid the inevitable economic and social icebergs looming ahead of us by putting our money – that’s right, our money – to better use. But it won’t happen unless we grab the wheel.

Jessica Ellerm Zuper

About Jessica Ellerm

Jessica Ellerm is the CEO and Co-Founder at Zuper Superannuation.




Main image Source: GoodStudio (Shutterstock)

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