Designing-in-ethics: A compulsory retirement savings system

In this chapter, I consider the ethical issues that arise in relation to the designing of an institutional arrangement for catering for the financial needs of retirees. I focus on Australia’s compulsory retirement income system in the context of the Australian government’s recent review undertaken by Jeremy Cooper (2011), but do so with a view to drawing more general conclusions regarding the ethical issues arising for retirement income systems. In Section 7.1 I outline a normative theoretical account of socio-economic institutions and apply this account to Australia’s retirement income system. In Section 7.2 I analyse some resultant ethical issues, including the fact that the system involves compulsory savings. Superannuation is the name of Australia’s compulsory retirement income system; it was introduced in 1992. Superannuation differs from some other social institutions in that it has been intentionally designed by Australian policymakers to serve a particular purpose (provide for the financial needs of retirees) and do so by a specific means (compulsory savings for the workforce). In this system employers are required to make tax deductible contributions on behalf of their employees, equivalent to 9% of their wages or salary. So the contributions to superannuation are largely (compulsorily) made by employers. However, these contributions should be understood as a component of the benefits paid by employers to employees for the work that they do for the employers. In short, the employers paying the superannuation into the employees funds is simply the mechanism by means of which employees self-fund their retirement. The Australian Government recently announced that the level of compulsory contribution will gradually increase from 9% to 12% by 2019-2020. Again, this will be funded by employers via a combination of corporate tax cuts, productivity increases and deferred wage increases. Superannuation has an important socio-economic purpose, viz. to provide an income for retirees. Notwithstanding that the pool of savings is compulsorily generated rather than by way of the freely made decisions of market actors, an important feature of the system is that the investment management and administration of the funds are outsourced to the private sector. So it is a hybrid public sector/private sector institution (of which more below).