The Super Super Generation – Generation X
The 1990-1992 recessionary years were very nasty for the Australian economy with significant unemployment, high interest rates and inflation at 6%. These were the years that buying a house in Sydney became unaffordable for those starting out in employment and looking to commence a family. Even though Keating – who ushered in the recession we had to have, it took a number of years to get the economy booming again when Howard took the throne from Keating. As an aside for those in the investment industry remember the fall in equity and bond markets in 1994 and of all things the low view of resources stocks?
Many Baby Boomers and War Generation members, who enjoyed a post-recession decade of good times and strong growth, have conveniently forgotten how bad things were at this time and the damage that it did to asset prices – particularly property. I remember vividly the great property shake-up or was it shakedown in the Gold Coast during the recession (funny how it has repeated itself 19 years later).
In the midst of our last recession, sitting quietly in the wings grew Generation X. Those children born between 1965 and 1981 who in their formative childhood, teenage and early adult years saw the recession, financially and emotionally impact on their family and friends. The figures tell the story with ABS statistics for the job market at the time showing in the 12 months to February 1992 - 547,500 employees were retrenched and that during the year ending February 1994 - 464,300 people were retrenched. Retrenchment is hard at the best of times but with wholesale retrenchment across the economy – no-one's job is safe. Plus traineeships, apprenticeships and graduate employment programs the driver of youth employment for Gen Xers were decimated during this period. Generation X faced some hard times as did their families during the 1990-92 recession.
However unlike Generation X across the world who also faced hard times in many western nations, Australian Gen Xers were given a gift - one great, big advantage that the Baby Boomers had in small dollops and the War Generation generally missed out on – the Super Guarantee.
1. The Impact of the Super Guarantee and Generation X
Paul Keating and the Labor Government introduced compulsory superannuation at the height of the recession on 1 July 1992. There was much complaint from all parties concerned as employers had to stump up a start up 3% to fund SGC from 1 July 1992 and implement new payroll systems – at a time when business profits and more importantly wages were subdued. For many, and I can remember being a Taxation Manager at KPMG Peat Marwick at the time, the year that the SGC was introduced was also the year we did not receive any wage increases (the wage increase being absorbed by the new SGC).
However the 9% SGC – the big sweet spot to use Paul Keating terminology did not kick in until 1 July 2002 – when many Baby Boomers were looking to retirement and thus leaving their superannuation savings underdone. Not so Generation X – they were slowly creeping toward a new era when they could take the reins of the Australian economy and become most productive. More productivity means more wages and most importantly more SGC as a percentage of salary and wages. This can best be shown in Diagram One that looks at total superannuation savings – both accumulation and pension for the next 15 years – from 2013 – 2028. These are the years of Generation X and superannuation.
Table One: Total Superannuation Assets 2013-2028 by Demographic
*Source: Deloitte: Dynamics of the Australian Superannuation System The next 20 years: 2009 – 2028