Category: Features

We name superannuation funds at the top of their game

The Australian

9 June 2018

James Kirby – Wealth Editor

The biggest idea in superannuation in a generation is the plan that everyone just has one fund for the rest of their life. Better still, that the single fund will be chosen from a “best in show” selection of funds that would be compiled by a new independent panel.

Will it ever come to pass? Already powerful forces in superannuation, such as the Financial Services Council, are lobbying against it. They say having a set of funds pinpointed as the very best would cause all sorts of problems. I guess so, especially for the funds that don’t make it to the top!

Being realistic, it might be a long wait for this “best in show” concept to get going. But, as someone once said, you can’t stop the power of a good idea.

There are a variety of lists of the top funds in Australia, but let’s go with a benchmark list as defined by the Australian Prudential Regulation Agency. To find, say, the top five publicly accessible funds is not that hard; you just have to ignore the “staff-only” funds, such as the Goldman Sachs Staff fund or the CBA Group super fund. And to be sure none of these funds have been just lucky over a short time­frame, let’s also focus on the 10-year figures that include how they performed during the GFC. Here’s the list:


One of the biggest and certainly one of the most influential funds, UniSuper is a $63 billion fund with a 10-year return of 5.8 per cent. Unlike the rest of the toppers on the APRA list (mostly industry funds) UniSuper is not strictly a “public offer fund”. It might be described as semipublic in that you can join if you work in higher education or you have a relative among its 421,000 members.

Care Super

This is a typical public offer industry fund that covers general workers in just about every industry. It is one of the smaller funds in the top league with $16bn under management (compared with $123bn at the King Kong of industry funds, AustralianSuper). A quiet achiever, Care Super has about quarter of a million members and a 10-year return of 5.5 per cent.


With a 2 million membership base, REST is among the biggest funds. Such a major presence and $47bn in assets under management can restrict performance, but REST has impressed with an ability to still top the performance tables year after year — it has a 10-year average return of 5.5 per cent.


With its constant advertising and previous public endorsement by a former RBA chief, Bernie Fraser, Cbus is perhaps the best known of the industry funds. As with any industry fund, there is union links, including with the CFMEU, which is a “sponsoring organisation”. The fund has $40bn under management and returned a 10-year average return to its 750,000 members of 5.4 per cent.


This relatively small fund punches above its weight. It has emerged from the building industry but with just 85,000 members it could almost be described as a boutique operation. Nevertheless, it has been very successful in investing the $4bn or so under management with a 10-year average return of 5.2 per cent.

So there’s the top five — the best in show — according to APRA. The issue, of course, is what defines the best in show; those numbers will change in the future. The best funds of the past may not be the best funds of the ­future.

What’s more, some people will want more than raw numbers, they may want a fund that follows their principles closely — that might mean the fund is actively investing in renewables, or it might mean the fund should have no links to trade unions, it might just mean that the fund plays fair and by the rules. Retail funds from the big banks and insurers might tick the boxes on independent directors, but it’s not much consolation if they have higher fees and get beaten endlessly in terms of returns from industry fund rivals.

If you want to draw up your own list of “best in show” options for making the right choice in super I’d suggest picking from one of these choices.

Big funds: The APRA top five (UniSuper, Care Super, REST, Cbus and BUSSQ) along with perennial outperformers AustralianSuper, HostPlus and Sunsuper.

Big retail funds: If you insist on a fund that is not linked with ­unions then among the top retail funds (over 10 years, according to Superratings) you would have AMG Super-Corporate Super, smartMonday PRIME, Macquarie Super Options-Super Plan, Colonial First State (First Choice Wholesale Personal Super) and Mercer Super Trust — Corporate Superannuation Division)

Specialist funds — ethical and environmental: It’s your money and you may want to do more with it than hand it over to whoever tops the charts. Australian Ethical is the best known of the specialist funds group, while Future Super is also a key player. According to super ratings the top five sustainable balanced funds over 10 years are: Hesta’s Eco Pool, AustralianSuper’s Socially Aware option, VicSuper FutureSaver-Socially Conscious Option, Care Super-Sustainable Balanced UniSuper Accum (1) Sustainable Balanced.

Roboadvisers: ING Living super, SixPark, Stockspot, Ignition. If the remarkable success of passive investing in the wider funds management industry is anything to go by, then the biggest threat to the current power structure in super are the new digital operators designed from the ground up to keep fees low and to create funds that match the market. The roboadvisers are still too new to offer 10-year track records.

SMSFs: If you really want to run your own super then an SMSF is the best way possible to do it. There has been some negative publicity around SMSFs, but the SMSF system remains very attractive. The Productivity Commission suggests you need $1 million to succeed with an SMSF, but industry experts and active investors disagree with this estimate. A starting point of $200,000 is entirely feasible.

We are stuck with an unfair super system

The Australian
June 2, 2018
Alan Kohler

The word “inequality” hardly figures in the Productivity Commission’s draft report on superannuation, but that’s what it’s really about: some people get poor retirement outcomes as a result of decisions made for them by others.

It’s the fundamental problem with the system, apart from the government’s unremitting effort to politicise and muck it up, of course.

At least the commission has finally called out the Coalition on its nonsense this week.
The commission’s research has established conclusively that bank-owned retail funds charge twice the fees and produce 28 per cent lower returns than industry funds, leaving their unsuspecting members worse off when they retire. We already knew that, but the PC has proved it, so you might think it will put an end to the Coalition’s dishonest attacks on industry funds.

Alas, no. In every interview this week about the report, Financial Services Minister Kelly O’Dwyer first tried to blame Bill Shorten and then forgot to mention the huge difference in outcomes ­between retail funds and industry funds.

Let’s measure it: according to my savings calculator, the difference between saving 9.5 per cent of current average weekly earnings for 40 years at the retail funds’ average return of 4.9 per cent and the industry funds’ average return of 6.8 per cent is, as it happens, $666,000 ($996,000 versus $1,662,000).
The fact that the government has not denounced this and given the banks a deadline for fixing the problem can only be explained by the Coalition’s absurd bias against industry funds because union officials sit on their boards, as opposed to those pillars of rectitude and good governance — bank directors.

But while the Productivity Commission’s draft report is a fine, exhaustive piece of work, it has also fallen short, in my view.

Its recommendation that default super funds be chosen from the top 10 performing funds sounds good on the surface and is definitely better than the current mess and, as the saying goes, we shouldn’t let the perfect be the enemy of the good. But it’s definitely not perfect.

The commission says the median annual return of the top 10 funds in the decade prior to 2017 was 5.7 per cent, 1.1 per cent below the average return of the industry funds. That produces an average difference in retirement outcome for the worker on average weekly earnings saving for 40 years of $432,000 ($1.23m versus $1.62m).

Last year I wrote that a single national default fund should be established that would be run by the Future Fund and would ensure that everyone got the same good result — no choice or competition, but at least no inequality. The idea was later supported by the chairman of the Future Fund, Peter Costello (unsurprisingly), but was specifically rejected by the PC this week.

The Future Fund’s 10-year return to March 31, 2018, was 8.5 per cent. Putting that number into the savings calculator produces a retirement sum for the average weekly earnings saver after 40 years of $2.7m, $1.5m more than from the average of the top 10 super funds.

And apart from the averages, a choice from a menu of 10, even if they are the “top 10”, would inevitably produce inequalities, most of all between the best and the 10th best. And will they still be the best and 10th best in 20 years? Or will those positions reverse?

And how does a 25-year-old make the choice from that drop-down menu? The only thing that matters is the maximum compound interest over the long term, so why have numbers two to 10 at all?

Why would the Productivity Commission recommend a system that, based on past performance, is going to produce, on average, a $1.5m lower retirement sum than the Future Fund would, and continue to result in at least some inequality and unfairness?

Because while the Coalition is ideologically biased against industry funds, the PC is ideologically biased in favour of competition: it’s the answer to every question that is put to it.

And it is true that competition with informed choice is the answer to most, if not all, questions about the efficient functioning of markets, the problem with superannuation is that it’s not a normal market. The choice is about the future, and therefore can’t be “informed” because the future is unknowable.

Competition in banking, for example, works fine because you know the interest rates on offer. Same with most other products.

But with superannuation the product is money in 30-40 years’ time, and depends on future ­returns that can’t be known.

With super, you can only know past performance and current fees, and intangibles like governance. Fees are important but not decisive in retirement outcome — it’s all about performance, and past results are an imperfect guide to the future.

And governance? Well, give me a group of trustees who represent workers and employees over bank directors any day.

The PC rightly says that super is an unfair lottery with too many losers, especially those in retail funds, so consolidation through the removal of underperforming funds and accounts with small balances is long overdue.

Basing the fix on competition, just less of it, won’t work, but nobody in politics or the industry wants to create a new monopoly, especially after the NBN debacle — although it’s clearly the right thing to do — so it won’t happen.

Public interest needs to be put first in superannuation reform

The Australian

June 2, 2018

Paul Kelly

Fundamental reform of Australia’s unique $2.6 trillion superannuation industry is essential following the devastating Productivity Commission analysis this week — but the stage is now set for a titanic struggle over the design and dynamics of reform.

Superannuation in Australia is not just a retirement policy that shapes the living standards of older people. It is a compulsory system still tied to industrial awards and agreements that delivers a guaranteed flow of savings into funds, creating a huge financial edifice projected to be worth $9.5 trillion in less than 20 years, with the trade union movement a critical stakeholder via the successful industry funds.

Super is driven by two sometimes conflicting forces: the public or member interest and the vested interests of the big players. How this shake-out occurs will be decisive in future financial and political power in this country and living standards in retirement. The politics of super are complex, brutal and often in the shadows.

Consider the deliberations of senior cabinet ministers over the recent 2018-19 budget when Revenue and Financial Services Minister Kelly O’Dwyer brought forward a proposal — previously advocated by Peter Costello — for a universal based not-for-profit government agency to manage and invest default super.

This would have been a radical game-changer. It would have constituted the biggest reform to the super system since its inception by the Labor Party nearly three decades ago. O’Dwyer is close to Costello. She worked for him as an adviser when Costello was treasurer. She took up the idea that Costello, chairman of the nation’s sovereign wealth fund, the Future Fund, had put into the public ­marketplace in late 2017, speaking in a private capacity.

Members who decline to choose a fund — an extraordinary two-thirds of people — are placed into a default (MySuper) product, a result often dictated by awards or agreements. Total assets from ­default in the system are just under $600 billion and heading towards one trillion, testifying to the pivotal power of this policy for the funds. A cabinet minister called the system “one of the great sweetheart deals”.

Costello, champion of free markets, favoured a government agency fund to handle default, believing this was a superior model and replicated overseas experience in countries such as Canada.

But O’Dwyer’s proposal was ­rejected by Scott Morrison and ­Finance Minister Mathias Cormann, who were concerned about the downside of such a government-run agency operating as a superannuation national safety system. The Productivity Commission considered and rejected the Costello model in its report.

The report documents the failure of the super system for about a third of its members, the centrality of the default model as a problem and recommends reforms that, in their own right, amount to the biggest remake of the system.

While opposition Treasury spokesman Chris Bowen has kept open Labor’s options on the Productivity Commission report, the ACTU, the industry funds and board trustees are determined to fight for a core principle — keeping the super system tied to the ­industrial relations system. This is the heart of the issue.

The pivotal strategic aim of all key Coalition figures is to break this link — and the Productivity Commission report said it must be terminated in the interest of members since the labour market had changed so much over the past three decades.

O’Dwyer has embraced the ­report, given her defeat in the budget deliberations on the Costello model. She says: “This report shows the super system has not been working as effectively as it should for millions of Australians. The default arrangements are broken for those people who don’t choose where to put their money.”

The pre-budget debate among senior cabinet ministers reveals the extent of concern within government and by O’Dwyer, as relevant minister, at the under­performance of a third of the system, the financial leverage for the trade union movement via ­industry funds and the need for radical change.

The battle lines are still being drawn over the structure of the ­reforms. And there may be some surprises. Costello’s public stance for a government super agency and O’Dwyer’s effort to make this Turnbull government policy was one option. Another, likely to be embraced by the government, is the Productivity Commission-preferred model for an expert ­independent panel to identify 10 “best in show” funds from which default members can nominate thereby exercising choice.

Of course, yet another will be where Labor lands — it will probably seek to fix the problems of the underperforming funds yet retain the link between the super and ­industrial relations system.

O’Dwyer tells Inquirer: “It’s clear that superannuation should not be a plaything of the ­industrial relations system. The Productivity Commission has been very clear on that point. I like what the commission has come up with.”

This week’s events surely invite a reinterpretation of history. Quick quiz: what was the biggest mistake made by the Howard government in its final 2004-07 term? Excess spending? No. Excessive tax cuts? No. Surely its biggest mistake was running with Work Choices when it should have used its Senate majority to redesign the super system with a focus on member benefits and separating the funds from awards and the IR system. It had the legislative power but not the insight to grasp the situation of today.

Senior ministers have confirmed to Inquirer that the Turnbull government remains committed to the legislated timetable to ­increase the super guarantee rate in steps from its present 9.5 per cent of wages to 12 per cent by July 2025. The reality, however, is that it would be unconscionable for this rate to be lifted, allowing more savings to be compulsorily poured into the system, without prior comprehensive reform of the model that is ripping off so many member accounts.

The ACTU, the unions and the industry funds are unforgiving. The industry funds feel constantly vindicated, unsurprisingly, by their superior performance compared with the retail funds, owned to a large extent by banks. Costello says that with default funds event­ually reaching a trillion dollars in a system that was compulsory, it is time for the government to “show an interest” as the scramble continues between funds over who gets the money.

Costello tells Inquirer: “You can have a slug-out between the industry funds and the retail sector. It’s been going on for decades. But perhaps a new and original idea should be injected into the decision-making.”

Senior ministers such as Morrison and Cormann feel otherwise. But former ACTU chief Bill Kelty, one of the original architects of the system, says there is an “arguable case” for the Future Fund to operate a default superannuation fund, saying he doesn’t think “every idea” Costello has is “bad”.

But the Productivity Commission’s rejection of the Costello model rests on firm foundations. It warns the “biggest risk” with a government-owned monopoly default fund would be political pressure to “top up” for poor performance, at the further risk of exposing taxpayers. Even before this possibility, having government responsible for fund performance creates potential political problems. The report also warns that “such a fund would fail to harness the benefits of competition for better member outcomes”.

The commission says more than 80 per cent of men and women in their prime working years, 25 to 54, hold a super ­account. Fund investment performance varies wildly. Incredibly, four in 10 members have multiple accounts, usually unintended and at high cost in duplicate fees. There are 228 funds, mainly in four areas — ­industry, retail, corporate and public sector — and just under 600,000 self-managed super funds.

The system arose as a de facto extension of wages policy during the visionary Keating-Kelty 1980s Accord politics. Funds were tied to employers and unions via industrial awards and agreements. The commission’s analysis of 14.6 million accounts with MySuper products found those under­per­forming represented 31 per cent of member accounts compared with 67 per cent of accounts performing above the benchmark, many being large not-for-profit funds.

While a majority of members are in products performing “reasonably well”, this cannot be deemed to be satisfactory in a system based on compulsion.

Looking at the default segment in the decade to 2017, the top 10 MySuper products generated a median return of 5.7 per cent a year — but 1.7 million member ­accounts involving $62bn in assets were underperforming. The 26 under­­performing funds were made up as follows: 12 retail, ­10 ­industry, three corporate and one public sector. The dirty secret of the industry funds is that they have a long tail of underperforming funds.

The price of being locked into a bad fund is high: a typical full-time worker in a median underperforming MySuper product would retire $375,000 worse off than if they were in a median top-10 product.

A theme of the report is that the system seems more geared to the interests of the funds than the members.

The Productivity Commission assesses the system as a whole — its concern is not industry versus retail — and it finds the system wanting. Its analysis is based on member interest and returns. While ideology cannot be removed from this debate, the report, in effect, is telling the Turnbull government its focus must be system-wide reform based on public interest — not just bashing up the industry funds. Such an approach will be essential to obtaining sufficient support for major reforms.

The problems are systemic. The Productivity Commission makes clear the defects are fund governance, lack of competition, inadequate regulation, insufficient independent directors and unintended multiple accounts. It argues the dividends from reform would be immense — even for a 55-year-old today the improvement from a good fund could be an extra $60,000 by retirement and for a workforce entrant the gain could be $400,000 at retirement.

The report finds the defects in the system are highly regressive. The people being hurt are the young, low-income earners and people who frequently change jobs. For the unions and Labor, who campaign endlessly on ­inequality, this reveals a malaise inside their own castle. It presents them with a test of values and ­integrity — do they fix the infection or just defend their institutional vested interests?

ACTU assistant secretary Scott Connolly says superannuation is an “industrial right” — making clear it must remain anchored in the industrial system. “The suggestion that members’ interests are best served by breaking the link between industry awards, workers representatives and employer bodies which has driven the strength of industry super is badly misguided,” Connolly says.

He declared the for-profit funds “should be banned” and dismissed the Productivity Commission recommendation for an expert panel — separate from the Fair Work Commission — to draft the “best in show” shortlist to ­replace the existing default model.

The ACTU position was categorically rejected by the Productivity Commission. The report insists the Fair Work Commission should have no role in any new ­default model — its statutory ­responsibility is workplace relations, not dealing with super funds. The report says the time has long gone when super funds should be specified in awards and workplace agreements.

Industry Super Australia, representing the industry funds, ­demanded total control of the ­default process. Its chief executive, David Whiteley, said: “The job of government now is to ensure that workers who do not choose their own super fund have their interests protected and are defaulted into an industry super fund. This is currently the role of the Fair Work Commission and is in the best interests of members. Superannuation is deferred wages and a condition of employment.”

Get the message? Reform is OK but don’t use the public interest to dismantle the guaranteed flow of savings by law into the ­industry funds.

In the end this will become a huge contest over financial and political power, with the public interest being used as the rationale.

If you want to grasp the superior strategic skills of the broader Labor movement in Australia there is no better example than the creation, growth and present operation of the super system. The conservative side of politics is now deeply alarmed at this power and how it might be used. The real issue is: can the system be ­reformed or has it gone past the tipping point?

The Turnbull government has two super reform packages now being advanced. The first is a ­series of measures before the Senate requiring trustee boards to have one-third independent ­directors; to strengthen the powers of APRA to intervene and ­impose corrective action where a fund fails to uphold member interests; and to permit freedom of fund choice for about one million workers now denied it.

The second package was announced in the budget. It bans exit fees on all accounts, protects low-balance accounts by transferring them to the ATO after 13 months of inactivity and will empower the tax office to proactively reunite lost super with active accounts.

Reforming the system will be a difficult task for the Turnbull ­government — yet the public ­interest case for reform is unquestionably strong. The government, however, must beware merely waging an ideological war. It will be tempting. To an extent, it is ­justified. But it is not the road to success.

Superannuation: PC report signals super shake-up is on the way

The Australian

June 2, 2018

James Kirby

Is your super fund any good? Is it suitable for you or did you just drift into it? Every single working person in Australia has super. It is quite simply a huge issue and this week the Productivity Commission produced a suitably huge report that could reshape super as we know it.

Better still, the report has managed to upset just about everybody in the industry, which is a good sign. It does not appear to favour anyone in particular.

There is one very big idea in the report — that everyone should have a single super fund for life. Whether this idea gets up or not, it at least drives home the point that if you have more than one super account you are working against your own retirement plan. Duplicate accounts erode your wealth and double your fees. One in three super accounts is still multiple.

The commission offers some powerful, and controversial, ideas that could have major ripple ­effects. For example, the “single fund for life” would be drawn from one of a top 10 list of funds chosen by an independent panel.

Moreover, all funds, including union-linked industry funds, would have to have a “critical mass” of independent directors.

It’s a blueprint for a substantially different, more efficient system that is — never forget — compulsory. The outstanding points are these:

  • Despite numerous failings that need to be reformed, the report says unequivocally that most people are well served by the system. The long-term average return rate is 5.6 per cent per annum, a perfectly good outcome.
  • Better still from a social policy perspective, the default sector, which serves the majority of workers, actually outperforms the wider system.
  • For the one million people with SMSFs, which have been under attack from all sides, especially from industry funds, the report makes the point that the average SMSF fund has done as well as larger funds.

But inside those headline numbers lurks a range of problems.

Sure, most people do well, but one in four funds are what the commission calls “persistent underperformers”. If you are in one of those 25 per cent of funds that are below average you are losing out big time. The report shows that over an average member’s working life, being stuck in a poor performing fund can leave you with 40 per cent less in retirement.

The report also shows that the miserable business of trailing commissions in super, which most people thought had finished years ago, is alive and well. When the government brought in the Future of Financial Advice reforms in 2013, they left existing trailing arrangements alone; that is, they were “grandfathered”. It turns out five years later there is still a staggering 663,000 accounts in the market paying more than $200 million on these commissions.

Political reality

The sharp end of the report, led by PC deputy chair Karen Chester, is where it rubs up against the interests of industry funds. Leading funds such AustralianSuper, Cbus, HostPlus and REST currently stand as the clear winners in the system, topping the performance tables on a consistent basis.

Any fund that reckons it will be left outside the top 10 is going to resist this idea. But it may well come to pass. In a statement sure to turn heads across the sector, opposition treasury spokesman Chris Bowen said he would consider backing the top 10 idea.

For SMSF operators who represent only a fraction of total super holders but a big section of wealthy investors, there was mixed news. It argues that success among SMSFs is effectively restricted to those with more than $1m in their fund. The average SMSF fund has $1.2m so technically the sector should be pleased, but those averages are skewed higher by a small number of very rich funds. The median level of ­assets in an SMSF is much lower at $641,000 (according to most recent available figures, from 2016.

But this PC suggestion is debatable: SMSFs have major advantages that do not stand up to the commission procedures. They allow the member to choose their own investments and have their hand on the steering wheel in terms of asset allocation.

Importantly, SMSFs can also borrow for property or other assets. Significantly, the commission has no problem with geared super funds and says as much.

If the report has a weakness, it does not give sufficient air to the disrupters coming through the system that are not traditional players, such as the big four banks and insurers, and are not industry funds either.

Some of the new major online offerings from both traditional players, such as a low-fee specialist ING Direct, or robo-adviser operators such as Six Park or Stockspot, all offer very simple products that often depend on the new “indexed” products that have emerged, such as exchange traded funds. These funds are an alternative, as are the youth-focused funds appearing on the scene, but have been damaged by a serious of unfortunate events, particular at Spaceship Limited.

Government fund would put a stop to the gravy train

The Australian

June 2, 2018

Adam Creighton

Machiavelli wrote “nothing is more difficult than to initiate a new order of things, for the reformer has enemies in all those who profit from the old order and only lukewarm defenders in those who would benefit from the new”.

Forget lukewarm, try clueless. Whatever the impediments to 16th-century reform in Florence, they were nothing compared with what Financial Services Minister Kelly O’Dwyer faces if she tries to improve the efficiency and competitiveness of superannuation. Abysmal standards of financial literacy are endemic. Almost a third of Australians would rather be given $200 in cash than receive $2000 in superannuation, according to a 2014 Westpac survey. O’Dwyer will have the two most powerful vested interests in the country — finance and unions — arrayed against her.

Compulsory super, in place for more than a generation, has created the world’s longest gravy train, delivering more than $30 billion a year in fees to a vast army of fund managers, administrators, financial advisers, custodians, bankers, directors, unions, employer associations, lawyers, accountants and pen pushers. The flow of cash easily will exceed the national defence budget within a few years.

The Productivity Commission’s landmark report into super, released this week, laid bare the extent of the inefficiencies: one in three super accounts is unintentional, draining almost $3bn a year in fees from savings; poor-performing funds are setting up millions of workers on ordinary earn­ings to retire with $600,000 less in savings than they should receive.

The inefficiencies ultimately all stem from a level of compet­ition “at best superficial”, the commission said. Indeed, six years on from the previous Labor government’s MySuper reforms, average fees fell a risible 0.03 percentage points to 1 per cent — about triple what large pension funds charge overseas — between 2016 and last year, according to Rice Warner. That means a typical family with a combined $300,000 is paying, probably unwittingly, about $3000 a year in fees, more than for electricity and gas combined.

Fees are evidently a sore point in the industry: fewer than 10 per cent of the 208 large super funds surveyed by the Productivity Commission bothered to provide any detailed information to it on investment management costs.

The heart of the commission’s solution was to wrench super out of the industrial relations system, creating a list of 10 funds to be chosen by an expert committee. For all the drama, this wasn’t particularly ambitious: only new workers, mainly disengaged young people, whose compulsory contributions amount to about $1bn a year would face the new list. Funds receive about $85bn a year in employer contributions.

The biggest vested interests, for-profit or retail funds run mainly by the banks and AMP, and the not-for profit or industry funds with links to unions and employers groups, were nevertheless outraged — the former because their woeful performance was highlighted once again, and the latter because any change could upset their ingrained advantages.

Industry funds trounced retail funds across the 12 years to 2016, delivering annual net returns of 6.8 per cent a year compared with 4.9 per cent by retail funds, and they will continue to.

Industry funds, born of the industrial relations system and deeply embedded in it, receive a huge advantage. They make up about 70 per cent of the default superannuation funds that appear in industrial awards and enterprise agreements, compared with 17 per cent for retail funds. These are the funds to which employers pay 9.5 per cent of workers’ wages if they don’t choose their own fund. Up to two-thirds of workers default into these funds when they start a new job, providing a reliable and growing river of contributions to default funds.

Ian Silk, chief executive of Australian Super, the biggest industry fund, conceded as much in an interview with former Labor MP Mary Eason published in her 2017 book, Keating’s & Kelty’s Super Legacy. “This has been the single most important investment-performance differentiator between the industry and commercial funds,” he told her. “The (industry fund) trustees could do, frankly, whatever they liked with the money knowing they weren’t going to be put under pressure by members saying ‘I want my money out’ ”. A captive market lowers advertising costs, too.

“The retail funds have not been able to do so to the same extent because most of their members are either themselves more engaged and more likely to move their money around … consequently, the liquidity requirements for retail funds are much higher.”

Indeed, for the past four years industry funds have enjoyed about 55 per cent of the compulsory contributions flowing into MySuper funds, more than double the share heading to retail funds. Across the year to March, industry fund assets grew four times as fast, up 16 per cent to $599bn, as retail funds. It’s not all easy money, though. Industry funds’ model and frugality also have helped keep costs low. For a start, no shareholders means no dividend cheques for shareholders.

“The pay in industry funds pales in comparison with what top bankers and fundies are earning,” says a Sydney partner of a multinational law firm who has worked in superannuation for decades. “The philosophy is totally different; they hate bankers driving Maseratis through Vaucluse.”

By way of example, AustralianSuper, with $123bn in assets across 2.15 million accounts, paid its chief executive, Ian Silk, under $900,000 last year, while its chairwoman, Heather Ridout, earned $192,000. Meanwhile, former AMP chief executive Craig Meller took home more than $8 million in pay and bonuses while his chairwoman, the now departed Catherine Brenner, earned $660,000. National Australia Bank’s wealth boss earned about $4m, about half what its chief executive earned.

“We’ve generated scale benefits to members as we’ve grown larger, through lower investment costs via better buying power with external fund managers and some internal investment management,” says Damian Graham, chief investment officer at First State Super, one of the biggest industry funds with around $90bn under management.

Industry funds also have kept costs down by sharing and owning support services run by intellectual fellow travellers. Industry Super Holdings, chaired by Garry Weaven, perhaps the most powerful man in super, is at the heart of a complex web of companies including Industry Funds Management, Frontier Consulting, Indus­try Funds Services, IFS Insurance Solutions and online newspaper the New Daily. Owned by the major industry funds, it has never paid a dividend. ISH now has more funds under management ($90bn) than Westpac.

Directors typically have strong links to the union movement. The wife of federal Labor leader Bill Shorten is a board director of some related companies.

As well as lowering costs through ISH, industry funds’ increased size and scale enable them to bring services in-house. First State Super’s investment team has grown from about 12 a few years ago to about 70, for instance.

The Productivity Commission’s report focused on efficiency, or lack thereof. Compulsory super’s structural flaws, however, are causing problems far beyond just a financial feast for the industry that puts pressure on the Age Pension. Union-sponsored directors on industry funds, which typically make up half the total, tend to give their fees to their union, while directors of for-profit funds keep theirs. In the four years to last year, the former gave more than $18m to their sponsoring unions, according to the Institute of Public Affairs. It’s telling the industry funds successfully blocked the government’s attempt to legislate quite modest tweaks to superannuation — requiring a third of directors on super boards to be “independent” and more granular disclosure of fund costs to the Australian Prudential Regulation Authority.

Even Bill Kelty, grandee of the union movement and a father of superannuation, this week declared an “arguable case” for a government-run default fund, putting him on the same page as former Liberal treasurer Peter Costello, who has suggested the Future Fund should take default contributions.

The Productivity Commission dismissed the idea this week, but chronic apathy among members is unlikely to provide enough discipline to lower fees dramatically, however short the “best in show” fund list becomes.

New Zealand, Chile and Sweden have public tenders for the right to manage default pension funds. “This has reduced average annual super fees to between 0.30 per cent and 0.55 per cent in those countries. In Australia even default funds still charge double to triple this because of their risky active management strategies,” says Chris Brycki, chief executive of Stockspot. The giant US-based Thrift Savings Plan managed American retirement assets of about for less than 0.03 per cent a year in 2014, or 29c for every $1000 invested.

Fees are the biggest predictor of returns, given the impossibility of fund managers consistently achieving returns above the average after deducting fees. Industry funds have done a better job than retail funds of growing members’ funds — I’m in one myself. Yet a government fund could achieve the scale benefits of industry funds without the politicisation.

Meaningful reform has been glacial. O’Dwyer has a fight on her hands if she wants to take up the thrust the Productivity Commission’s recommendations, let alone back a government-administered no-frills option.

Portrait of a sick system gives us a chance to put things right

The Age

June 1, 2018

Peter Martin

We’re apathetic about super, until we’re not.

On Tuesday phone lines to Australia’s biggest bank-run super funds buckled under a deluge of calls from customers wanting to close multiple accounts. Traffic to the Australian Securities and Investments Commission’s website for consolidating your super jumped 500 per cent.

Recommendations from the Productivity Commission will boost your super and simplify the system. Economics editor Peter Martin explains.

And in at least one school, Year 12 students were shown two videos; one produced by the Productivity Commission depicting super funds as pigs, and the other prepared by this newspaper, making the point that multiple and poorly chosen accounts can cost members in excess of $400,000 over their working lives.

Asked to check in on their own accounts as homework, some discovered they already had more than one. They had been working casually, flipping burgers and selling clothes. Each new account furnished them with a new insurance policy, which sounds like a bonus until you realise they were getting insured more than once against death and losing their income. They were aged 16 and 17.

Every additional insurance policy, whether junk or not, costs $85,000 over a working life, according to the Productivity Commission report that set off the avalanche of calls. (In reality many wouldn’t cost that much, because they would drain inactive accounts first.) That super funds have knowingly allowed multiple insurance policies to accumulate in the accounts of people too young to benefit is one of a number of scandals uncovered in the report.

The commission’s suggested solutions to the problems of multiple and unsuitable insurance policies are simple: funds would be prevented from foisting them on anyone aged under 25 without their consent; inactive accounts would have their policies stopped. People with inactive accounts are almost certain to have another active account with insurance or no income to insure.

Treasurer Scott Morrison commissioned the inquiry a year ago, at a time when he was still implacably opposed to a banking royal commission. Its head, Producitity Commission deputy chair Karen Chester, refers to it as the “not-so-royal commission”.

Morrison wanted it to examine the costs, fees and net returns of super funds, the role of insurance premiums in eroding member balances, and the antiquated way in which people are pushed into default funds that are tied to jobs, not people. The lines between the two commissions will blur in the coming weeks, as the banking royal commission itself turns its attention to super.

Tuesday’s report is a draft. The Productivity Commission can’t be certain when it will deliver the final report partly because the banking royal commission is taking up so much of bank executives’ time that it would be unfair to ask them to deal with the super report until the banking inquiry is out of the way. But the commission is keen to hear from the rest of us immediately.

On Friday it added a new ‘Brief Comments’ section to its website. Ordinary Australians will be able to upload up to 200 words without the need to make a formal submission. Their names won’t be published but, if they agree, their comments will be. When Chester did this before in an earlier superannuation inquiry, she was able to put the lived experience of Australians to fund representatives in public hearings and get them to concede that things weren’t as rosy as they had been suggesting.

Without putting too fine a point on it, their members would have been better off paying them to do nothing.

Their investment performance is disheartening. Super funds are made up of asset classes; things such as property, shares, international shares and government bonds, assembled in certain proportions.

By examining the average performance of each of the underlying asset classes and assembling them in the same proportions as each of the regulated funds – in what it thinks is a world first – the commission has been able to compare what the fund’s performance would have been if no special skill had been added with the results they actually delivered over more than a decade, taking account of fees and tax.

Shockingly, it found that the 228 funds taken together (accounting for 93 per cent of all accounts and 61 per cent of all superannuation assets) did worse than if the managers had just set the proportions and then done nothing. Their attempts to pick stocks consistently cost their members money. Without putting too fine a point on it, their members would have been better off paying them to do nothing.

The retail funds, mostly run by the banks, are the worst. Instead of producing the 6 per cent per year they would have if they had just set their asset allocation and sacked their stock pickers, they produced 5 per cent. (Stock pickers in the union and employer-controlled industry funds did add value, but not much, boosting annual returns by 0.2 percentage points.)

The commission says it’s at a loss to understand how the retail stock pickers can be so bad. On the face of it it would take a rare and perverse skill to consistently produce worse results than leaving things alone. Keen readers of the Productivity Commission website will find a clue in one of the submissions, from Kevin Liu and Elizabeth Ooi at the School of Risk and Actuarial Studies at the University of NSW.

Despite their complaints about how the directors of industry funds aren’t independent (most are employer and union representatives), most of the directors of retail funds aren’t independent either. Four out of five are affiliated to the bank or larger entity that owns the fund, often by working for another part of it.

Liu and Ooi find that the more affiliated directors a retail fund had, the worse it performed. And the more related-party service providers it used, the worse it performed. The effect was “both statistically and economically significant, and consistent across different measures of investment performance”. The implication is that affiliated directors put the interests of the bank or larger entity first, perhaps by loading up super funds with products it wanted to shift.

Looked at this way, the superior performance of the industry funds isn’t so much the result of superior skill as it is the result of doing a job well in a straightforward way without a conflict of interest.

It’s also the result of scale. Many of the retail funds are deliberately small. There are around 40,000 of them, a number so big as to almost certainly be designed to confuse and beguile the customer rather than help. It’s no accident that Australia’s biggest industry fund, AustralianSuper, is always one of the top performers.

But some of the industry funds are also small, and are shockers when it comes to performance, sitting alongside the worst of the bank-run funds. Appallingly, new employees and people switching jobs continue to get funneled (sic) into them because of the provisions of industrial awards. For as long as that happens their directors will be tempted to keep them open, pocketing board fees for running an organisation that stays subscale but open as the trickle of members leaving is replaced by a stream coming in.

It’s why the commission wants super to follow the person, not the job, with every new labour market entrant (and everyone changing jobs) presented with a list of the top 10 funds and invited to pick and stick for as long as they like, without accumulating multiples. Labor and the Coalition have cautiously welcomed the idea.

It is competing with another model, proposed by Future Fund chair Peter Costello, in which the government would run the only default fund, freezing the top 10 out. It says a lot about how bad the performance of the bank-owned funds has been that some in the Coalition are prepared to countenance it – and also a lot about how much they despise the top-performing union and employer-controlled industry funds.

Australia’s superannuation system is 25 years old. The pool of super savings has climbed to $2.6 trillion. By 2030 it’ll be $5 trillion. It’s important to get it right.

Peter Martin is economics editor of The Age.

Why Labor has got its sums wrong on franking credits

The Australian

20 April 2018

Robert Gottleibsen

In the great franking credit debate someone has got their sums horribly wrong. Either Opposition Leader Bill Shorten and his shadow treasurer Chris Bowen are right and enormous sums are going to be raised or, alternatively, the financial planning and accounting industries, which are dealing with the people who must pay these taxes, are right and, apart from a particularly select vulnerable group, there are no vast sums to be raised.

We won’t know who is right until around May or June next year and by that time the election will be rapidly approaching.

I believe that Shorten and Bowen have made a horrendous mistake in their money-raising estimates and this represents the first big mistake that Shorten has made since he became opposition leader.

Worse still, Shorten and Bowen are promising vast expenditure and tax reductions on the basis of these fictitious money raisings. Most accountants, financial planners and myself believe that when Scott Morrison introduced his superannuation pension mode taxes and a $1.6 million pension mode tax-free cap last year he absorbed most of the franking credit bonanza.

If I am right then he is the Liberals’ best chance to achieve an improbable victory in the next election.

But I can’t emphasise too strongly that Chris Bowen honestly believes I am wrong and is adamant that he has taken into account the Turnbull government’s 2016 budget superannuation measures, including the $1.6 million pension mode balance cap.

Bowen says that Labor’s policies have been fully costed by the parliamentary budget office, which is independent and legally obligated to cost out policies, including the $1.6 million superannuation cap.

So for me to be right the budget office must be wrong.

But Treasury is notorious for making such mistakes and in this case there are no past figures available because the superannuation tax did not start until last July and it will not be until this time next year that we start to see the results.

So let’s look at how the investment communities are adjusting their strategies to make sure that there is no revenue bonanza for Bowen and Shorten. The essence of the Bowen proposal is that if an investor/superannuation fund receives franking credits and those franking credits can’t be offset against other taxes payable but rather come to the investor/superannuation fund via direct cash payment, then franking credits will be lost.

In other words as long as an investor/superannuation fund has sufficient other taxable income they can receive franking credits.

Starting with individuals, there is no doubt that a lot of people have big holdings in banks and other investments that carry full franking credits on the dividends.

If they have no other income those investors then will not get their franking credits. But most people with private investment portfolios have properties and other investments that produce non-franked taxable income and many are also working and that also provides taxable income. But there will be a group of people or companies without offsetting income and therefore they going to lose their franking credits under the Bowen plan. .

But Bowen can’t start the new regime until July 1, 2019 so there is the balance of this financial year and all of the next financial year to make sure portfolios are properly balanced for franking credits. Only the mugs will be caught and those that are currently receiving large franking credits into personal accounts are usually not mugs.

And then the next vulnerable group are ordinary non-pension mode superannuation funds whether they be industry, retail or self-managed. These are funds not in pension mode and therefore income is taxed at 15 per cent and again it is possible that some self-managed funds in this situation are stacked to the eyeballs with listed investment franking credit investments, but it is an imprudent investment strategy. Superannuation is about a balanced approach.

But once again those who have adopted this imprudent policy will certainly change it prior to July 2019.

Then we get to the most vulnerable people — those with superannuation funds in pension mode. The only figures we have available to us at this stage are those for the year ended June 30, 2017 and those figures show that there are substantial cash sums being paid in franking credits because the money in the pension mode funds was not taxable and so all the franking credits came as a direct credit.

But on July 1, 2017 a new tax system started and balances over $1.6 million are now taxed at 15 per cent — the same rate as non-pension mode superannuation funds. Accordingly exactly the same situation as non-pension mode applies. Again most superannuation funds will have a mix of assets and the non-franking credit assets and will produce taxable income which can offset the franking credits and enable them to be retained.

Yes, there will be some taxation raised by the Bowen measures but people are going to adjust their portfolios to ensure that the amount paid is small.

If people have pension mode superannuation assets under $1.6 million then they are a prime Bowen target because income from these assets is tax free so all franking credits are a separate payment and will be lost under the Bowen plan.

But the shadow treasurer has exempted those on government pensions.

We don’t know exactly how this will work but it seems those with assets that are low enough to entitle them to a government pension will receive franking credits, so in the roughest of terms it is only those people with assets between $800,000 and $1.6 million that will cop it in the neck.

Those with assets close to the government pension cut off point are planning to reduce those assets to protect the franking credits and obtain a part pension.

But there are still a lot of people in the asset bracket of $800,000 to $1.6 million but there will not be any massive lump payments and people will change their portfolios especially as banks have not been performers. It is this group of savers who saved to avoid being a burden to the public who Shorten and Bowen are attacking.

But even for these targeted people it looks like there could be a let-out. Bill Shorten said that those who have their money in retail and industry funds — the so-called APRA funds — will be protected. Now Chris Bowen is not as clear so this is an area of major doubt and we’ll have to wait closer to the election to have it clarified.

But if industry and retail funds are treated as one organisation rather than a series of individual members then they have substantial tax payments that easily offset franking credits. Those with vulnerable portfolios in self-managed funds will simply hand the management of their equity to industry or retail funds and their franking credits will be protected. If that’s the way it turns out then the real result of the Shorten-Bowen plan is an attack on self-managed funds.

This would be grossly unfair. As I understand it, the industry funds believe Shorten will deliver and are planning a massive campaign to destroy large segments of the self-managed super fund movement.

The accounting and financial planning people can’t see a major money pot — Morrison took it away last budget. But to be certain, we will have to wait for May-June 2019, as that is when the actual 2017-18 figures from superannuation funds will be available. And if there is no pot of money Shorten will have to recant on promises or borrow the money. Not a good way to start an election campaign.

Meanwhile this is an incredibly wonderful opportunity for the government because it creates uncertainty around pensions and has a hint of chaos.

If I was the government I would freeze all superannuation tax measures for five years and I would also be briefing my marketers to prepare a pension scare campaign that equates to the ALP’s Medicare scare campaign.

Both have no validity but like all good scare campaigns it doesn’t matter.

Peter Costello slams complex tax system, says MPs should do their own returns

The Australian

3 May 2018

Scott Murdoch – Journalist | Sydney | @murdochsj

Peter Costello has challenged federal parliamentarians to do their own tax returns and manage their own superannuation, and to navigate a financial system in Australia which has become too complex to understand.

Mr Costello said Australia’s tax laws needed to become simpler and had become bogged down in changes which had made the system difficult to understand.

In an extraordinary attack on the superannuation system, Mr Costello also said politicians should be made to manage their own money and face the same penalties if mistakes are made.

“I would be in the top percentage of people when it comes to understanding the tax system and the financial management system but the complexity of this is unbelievable,” Mr Costello told the Macquarie Connections conference in Sydney.

“I would like to see MPs manage their own funds, and if they break the laws I’d like to send them to jail because that is what they are holding over everyone else with these laws. You might then get some simplicity into the system.”

The GST, he said, was introduced during his time as treasurer to simplify the Australian tax system but that goal had now been lost. He claimed federal parliamentarians would not be doing their own taxes each year because the system was too difficult to understand.

“I actually think, we have lost sight of this in Australia, a revenue system should be to firstly raise money and raise it in the least disadvantageous way for the economy and there has to be simplicity

“I tell you the transactional costs under a complex system can outweigh any revenue you get from it

“No MP would be filling in their own tax return, they can’t understand the system, they are just legislating it. That is a pretty good indication of the difficulty of the tax system as it stands at the moment.”

Mr Costello also took aim at the constant changes put in place by both the previous Labor governments and the current Coalition on superannuation taxes. He also said the current super rules made funds and workers too focused on accumulating funds rather than on how to manage the money after retirement.

“The taxation treatment of the drawdown changes every budget, it’s complicated, no one knows,” he said.

“I feel sorry for some of these financial advisers actually they are meant to tell people how to cope with all of this but no one can understand all the rules

“I wouldn’t be a financial adviser, it’s beyond my level of competence to figure out all the taxation and taxation treatments of superannuation. That is the big thing now, what we do in retirement phase, what the tax treatment.

“The one thing I would say to government is can you just give us some certainty on the rules and can you make them simple please.”

An accidental revolution lies ahead for SMSF growth

The Australian

Robert Gottliebsen – Business Columnist | Melbourne | @BGottliebsen

4 May 2018

The government is now certain that Bill Shorten and Chris Bowen have made a fundamental mistake in their franking credits calculations and that mistake has the potential to deliver a Coalition victory in the 2019 election.

And the ALP’s linked attack on self-managed funds to the benefit of industry funds could also backfire.

The ALP’s franking credits proposal now is generating a widespread revision of retirement funding strategies across the nation and an examination of how both industry and retail funds currently distribute franking credits to their members whose money is in pension mode.

As part of this process, quietly and without fanfare, the government has opened the way for a new era of self-managed fund growth that will embrace families.

In particular it is offering self-managed funds in pension mode an option to protect their franking credits should the ALP win the next election (albeit, in the government’s view, an unlikely event).

There is little doubt that the royal commission into banking and finance will be gold for industry funds because they will be major beneficiaries at the expense of the retail funds that are run by banks, plus the AMP.

But the self-managed fund movement will also benefit.

It is ironic that the trigger for the royal commission was the Four Corners/Fairfax revelations about banking and insurance.

If we go back to the 1990s a similar ABC Four Corners program revealed incredible commission rackets in the life industry.

The National Mutual was revealed to be hiring used car salesmen and offering them two thirds of the first two years premium as commission. There was no disclosure and the unsuspecting clients did not know the level of the commissions.

The ALP’s John Dawkins legislated to force disclosure of commissions and that disclosure was the beginnings of the growth of self-managed funds.

While the National Mutual was highlighted, the high commission rackets were industry wide and when CBA bought Colonial and NAB bought MLC a decade after the sales commission scandals were revealed, the culture was still there and the banks inherited it. For the most part the big four banks had chief executives who had come up as bankers, not investment managers, and did not fully understand the impact of the deep-seated culture.

And the politicians (including the ALP when it was in power) believed the bank chiefs when they claimed the initial scandals were isolated incidents, not a cultural problem.

Unfortunately the politicians have not learned from their errors and so exactly the same thing is happening with the Australian Taxation Office small business scandals — it’s not a series of isolated incidents but rather a deep ATO cultural problem because too many people inside the ATO think all taxpayers are “liars and cheats”.

Given that private individuals and those with more than $1.6 million in pension mode superannuation funds can alter their investment strategies to protect their franking credits and those on government pensions are protected, the only people who are in danger are those with tax-free pension mode superannuation savings below the $1.6 million cap and above the government pension trigger point. Widows and widowers are particularly vulnerable.

I should emphasise that shadow treasurer Chris Bowen still genuinely believes he is right because he checked his sums with the budget office set up to undertake such tasks.

I do not know how the mistake was made but the government and treasury have done the detailed sums and there are only token amounts to be raised from people who will be hit hard.

Privately the government is asking itself whether to execute Shorten and Bowen now or wait until closer to the election when they have “spent” the non-existent money.

And the penny is dropping in some areas of government that not only can Bowen and Shorten be hit but there is money to be raised from banks plus retail and industry funds over franking credits which is much more desirable than taking money from widows.

Right now there is a racket taking place that no-one wants to touch. Under the franking credit rules shareholders who reside overseas are not entitled to franking credits. To get around this the overseas resident holders lend their shares to retail and industry funds at least 45 days before dividend time and/or borrow on the shares and register them in the name of the lender (usually a bank) so the bank gets the franking credit.

The deal is usually that the overseas shareholders’ “lost” franking credit is shared 50/50 between the overseas owners and the bank/ superannuation fund.

A very simple and highly remunerative move is to legislate so that only the Australian resident beneficial owners of the shares can benefit. The banks and big superannuation funds that are cleaning up will lose, as will the overseas shareholders.

There will be lots of screams and lots of money raised — a lot more than the ALP plan.

This situation underlines what is taking place among both industry and retail funds. For the most part the big superannuation funds see themselves as the one taxable unit but within that unit are members whose income is taxed at 15 per cent and those in pension mode and who have assets under $1.6 million who are tax-free.

In the industry fund movement there is an overall uniform benefit covering all members and then eligible pension mode members receive a credit that reflects both their tax-free status and their full tax-free franking credit entitlement. If these franking credit refunds were separated out from tax-free benefits they could easily be lost under the Shorten Bowen plan, but given they are not separated it enables the ALP to say that pension mode members of industry funds will not be affected.

The industry funds are adamant that the full tax benefit of franking credits to those in pension mode is distributed, albeit there is no disclosure. But do retail funds do the same thing?

It’s possible that in some big funds the full benefits of a tax free franking credit does not go to the pension mode beneficiaries who are entitled to it but rather the benefits are shared with to ordinary non-pension mode members to boost returns, or the benefit might even end up in the manager’s pocket.

In the meantime, self-managed funds are starting to look at playing the same game. All around Australia plans are now being prepared to bring children, particularly those with worthwhile superannuation balances, into the family self-managed funds. The children are not in pension mode so the income from their funds is taxed and that tax can enable the fund (and not an ALP government) to receive the benefit of the pension mode franking credits.

Now, of course, if the government acts to contain franking benefits to the beneficial owner then that scheme may not work, but industry fund members would be in the same boat. But there are other family benefits from bringing children into self-managed funds.

A self-managed fund is limited to four members, which means if there are three or four children it creates a problem. Enter the Minister for Revenue and Financial Services Kelly O’Dwyer. This week she announced that the number of permissible members in a self-managed fund would be raised from four to six, which will create greater flexibility for the new revolution.

Ageing parents (usually the male) have been reluctant to pass even partial control of the self-managed fund to their children but Shorten and Bowen have provided the trigger and this new era of self-managed funds will spread through the land.

There is a danger that a family split will make life complicated, but with intelligent planning that risk can be reduced.

It’s ironic that a plan that was aimed to raise money and attack self-managed funds will not raise big sums and will spark a new self-managed fund revolution.

Labor’s excess dividend imputation credits Media Release – 27 March 2018








Labor’s reforms to excess dividend imputation credits will crack down on an unsustainable tax loophole that gives tax refunds to people who don’t pay income tax, while protecting pensioners and paying for better schools and hospitals.

Today, Labor is introducing a new Pensioner Guarantee – protecting pensioners from changes to excess dividend imputation credits.

The Pensioner Guarantee will protect pensioners who may otherwise be affected by this important reform.

Labor is cracking down on this tax loophole because it will soon cost the budget $8 billion a year.

Much of this goes to high-wealth individuals, with 80 per cent of the benefit accruing to the wealthiest 20 per cent of retirees. The top one per cent of self-managed superannuation funds received an average cash refund of more than $80,000 in 2014-15.

Labor does not think it is fair to spend $8 billion a year on a tax loophole that mainly benefits millionaires who don’t pay income tax – not when school standards are falling and hospital waiting lists are growing longer.

$8 billion a year is more than we spend on public hospitals or child care. It’s three times what we spend on the Australian Federal Police.

Labor will close this tax loophole to help pay for better schools, better hospitals and tax relief for working Australians – but we’ll protect pensioners with our Pensioner Guarantee.

We believe in a fair go for pensioners. We know they are struggling with the cost of living, especially with out of control power prices and Turnbull’s cuts to Medicare.

That’s why Labor is making sure pensioners will still be able to access cash refunds from excess dividend imputation credits.

The Pensioner Guarantee means pensioners and allowance recipients will be protected from the abolition of cash refunds for excess dividend imputation credits when the policy commences in July 2019.

Self-managed superannuation funds with at least one pensioner or allowance recipient before 28 March 2018 will also be exempt from the changes.

This means that every pensioner will still be able to benefit from cash refunds.

Labor has always protected pensioners – and we always will.

In contrast, the Liberals have cut the pension, increased the cost of living, and are trying to force Australians to work until they are 70.

Turnbull has:

  • cut the pension for 277,000 retirees;
  • kicked another 92,300 retirees off the pension altogether;
  • cut pension concessions that help pensioners with costs including rates and registration; and
  • is trying to cut the $365-a-year energy supplement for 400,000 pensioners.


Turnbull’s cuts will see more than $7 billion taken out of the pockets of Australia’s pensioners.

Turnbull has been the worst prime minister for Australia’s pensioners in living memory.

Labor’s policy is fair and responsible because it cracks down on an unaffordable tax loophole while protecting pensioners and paying for better schools and hospitals.

Mr Turnbull and his Liberals are protecting tax loopholes for millionaires, giving a $65 billion tax handout to multinationals, increases taxes for seven million working Australians, and cutting funding to local schools and hospitals. They are totally out of touch.

Labor’s policy will improve the budget position by $10.7 billion over the election forward estimates and $55.7 billion over the medium term.  This is a reduction of $700 million over the election forward estimates compared to the original announcement, and $3.3 billion over the medium term.

Part of this saving will be used to fund Labor’s Australian Investment Guarantee – delivering tax relief for businesses investing in Australia and in Australian jobs.

Labor’s policy has been fully costed by the independent Parliamentary Budget Office. The Parliamentary Budget Office’s costings are based on the current budget baseline, which includes the effect of the $1.6 million balance transfer cap.

More information on Labor’s policy can be found here.


Authorised by Noah Carroll ALP Canberra

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