The Morrison government has commissioned the Australian National University to analyse whether wages will be harmed if the scheduled increase in the superannuation guarantee to 12 per cent is allowed to go ahead.
Appearing before a Senate Estimates committee on Thursday, Robb Preston, the manager of Treasury’s retirement income policy division, revealed the government’s key economic department had contracted a number of independent economic researchers to provide analysis of the superannuation system for Scott Morrison’s retirement income review.
Mr Preston said the ANU’s tax and transfer policy institute, a well-respected policy research unit headed by Professor Robert Breunig, would be providing Treasury with modelling of the relationship between wages and the superannuation guarantee (SG).
The SG is legislated to rise from 9.5 to 12 per cent by 2024, but critics have warned that forcing workers to carve off more savings into nest eggs will cull wages growth, cost the federal budget billions in foregone revenue thanks to generous super tax concessions, and mainly benefit wealthy retirees.
Mr Preston said modelling of how changes in the superannuation guarantee affected rates of voluntary saving would be provided by Monash University, while Curtin University would be examining how the superannuation system affected pre-retirement behaviour.
“The panel is very interested in understanding the trends affecting the retirement income system going forward,” Mr Preston said.
“We’re endeavouring to take a very comprehensive approach to our work,” he said.
“We’re planning to release a report to government by 30 June,” he said. Australian Taxation Office deputy commissioner James O’Halloran on Thursday said the government revenue agency disqualified some 300 self-managed superannuation fund trustees every year, noting there were a small number of funds engaged in “tax mischief”.
“In terms of criminality, there are instances perhaps where a SMSF might be carrying out the avoidance or minimisation of tax,” Mr O’Halloran told Estimates.
Labor, the ACTU and the $700bn industry fund sector have argued for the higher rate.
Confidential Treasury modelling of the super system, obtained under Freedom of Information laws and reported by The Australian last year, is “broadly consistent” with the Grattan Institute ’s findings.
According to the documents, Treasury also warned increasing the super guarantee rate would cost workers wage rises and would exacerbate the gender income gap, a position also recently argued by the Australian Council of Social Service.
The Age Pension is the biggest government expenditure at nearly $50bn a year . In 2002 it cost 2.9 per cent of GDP and is tipped to hit 4.6 per cent by 2042.
largest superannuation funds have spent close to $400m on advertising,
stadium naming rights and sport sponsorship over the past five years in a
bid to get a bigger slice of workers’ compulsory savings.
figures, which provide an insight into the spending habits of a handful
of the country’s 200 super funds, come amid a fierce industry debate
about whether the current 9.5 per cent of worker wages being set aside
for the retirement system will be adequate to maintain living standards
An analysis of parliamentary disclosures by The Australian has found nine of Australia’s biggest super funds have spent $384m on advertising campaigns, sponsorship of sports teams and stadiums, marketing and brand research since the 2015 financial year.
This includes more than $100m spent by the
country’s largest fund, AustralianSuper, on marketing, brand promotion
and media broadcasting over the past five years. Over the same period,
AustralianSuper also shelled out a further $24m to the not-for-profit
super sector’s lobbying and research arm, Industry Super Australia,
which runs its own advertising campaigns, including one launched this
month calling on the government not to dump the scheduled increase in
the superannuation guarantee from 9.5 per cent to 12 per cent,
reportedly at a cost of $3.5m.
which manages the savings of hospitality and tourism workers, has spent
more than $60m on brand advertising, along with an extra $18.5m on
payments to Industry Super Australia, since the 2015 financial year.
made to the House of Representatives’ economics committee, in response
to questions on notice from Liberal MP Tim Wilson, also cover
submissions from the construction workers industry fund, Cbus, which
spent $48m on a number of brand advertising ventures over the same
Cbus, Hostplus and
AustralianSuper attract a large degree of their membership from having
won “default” fund status with employers through enterprise bargaining
agreements, which means workers who fail to nominate their own super
fund will have their savings managed by the default provider.
trustees are required by law to only spend money in members’ best
interests and for the sole purpose of providing benefits to members when
Advertising spending is
not unlawful, and is monitored by the Australian Prudential Regulation
Authority. The super industry argues building brand awareness and
attracting new members helps drive economies of scale that support the
efficient growth of retirement savings for their members. However, only
about 3 per cent of super members switch funds each year, while about 80
per cent of new employees do not make an active choice and go with the
default selection chosen by their employer.
outlined a number of advertising campaigns, including a five-year, $30m
“brand campaign”, a program targeting younger members, and another
bolstering its status in Queensland where the rival BUSSQ super fund
manages the savings of workers in the construction industry. Firms paid
to keep track of Cbus’s spending include Kantar TNS, Nielsen Sports,
Empirica Research, CoreData and Essential Research.
$57bn Hostplus said its brand advertising included “advertising on
television, radio, online billboards and on public transport”,
sponsorship of logos on sports teams and “advertising on stadium signage
scoreboards” and sending mail, emails and text messages to its members.
promotional activity of Industry Super Australia includes advertising
on television, online, on radio, in the press and on billboards,”
Australian Super, which
manages $180bn, told parliament it tracks the “efficacy of campaigns in
either retaining or gaining new members” for each of its campaigns.
for-profit retail super sector has also spent millions on marketing,
including Commonwealth Bank’s superannuation arm Colonial First State,
which spent $22m over five years on advertising campaigns.
only invited ad agencies Leo Burnett and IKON to compete for contracts,
and only awarded contracts to those two firms, but said it commissioned
KPMG to “track brand awareness and consideration over time and report
this on a monthly basis”.
placing ads during the Tour de France, money for a “content
partnership” campaign with The Guardian online newspaper and a series
with Fairfax media titled The Road Next Travelled.
Australia Bank’s wealth management arm, MLC, spent more than $22m on
marketing, about half of which was attributed to the superannuation arm,
NULIS, on campaigns such as Save Retirement between 2014 and 2016, and
Life Unchanging between 2017 and last year.
objective of both campaigns was to drive client and member engagement
in their retirement savings and all aspects of proactive wealth
management, while positioning MLC as a prospective partner as they seek
to save for and live well in retirement,” said NULIS, which was exposed
by the royal commission for charging some of the steepest fees while
delivering the lowest returns in the $2.9 trillion superannuation
Rest Super, which manages the
savings of retail employees and derives most of its membership through
the default system, said it had spent $30m over the past five years on
advertising. REST has employed creative firms Carat Australia,
Customedia, Arnold Furnace, Mr Wolf and Bauer Media Group.
engage a consultant to provide performance reports on advertising brand
campaigns, which is presented to the Rest Board Member and Employer
Services Committee,” Rest said.
which manages the savings of Queensland public servants, spent $31m on
advertising, promotion and direct marketing, while StatePlus, which
looks after the nest eggs of NSW public servants, spent almost $10m on
ad campaigns and sponsorship over the past five years.
“A strong focus of QSuper’s current direct marketing to members is financial wellbeing,” QSuper said.
includes informing and educating members on the value of financial
advice, educational seminars and insurance — that is, services which aim
to improve the financial literacy and retirement outcomes of our
members. While this may be categorised as marketing it may also
reasonably be categorised as education of QSuper members of their
retirement options and opportunities.”
which has contracted creative agencies 303MillenLow, the Lexicon Agency
and Reef Digital Media to run its marketing campaigns, has spent a
little over $9m since the 2017 financial year.
runs always-on above-the-line and below-the-line campaigns with the
objective of building brand awareness and consideration and generate new
members to the fund,” said StatePlus, which looks after the savings of
NSW public sector employees.
its brand awareness increased by 44 per cent, and its “informed
awareness” level rose by 58 per cent following the advertising.
The result of
last year’s federal election is described as a miracle, but I prefer to
deal in facts. So, if we examine a long list of facts and sum them up in
a few words, the Coalition didn’t win the election, Labor lost it.
the reason Labor lost, again summing up a long list of facts, is
because it gave the impression that it was going after people’s ability
to create and preserve personal wealth.
Mind you, before the election the Coalition also had given the community this impression with its superannuation changes. However, the Coalition came after the retirement savings of the self-funded, and therefore only a certain number of people in a certain age category felt assaulted. When the time came, as much as those people wanted to object at the ballot box, anger probably gave way to fear of something even worse.
Hindsight is a wonderful thing, and now
senior thinkers in the government have engaged in some reflection. A few
grudging concessions have been muttered; there is acceptance that the
government went too far and that some of the adverse superannuation
changes have been counter-productive.
there is a desire to undo some of the damage, as long as the government
isn’t seen to be unwinding its changes. It wants a remedy that isn’t a
backflip, a retreat without an undoing. In other words, the government
wants to give the cake back that it has already eaten, without the
indignity of regurgitation.
government review into something can cover a thousand sins and provide
enough justification for anything. It is just fortuitous then, isn’t it,
that Treasury has commissioned a retirement income review that is
tasked with “establishing a fact base to help improve understanding of
how the Australian retirement income system is operating and how it will
respond to an ageing society”.
independent panel leading the review released a consultation paper last
year and this week the timeframe for submissions passed.
review is due to report by June, and if there is a pathway to
redemption then here is where we will find it. The clues to this
intention are sprinkled right throughout the consultation document.
section headed “Changing trends and one-off shocks” admits “the trend
in interest rates … has (continued), and may continue, to affect the
public cost of the retirement income system through changes in the
social security deeming rates and the interest rate used by the Pension
Loans Scheme”. One consultation question asks: “What factors should be
considered in assessing how the current settings of the retirement
income system (eg tax concessions, superannuation contribution caps and
Age Pension means testing) affect its fiscal sustainability?”
There is an opportunity here, then, to remedy a past error.
a low interest rate environment, the self-sufficient need far more
money than anyone imagined. We need to relax the contribution caps and
allow people to shovel their savings into superannuation. Unfortunately,
the idea of people creating wealth for themselves causes policymakers
to break out in hives.
The paper says
“the tax advantaged status of superannuation may encourage some
individuals to partly use superannuation for wealth accumulation and
estate planning rather than solely for retirement income purposes.”
a shame that everybody cannot organise themselves to save precisely the
right amount for their retirement and then promptly drop dead the
minute they’ve spent it, ensuring there is nothing left over.
a thought now for politicians and Treasury, who are tortured by two
competing desires. On the one hand, they don’t want to bear the cost of
people on the pension but, on the other, they don’t want people to be
too wealthy either.
Perhaps the only
thing worse than the poor who require support are the rich who generate
envy. Maybe this is why there is the endless search for the in-between
solution, one that brings comfort but cannot possibly exist: the
not-too-poor but not-too-rich perfect retiree.
a global free market with a fluid cost of living, the measure of what
is needed to be self-funded will always change. Therefore, it is
impossible to keep people down to a level of poverty that is just above
the level where they require government support.
nothing of substance will ever be achieved in the retirement savings
space unless the government comes to terms with the following: if you
don’t want people on the pension, you must allow them to create their
own wealth. Tax some of it if you will, but at least allow it to be
Further, it is time our
political class accepted that superannuation is a wealth-creation
vehicle. It should be a wealth-creation vehicle. It must be a
wealth-creation vehicle, for if retirees are not going to be poor enough
to go on the pension, then they must be too rich to go on the pension,
by a long way, because the market can easily erode a slim margin.
Governments of all persuasions, but especially a Coalition government, must get over their squeamish reaction to the idea that people are using their superannuation to create wealth because that is exactly what superannuation is for.
More than 100 years ago, female factory workers in Chicago campaigned
for the right to vote and wondered how it could deliver them not only a
“living wage” but life’s roses.
Their catchphrase,‘Bread for all and roses too’ – with bread representing home, shelter and security and the roses representing music, education, nature and books – went on to inspire generations of American women, particularly those involved in industrial action during the 1930s.
notion that the humblest workers have a right to live, not just exist,
is just as relevant today. Australia is one of the wealthiest nations on
Earth and we all deserve a share of the enormous economic gains of the
There is no stated objective for our retirement income system in our law. However, the community has strong views on what the objective and features of our retirement income system should be.
Research commissioned by Australian
Institute of Superannuation Trustees (AIST) found that more than eight
in 10 Australians believe the government should make sure super and the
age pension are set high enough so that all Australians have a decent
life, free of financial stress, in retirement. This finding is
consistent across education levels, geographic location, and voting
polling suggests that what most people want in retirement is no
different to what the Chicago suffragettes wanted – to enjoy life, not
just “get by”. For most ordinary older Australians this means being able
to enjoy a weekly coffee and cake with friends, to afford home
maintenance, the internet, a car or a footy club membership. They’re not
asking for gilded luxury.
In the lead-up to the Retirement Income
Review, it’s been suggested that the government’s legislated timeline
to increase the compulsory super rate to 12 per cent by 2025 should be
halted because the current super rate is enough.
But the modelling done by some researchers who reached this conclusion was based on a full-time male earning above median wages working continuously for 40 years. This is not the lived experience of a great many Australians – potentially more than half the working population. This includes women taking time out of paid work to care for children and family, low-income earners, those priced out of home ownership, many Indigenous Australians, single people and a large cohort who retire involuntarily due to ill health or the inability to find a job in later years.
has also been argued by some – including a group of Coalition MPs (who,
incidentally, receive more than 14 per cent super from their employer)
that low-income earners should be excluded from compulsory super and
left to fend on the age pension. Meanwhile, the Save our Super lobby
group – which also argues that a super rate of 12 per cent is too high
for people on low incomes – has called for the $1.6 million tax-free cap
on pension accounts to be abolished or raised to boost retirement
income for Australians with more than this amount in their super.
is no shortage of opinions on how super and the age pension should work
together. Despite the age pension having been around since the early
1900s and compulsory super for three decades, we still lack consensus on
whether super is there to supplement or substitute the age pension. But
surely one thing we should all agree on is that in egalitarian
Australia, the land of the fabled fair go, all Australians, regardless
of income or address, have contributed to our nation’s success and
deserve a decent life when they finally lay down their tools.
Eva Scheerlinck is CEO of the Australian Institute of Superannuation Trustees.
The Save Our Super lobby group has called on the federal government to grandfather any future negative changes to superannuation and abolish the $1.6m cap on the amount of money that can go into tax-free super retirement accounts.
In its submission to
the federal government inquiry into retirement incomes, Save Our Super
argues that the fall in interest rates since the 2016 budget has
significantly reduced the income retirees can earn from savings since
the $1.6m transfer cap was announced.
The submission argues that the cap, which was announced as part of a broad package of changes, including cuts to super contribution limits, should be either abolished or raised.
“The interest earnings from $1.6m is now almost 40 per cent lower than it was in early 2016,” the submission says.
the continuing drift of interest rates towards zero, whatever
unexplained calculations arrived in 2016 at the $1.6m on the
superannuation in retirement phase should be re-examined with a view to
grandfathering the cap, raising it or abolishing it.”
Our Super was set up to lobby against the 2016 budget changes to super
by a group including retired Melbourne QC Jack Hammond.
organisation has consistently argued that it is a basic principle of
the Australian taxation system that there should be no negative
retrospective changes to tax and superannuation.
2106 changes were announced after the Tony Abbott-led Coalition went to
the polls in the election of September 2013 promising not to make any
negative changes to super during the first term of its government.
Save Our Super submission argues any future negative changes to super
must be grandfathered so that “those people who committed in good faith
to lawfully build their life savings are not blindsided by policy
changes with effectively retrospective effects”.
need assuring that any future changes in policy will not have any
significantly adverse effects on lawful prior savings,” it says.
Federal Treasurer Josh Frydenberg announced a review of retirement incomes policy last September.
The review is expected to report in June this year.
SOS submission argues that the current compulsory super system should
be recognised as a success in encouraging saving for retirement in
Australia and reducing the number of people on the full Age Pension.
argues that any assessment of the impact of super policies should
consider the benefits of the compulsory super system and not just the
narrow annual cost of super tax concessions.
of cost-benefit work, we see reporting which highlights only the
estimated gross costs of retirement policy — expenditures on the aged
pension plus problematic estimates of the ‘tax expenditures’ on
superannuation,” it says.
“There is no
measure anywhere of the fiscal and broader economic benefits in moving,
over time, significant numbers of those age-eligible for the pension to a
higher living standard in self-funded retirement from increased
saving,” it says.
It argues that the
review’s “highest priority” should be in establishing a fact base on the
situation around retirement income in Australia that would include
long-term economic modelling of retirement income trends and their
social costs and benefits.
that the current focus on the tax forgone from super tax concessions is
“misleading” and “hugely overstates gross costs” and ignores other
positive outcomes such as encouraging saving for retirement and reducing
a potential drain on the Age Pension.
The submission also argues for a reform of the current compulsory super guarantee system.
says the compulsory 9.5 per cent contribution to super, which is set to
rise to 12 per cent, is too high for people on low incomes.
says the current income level threshold for super contributions has
been kept at the low level of $450 a month — a level set when the super
guarantee system was introduced at 3 per cent in 1992.
It was all going so well for the industry super funds. The election of a Labor government and they would be home and hosed.
There would be no talk of cancelling or deferring the legislated increase in the superannuation contribution rate from 9.5 per cent to 12 per cent. Those pesky requests to improve the governance of the funds by having more independent trustees would fade away.
Life and total and permanent disability insurance would remain an effective compulsory part of superannuation; after all, the opt-out arrangement had been introduced by Bill Shorten when he was the responsible minister. There would be some pretence about dealing with multiple accounts but no real action.
As for removing the quasi-monopoly position of industry super funds nominated as default funds in the modern awards, all discussion would abruptly end. And why would the ambition end there? Fifteen per cent sounds better than 12 per cent when it comes to a guaranteed regular flow of money to the funds.
All those dreams are now a fading memory as industry super funds confront a government that is not entirely convinced of the rationale for compulsory super and is determined to fix problems in the system that disadvantage far too many workers and retirees.
We don’t hear so much these days about our superannuation system being the envy of the world.
These claims were always made by those with deep vested interests in the system; in particular, the vast industry that hangs off the management of funds and their administration.
Some of the core problems of our superannuation system have been highlighted by various reports of the Productivity Commission. They include:
• The unclear purpose of superannuation.
• The excessive costs attached to investment and administration.
• The problem of multiple accounts leading to balance erosion.
• Unwanted (and sometimes worthless) insurance.
• Unaccountable governance with too many trustees having inadequate skills.
• The continuation of poorly performing funds.
Don’t get me wrong; superannuation has been a great product for some people, most notably those with earnings in the top quarter of the distribution. However, this observation is not sufficient to justify a system of compulsory superannuation. Moreover, it is clear any savings on the age pension have to be weighed against the cost of the variety of superannuation tax concessions that apply.
It also needs to be noted here that, on average, the investment performance of the industry super funds has been very good and superior to most retail funds, although there is the qualification of the absence of like-with-like comparison. Self-managed superannuation funds also generally have produced very good returns.
The government has been attempting to deal with some of the problems in the system after the remedial efforts that were made in its previous term were largely thwarted. Two changes have been implemented to merge inactive low-balance accounts with active ones and to make insurance an opt-in product for young workers and for those with low-balance accounts. Both changes were opposed by the industry super funds.
Neither of these changes deals comprehensively with the problems of multiple accounts or forced insurance but they are a start. More surprising have been the recent boasts of Superannuation, Financial Services and Financial Technology Assistant Minister Jane Hume about recent merger activity of industry super funds. Examples include the linking of Hostplus with Club Super and First State Super with VicSuper. Certainly the issue of failed mergers was raised in the Hayne royal commission into banking.
However, the issue of fund consolidation is actually two separate issues. One relates to funds that are clearly of sub-optimal size, leading to a failure to capture economies of scale. The second is about poorly performing funds and the need to remove them from the pool of default funds.
The work of the Productivity Commission makes it clear that a member who lands in a poorly performing fund and stays there by dint of inertia stands to lose up to several hundreds of thousands of dollars in terms of the final balance. It’s not apparent, however, whether the recent spate of fund mergers will deal with the problem of poorly performing funds.
In the meantime, the mergers of some large industry super funds could potentially lead to an anti-competitive configuration of a small number of behemoths that will be able to dictate many aspects of corporate behaviour given their large shareholdings. It’s hard to see how the government would regard this as a desirable outcome.
The hottest topic in superannuation remains the fate of the legislated increase in the superannuation contribution rate. Unless the statute is changed, this rate will be ratcheted up by 0.5 percentage points every year from July 1, 2021. A rate of 12 per cent will apply from July 1, 2025.
Every annual increase will cost the government about $2bn a year in forgone revenue given the cost of the tax concessions. This is a significant sum in the context of the likely tight position of the budget in that period.
The superannuation industry is highly committed to these legislated increases going ahead. Some absurd pieces of research have been released to suggest that higher superannuation contribution rates do not involve any reduction to wage growth, something that is contradicted by the theory and actual practice, including on the part of the Fair Work Commission.
In the context of low wage growth, it will be a big call by the government to ask workers to forgo current pay rises in exchange for higher superannuation balances in several decades.
Moreover, for many workers, these higher superannuation balances will simply have the effect of knocking off their entitlement to the full age pension. For them, compulsory superannuation is effectively just a tax — lower current consumption now and the loss of the full age pension in the future. It’s not clear what the government’s real thinking on this important matter is. The Prime Minister and Treasury are maintaining their support for the legislated contribution increase but may be happy to include the Future Fund in the mix of investment options to improve the competitiveness of the industry.
Other members of the government favour a cancellation of the increase or smaller rises across a longer timeframe. There is also some support for making the increase voluntary; workers could choose between a current pay rise or a higher super contribution rate.
The bottom line is that superannuation remains a dog’s breakfast from a policy point of view. The government has made some small strides to improve some aspects of the system, but the high fees and charges imposed by the funds remain a significant issue.
Far from being the envy of the world, it has become apparent that our system of compulsory superannuation was a serious policy error enacted for short-term reasons to fend off a wages explosion. It may be too late to turn back but thought needs to be given to significantly reforming the system in ways that reflect the preferences of workers as well as generating a better deal for taxpayers.
The election result was a major disappointment to the vast majority of players in the superannuation industry. A Labor government would have ushered in a veritable purple patch, for the industry super funds in particular.
There would have been no debate about whether or not the Superannuation Guarantee Charge would be lifted from 9.5 per cent to 12 per cent. Indeed, there was a possibility that Chris Bowen, as treasurer, might have brought forward the increase in the contribution rate. According to legislation, the SGC will increase to 10 per cent from July 1, 2021, and reach 12 per cent in 2025.
All that pesky discussion of removing industry super funds from the default lists in modern awards would have faded away. And there would have been no talk of removing the monopoly position of industry super funds in key enterprise agreements.
The whole idea of the selection of 10 “best in show” default funds for new workers would have been quickly forgotten. And anyone who even mentioned the potential role for the Future Fund as a manager of superannuation funds would have been quickly dismissed.
To be sure, some lip service would have been paid to reducing the magnitude of fees and charges imposed by funds. And there might have been some feeble efforts to deal with the problem of multiple accounts and unwanted and/or unusable life insurance.
But bear in mind nothing would have been done to upset the industry super funds or the freeloading insurance companies. There would have been no discussion of moving away from opt-out insurance, for instance.
But those dreams of guaranteed riches and expansion have largely evaporated for the industry, and the players must deal with a government that is far less committed to the whole notion of compulsory super than Labor. It is now hand-to-hand combat as the industry seeks to defend its current privileges, as well as truly lock in the rise in the SGC.
The appointment of senator Jane Hume as Assistant Minister for Superannuation, Financial Services and Financial Technology has also sent shivers down the spines of the well-remunerated folk in the super industry. Not only is she whip-smart but she also has direct professional experience in the industry, including a stint at AustralianSuper, the largest industry super fund.
There are many issues to sort out above and beyond what should happen to the SGC. Some of them were canvassed in work undertaken by the Productivity Commission, as well as in other reports, including ironically the Cooper review that was commissioned by the Labor government and released in 2010.
A large slate of bills to reform various aspects of super was developed by the Coalition in its last term in office. But the combination of the composition of the Senate and the unrelenting opposition by the super funds, the trade unions and Labor meant most of these bills were never even presented to the upper house.
Mind you, future threats by superannuation lobbyists of electoral retaliation for unco-operative crossbench senators may well have lost their impact.
The issues the government must deal with during the coming term include: the governance of super funds, strengthening the regulation of super, the elimination of multiple accounts, the establishment of single default accounts that will follow members as they change jobs, the fate of poorly performing funds and fund mergers, and whether insurance should become a fully opt-in arrangement.
For all the carry-on about our system of compulsory super being the envy of the world — read: the envy of fund managers around the world — there are multiple problems with the system, including the often perverse interactions with other components of our retirement incomes system. These will be the likely focus of the upcoming Productivity Commission review into retirement incomes.
It’s not clear where the government will direct its efforts in terms of improving the efficiency of the super system and improving the accountability of the funds. Earlier this year, a small step was achieved when a law was passed that means that inactive — defined as those for which there has been no contribution for 16 months — accounts with balances of less than $6000 will be shifted to the Australian Taxation Office, oftentimes to be merged with another account held by the member.
The effect of this change is that unwanted insurance premiums will no longer be unwittingly deducted from these accounts and their value can be preserved. A further change is in the wind that will convert insurance to an opt-in arrangement for all new members younger than 25 and for members with accounts of less than $6000.
Even these small modifications have attracted the ire of some of the super lobbyists, who allege that members will unknowingly lose the value of insurance. They cite figures about the number of under 25-year-olds with dependants — it’s 10 per cent — as well as the proportion with mortgage debts. They predict that insurance premiums will rise because younger members will no longer be forced to cross-subsidise older ones.
The key problem of multiple accounts remains unresolved at this stage. The Productivity Commission says about a third of super accounts — 10 million in total — are unintended multiple accounts. This results in the loss of $2.6 billion per annum in pointless fees, charges and insurance premiums. The government needs to act on the recommendation of the Hayne banking royal commission that each person should have only one default super account and that there must be a mechanism to “staple” a person to this single default account. Again, the industry is pushing back on this proposal.
One of the more ludicrous proposals doing the rounds is that members’ super benefits should automatically transfer each time a worker changes a job unless the worker nominates otherwise. This is surely no one’s idea of a stapled product, with workers potentially changing funds every time they change jobs.
What the industry super funds really fear is that many young workers would enrol in either REST or Hostplus — the funds covering retail and hospitality workers, respectively — as their first fund and, under a stapled arrangement, they would stay in these funds for the rest of their working lives. Needless to say, this does not suit the other funds, even though both REST and Hostplus have been high-achieving funds. The point is, there is an enormous reform task to clean up the super industry and to make it work for the interests of members rather than the interests of the funds and other industry players. The costs of inaction — running to many billions of dollars per year — mean further changes are inevitable.
The government should keep an open mind about future changes to the contribution rate. A much better alternative would be for fees and charges to fall to world-best-practice levels — well below the 100 basis point mark — in which case there will be no need for the rate to rise. And the idea that super could be a voluntary arrangement, at least for low-income workers, should not be dismissed out of hand.
Compulsory super grew from a grubby deal between the then powerful trade unions and the federal government as a trade-off for a pay rise. Most of the details weren’t worked out, with the regulation of the system and taxation arrangements pasted on over time. It’s time for a major service, if not a new car, and that car may not be called compulsory super.
For three decades compulsory superannuation has afforded Australians the best chance of simultaneously providing a decent retirement for us all while building a fighting fund of capital for our nation to invest in its own future.
Already the $2.8 trillion pool of savings is bigger than our gross domestic product, and bigger than the GDP of all but seven countries, just behind India but bigger than Italy and growing fast.
Much of that wouldn’t exist without compulsion, but remarkably it’s still not enough.
A just-released analysis from the Association of Superannuation Funds of Australia shows there continues to be a significant gap between the $640,000 it considers necessary for a comfortable retirement for couples and what people are actually accumulating.
That’s why it’s so critically important that the superannuation guarantee is lifted from 9.5 per cent to 12 per cent on the currently legislated timetable.
Analysis by actuarial firm Rice Warner shows that without that further lift in super, most working Australians will be forced to rely on the Age Pension for most of their retirement income. But a gradual rise to 12 per cent would provide most with adequate income after they finish working.
Industry Super Australia has shown that the substantial difference between 9.5 per cent and 12 per cent for today’s 30-year-old worker on about average full-time earnings would be $90,000 by retirement. In this environment it beggars belief that Liberals in the Morrison government want to freeze the superannuation guarantee at 9.5 per cent. When the additional 2.5 per cent could go into super or wages, they want it to go to neither but instead to further pad the extraordinarily high company profits that have fuelled a record stockmarket.
The superannuation guarantee has been frozen since 2014 and since then wages have barely moved either. When savings are inadequate and wages growth is sluggish, Liberals want to rob almost 13 million Australians of the super increases they need, deserve and were promised. The party of wage stagnation and rampant wage theft is now coming after workers’ super as well.
The same party opposed universal compulsory super; froze it multiple times; tried to abolish the low-income super contribution scheme; and even tried to weaken penalties for employers who don’t pay the right amount. Now some want to freeze super and, worse, others want to make it voluntary for some workers. They want to take the compulsory out of compulsory super.
Australians never heard a peep about these plans during the election. Coalition members and candidates wandered around the country crying crocodile tears for retirees at the same time as they harboured extreme plans to cut super and attack pensions. Then, after the election, when the Prime Minister told his partyroom to stop commenting publicly on these plans, the campaigning only intensified — a direct and deliberate challenge to his authority.
These Liberals’ latest attack is built on one heavily contested and disputed think tank report that claims an increase in super would lower living standards for some Australians. This conclusion is partly driven by the tougher pension assets test which penalises retirees for saving, and which the government introduced with the Greens to cut the pension for 370,000 pensioners and kick 88,000 pensioners off the pension altogether.
Australians will see through these faux concerns for low-income earners and weak wages growth, and the Coalition’s crocodile tears for retirees. They know these are just excuses to undermine and diminish a super system that the Liberals and Nationals never believed in from the beginning.
Super was conceived as a trade-off between wages and savings but most Australians will not be convinced that much or any of the 2.5 per cent of forgone super in today’s climate will find its way into the pockets of low-income earners as wages.
Nor will Australians be comforted by the weasel words of Scott Morrison and Josh Frydenberg who, in one week, refused to guarantee the legislated super increases, then committed to them, and now say they will be subject to a retirement incomes review. A review that could become a stalking horse for these proposals and worse, such as including the family home in the pension assets test.
On behalf of the government, the Treasurer needs to give a far more definitive statement in support of the legislated increases to the superannuation guarantee on the current timeframe. Anything less risks a repeat of the national energy guarantee debacle, when extremists on his own backbench forced him into a humiliating retreat and proved that in the Liberal Party the tail wags the Treasurer.
Australia’s retirement savings system is the envy of the world. It has its imperfections, but lifting the guarantee rate to 12 per cent by 2025 is not one of them. When the adequacy of retirement incomes is a pressing challenge, and when our ageing population puts pressure on pensions, Australians need more super, not less.
Jim Chalmers is the opposition Treasury spokesman.
Josh Frydenberg is facing growing backbench calls to ditch the superannuation guarantee increase to 12 per cent as the government prepares to launch a far-reaching review into the effectiveness of the $2.8 trillion savings pool.
Seven Liberal MPs in the four biggest states, including chairmen of two parliamentary committees, have criticised the increase as unfair and inefficient, urging the government to halt the legislated increase from 9.5 per cent, or wind it back for low-income workers.
The MPs include Andrew Hastie, chairman of the house intelligence and security committee; Jason Falinski, MP for Mackellar; Amanda Stoker, who succeeded George Brandis in the Senate; and the newly elected senator for Queensland, Gerard Rennick.
Their remarks follow a series of reports that have questioned the efficiency, fairness and effectiveness of the savings system established in 1992 by the Keating government.
Mr Hastie told The Australian said he would prefer more people retired owning their homes.
“I’d rather have people have more of their own money to pay down their existing debt such as their mortgage and ease the cost of living now,” he said.
The superannuation guarantee requires employers to pay 9.5 per cent of workers’ gross incomes into retirement saving accounts they can access at 60.
Senator Rennick said lifting the compulsory saving rate drained money from the regions, which needed it, to the funds management industry in Sydney and Melbourne, which didn’t need it.
“The money doesn’t go into greenfield investments; they just buy existing shares rather than contribute money to the economy by starting infrastructure projects,” he said.
“There’s enough going to super now, and the best people to decide how they earn their money are the people who earn it,” he said.
In 2013, the Abbott government delayed by two years Labor’s timetable to increase the rate, which is now on track to reach 12 per cent by July 2025 following an increase to 10 per cent in July 2021.
The Treasurer has welcomed the Productivity Commission’s recommendation for an inquiry into the impact of super on national savings and the Age Pension.
“What we need to fully understand with this (legislated) increase is what is happening to retirement incomes, what is happening to the nation’s balance sheet,” Mr Frydenberg said recently, reiterating that the government had “no plans” to stop or delay the increase.
The review, yet to be formally approved by cabinet, puts the Coalition on course for a historic clash with the union movement and financial services sectors, which influence and manage the nation’s superannuation savings pool.
The super sector fears the forthcoming inquiry could recommend against lifting the compulsory saving rate, as the Henry tax review did in 2010 — advice the Rudd government ignored.
The tax concessions cost the government more in revenue than offsetting reductions in Age Pension outlays, it found.
Tim Wilson, chairman of the House of Representatives economics committee, said workers should have the option to opt out.
“I struggle with the idea that we should compel business to increase super contributions for the distant tomorrow when people are facing wage and debt pressure today,” he said.
Super accounts incurred more than $30 billion in fees in 2017, according to the Productivity Commission’s review of the efficiency and competitiveness of super, completed last year, which found a third of accounts were unintended and “evidence of excessive and unwarranted fees”.
Senator James Paterson said he hoped the review would look at the “wisdom of forcing workers to lock away even more of their income”. “All the evidence shows it comes at the cost of their take-home pay today and might not even improve their standard of living when they retire,” he said.
Mr Falinski said the super system was opaque. “Like many Australians, and the Productivity Commission, I am unconvinced the system is serving its customers, much less its intended purpose,” he said. “So in those circumstances, how can you possibly support an increase?”
A Grattan Institute analysis earlier this month found workers faced a $30,000 hit to their lifetime income if the rate increase went ahead, from a combination of lower wages during their working life and reduced access to the Age Pension later in life.
Craig Kelly, the MP for Hughes since 2010, said the increase would not need to be compulsory if it were a good deal for workers.
“If you want to go to 12 per cent, everyone is free to do so,” he said, referring to $25,000 concessional contribution caps that let workers to make voluntary super contributions.
“And there’s a strong argument for workers on lower incomes to be able to access it now, especially if it’s not going to change their pension entitlement,” he said.
An estimated 7 per cent of employees, including a fifth of those under 30 on low incomes, would prefer to take their 9.5 per cent super contributions as wage and salary income, according to the Parliamentary Budget Office in a policy costing released last year.
Senator Stoker said wage rises “must take priority” over higher superannuation contributions.
“This is an urgent economic and political imperative,” she added.
Two Nobel prize-winning economists, Eugene Fama and Richard Thaler, were critical of superannuation late last month, singling out the high fees and inferior default arrangements compared with systems abroad.
A typical member’s balance would be $165,000 higher in retirement, or about seven years’ worth of Age Pension, were uninterested workers contributions put into better performing funds, the commission found.
Economist Nicholas Morris found Australian super funds were about four times more expensive than equivalent funds in the US and Europe.
Superannuation remains a complete mystery to me. The myriad rules and regulations under which it struggles to operate are beyond me as well.
In fact, it is hard to believe that many of the people who see the amount that goes into super taken out of their wages have little or no idea what happens to it. What is truly scary about this is that the Australian Prudential Regulation Authority had to concede that three funds out of a total of 11 had serious problems.
Few will even know the problem exists because years ago most of us knew our eyes were glazing over when some expert was trying to explain this arcane system.
Now trillions of dollars is being put into cash, equities and god knows what else and we don’t even question the wisdom of these investment decisions.
Instead, we have blind faith it will all work out in the end. We place our trust in trustees we don’t know and will never meet. With all this apparent success, there seems little need for concern. Sadly, the government is desperately searching for ways to curb the industry funds.
Conservative thinking in Australia has it that union officials are inarticulate, violent thugs and therefore there must be something corrupt about industry funds, even if they can find no evidence of wrongdoing. The fact that industry funds continually produce the kind of results that make them the best performers drives the conservatives to distraction. Mind you, for many of them that is a very short trip.
What I have not seen is any reduction in the take-up rate of pensions, yet the basic purpose of super is to give the workers a better retirement and lower the burden on the public purse.
Scott Morrison should be smart enough to forget about finding fault with industry funds and work co-operatively with them. There are times in politics when you have to admit failure, and this is one of them.
The current push is to allow people to use their super early: they want access to it to help put a deposit down for a house or unit or they may just be ill and need access to pay medical expenses.
In my view, we should be very wary of this approach. We have bank accounts we can draw on for these purposes but our super is something else again. If you pour all your prospective retirement income into your house, there will not be enough left to live with so you want to dip into your super again if there is sufficient still remaining. Convenient though this may be, it undermines the basic purpose of super to provide something extra in later years.
Putting on a new porch may seem important at the time but it is not the main purpose of super. If we allow a practice to develop whereby we can use super to improve our homes, a whole new field of rorts will be opened up.
The adage keep it simple, stupid, should be rigidly applied in this case.