Thanks to Sally Loane, CEO of the FSC, for having me here.
The financial services industry is a key pillar of Australia’s economic infrastructure. And it’s a pillar we need to be standing as strong as possible.
We need it to manage our risks and protect our loved ones through insurance.
We need carefully considered advice to help us navigate an increasing complex financial world.
But one of its most important roles is as guardians and caretakers of Australia’s superannuation system.
Superannuation is a significant national achievement
Australia’s superannuation system sits alongside the Pharmaceutical Benefits Scheme, Medicare, as the NDIS as significant national achievements which have made our nation stronger and fairer.
• 15 million Australians hold a superannuation account.
• There are $2.8 trillion in assets, more than 140 per cent of GDP. This will grow to $9.5 trillion by 2035 expanding the pool of funds available for local investment and a stream of foreign earnings on overseas investments.
• Under current policy settings, the median balance on retirement for full-time workers will be $310,819 for women and $628,634 for men
• Despite low level of engagement, Super is popular – 91 per cent of Australians support the superannuation system. That’s a higher approval rating than the ABC. And it is a much higher approval rating than any of us in this room.
The success and popularity of Super does not mean it is perfect – there are urgent areas of reform that demand the attention of Government and industry.
My deep concern is that the focus is being distracted by actors more concerned with notoriety than sound public policy.
The Dirty Dozen
Lead by a rabble of 12 Coalition MPs who invite comparisons to the motley crew in the 1967 classic The Dirty Dozen, they have set themselves the mission of blowing up the Superannuation System, which will deliver benefits previously unknown to millions of Australians workers.
While retirement savings received significant attention during the recent election campaign the plot of these conspirators was undisclosed. The legislated increase in occupational superannuation from 9 to 12% in five modest instalments from 2021 to 2025 is the primary target.
Few of the Dozen have broken cover of anonymity. We do know that included among their ranks is the one time warrior for retirees the Government Chair of the Economics Committee Tim Wilson who has turned his attack on those whose only hope of saving for a decent retirement lies in superannuation.
It also includes a gaggle of precocious new Senators from Queensland Tasmania and the newly minted Senator for NSW, your very own Andrew Bragg who used his first speech to Parliament to suggest that superannuation should only be a feature of our payroll system for workers earning over $50,000 a year.
Bragg’s proposal would disproportionately affect women in low-income occupations – the women who look after our children, who clean our offices, work in hospitality and retail.
Women are already retiring today on average with 47 per cent less superannuation than men.
It is worth making a direct comparison between the circumstances of these champions for rollback and those who will be most impacted by their policy proposals.
Assume Senator Bragg – aged 35 – spends the next 32 years representing the great state of New South Wales, and retires at the Coalition’s new retirement age of 67, taking home 15% per cent of his taxpayer-funded salary; he’ll retire with more than a million dollars in taxpayer-funded superannuation.
Meanwhile, the person who cleans his Parliament House office take home only 9.5 per cent of their $46,000 a year, meaning that they’d retire with only $140,000 after the same time period.
Each of the Coalition’s Dirty Dozen is collecting a minimum $32,500 in superannuation every year. I make no criticism of that. I am appalled that they want to design a system which assumes that low paid workers have no right to the independence and security in retirement that they are set to enjoy.
It is not just politicians who have traded notoriety for sound policy. The usually sensible Grattan Institute unfortunately have got this one dead wrong.
Much has been written about the problems with their modelling.
Rice Warner – who were quoted by Grattan in their report – have slammed Grattan’s analysis on a technical basis, saying that it ignores significant distributional impacts and key parameter sensitivities.
And Grattan has built their modelling by analysing median individuals – using the flawed assumption that every retiree will be single and live until exactly age 92, at which point they will drop dead.
You simply cannot analyse the retirement system on the basis of a single median individual.
It’s a bit like physicists modelling the dairy industry as a series of perfectly spherical cows.
On a purely technical basis, Grattan’s analysis doesn’t measure up.
But we have some more fundamental problems about the underlying assumptions.
The first is a misconstrued the purpose of Superannuation
In this we must be very clear in distinguishing the principal purpose of our super system – providing for retirement savings - with other associated benefits or unintended consequences.
While Super does attract beneficial tax treatment, it is not a system for tax management. While Super does provide a pool of savings for older Australians it’s not about estate management. While Super has provided a new pool of funds for investment it’s not a system designed for the principal purpose of delivering $30 billion in fees and commissions to the industry participants.
While we must consider the cost of superannuation tax concessions, the principal purpose of modern Superannuation was not to save the Commonwealth Government money.
Rather, Superannuation is and has always been about affording all Australians some independence and dignity in their retirement. It is performing this task.
Under current policy settings, those in the bottom 10 per cent of the income distribution will be between 21 per cent (for women) and 37 per cent (for men) better off than they would be on the Age Pension alone.
The second issue is the heroic assumption that Superannuation cuts will result in wage rises.
It is worth noting that the Governments Budget forecasts for the next for years assume a wage growth between 2.5 this year growing to 3.25% in 2020-21.
The SGL increases are worth .5% per annum in five yearly instalments between 2021 – 2025: less than one fifth of forecast wage growth which factors in the legislated increase.
We are expected to believe that if we cancel those increases (not set to take place for another 2 years, then wages will increase today. It is fanciful.
It is not a claim that is borne out by the evidence, or by common sense.
When the scheduled increase to 10 per cent in 2015 was cancelled, wage growth did not rise. It fell.
And to claim that employers are going to pay workers more in wages when they don’t have to – in a time when private and public sector wages are as stagnant as they’ve ever been – simply isn’t plausible.
Labor is committed to the legislated timeframe for increasing the superannuation guarantee to 12 per cent. It is worth remembering that the original timetable has already been delayed twice, and that this has cost workers who are retiring today ($60 – 100K) in their superannuation.
We cannot allow this to be repeated.
The big losers will be low paid workers, and women who are already retiring today with up to 47 per cent less superannuation than me.
The Conversation We Need To Have
A robust defence of this critical system is made much easier if every member enjoys steady returns and low fees in high performing funds. For too many Australians, this is not the case. It’s not working for women. It’s not working for low-paid workers. And it’s not working for workers who are stuck in persistently underperforming funds.
Of course, super is always only going to be part of any solution.
But we need to make sure super is working as well as possible.
I see three fundamental policy questions we need to address:
• The adequacy of the superannuation guarantee
• The performance of superannuation funds; and
• The underpayment of superannuation.
The Productivity Commission has revealed that there are at least 5 million members stuck in underperforming funds – that’s a third of all Australians with superannuation accounts.
Bad asset allocation is an enormous killer of returns – it could be responsible for as much as half of the underperformance of the sector compared to benchmarks.
Whether the fund is an industry or retail fund consistent long-term performance can be the only measure. We can give no comfort to sleepy funds hauled out of the complacent about below-par performance.
The cost to a member of being defaulted into an underperforming fund is enormous.
A typical full-time worker defaulted into a bottom-quartile fund will retire with 54 per cent less superannuation than their top-quartile counterpart.
As a side note – this is why we need to tread carefully on Commissioner Hayne’s recommendation that members be stapled to a single super fund for life.
We don’t want a system that locks Australians into bad funds.
We want a system that pulls them into the best funds.
We can do this with stapling – but we need the right approach.
And we need the underperforming funds to lift their game, cut fees, and boost performance.
And if they don’t – we need to find a way for them to exit the market, without damaging members.
This is my challenge to every superannuation manager in Australia.
If we want to stop the attacks on Australia’s superannuation system, we have to do better.
The future livelihood of everyday Australians relies on it.
Finally, we need to address rampant underpayment of superannuation.
Research shows that nearly 3 million Australians lose out on their super entitlement annually.
And it adds up to $6 billion in superannuation being taken out of their retirement balance every year.
That is a big hole in anyone’s book.
And it’s a growing problem. In the three years to 2017, the unpaid superannuation problem grew 25 per cent.
A huge part of the problem is employers who exploit gaps in coverage and visibility to get out of paying their workers their fair share of superannuation.
It’s not fair on their workers, it’s not fair on their competitors who are trying to do the right thing.
I know for many small businesses there are significant administrative issues. There are employers out there who want to pay their workers properly, but are struggling to do so under the current system.
Some have suggested moving to a fortnightly basis for the payment of superannuation, or otherwise aligning it better with the payroll system. This suggestion has considerable merit. Labor will consult with small businesses on how it could be done to provide a win-win for all.
The issue is that the Government is dragging their feet on addressing these issues.
Labor is determined to change that. We won’t let the Government forget about the unpaid superannuation problem.
These are the conversations we should be having about superannuation.
Conversations about improving adequacy, driving better performance, and combating superannuation theft.
Not how we can tear it down – like the dirty dozen – but how we can build it up as a strong pillar of the Australian social security system.