Keeping super stable
Superannuation is Australians’ money. It is not a piggy bank to be spent or taxed to fill budget holes. By Angus Taylor.
This is an edited extract of a keynote speech delivered to the Association of Superannuation Funds of Australia on Thursday.
My first reaction to the events of the past week is to stress that it is important that we have stability and certainty in our superannuation system.
These are long-term decisions and long-term investments.
The entire super system is undermined when parties break election promises, particularly when it comes to the tax arrangements on superannuation.
I will go into more detail about the purpose of super, but it is important that Labor doesn’t stray even further from the Hawke/Keating legacy by forgetting that super is fundamentally Australians’ money.
It isn’t a piggy bank for pet projects.
And it isn’t a revenue loophole to be closed.
But I wanted to begin today by discussing some of the economic and policy challenges we are facing, the purpose of superannuation, and the Coalition’s current thinking about the direction of superannuation policy.
ECONOMIC CONTEXT
There is no doubt we are facing a challenging investment environment.
Inflation continues to be a stubborn presence globally despite continued tightening of monetary policy from central banks around the world.
Many advanced economies are expected to go into recession, if they are not already.
At the same time, consumer spending remains high, labour markets remain tight, and the threat of global stagflation cannot be dismissed.
Domestically, while some global supply pressures have eased, inflation remains well above the Reserve Bank target.
Australia continues to face one of the tightest labour markets it has ever seen and while higher wages are welcome, risks of a wage price spiral are not.
And we continue to see major pressure on the cost of energy and gas, driving up input prices for goods.
There is no doubt that inflation has extended into services.
And we know that with more than 800,000 Australian mortgagees moving off fixed-rates to variable rates this year, the impacts of tightening monetary policy are yet to be fully felt across the economy.
But more crucially for investors, with economic and inflation forecasts shifting weekly, it is a difficult investment environment to deliver a strong return for your members.
PURPOSE OF SUPER
These challenges, combined with Australia’s aging population and lower rates of home ownership, all sharpen the importance of our retirement income system.
With $3.4 trillion in funds under management – more than Australia’s annual GDP – our superannuation system is embedded as a key institution in our economy.
With that institutional weight, comes an institutional responsibility.
In his 91-92 budget speech, John Kerin stressed that the super guarantee’s purpose was “to ensure that all Australians have a secure income in retirement.”
When the legislation was introduced in April 1992, John Dawkins called the superannuation guarantee the foundation for “income security and higher standards of living in retirement for future generations of retirees.”
Dawkins stressed that the purpose of super was to build Australia’s pool of savings.
And to take pressure off the budget, not supplement it.
It was never envisioned that super be used to plug revenue gaps or to become an alternative source of government spending.
It is interesting to go back to those debates and observe Labor backbenchers break from the government of the day and argue that the super guarantee should be complemented by [separate] investment controls for national projects, investments, and secure employment for union members.
Interesting above all, because it is clear from the contributions of those backbenchers that this was not the intended purpose for super at that time.
It is also interesting to observe the likes of Kim Beazley, crediting Robert Menzies for the idea for superannuation from his national insurance policy from 1950.
Australia made a conscious decision across the Fraser and Hawke governments to abolish specific social security taxes through the gradual dismantling of the National Welfare Fund.
The arrival at a compulsory contribution scheme came after 70 years of debate started by the Cook Liberal government in 1913, and pursued unsuccessfully by the Lyons and Menzies’ governments. Menzies preferred a contributory scheme because it preserved self-respect, remained liquid, and removed the need for means testing that forced Australians to “prove [their] poverty”.
This historical context is important because it reminds us that in Australia’s superannuation scheme the investor has to accept compulsion in return for the superannuation benefits belonging to the individual.
These are private savings.
Fundamentally super is Australians’ money, not the Government’s.
And this is essential in considering the purpose of super.
With economic challenges here now, it is more essential than ever that our superannuation system remains focused on the end-user, the consumer – your members.
NATION BUILDING
Additional mandates, or targets, or missions, miss the fundamental point of super spelt out on Hansard by members of the Keating government: “the basic principles of superannuation are... very simple: they are about providing for people in their retirement.”
When the Treasurer argues that superannuation should be used for nation building he doesn’t just misunderstand that it’s not his money, he fundamentally misunderstands how the economy works.
You already build the nation.
Whether it is your direct employees.
The key infrastructure projects you own and fund.
The equity holdings in Australian companies.
The economic activity you support by ensuring retirees have comfortable incomes.
You fulfil your social commitment when you approve early withdrawal for medical treatment.
To help someone stay in their home.
To help someone manage their disability.
Or to keep their family afloat during long term unemployment.
Arguments that super is not doing enough, by delivering returns to your members, are trojan horses for directing you to fund areas the government of the day determines are priorities.
Superannuation is Australians’ money. It is not a piggy bank to be spent or taxed to fill budget holes.
Labor does not have a mandate to tax and spend Australians’ super.
Yet we see this spelt out in Treasury’s consultation paper, which uses the expanded mandate of ‘sustainability’ to argue that “superannuation needs to fit within the broader fiscal strategy.”
This is replete with risk. Governments are historically bad at picking winners, but it also leaves many unanswered questions:
What if your members want their investments in cash, but the government wants to invest in infrastructure?
What if the government wants to support industries that Australia lacks comparative advantages in, and accordingly are difficult to make profitable?
The Coalition’s priorities for super, I suspect, are similar to many in this room: Members come first.
COALITION PRINCIPLES ON SUPER
Like ASFA, we support the principle of an objective for super, and we share ASFA’s desire for stability in our retirement settings.
But it is essential that that objective does not stray from super’s primary purpose, or lead to mission creep.
This emphasis on supporting retirement outcomes for Australians is the driving focus of the Coalition’s thinking on the next priorities for superannuation.
This raises a number of key questions, including:
How we deliver broader benefits that support better retirement outcomes for Australians, without overly harming the preservation principle?
How we improve awareness for Australians about their super through transparency, education and access to advice?
How we reduce red tape and regulation in the financial sector and the economy to drive innovation, drive investment, and lower costs, making it easier to deliver returns, easier to do business, and deliver better outcomes to members?
How do we close the balance gap to support incentives for women, primary caregivers, and low-income earners to grow their balance?
And above all, how we preserve stability and certainty in our superannuation system so that we make super work better for Australians and future generations, without taking away the certainty that any long-term investment needs.
Fundamental to this is the understanding that these are long-term investments.
Australians make long-term decisions about their super.
Australian governments should be extremely cautious about raising tax on Australians’ super.
Change has to be conservative, and measured, and responsive to the real gaps that exist in the system, rather than the whims of governments of the day.
It is essential that we don’t just preserve Australians’ retirement incomes, but the confidence that exists in superannuation as an institution.
Delivering broader retirement benefits through super
With the clarity that super is for retirement, the Coalition will support changes that see super work better to deliver retirement outcomes for Australians.
Housing is essential to this.
Currently super can be used in emergencies to keep a house over your head, but it cannot be used to draw down a deposit.
It is not cogent to most Australians to argue that on the one hand, superannuation funds can build a home financed by your money, and rent it to you at a commercial rate, but you cannot use your super to obtain a home of your own.
This is all the more stark given what is known about the importance of home ownership to retirement. The Henry Review stressed the importance of home ownership to emotional security and safety in retirement.
The Retirement Income Review made it clear that “the home is the most important component of voluntary savings for retirement.”
Homeowners have higher effective living standards in retirement; while renters are more likely to be living in income poverty and have higher levels of income stress.
The Retirement Income Review found that divorced women are overrepresented among older renters, and less likely to own a home five years after divorce than men. Further, if the demographic shift away from younger people owning homes is sustained, there will be an increasing number of retirees who rent.
This puts at risk the sustainability of our retirement system and the social licence that super currently enjoys.
This is why in the Budget Reply, Peter Dutton recommitted to supporting the limited use of superannuation to support first home owners, and women over 55, for a deposit for a home – while preserving any capital gains back into their superannuation funds.
I appreciate this policy has its critics.
It is not sufficient for a compulsory retirement system to stay silent on the issue of home ownership.
Remembering that the benefit of super is for the member.
Remembering that the pioneers in the Hawke/Keating government did not speak of preserving savings but preserving quality of life.
It is important that a balanced superannuation system support home ownership, and good retirement outcomes, when all the evidence suggests it is critical to quality of life in retirement.
The Coalition will remain steadfastly committed to this principle.
Improve awareness and education, cutting red tape
Critical to supporting this goal is improving awareness, education, and cutting red tape both in the financial services sector and the broader economy.
Informed consumers are always the best regulators. This was a key principle of the Your Future, Your Super reforms, and access to advice, along with availability of information, is essential to supporting strong outcomes for our superannuation system.
As it stands, too many Australians are cut out of access to financial advice.
This affects not only their awareness of their retirement options, but their satisfaction with their investments.
It is encouraging to see the Treasurer on Monday voice support for the Levy Review and its potential to support innovation in financial services and financial advice.
But instead of just talking about it, the government needs to implement it.
Too often this government flies kites on economic policy with no intention to follow through.
We need a commitment from the Government to implement this review, which was a key part of the response to the Hayne Royal Commission.
Every day the Treasurer drags his feet, Australians lose out.
This will support your ability to serve your members but also drive better outcomes for consumers.
Along with broader de-regulation to support investment, and free up resources from compliance or innovation – this will make super work better for Australians, and make it easier for you to deliver the returns your members expect.
Closing the balance gap
In 1974, super coverage was just 32 per cent of the Australian workforce. It is a credit to governments of all persuasions, that around 17 million Australians or 69 per cent of the total population have a super account. But the new challenge is how we close the balance gap.
Currently, the median super balance of women aged 30-34 is more than $5000 less than the median balance for men. For women approaching retirement, that gap is more than $40,000. While the gender gap has been closing, it remains substantial.
Further, we know that retirement balances are still below the ideal for a comfortable retirement, and we know as many as 1 in 4 men and 1 in 3 women have no superannuation savings.
In government, the Coalition drove reforms that saw the end of duplicate accounts, prevented default insurance fees eating away at infant accounts, removed the $450 threshold, as well as increasing the annual concessional cap.
STABILITY AND CERTAINTY
Our superannuation plays a critical role in our economy and a critical role in the lives of Australians.
It is essential that we avoid distractions and mission creep and remain laser focused on delivering returns to Australians that secure their quality of life in retirement.
It is also critical that changes are predictable, certain and consistent with election promises. These are long term investments, and shifting the goal posts in ways that take away from super, rather than add to it, leaves Australian retirees in the cold.
This is not just a matter of principle, it is a matter of maintaining the social licence that underpins one of our most substantial economic institutions.
As Peter Dutton has been clear: we want to lead policy conversations and put forward real solutions to the challenges that are facing Australians going into the next election.
Angus Taylor is the federal shadow treasurer. This is an edited extract of a keynote speech he delivered to the Association of Superannuation Funds of Australia on Thursday.