What are the post-election priorities in superannuation?

Superannuation policy roundtable

Part 1: Superannuation policy before, during and after the election
Part 2: Can governments resist superannuation temptation?
Part 3: Income streams and where they lead
Part 4: What are the post-election priorities in superannuation?

What should be the priority in superannuation following the Federal Election and a likely change in government? A Super Review roundtable examined the issues. 

Mike Taylor, managing editor, Super Review: On 7 September, mathematically, I think, we will get a change of government. But what is the priority for whichever side wins on 7 September? What should be the priority in superannuation? 

Pauline Vamos, CEO, Association of Superannuation Funds of Australia (ASFA): As difficult as this is to hear when you look at the wonderful conversation we’ve had, can I say it’s implementation? We’ve got 13 major policy issues that are having significant monetary consequences that are not good for fund members.  

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We’ve got 13 major gaps and misdrafting in our regulation that is just not going to work, and we have 13 significant areas where we have not had clarification – and we, as an industry, have not had time to deliver clarification.  

We are spending millions of dollars that may not be the best use of that money. We are using resources that could be better spent. We are an implementation nightmare and nobody’s listening.

And I think that’s the first thing we’ve got to finish. Get implementation sorted, fix up some of the significant issues around interoperability and gateways, and the issues around fees in that system, and then we can move forward on some of these bigger issues. 

Mike Taylor, Super Review: But I thought contribution caps would have been the most obvious start. 

Russell Mason, lead superannuation advisory partner, Deloitte: Well it is for me Mike. It is for me. I think we need to really look at that, and I know Treasury have a view but they shouldn’t dominate the debate. 

I think we get preoccupied with tax cuts, and at the edge let’s try and make people better-off in retirement. I think the membership of John’s organisation, of Pauline’s, of the others, we’d all be happy – Alex with his fund – if members could contribute more. It would have benefits at a whole lot of levels. 

At the end of the day I don’t think we want a poor or sub-group of retirees that have not got a reasonable level of affluence in a country such as Australia. I don’t think it’s healthy for our society. It’s certainly not healthy for that group of people. 

If I, as a tax payer, have to subsidise them some more to allow them to live better in retirement, so be it. So I think there’s one policy issue – let’s stop getting caught up with the impact on the deficit or the impact on the taxation system. If we’ve got to raise the marginal tax rate so be it.

It allowed people to contribute so they could catch up, so they could have a decent amount in retirement, so they’re retiring with 400,000 not 40,000 and they can actually have something to look forward to at retirement. 

If we do that I think we have a better and healthier society and I think all of us would agree that’s good for Australia generally. 

Mike Taylor, Super Review: John, you’ve been reasonably quiet on the issue. I was just wondering where to – what’s the FSC’s priority in terms of lobbying and talking to both sides, whoever may form Government. 

John Brogden, chief executive, Financial Services Council: Well, there’s a bit of tidying up to be done and that’s whether the Government is re-elected or whether there’s a new Government. There are too many bits and pieces left behind because of the rush to get it all in by 1 July this year. 

The big issue that I see is the post-retirement phase. Now that’s not an easy discussion for any Government to have because they have to say to people, ‘we tell you how much you’ve got to put in, we tell you how to invest it and what we’re going to invest it in, and now we tell you how to spend it’. 

That’s not an easy debate to have but it’s a critical debate because there’s possibly one thing worse, Russell, than not having enough money to retire on: it’s having enough money and not spending it properly. Running out early. 

Russell Mason, Deloitte: Yes, agree. 

John Brogden, Financial Services Council: Now, there’s a level of paternalism if you’ve forced people to have pensions, to be honest – but there’s a level of paternalism all through superannuation. And there are ways of doing it and there are ways of enabling it.

But there will be an undermining of public conference in superannuation if people get to 70 and run out where they thought they were going to have it to till the day they died. 

Now that problem is 15 to 20 years away because most people retiring now who are 50 or 60 or 55 or 60, whatever it is, always knew that if they were a low-income worker, they didn’t have super for long, it was never going to really look after them forever – so they got a full pension or part-pension and it will run out at some stage. 

That generation will wake up very quickly and they will all have passed; but there will be a lot of people who will have very high expectations that their superannuation will get them to the day they die with a new car every five years and an overseas trip and a nice place to live. 

I think the Commonwealth Bank did some research on Monday that said young people in their 20s expect to retire and live a better life than they had when they worked.

Compare that to my late grandmother who would be 103 if she were alive today who used to be grateful that the Government gave her a pension when she got old because when she grew up that was unheard of. 

So in a couple of generations our expectations have risen massively. How we manage that retirement phase is just so critical.

Why is it critical?

Whichever way you like to look at it, whichever phrase you use, there is a massive social contract between the community and Government that we, as the custodians, look after. 

And that is that we will agree that 9 – soon to be 12 – per cent of every dollar I earn, you take; you force me to invest it and I can’t touch it till I’m old.

And the part – the unwritten part of that social contract is – you don’t guarantee cash, you don’t get any capital guarantee on it, but the system better help me out – because when I get there I’m going to be retired for a long time and I want it to work. So there are time and phase and contributions.

That’s a big debate. 

Pauline Vamos, ASFA: If you talked to both sides that debate is a key play already. They’ve already started work on that.  

They both know it’s not just about the superannuation system. They know they’ve got an ageing population, so the big conversation is how are we going to ensure that ageing population, that is happening now, can actually be looked after. 

The superannuation system and the way it works is very much part of that. What we need to be very careful about is that we are not left out of that conversation.

We must make sure that we provide what is the answer to the design, what is the answer to how you manage your market longevity and your inflation risk. 

We as an industry don’t have those answers yet; we want the Government to make it a priority. It’s already a priority, we’ve got to make sure that we deliver our part of the answer and we’re not there yet. 

Russell Mason, Deloitte: We’ve got to do it in a way that doesn’t get down to minute fine detail, and this industry, through StrongerSuper, has been the notorious for bickering.

I think the vast majority of us are quite happy with pensions, we don’t want to run the risk of losing it all. But set up a system that allows MetLife and other providers, in an efficient way, to provide these sorts of benefits and have them out there. 

There’s been a lot of innovation from, again, providers like MetLife and other major providers that has often been stymied by tax rules and the like.

So incentivise them and incentivise people to buy those products. And then, as John said, we’re going to have people quite happy to accept pensions in retirement. 

John Brogden, Financial Services Council: I often think that although someone is 21 years old, they won’t be paying 12 per cent.

My oldest child is nine years old; when he starts working he’ll be paying 12 per cent. It will have phased him, right. He’s going to work 50 years, he’s not going to work 40 years. He’s going to work 50 years. So he’ll be retiring at 70. 

He’ll be accessing his super, which is another big debate, at 70, not 60, let’s just face it. So we’re 50 years – we’re almost 60 years away from maturity in the system, and if we start getting bogged down with detail we’ll wreck it.  

I guess to say that this is a system that needs 80 years to get to full maturity is extraordinary. But at the same time it’s no more extraordinary than the decision that was made 20 plus years ago when it actually started. 

We have seen a journey through this, I guess that’s my point. We have to see the journey through.

We start messing around with it and in 5 to 10 to 15 to 20 to 30 years it will not achieve what it’s meant to achieve. And there will be social unrest over it, frankly.  There really will. 

Pauline Vamos, ASFA: But you can predict, so again you’ve got to evolve the system and change it as the demographics change.

The trick, and I think that’s what you’re saying John, is that you’ve got to make the change now, because in 30 years time what you design now won’t be [suitable] for 30 years time because your demographics are going to be entirely different. And that’s the long-term vision and the modelling that we need to do on the system design. 

Marc Lieberman, CEO, MetLife Australia: That’s it – you got to have the position and the courage to just do it. And that’s what happened 20 years ago.

There was ... a proverbial sit down and start to calculating every year how this was going to grow. It was fundamental, something we need to do. It’s the right thing to do – and you know what – just do it. Just do it, and looks what’s happened. 

So if we can find a way to have – whether it’s the current government or the next government, and as an industry in conjunction – to have that vision and courage to say ‘just do it, let’s put the Rottweiler at it’, knowing that 20 years it’s going to work out: there’s going to be changes along the way, but you’ve got to have courage. 

John Brogden, Financial Services Council: You know, Marc imagine, if we got to 15 per cent, not to 12, not to 9. And we would have got to 10 per cent in the good times.  

We would have got 15 per cent about 2005, right before the crisis. But we could have phased up to 15 per cent. 

What a phenomenally different debate we would be having now. Not simply the pool would be larger, but the individual outlooks would be larger and we would have brought forward that whole group of people for whom reliance on the pension was their only outcome. 

Marc Lieberman, MetLife Australia: In reality is it’s so successful already. Let’s not denigrate the success. We’ve got 23 million people in this country that have $1.5 trillion in saved assets.  Any country in the world would trade for that, you know.

So it’s the moving forward, we need to just do it. 

Pauline Vamos, ASFA: Exactly. But what is the missing piece? And you said it, Marc, it’s the consumer engagement. I’m not talking about investment.

 I’m talking about engagement. So when I speak to consumers and I say, ‘look, I work four days for today and Friday’s is for my pension’.

Now that’s equivalent to 20 per cent when you think about it. 

But we don’t have in Australia that culture and again that conversation is missing when you speak to parts of the industry.

We’ve got to do it, we’ve got to design it – but the cultural change has to be there as well and that is something I’d like to the whole industry to work on. 

Mike Taylor, Super Review: Okay, last word to Alex Hutchison. 

Alex Hutchison, Energy Industries Superannuation: Just in relation to what the Government should do. I just say that I think it would be relatively uncontroversial if they put the caps back to what they were before they went down. No-one can argue about that – I think that should be back up to at least 50K a year. 

I really do think that the community is aware of their superannuation balances. They are concerned about being able to save, having adequate savings in the future to fund whether it’s a pension or whatever the case may be.

One thing I will say – I do not like the notion that it’s a subsidy. Government doesn’t subsidise anything. It’s working families owned money which is going to fund their own self-retirement.  So this whole notion – ‘let’s come up with this some type of subsidy’ – you know I just don’t accept that. 

I think the caps go back to what they used to be, and then you work out when the modelling is done correct – I say it should probably be higher again. So raise the caps. 

Mike Taylor, Super Review: Okay, thank you very much. I think that was actually a very good roundtable with some real discussion about policies.