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Why compulsion is vital to superannuation
While some Government backbenchers might argue for the removal of compulsion for young and low-income earners, plenty of evidence exists to prove that compulsion is a necessary component of a successful retirement incomes regime.
MT: There is a suggestion being canvassed by some Government backbenchers that the superannuation guarantee should be made voluntary for young people and low income earners. What does the panel think of that? What’s your view Paul?
Paul Cahill (PC) – Chief executive, NESS Super: It’s up there with the Flat Earth Society to be honest with you. If you want people to save for their retirement then, unfortunately, compulsion has historically been proven the best way to do it.
If you go to a 25 year old and say you can cash out your super of 9.5% so you can enjoy your life, then I guess that is what they’re going to do. Nine-out-of-10 are going to say ‘thanks very much’.
Now there are a lot of smart, well-educated kids that will do the right thing and their parents will probably drive them to do that, but there’s also a great many out there that will take the opportunity to enjoy that money in their youth and, as I get older, I can hardly blame them sometimes.
But you know that that will create a generational issue in years to come. You’ll have a sub-class of people who won’t have the same retirement incomes as others. Is that what we’re trying to do in Australian society? I wouldn’t think so.
MT: So Andrew, from an insurance point of view, compulsion is one of the things that’s helped drive insurance cover. If people have life insurance cover today, the majority have probably got it as a result of superannuation. Is compulsion the key to that?
Andrew Howard (AH) – Chief commercial officer, TAL: Well there have been unintended consequences. There have been progressive pieces of legislation back to back that have actually taken some members out of the systems for good reasons. Good consumer reasons. The Protecting Your Super legislation and PMIF legislation were designed for a certain purpose.
On the other hand, what we’re seeking as well is the engagement with members because of this legislation and because of the events that are going on in and around the industry and there are high levels of voluntary cover being taken out within funds that we work with.
And, Paul spoke about it, some of things that happen with early release. One of the things that we think might be happening is that people are actually having conversations about their super about; about whether it’s the right thing to take money out of their super, about whether it’s the right thing to keep their super in place because of all the benefits that come with it. And that is probably a positive.
We expect that we’ll see more voluntary cover taken out in super going forward than ever before largely because of this heightened awareness and don’t forget that in the middle of all these legislative interventions there’s been a pandemic which also heightens people’s sense of risk about their own health and their ability to earn income.
So, it’s complicated. The scenarios that have played out. But there are some positives that have come out of it. There is higher engagement.
Russell Mason (RM) – Superannuation partner, Deloitte: I strongly believe in our compulsory system.
When I entered this industry in the early 1980s about 25% of the workforce were covered by super. They were primarily those lucky enough to work in the public sector for one of the big banks or some global multinationals and they had cover.
But for 75% of the workforce, they didn’t and I suspect a minority, a very small minority, had private superannuation taken out themselves and while our grandparents and great-grandparents got by on the Age Pension I think today if you were to ask people whether they were happy to live on the Age Pension in retirement the answer would be ‘no’.
So we’ve come a long way and according to the Mercer Global Pension Index we’re in the top three or four countries in the world. We can’t afford to take a step back. This system has helped a lot of people and in the area of insurance I sit on the claims committees of two or three funds and, like Paul and Andrew, I’ve seen the benefits for people who have made disability claims and been able to make ends meet, to be able to keep their house, to be able to do the basic things that as Australians we all have a right to do.
And that is because the superannuation fund has provided a good level of death and disability cover.
I think it would be such a retrograde step to take that away or to wind that back when I think since the early 1980s we’ve achieved so much.
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Compulsion has caused a trillion dollar plus Superannuation bonanza.
Of course, the investment wealth managers, the Labor unions, and the consolidators would enforce compulsion to ensure their ongoing percentage clip on this trillion dollar plus and growing savings pool.
Easy definite positive earnings for all of the above irrespective of the volatility and vagaries of the market place.
What is really needed that the anomalies in the Australian Retirement environment are removed in the qualification for the welfare dollar provided Age Pension such as total wealth including the family home taken into consideration, simultaneously removing the rental assistance as all this does is props up and distorts property values on the welfare dollar.
Then and only then will all members in Superannuation actually realise the importance of saving for their retirement years.