Superannuation put into the Federal Election spotlight

Superannuation is already front and centre in the Federal Election debate. A Super Review roundtable examines the key issues facing the industry and its key stakeholders.

Mike Taylor, managing editor, Super Review: Welcome gentlemen to the roundtable. We’re in an election year and this is the first roundtable we’ve conducted in the year, which is odd given how long the election’s been called.

I personally am surprised that superannuation has jumped onto the agenda so quickly in the context of what might or might not be in the Budget. 

I’m just wondering whether there’s a view around our panel here about the sort of reaction you’re getting from super fund members about the Government once again speculating on changing the rules and the dynamics around their superannuation investments?

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I’m going to open up by throwing that spade to Alex Hutchison because I think he’s got a view. So, Alex?  

Alex Hutchison, chief executive, EIS Super: Thanks Mike.

Well, our view is – and the view from members in some of the seminars we’ve had is – that frankly I think what people are looking for is a bipartisan approach and “hands off super”. If you ask anybody, “do you want to be subject to further tax?”, the answer is always going to be no. 

If you ask people on what basis did they originally contribute to super, it was under a set of rules where they were paying tax at a certain level and they don’t think it’s fair to have an extra burden placed on them.

So I think the best approach, and the approach that our members have, is that they don’t want to pay any more tax, “hands off” and have a consistent bipartisan approach, because if you don’t have that I can only echo what other people have said in the last month or so: it’s going to drive uncertainty into the system so that people then won’t contribute into superannuation – which obviously we know from a government policy point of view is a fantastic system and has a lot of benefit for the state overall.

So people will do things like ... maybe they’ll negative gear in a property or something like that, which I don’t think from a long-term policy point of view is good.

So people want certainty. No one’s ever going to put their hand up wanting to pay more tax, and you know really we need a bipartisan approach with certainty.

Mike Taylor, Super Review: Paul?

Paul Cahill, chief executive, Club Plus: Oh look, I echo Alex’s comments. The uncertainty that he talks about is live in our industry.

We see it in our members. We’ve seen quite a few of our members just get spooked at the smell of a new, well I hate to say it, an almost rehashed RBL [Reasonable Benefits Limit] coming back in a different form.

A lot of people have just said, “what’s going on here, I thought this was the understanding”, and just this new process that they want to introduce has really frightened a lot of people.

Alex alluded to the fact that people save for their retirement under one set of rules and by the time they get to the actual retirement age they’re set under another set of rules.

That in itself causes so much disconnection for people and you see it straight away. It only takes one media report on something along those lines and the next day we’re dealing with it at fund level.

I was just thinking whilst Alex was speaking about how we need to go back to the Hawke/Keating era of having an accord. We need to have both sides of the Government, doesn’t matter what political flavour you are, agree to leave us alone – because it just does so much damage in so many areas having people tinkering with the edges.

They might think it’s a little adjustment of one point, but the ramifications are massive and in terms of the ripple effect – I don’t think people understand how far it goes.

Richard Sherman, chairman, NGS Super: Well you know, the fewer changes the better, but I have to say that if you look at what concerns members most it’s returns from super funds.

If you look at where a lot of our members are, their concerns in recent times have been how well the fund is travelling.

I think that’s across the industry generally, rather than what the government might do in relation to taxation.

Now you know we’ve got to remember that superannuation for most people is a relatively new phenomenon. I mean superannuation was for public servants and quite privileged people.

It’s not anymore, and I think that in terms of the tax regime that exists within super we should bear that in mind in relation to the main objective.

So yes, the fewer changes the better but there has to be some tax regime and it has to be a fair and equitable one. 

Mike Taylor, Super Review: Russell Mason?

Russell Mason, partner, Deloitte: The point Dick makes is correct. Members are preoccupied and concerned about investment returns and hopefully they will improve or are on the improve.

However you’ve got to give people incentive to save for retirement. The whole purpose of superannuation is to allow people to save up enough during their working life to retire with dignity and to have a reasonable standard of living.

The average retiree is going to be alive 30 years so we’ve got to make this money last a long time. So we’ve got to encourage them to contribute as well as the employer superannuation guarantee contributions.

I think something like the $25,000 concessional tax contribution is way too low. It needs to be higher to encourage people to save in retirement and to be able to catch up.

If someone is able to put in that amount all through their working life you might say that’s fair and reasonable, but the reality is most people in their younger years – because they’re paying for their children’s education, mortgages and other expenses – can’t afford to put in additional dollars.

They get to their early 50s, the kids have grown up, hopefully the mortgage is paid off or under control, now they’ve got a chance to catch up – and this current tax regime doesn’t give them that opportunity to catch up.

I think that’s an important flaw in the system that needs to be addressed. 

Mike Taylor, Super Review: Gordon Noble? 

Gordon Noble, policy director, Association of Superannuation Funds of Australia: Look, the first thing is we shouldn’t be surprised that is there’s a discussion in Canberra. We shouldn’t be surprised that there’s interest amongst superannuation fund members.

None of this in terms of where things are going should be a shock to us, and it’s not going to go away either.

The first baby boomers retired last year and we’re beginning a wave of the baby boomers approaching retirement.

And every time the baby boomers have entered a new stage of their life they’ve influenced politics in Australian society, from Whitlam with free education, from Hawke to universal health care.

So we can expect over the next decade that the interest in superannuation will mean that superannuation will be a political issue going forward. It’s not just about this Budget, it’s about the future. We should understand that’s where we’re at.

Secondly, we should also understand there is a fiscal constraint on Government so we can’t have this conversation in a goldfish bowl. We have to understand the constraints around us.

The inter-generational report in 2002 said that by 2015/16 we would start to have some of the impacts of the demographics that we have known have been coming for many years.

We already know that there’s pressure on the health system, even prior to the fact that we know we’re going to have increasing pension costs going forward.

So we should understand that this is not just a conversation about today’s Budget, that this will be a conversation going forward because for the next 20, 30 years, health and ageing costs are going to put pressure on the Budget.

The benefit that we had out of the commodities boom is coming to an end and we have to understand we’re in a new environment.

But the third point is it is a conversation about the design of the system.

We understand that the system is not perfect and we understand that this system is maturing; it’s only 20 years since we’ve had the superannuation guarantee. In fact we think there’s quite a bit that we can do in the post-retirement area.

So we’re not coming to this conversation saying there’s just no change at all; but it should be a sensible conversation, it should be a conversation about the long-term design of the system, and that’s where we’re concerned that you can have short-term decisions made for short-term Budgets.

So there’s a lot of work that the industry does need to do. Now we do need to most definitely address the equity issues in the system that deserve a detailed discussion. 

Mike Taylor, Super Review: Andrew Bragg?

Andrew Bragg, policy director, Financial Services Council: Well it is an election year and super has become an election issue and we think that’s bad.

You know I think what we need is both sides of politics to agree on some key principles, some guiding principles for the system’s design for now and the future.

I mean it was three or four years ago that Chris Bowen said – once we deal with Henry Cooper, the Ripoll reviews and any legislative response, that’s it, because we need to give people some certainty about how they engage with our system.

He was a very good minister and I think that would be a very good approach for both sides to subscribe to.

You know the debate happens at a time when you’re dealing with the ageing population.

The decisions we make now will reverberate, as Gordon said, and it’s hard to see how that debate will disappear from the pages of our newspapers over the next six months as we go towards the election.

And the more it does appear in those papers, the more damage it does in terms of people’s confidence about, “well, can I actually put money into super if it’s going to be a 20, 30, 40-year investment?”.

The more we move the goal posts – and in fact it sounds bizarre to say because no one ever wants to close down a legitimate debate about policy – but the more the debate there is potentially about significant changes and maybe major settings, I think the worse outcome that will have for the country in the long term.