I acknowledge the traditional owners of the land and pay my respects to their elders past, present and emerging.
I would also like to acknowledge the many chairs we have in the room and my parliamentary colleague Jane Hume.
Thanks to Conexus Financial for the opportunity to share a few thoughts with you this afternoon.
Superannuation is usually that topic that when introduced as dinner conversation has guests grabbing their phone to quietly check their socials. It’s a thing of beauty to the industry but rarely sexy to others. In most years reporting on Super sits quietly in the financial pages and rarely breaks through to the political stories.
This year will be different. That is a good thing.
Good because an industry which has – as a result of deliberate public policy – grown the pool of household saving by more than $3 trillion now under management – must be subject to intense scrutiny. Good because big changes are afoot.
Good because public trust and acceptance relies on transparency even when scrutiny shines an uncomfortable light on aspects of our system in need of urgent repair.
We have a good system – a world class system-
- 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 creating 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.
But it is not perfect.
Uneven returns, fees and charges, gender retirement balance gaps and the modest retirement savings of low paid workers all demand the attention of government and industry.
We have work to do in order to make our system stronger and fairer.
Going into 2020 with the spotlight on superannuation - here are a few things that should set the agenda:
1. Retirement Income Review
The Government’s Retirement Income Review was greeted by Labor with enormous scepticism.
This was understandable – it was launched amid a raucous campaign by Government members to cancel the SGL increases and abandon the compulsory system for low and middle income earners.
We remain alarmed at this campaign, and cautious about the review, but see within it an opportunity to look at the adequacy of the existing payments and the interaction between superannuation and tax and the support provided for a dignified retirement.
Its initial discussion paper provided a good and balanced summary of some key issues.
Labor will engage where appropriate through the review process and ultimately the work of the Review Panel will be judged on its findings.
2. The Wages and Superannuation Debate
The debate around wages and superannuation is being reheated. It’s now well established that low wages growth is a drag on economic recovery.
The Reserve Bank Governor has identified several underlying factors which are driving this – low productivity growth, globalisation, under-employment and a decline in bargaining power are broadly accepted as contributing causes.
Some are arguing that superannuation is itself part of the cause of low wage growth, and that a cancellation of superannuation guarantee increases for low and middle income earners will lead to pay increases.
This argument misses the point. It is very easy to agree that superannuation, like wages and payroll tax are part of the total cost of employment and are therefore related.
We acknowledged this when we agreed to phase in the increases in the SGL – spreading them over many years to allow businesses the time to adapt. The legislated 2.5% increase is actually spread over five instalments of 0.5% over five years.
It should be equally easy to acknowledge that workers have benefited and so too has the country.
Workers have received an additional 9.5% of their wages as superannuation – but unlike wages it is taxed at the concessional rate of 15%. If it was invested in an industry fund it would have received a return of around 6-8% p.a over the last 10 years.
This has provided a retirement nest egg for Australians who would have previously been locked out of a workplace scheme.
It is hard to argue that these benefits should only be enjoyed by high income earners – but that is literally what some Government members are arguing.
Today I want to affirm our commitment to the legislated increases in the SGL.
We won’t be diverted.
We can’t accept that workers should be required to forego existing increases in their superannuation to fund a pay rise. It is not equitable.
3. Climate Risk
The summer of 2019-20 will be recorded as the point in time when the impact of climate change moved from the future to the present tense.
The years of crippling drought – a tragic lived experience for our farming community pierced the city consciousness as news bulletins, and while there was awareness and a deep sympathy for the hardship suffered by rural communities – for people in the city it was still something happening somewhere else.
The bushfires changed all of that.
There will be no going back. There will be a heightened awareness that to protect our way of life we need to make some changes.
Changes to the way we generate energy, changes to the way we design our cities and suburbs and everything within them. The finance sector is not some distant and disinterested actor in all of this.
As financiers and enablers – your decisions and actions are increasingly scrutinised.
This will no longer be able to be dismissed as a matter of concern to minority activists deserving a marketing response.
It is of central concern to regulators, to insurers and to fund members. We must change the way investment decisions are made.
4. Financial Literacy and Advice
So much of the conversation about our superannuation system is focused on the accumulation of savings – but the system has now entered a phase where workers are retiring with more savings than at any time in our history. We must place a renewed focus on the retirement phase to deal with the challenge.
In its 2019 Report, the Productivity Commission identified low levels of financial literacy and engagement as a system-wide risk. While noting that this was an international phenomenon and that it was unrealistic for all members to be highly informed and engaged at all times – the PC said that it was critical for members to be engaged as they neared retirement.
There has been too little focus on this. We can be certain that many of the rorts exposed in the Royal Commission would have been harder to sustain with a more engaged and literate fund membership.
The productivity commission estimated that 30% of fund members had low levels of financial literacy – mostly lacking the understanding necessary for formal engagement.
Successive governments have failed to close this gap in financial literacy.
The current low interest environment, lack of regulation, changes in the financial advice sector and inexperienced investors is creating a perfect storm for retirees.
As result of the success of our super system, people are retiring with more. Our challenge is to ensure that they have the information and incentives to manage retirement savings for intended purposes. In most cases this means investment in advice.
Whatever decisions they choose to make – they need to make them with their eyes open to the potential consequences.
Poor financial choices can erode or destroy the superannuation savings that have taken a lifetime to accumulate – devastating for the individuals concerned and undermining the self- reliance principle on which superannuation was established.
At the time the report was published, the PC found that – for most fund members planning for retirement – “access to impartial and quality advice remains elusive.”
If anything, that situation has got worse, as recent reforms are leading to a wholesale restructuring of the financial advice sector.
Business models for the provision of advice and the role of government remain unsettled.
The net consequence of this is that at the very time when access to professional, quality advice is most needed, it is becoming harder to get.
We want to engage with industry and with regulators on how we address this system risk. This needs to be guided by some high level principles:
- There is a role for government and the industry in providing financial literacy programs which empower individuals to make informed choices about their savings.
- Impartial and affordable retirement income advice should be available to all Australians – including low and middle income earners with modest retirement savings.
- The provision of advice must be decoupled from the sales process which means the prohibition of commissions (however so described) from product manufacturers to advisers.
This year will see a renewed focus on superannuation and an opportunity to make Australia’s system stronger and fairer.
I hope these thoughts provide some insights into Labor’s priorities and approach to this challenge.
I look forward to hearing your thoughts throughout our discussion.