With a new Government and superannuation minister in Canberra, there has never been a better opportunity for a major review of our national retirement and savings policies.
For far too long issues such as adequacy, advice and commissions have languished in the “too-hard basket”. But with 15 years of compulsory superannuation now behind us, the industry is well-placed to embrace more creative policies to ensure a fairer, efficient and equitable retirement savings system. It’s become clear to the Australian Institute of Superannuation Trustees (AIST) and others that the some of the policies pursued by the previous government have awarded benefits to high income earners at the expense of middle to low income earners. “Better Super” does not automatically mean better retirement outcomes for everyone.
Encouragingly, the new Government has wasted no time calling for industry consultation in both pre-budget submissions and the proposed first-home savers account. This new savings initiative is to be commended, but simplicity of the underlying structures is the key to successful implementation if funds are to play a role. Ensuring no commission-based selling of these new accounts is also a must. AIST has long argued that the current level of 9 percent super guarantee is not enough, even for young people starting out in the workforce today. But major policy reform – such as lifting contributions to 15% by 2015 – needs bi-partisan support.
Despite recent increases in average super balances, most Australians are not engaged with their superannuation, despite the best efforts and intentions of superannuation funds. This is backed up by a major research project recently commissioned by AIST which showed that many people are concerned that the rules are constantly changing.
A bi-partisan policy direction would also go a long way to building consumer confidence in super. Just as pressing on the reform front are resolving policy anomalies such as the current $450 per month earnings requirement to trigger an SG contribution. We believe the $450 threshold can no longer be justified. Increased part time and casual work patterns mean many low paid and female workers are missing out. Universal compulsory SG contributions need to be precisely that.
Also in need of review are the transition-to-retirement rules. While AIST supports the principle of flexible or phased retirement, we need to ensure that the rules – which allow a super fund member to draw an income while continuing to work – are in keeping with the policy objectives, rather than simply being used by relatively well-off workers to create tax breaks for those approaching retirement. AIST is also concerned with the growing trend for employers contracting workers as self-employed to avoid meeting their SG obligations.
The Government could act by enhancing enforcement to combat this abuse, and if necessary, change the law to facilitate enforcement. Adequacy for women is in need of urgent review. There has to be more thought about how women can catch up with their super given their broken works patterns and lower incomes. Australia has one of the least generous maternity schemes among developed countries. Unpaid maternity leave, with the attendant loss of super contributions, is a major contributing factor to women’s lower super savings. In the absence of a paid maternity leave scheme, AIST recommends the Government top up the super accounts of new mothers with a ‘Super Baby Bonus’.
Minister Sherry is to be congratulated on his recent initiative to amalgamate lost super accounts. However AIST urges caution and industry consultation as there can be good reasons for members to maintain two or even more separate accounts. New figures from the Australian Bureau of Statistics in January show that that while average super balances have increased in recent years, there remains an enormous gap between the lifestyle expectations of those who are about to retire and their likely retirement income.
Spruikers of superannuation products constantly bombard us with images of retired couples frolicking along the beach and living a carefree high life. Unless the industry and government can come up with better targeted superannuation policies, retirement will be far from carefree for the vast majority of Australians including those young enough to think they have plenty of time on their side.