The Rudd Government has just passed its first six months. It’s been busy pushing through an ambitious first-term agenda and dealing with a rapidly changing economic environment. So what’s been achieved on the super front and what needs more work? Here’s AIST’s Mid-Year Super Report Card:
Go to the top of the class:
We welcome the government’s broad commitment to lift savings and the inclusion of retirement incomes policy in the formal announcement of a tax review. We are also pleased the government has foreshadowed some immediate objectives around simplicity including: Intra-product advice within superannuation; a shorter standardised PDS with a requirement for plain English including on-line disclosure and calculations of end benefits in today’s dollar terms.
These are all good measures that will go some way in making super more user-friendly. We also welcome the focus and additional funding for infrastructure announced in the Federal Budget, while the reviews of the self managed super fund sector and the regulation of credit ratings agencies and research houses are timely and warranted.
Government moves to remove discrimination against same sex couples in relation to super are equally desirable although we need to ensure they go further than those in the Public Service.
Room for improvement:
During the Federal Election, home affordability was a key issue. With affordability at record low levels, the new Government has been anxious to help more Australians afford to buy and rent a home. The Government’s responses have been the First Home Saver Account, and the National Rental Affordability Scheme.
AIST has made submissions on both these initiatives, with a number of our recommendations on the FHSA being picked up. The requirement that FHSAs can only be offered by super funds through a separate trust remains a disappointing feature of the policy. And while AIST welcomes the funding for the Clearing House concept there are some challenges involved in this proposal, notably around arrears collection.
We also need to ensure strict timelines are in place at each step – from employer , to clearing house, to super fund, to members account. The Productivity Commission inquiry into paid maternity leave is another welcome initiative but any scheme must include a superannuation component. Failing that, AIST is calling on the Government to support a ‘Super Baby Bonus” to compensate women for lost superannuation during their career breaks to raise children.
More homework needed:
AIST believes there are some serious flaws and equity issues with the Government’s proposed changes to the treatment of superannuation for temporary residents.
Under the proposal, employers will be able to pay superannuation for temporary residents to the ATO instead of a super fund. At a time when Australia is facing a skills shortage and needs to attract overseas workers this policy will discriminate as well as being an administrative nightmare for both employers and funds.
The worst aspect of the proposal is that if a temporary resident does not collect their super within five years of leaving the country, they forfeit the whole amount to the government. AIST is also concerned with the Government proposal to deal with lost super through the automatic consolidation of accounts to an employee’s current fund.
Unless a member opts out , this will happen without their knowledge. AIST believes some people would be far better off having their lost super sitting in a low-cost ERF like AusFund for $10 a year, than having their money automatically removed into a high cost, high fee environment.
Subjects requiring special attention:
AIST will continue to advocate for a lift in contributions from a mixture of individuals, employers and government contributions for the low paid.
AIST believes that all increases including individual contributions need to be compulsory and mandatory. We also need to address some significant savings gaps in the system including: removal of the $450 monthly earnings threshold; ways to boost the super balances of women and others with broken work patterns; the savings gaps for the genuinely self employed who are not required to self provide.
Action by the ATO to address the minority of rogue employers who don’t pay their employees SG is also needed and we need to phase out the contributions tax for low income earners as an incentive.
Finally, we need to address the conflict between sales and advice. In the year to June 2007, some $765 million of commission money came out of compulsory super contributions.
An encouraging start to the year but the government will need to put in a solid second half if it is really serious about improving the retirement outcomes for all Australians, including women and low-income earners. So no talking in class, no day-dreaming and spend your tuck shop money wisely Mr Rudd!