Plug the super gap, AIST tells the pensions world

Australia’s superannuation ‘gap’ should be plugged by removing the 15 per cent contributions tax for lower-paid workers, removing the $450 threshold (minimum monthly wage before the superannuation guarantee is applicable) and introducing paid maternity leave with a super component, the AIST Global Dialogue conference was told.

This is on top of lifting the level of compulsory super back toward the initial target of 15 per cent of wages and salaries. Fiona Reynolds, chief executive of AIST, said that despite Australia’s standing in the world with its superannuation system, the issue of adequacy still needed to be addressed further. She said that introducing paid maternity leave, including super, was not just an issue of equity. It was also needed to lift the population and participation rate of women in the workforce, as well as productivity. “Women need to be able to seamlessly transition, to and from the workforce, over their lives,” she said. In a conference session which provided an international overview on ‘Pension Delivery: What Works’, Reynolds criticised sales commissions paid to financial planners and rising administration expenses as eating into retirement incomes. “Sales commissions to financial planners are a significant cost to the system, totalling $765 million out of super in 2007,” she said. “Total administration expenses were up by 21 per cent to $2 billion according to APRA figures for 2006/07,” she said. “Members of high-cost funds have a significant disadvantage. For example, over a life time, an extra 1 per cent (a year) in fees and charges means about 20 per cent less in retirement.” Reynolds also referred to the APRA research results published in May, which showed that the trustee system for not-for-profit funds was “getting it right”. “Retail fund directors were spending less time and getting paid more for it, than the not-for-profit directors. And four-fifths of retail directors invest their own money in other products,” she said. Australia needed to lift the level of compulsory super as well as to plug the super gap to achieve adequacy of superannuation coverage. Despite its shortcomings, the Australian system presented as a beacon for the other countries represented at the conference. The state of the US pension system was “dismal”, according to Karen Friedman, policy director of the Pension Rights Center in Washington. It was a patchwork system developed with little rhyme nor reason, she said. Similarly, Alan MacDougall, managing director of Pensions Investment Research Consultants of the UK, said that about 6 million people in Britain had no occupational pensions. MacDougall said the “stakeholder pension” system, which was designed to emulate the US 401(k) system, had been a dismal failure because insurance companies were not prepared to run them on the fixed fee under the system. Only William Robson, of the CD Howe Institute of Canada, was able to point to some success outside Australia with a mix of voluntary and contractual arrangements for employer-sponsored and non-employer pensions. In Canada, about 50 per cent of people are covered by employer-sponsored plans. “There’s no sense of crisis, but some discontent, over adequacy,” he said.