(03) 9020 2905With every speech that Superannuation Minister Chris Bowen makes in regards to Labor’s vision for the future of superannuation, the picture gets clearer.
And exponentially more concerning.
Significantly for Eureka Report’s readers – a large proportion of which are self-managed super fund trustees and self-directed investors – it seems increasingly likely that any “improvements” made to superannuation are going to pass straight over you and into the hands of Labor’s traditional heartland, lower and middle-income earners.
Last week, Minister Bowen was at the annual conference of the Association of Superannuation Funds of Australia (ASFA) conference. And in it he made several big picture comments around the likely shape of superannuation once the Rudd government has taken into account the dozens of recommendations to come out of the three major inquiries that are treading on, or around, the superannuation portfolio.
Those inquiries are:
- Cooper (specifically superannuation)
- Henry (overall tax review)
- Ripoll (advisers and corporate collapses)
Bowen’s speech was made at the tail-end of the ASFA conference – a conference that looked to have bandied around a great deal of good information and ideas on the future of super.
But it was the middle of Bowen’s speech that should raise the interest of Eureka readers. The bit that dropped a few more hints that both the well off and the high earners (which are not always the same group) could be about to have their super futures torn away from them.
The following is eight pars from Minister Bowen’s speech that came under the heading “equity and adequacy”. The italicised text is a combination of (a) extrapolating previous Rudd Government economic reasoning, (b) me adding extra words that got cut from the minister’s speech, and (c) just a little bit of cynicism.
Bowen: As I’ve said before, another related part of this national discussion needs to be equity. That is, Labor’s vision of equity, which has so far proven to be direct or indirect means testing of government benefits, penalising those families earning over a certain income determined by Labor to be “rich
High-income earners saving through super grows the pool of national savings, which has many benefits for our local economy. Yet these high income earners were unlikely to ever trouble their local Centrelink office in any event. So it doesn’t really matter whether the rich put their money in super or not. They’re wealthy. They’ll always be wealthy. Why give them tax breaks to save for their retirement through super
It is the improved retirement savings of low and middle income earners that will reduce the cost of the age pension, providing relief to the taxpayers of the future … And, coincidentally, where all the votes are. Labor believes that reducing the cost to the Budget is, on balance, far more important than the “wealthy” having more money to pump back into the economy to create jobs through higher superannuation retirement balances
But it is often the low and middle income earners who get overlooked in these kinds of debates. So, what was the Government co-contribution about then? Put in a little and get a guaranteed 150% (now 100%) return on your money
Tax concessions for low and middle income earners to save through super are significantly less than the concessions available to high income earners. That can only mean one thing – lies, damned lies, and/or statistics, are about to follow
While the top 5 per cent of contributors make around a quarter of all concessional contributions to superannuation, 1.2 million people receive no income tax benefit on their concessional contributions. There they are! The 1.2 million receive no income tax benefit because they’re not paying any income tax. Yes, the rich receive most of the income tax benefit on concessional contributions, but they receive no “free” money from government co-contributions. And the wealthy are only paying less tax, not NO tax, by contributing to super. And less tax is better than no tax. If you make the wealthy pay more tax inside super, they’ll find more ways to pay NO tax outside it
We need to design a system that has genuine incentives built in to make superannuation attractive to low and middle income earners. But anyone so much as a whisker above average should expect nothing, or to have existing benefits or conditions taken off them
The various government-linked inquiries are due out either later this year, or earlier next year. If you believe in the maxim that you should never hold a political inquiry that you don’t already know the findings of, it’s sounding very much like Minister Bowen has a framework in mind from which he’ll cherry pick suitable recommendations from the various inquiries.
*****
ASFA’s annual conference, themed as “Super in the New Age” pulled in plenty of big gun fund managers, super industry regulators and a plethora of those representing the various vested interests.
These included David Morgan, the former chief executive of Westpac, who used his speech to argue about the benefits that consolidation of super funds and fund managers would bring to members.
Mr Morgan argued consolidation would:
- Improve simplicity of available products.
- Increase security through better technology.
- Improve through-the-cycle investment performance.
- Enhance the already high level of adaptability and flexibility.
But for punch, it’s hard to go past Jeremy Cooper’s presentation. The view of Cooper, as chief of the super system review, is particularly relevant. While not giving away too much away in regards to what his review might recommend, he spent the largest portion of his speech making the case for Australia to develop “Super” (as in massive) super funds.
Cooper said the system Australia has now is still fundamentally the same that started in 1992. It’s time for the industry to stand on its own two feet, to change the nature of the “funds management tail” wagging the “super dog”, he said.
Cooper spoke nothing of fund consolidation, though that is clearly the fastest way to create super funds of the scale he was suggesting. “Super funds have to start acting like they are at the top of the food chain and must start using their power more overtly in the best financial interest of members,’’ he said.
Cooper used the example of the two Canadian super funds, the Ontario Teachers Pension Plan and Canada Pension Plan, making their unsolicited bid for Australian toll road operator Transurban.
“Why is it that so few Australin super funds make taeover bids and line up to buy entire businesses and assets?”
But Cooper also questioned whether the underlying nature of Australia’s super system – the constrained Superannuatoin Guarantee contributions and the necessity to provide for 30-day portability for members – was right any longer and whether it promoted short-termism.
“Larger funds can invest in asset classes like direct real estate, infrastructure and private equity and earn a genuine illiquidity premium that is not available to small funds,” Cooper said.
Bruce Brammall is the author of Debt Man Walking and director of Castellan Financial Consulting.