Minister for Superannuation and Corporate Law
3 December 2007 - 8 June 2009
'The Great Years Ahead'
Association of Independent Retirees
Gala Dinner Address
25 October 2008
Thank you for the opportunity to address the 14th Biennial Association of Independent Retirees (AIR) National Conference.
Tonight I will be speaking about the Government's priorities for superannuation, and some of the initiatives we are working on to enhance the operation of the sector.
The role of AIR
Let me state at the outset that the Government values highly the contribution made by those people in the community who have saved over their working lives to provide for their retirement.
Saving to be independent in retirement involves a great deal of personal effort, and in addition to providing financial security for retirees, the economy and society also benefit through the expansion of the pool of national savings and reduced pressure on the Government's limited financial resources.
With 78 branches across the country, the Association of Independent Retirees is well placed to represent the interests of all self-funded retirees.
AIR has been successful in:
promoting greater recognition of the place of self-funded retirees in the broader community;
providing information and conducting research on matters of interest to retirees; and
providing informed views to governments on a broad range of public policies.
The Government appreciates the quality of the Association's input to the policy formulation process on behalf of retirees.
Impact of market volatility on superannuation
As I am sure you are all aware, recent events in the domestic finance sector reveal that, while Australia is better placed than most other countries, we are not immune from the fallout of the global credit crisis.
The latest available data from the Australian Prudential Regulation Authority indicate that, as at June 2008, superannuation fund assets totalled $1.17 trillion. Over the 12 months to June 2008, this represents a two per cent decrease.
This fall in superannuation savings is disappointing. As a substantial proportion of superannuation assets are invested in shares and other growth assets aimed at providing higher returns over the long term, short term fluctuations in investment returns are largely unavoidable.
I recognise that people who are looking to retire in the near future, or who have recently retired, may feel particularly vulnerable to the impact of recent events in the global financial system. I would encourage any person to seek professional financial advice before making decisions relating to their financial situation.
We cannot shy away from the conditions caused by the recent financial market turbulence, but it is important to keep a long term view in relation superannuation. Australian superannuation has proved its worth over the long haul. In the last 35 years, it has delivered excellent real returns of close to five per cent over and above inflation.
It is very important to understand that superannuation is for the long term. People will spend some 35-40 years in the workforce before they retire and 20 years plus in retirement. In that time they will experience a number of investment cycles. The point is that there is time for the markets to recover, and history tells us that markets always do recover over time.
While Australia has a robust superannuation system by world standards, some important challenges lie ahead for the sector.
In addressing those challenges, the key priority for the Government remains constant — to maintain the safety, stability and efficiency of our superannuation system.
Government response to financial market volatility
Yet while the Government's plans to enhance the operation of the superannuation sector will strengthen retirement incomes over the long term, the Government is conscious of the impacts of current events on households across the country. Therefore throughout this global financial crisis, the Government's approach has been to plan ahead, to examine unfolding events, to act early, and to act decisively.
That's why we are working closely with other governments around the world to address the global financial crisis.
And that's why we have implemented several measures over the last week to strengthen growth and protect Australians from the effects of the global financial crisis.
Economic Security Strategy
One example of our decisive action is the $10.4 billion Economic Security Strategy, designed to strengthen the Australian economy and support Australian households through these difficult times.
The Economic Security Strategy will complement the Reserve Bank's recent moves to reduce official interest rates. It also builds on the measures the Rudd Government announced in the 2008-09 Budget.
The package specifically bolsters recent weaker growth in household consumption and housing, and provides much-needed assistance to Australian pensioners and families.
The package includes a $4.8 billion immediate down payment to Australia's four million pensioners, carers and seniors. From 8 December 2008, pensioners will receive a lump sum payment.
These payments are intended to provide additional support in the nine months between now and mid-2009, when long-term pension reforms will take place in line with the recommendations of the Harmer Committee of Inquiry.
The second part of the package is a $3.9 billion payment in support for low and middle income families. In total, about 3.8 million Australian children will receive a $1,000 one-off payment to their families. These payments will also be made from 8 December this year.
The third part of the package is a First Home Owners Boost to ensure first home buyers will be eligible for grants of up to $21,000.
The First Home Owners Boost is a decisive initiative to stimulate housing activity, because the housing sector is critical in terms of the overall performance of the economy. This initiative will also give first home buyers a better chance in the housing market.
The fourth part of the Economic Security Strategy is an investment of $187 million to create an additional 56,000 new training places this financial year.
Increasing productivity and the skills agenda are central to the Rudd Government's economic platform. These new training places will provide more skilled labour to meet the needs of industry.
The fifth part of the Economic Security Strategy is the acceleration of projects to be funded through the three Nation Building Funds announced in the Budget to strengthen our economy.
Ministers will bring forward interim Infrastructure Reports to December 2008 so that work can start in 2009 on projects in the key areas of education and research… health and hospitals… and transport and communications.
Fast-tracking the nation-building agenda can secure economic activity in the short term and expand growth potential in the medium to long term.
The Government took the tough decisions in the Budget to build a strong surplus to act as a buffer during an economic slowdown. This is now providing the flexibility we need to respond to the dramatic deterioration in the global economy.
Treasury advises that the Budget will still be in surplus after these measures.
History of retirement incomes and superannuation
In light of the recent events, it is perhaps worthwhile reflecting on how far we've come in ensuring that retirement incomes policy delivers high standards of living for all Australians in retirement.
The Australian Labor Party has a long and proud history of leading the way in the provision of retirement incomes. It was the Labor Government of Andrew Fisher that legislated for the Commonwealth Age Pension in 1908 for males at age 65; a Chifley Labor Government that introduced a national compulsory contributory pension fund (which was later abolished by a subsequent government); and a Whitlam Labor Government which undertook to lift pensions to 25 per cent of male total average weekly earnings.
Up until the 1970s, superannuation in Australia was mostly limited to high income, white, usually male employees in the private and public sectors.
Superannuation became available more broadly in the 1980s following the 1986 High Court decision that the Conciliation and Arbitration Commission had jurisdiction in superannuation. This in turn led to the Commission's 1986 decision to grant the Australian Council of Trade Unions' National Wage Case claim for a 3 per cent superannuation contribution in lieu of a 4 per cent pay rise, to be paid by employers into an industry superannuation fund.
Under the Hawke/Keating Labor Governments, superannuation coverage was extended to virtually all employees following the introduction of the Superannuation Guarantee in 1992. We are now proud to have over 90 per cent of all eligible employees covered under the Superannuation Guarantee.
The rate of the Superannuation Guarantee has been progressively increased, and now requires employer contributions equal to nine per cent of an employee's earnings to be paid into a superannuation fund on their behalf.
The introduction of compulsory superannuation has had a significant and continuing impact, both on Australia's economic wellbeing and the retirement savings of hard-working Australians. The Rudd Government is committed to continuing that legacy.
For many Australians, however, especially those who have not had the benefit of compulsory superannuation contributions throughout their working life, provision of financial security in retirement extends beyond the superannuation sector.
That is why the Government has increased for CSHC singles and couples it is called the Senior's Concession Allowance Utilities Allowance from $107.20 per annum to $514 per annum, and commenced paying it quarterly to better coincide with the arrival of household bills.
The Utilities Allowance is available to Age Pensioners, and recipients of the Disability Support Pension, Carer Payment and Veterans Service Pension.
The Government has also increased the Telephone Allowance from $88 per annum to $138.40 per annum for those with an internet connection. As part of its recent Budget, the Rudd Government also paid a lump sum $500 seniors bonus in June of this year.
The Government has provided assistance to senior Australians through the taxation system. In particular, the Government has delivered on its election commitment to provide income tax cuts for all Australian taxpayers, including self‑funded retirees, from 1 July 2008.
Part of the plan increases the 30 per cent marginal tax rate threshold from $30,001 in 2007-08 to an eventual level of $37,001 in 2010-11. From 1 July 2008, the threshold increased to $34,001.
Low‑income earners, including low-income self-funded retirees, will be especially assisted by the Government's tax plan through an increase in the low income tax offset (or LITO). The LITO will increase from $750 in 2007-08 to $1,500 in 2010-11. The first increase to $1,200 took effect from 1 July 2008.
As many of you may already be aware, the Government also provides a special tax offset for seniors called the senior Australians tax offset (or SATO). The SATO is worth $2,230 to single taxpayers and $1,602 for each member of couple.
The SATO, when combined with the LITO, ensures that eligible single older Australians can have income up to $28,867 in the 2008‑09 income year without paying income tax or the Medicare levy. This threshold will increase to $29,867 for 2009‑10 and $30,685 for 2010‑11.
Indexation arrangements for Australian Government civilian and military pensions
However Government support to seniors has not been limited to particular budget measures or taxation reform: the Government is also actively examining a number of issues relating specifically to superannuation.
In my role in assisting the Minister for Finance and Deregulation, the Hon Lindsay Tanner MP, in relation to the superannuation arrangements for Australian Government civilian employees, I announced, in June this year, a review into the pension indexation arrangements in Australian Government civilian and military superannuation schemes.
Schemes subject to examination include all Australian Government civilian and military superannuation schemes that provide pensions indexed in line with increases in the Consumer Price Index.
Some stakeholders have proposed that indexation of these payments be changed to reflect the indexation method currently applied to certain income support payments, such as the Age Pension, which has regard to increases in Male Total Average Weekly Earnings as well as the CPI.
Importantly, the review will consider and report on:
whether the purpose of indexation in these schemes meets the obligations of the Australian Government as an employer; and
whether indexation of superannuation pensions by growth in the CPI, over a specified period, is an appropriate measure and/or whether there are more appropriate measures.
The Government is pleased that Mr Trevor Matthews has accepted an invitation to lead the review. Mr Matthews, an international leader in the global pensions and life insurance industry, is an Australian citizen, past president of the Institute of Actuaries of Australia, and is currently a prominent actuary in the United Kingdom.
The review, which honours an election commitment of the Government, commenced in July and is expected to be concluded within the 2008 calendar year.
Governance of superannuation funds
The Government is also focussing on the broader governance arrangements within the superannuation system. We want to ensure that these are more efficient.
As I have said many times in the past, I am currently considering a range of matters relating to governance issues across all sectors of the superannuation industry – corporate, public sector, industry retail and the self managed fund sector.
I have also reiterated that any examination must be conducted in a thorough, open, transparent and highly engaged manner.
As Australia's superannuation minister, I consider that I have a duty of care under a compulsory superannuation system that is underwritten to the extent of $70 billion in capital flows and $28 billion in tax concessions, to ensure the system functions as efficiently as possible.
Australia's Future Tax System (AFTS) Review
Retirement incomes are also being considered as part of the comprehensive review of Australia's tax system announced by the Government earlier this year.
Long term reform of the tax and transfer system is a vital part of how we create prosperity, reward hard work and meet the future challenges facing Australia.
Our future tax system will also affect the decisions people make about working, saving and investing and therefore it has a significant role to play in Australia's future.
As we go about modernising the tax system for the long term, the Government's main reform priorities are to make our tax system more internationally competitive; reward hard work, by untangling disincentives caused by interactions between the income tax and welfare systems; harmonise and simplify a tax system which has become too complex; and provide certainty and security for pensioners, carers and people with disability.
From now until the review panel delivers its final report to the Government in December 2009, there will be a program of extensive public consultation to hear the views and ideas from a wide-cross section of the community.
The first round of submissions to the Henry review closed on 17 October. The review panel will consider what people have said and meet with some major organisations for further discussion on tax policy review priorities.
The submissions and discussions will inform the development of a consultation paper for public release by the end of this year.
The paper will outline the key issues which have emerged and form the basis for further activities in 2009, including more opportunities for public submissions, public meetings and direct consultations on issues and options.
The pension review
As part of the broader review, my colleague the Hon Jenny Macklin MP, Minister for Families, Housing, Community Services and Indigenous Affairs, announced that Dr Jeff Harmer, the Secretary of her department, will lead a comprehensive review of the pension system. I understand the Association took part in some of the review's public hearings which were held throughout August and into September, and also put forward a submission to the review in late September.
The pension review will result in long term measures to strengthen the financial security of seniors, carers, and people with disability.
Tonight I have outlined the Government's priorities for superannuation, and some of the initiatives we are working on to enhance the operation of the sector.
The Government is committed to ensuring that our superannuation system is safe, stable and efficient. All the more so given recent events in the global financial system.
Given the Government's priorities towards superannuation, we will continue to progress reforms where necessary, and consult along the way.
Thank you and I hope you enjoy your evening.