Minister for Financial Services & Superannuation
14 September 2010 - 1 July 2013
Address at the Financial Services Council Dinner
Parliament House, Canberra
14 June 2011
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Good evening friends. And welcome to the Parliament House – the place that Lonely Planet lists as Number 28 of their "116 things to do in Canberra".
I'm delighted to have been invited to speak with you this evening.
And I'd like to thank the Financial Services Council's Chair and CEO John Brogden, for his kind invitation.
As an organisation, the FSC has made a valuable contribution to the superannuation debate.
The Financial Services industry is one of the largest in the country and should participate in public policy advocacy both in its own patch and beyond.
A thoughtful and balanced business voice is a vital input in public policy development in this country. And as an individual, John has been a staunch ally in our ongoing work to advance the cause of superannuation in this country.
I value his support, and I value your support, as many and as distinct players in a great Australian profession and industry.
The FSC has a substantial history, over many years, of being an important contributor and advocate to Government - and to Members of the Parliament - to help see through necessary economic reforms for our country.
The Choice of fund legislation of 2005... Portability of superannuation... the Financial Services Reform Act of 2001... Clerp 6 on corporate governance reforms... Establishment of the ASX Corporate Governance Council... Reforms to develop Australia into an international financial services centre.... Introduction of the Managed Investments Regime. It's a solid list.
This place has appreciated your council and encouragement on all of these changes.
And today – we appreciate your consistent engagement on things like the Stronger Super reforms – including the 12 percent Superannuation Guarantee – and I'll talk about that more in a moment.
And we appreciate your engagement on the Future of Financial Advice reforms, an area where we've obviously had some useful and frank discussions.
When it comes to financial advice we think the FoFA package gets the balance right and is absolutely in the interests of consumers – giving them a better deal and building greater trust.
So we also think it's in the longer term interests of the financial services industry.
Work of Ministers Bowen and Sherry
I'd like to initially say a few words about my predecessors, Chris Bowen and Nick Sherry, both tireless advocates for superannuation.
As I'm sure you are all aware, Chris Bowen is a strong supporter of compulsory superannuation and the need to lift the SG beyond the current 9 per cent.
And Nick Sherry brought his extensive experience in pension systems to his roles as Minister for Superannuation and Corporate Law, and later Assistant Treasurer.
Nick chaired the Senate Select Committee on Superannuation in the Hawke and Keating Governments.
In that role, he argued persuasively for the introduction of the Superannuation Guarantee back in 1992.
History of super under Labor
Friends, our super system is an enduring achievement of successive Labor Governments.
It is based on a central tenet of what the Australian Labor Party is about — that Australian workers deserve just rewards.
That a comfortable retirement after years of work should not be the preserve of the privileged few, but enjoyed by all Australians, whatever your income.
Today, it's easy to forget that when Bob Hawke took office in 1983, only 40 percent of the workforce had some superannuation cover.
In 1987, a modest three percent superannuation benefit was included in most industrial awards, giving most workers some superannuation coverage.
By 1991, after the Hawke Labor Government had introduced major superannuation reforms, the proportion of the workforce with superannuation cover had increased to 72 percent.
In 1992, the Keating Labor Government introduced legislation to establish the universal superannuation scheme that exists today to ensure that virtually all employees are accumulating superannuation savings.
Between 1 July 1992 and 30 June 2003 when the Superannuation Guarantee was lifted to 9 percent:
- The Australian economy grew strongly – GDP growth averaged 3.9% p.a.
- Unemployment fell from 11% to 6.1%.
- Labour productivity grew very strongly, well above its 30 year average, at 2.2% p.a.
- Unit labour costs fell over the period by 4.3%.
- Real wages grew.
- Australian business profitability grew by 6.1% p.a. and profits rose as a percentage of GDP.
Despite all this I wouldn't be exaggerating if I said that the introduction of the Superannuation Guarantee generated a kind of hysteria among the Opposition.
During the Second Reading debate on the Superannuation Guarantee Bill in 1992, Wilson Tuckey drew on his "long history in the racing industry" to compare the legislation to the "worst type of jockey... both stupid and dishonest."
Wilson Tuckey continued:
"When the poor old employer levy gets to 12 per cent, what will it deliver? Luckily, it might deliver an overseas holiday and a few presents for the kids, but it will not deliver a retirement income at the inflated costs of those days."
But have a look at Treasury's projections - the 12 percent Super Guarantee will provide a worker now aged 30 on average full-time wages with a real retirement benefit of over $553,000 at age pension age.
Furthermore, the superannuation benefit will increase the average annual retirement spending of this 30 year old by $22,270 in real terms, compared with the full-rate age pension.
I don't know about you, but I put more faith in Treasury projections than Wilson Tuckey's claim that a 12 percent Super Guarantee will deliver, at best, "an overseas holiday and a few presents for the kids".
Another naysayer was the former Nationals Leader and Deputy Prime Minister John Anderson, who called the Super Guarantee "notoriously irresponsible".
Mr Anderson claimed that the legislation ran counter "to the objectives of achieving solid economic growth and a strong, positive private sector able to generate jobs."
Nineteen years on, we need only look at Australia's economic position — in the wake of the worst financial meltdown the world has seen since the Great Depression — to see how hollow and unsophisticated these predictions were.
Australia's GDP is now significantly higher than it was before the onset of the GFC. And since the Labor Government was elected in 2007, we have created over 700,000 jobs.
The Opposition's campaign of misinformation continues to this day.
Tony Abbott has been a steadfast opponent of Labor's mission to increase the Superannuation Guarantee. He once called it a con job.
Yet in the lead-up to last year's Federal election, the Coalition failed to release any substantive policy on superannuation and retirement savings.
The latest misfire came just a couple of weeks ago.
On 3 June, Tony Abbott announced that a Coalition government would give small business the option of remitting superannuation payments made on behalf of workers directly to the Australian Tax Office.
A clearing house to handle super payments for small business is a great idea.
Which is why Labor has already introduced one.
The Superannuation Clearing House for Small Business began operating on 1 July 2010. This optional, free and simple service enables small employers to pay their superannuation contributions electronically to a single location.
Run by Medicare, the clearing house has already received about $45 million in compulsory superannuation payments from employers.
A few days after Tony Abbott's announcement, the Tax Office advised that, far from saving taxpayer funds, Mr Abbott's scheme would actually cost (at least) $257 million over four years and an additional $71 million in ongoing costs.
Value of superannuation
Friends, as you know, Labor is proudly pro-superannuation.
We have always advocated for superanuation. And we always will.
We are pro-superannuation because it boosts our national savings, meaning that more of our future investment needs can be financed domestically, reducing current account financing risks.
We are pro-superannuation because it provides our nation with a source of stable capital. Australia now has $1.3 trillion invested under management. That's a substantial pool of domestic capital available for investment.
And that figure will grow, thanks to the increase in the Superannuation Guarantee and other super reforms we announced in May last year.
This Government's superannuation reforms are projected to boost Australia's total superannuation savings by $550 billion by 2036.
And we are pro-superannuation because managing that massive pool of capital has helped us to develop a substantial financial services sector, creating more jobs for Australians.
Providing adequate retirement savings
But of course the most compelling reason why we champion the cause of superannuation is that is provides ordinary, hard-working Australians with the kind of comfortable retirement they deserve.
We are living longer ladies and gentlemen.
The great gift of 20th Century Australians to 21st Century Australians is the gift of longer life.
The number of Australians over 65 years old is projected to grow from three million in 2010 to 8.1 million by 2050.
During the same period, the ratio of working-age Australians to those aged over 65 will decrease from 50 people for every 10 today, to just 27 working people for every 10 forty years from now.
But what does longer life mean for us, not just as individuals and families, but as a society?
It used to be the case that we'd leave school in our teens, work for 40 to 50 years and then be in retirement for about 10 years.
Now we might be in education until 20 to 25 years of age, work for about 35 years, and then we have a post-work life of say 20 or even 30 years.
So the challenge, if we choose to call it that – is evident.
How do we ensure that life after work is secure, happy and comfortable as it ought to be?
It is generally accepted that the average worker will need 60 to 65 percent of pre-retirement income to live comfortably. The OECD recommends 70 percent.
At present only 35 percent of the population are likely to get their desired standard of living in retirement. In terms of adequacy, our retirement savings system ranks only 7th on global comparison.
And some say that with mortality improvements, the average 65 year old man will now live to the age of 90. With the chance of a partner reaching 100 astonishingly high.
So an increasing number of retirees are going to outlive even substantial sums sets aside for retirement.
Adequacy is even a bigger issue for women, given that women on average earn 17.5 percent less than men.
To take a particularly relevant age bracket, 55 to 64 year old men receive on average about $507 per week, yet for women the same age it's only $300 a week.
You can see where I'm going here – whatever your gender.
Today, the average retirement lump sum of someone aged between 60 and 65 is $245,000 for men and $170,000 for women.
By 2035, those numbers will lift to $485,000 for men and $345,000 for women, and you'll note that this means women's super actually doubles.
But a significant part of this forecast growth in retirement balances is attributed to Gillard Government's committed – but yet to be legislatively delivered - reforms of the minimum mandatory 12 percent Superannuation Guarantee and Superstream's efficiencies.
This is why the Minerals Rent Resource Tax is so important to our nation's future.
And here's where the unacted upon pressures get as concerning as the reforms are compelling.
Further private sector research determines that a couple in life-after-work need about $54,000 per year to live comfortably.
I am not satisfied this income level is a sufficient reward for 40 years work. For an individual it is around $23,000 a year including the aged pension entitlement.
The average current retirement balance from Australian Super, I'm advised, is about $43,000. If retirees try to live at the aforementioned research standard their superannuation will be exhausted in just 3 or 4 years.
If a couple stick to a modest lifestyle they have an 80 percent chance of it lasting their lifetime as an allocated pension. For those who have bigger balances or those with more time in the workforce contributing 9 percent who may ultimately achieve balances of $150,000 or $300,000 the outlook is still not dramatically better.
Retiring at 65 the retiree with $150,000 can only expect to be able to live comfortably until they are 71 and the one with $300,000 until they are 80 years old. That is still well short of a retirees' life expectancy.
And going back to my starting point about the tide of an ageing population, pure fiscal math dictates that the old age pension, indexed or not, simply cannot be the lifeboat to make up the personal retirement income adequacy shortfall.
Or, these numbers about an adequate retirement can be bluntly described another way: 9 percent superannuation is simply not enough.
So how do we ensure that in a great, rich, lucky, clever country like ours we do something to ensure people don't work hard and then retire poor?
Clearly, more personal retirement savings is a very big part of the answer.
That is why the Gillard Government's commitment and determination to take compulsory superannuation from 9 to 12 percent is such an important plank it this country's plan to protect workers and their families during an economy in transition.
I say tonight that it is very short sighted to oppose, run interference on, go dead, or indeed intend to wind back our proposed Superannuation Guarantee increases. And for that matter our new tax concessions for low income earners and older Australians with relatively low superannuation balances.
In fact it's not just short sighted, its highly hypocritical.
Coalition Members of this Parliament pay themselves at least 15 percent superannuation or better. And it takes years and years before the benefits of tax concessions and increased compulsory contributions deliver their full benefits.
What this betrays is a Liberal-National Coalition of opposition for opposition's sake.
In a purely political, narrow minded attempt to wreck the Labor Government's prospects, they in fact risk wrecking the Australian people's retirement savings on the sharp rocks of inadequacy.
So friends we need you in the financial services industry to show your considerable strength as advocates and to take up the cause for reform with even more gusto.
We all know that cost of living is a big deal too right now.
So as parents and mangers of personal budgets, and not only professional ones, consider the non-inflationary strengths of superannuation increases just as they are delivered through the sensible union stewardship of wage rises in the 1980s and early 1990s.
Inflation is another enemy of retirement savings adequacy. The old aged pension helps with this because it's indexed, but lump sums and allocated pensions can be severely eroded by the rising cost of living.
Reserve Bank data show that a basket of groceries costing $100 in 1979 would have cost over $390 thirty years later in 2009. Only an indexed retirement product can protect the adequacy of retirement savings against this risk.
Friends, as the prospect of demographic changes' impact on us becomes clearer and better understood, a consensus for 12 percent superannuation must become impregnable.
We must be, as Moneypenny would say to 007, we must be incorrigible in our efforts.
We need to diligently keep building the consensus, and we need the help of the FSC.
Friends, I know you're all on the same page.
I – and this Government – greatly value the support of the FSC, and the other major players in the superannuation industry, as we push forward with our reforms.
But being a reformer is never easy.
I know we will continue to attract ill-informed criticism.
That's why I am asking everyone here this evening to join with the Government and your industry colleagues to help us build a broad community consensus around the value of superannuation.