Minister for Financial Services & Superannuation
14 September 2010 - 1 July 2013
20 Years of Superannuation
Address to ASFA Superannuation Guarantee Dinner
Parliament House, Canberra
16 August 2011
Good evening, all.
Tonight is about history and the future - so let's talk some history first.
In preparing for these remarks I spoke today to Prime Minister Paul Keating - and I'm very grateful to our former PM for providing me, and this dinner, with some of his insightful observations on the history and journey of Australian superannuation to the current day.
As Mr Keating has himself publicly observed in recent years, before 1985 Australia had relied on the taxpayer provided Age Pension as its principle post-employment income system.
Up until that time, private retirement income under the superannuation provisions applied to the upper end of the commercial sector and to employees in the public sector.
The great majority of working Australians had no viable access to the generosity of the superannuation tax provisions.
The first move towards universal access under the superannuation provisions came as part of the Hawke government's Accord with the Australian Council of Trade Unions.
Government and unions agreed that the profit share in the economy had to be restored to re-ignite private investment. At the time, unemployment and inflation were both hovering around 10 percent.
In return for this restraint the Government supported the ACTU's claim that 3 percentage points of wages should be contributed by employers to a superannuation account in the name of each worker.
This was 1985. And subsequently the Government was persuaded to improve adequate retirement savings further.
And so it was on 20th of August 1991; an announcement was made in the Hawke Government's ninth Budget which laid the groundwork for the superannuation industry as we know it now.
Then not long after becoming Prime Minister, Paul Keating announced the introduction of the Superannuation Guarantee Charge.
Under this path-breaking legislation, employer contributions to superannuation would rise from four percentage points of ordinary time earnings in 1992-93 to nine percentage points of ordinary time earnings by 2002-2003.
Every year the Superannuation Guarantee Charge grew by a further 1 percent of employer contributions towards the 9 percent target, unit labour costs fell. This meant that the cost of superannuation was never borne by employers. It was absorbed into the overall wage cost.
Had employers not paid 9 percentage points of wages as superannuation contributions to employee super accounts: they would have paid it in cash as wages.
As Keating said in 2007: "when you hear conservatives these days speak of superannuation as a tax on employers they are either ill-informed or they are lying. The fall in unit labour costs and the upward shift in the profit share during the period of the Superannuation Guarantee Charge is simply a matter of statistical record. It is not a matter of argument."
Today the savings pool is worth more than $1.3 trillion to the nation. Our retirement savings system is the fourth biggest pool of funds under management on the planet.
The Superannuation Guarantee legislation has since proven fundamental to the sustainability of our private retirement income.
Superannuation has proved to be a terrific idea; blessing Australia with a national institution that almost every developed economy in the rest of the world would give their eye teeth for.
It is now a mature idea.
Yet in terms of providing an adequate retirement nest egg, the system still has great capacity to grow, to mature and perform even better for individuals who get to retire after a whole working life of superannuation behind them.
Compulsory superannuation's gradual introduction between 1991-92 and 2001-02 has smoothed the transition path and demonstrated how long run reforms can be successfully introduced in our country.
But adequacy remains the challenge, and providing for retirement task is getting bigger as we live longer and as weak investment markets slow growth of fund balances, necessitating higher contribution levels.
Running the system as efficiently as possible is essential as it grows bigger balances and maximizes the return to the taxpayers subsidy of a 15 percent concessional tax rate.
It is hence this Government's sincerest belief that a Superannuation Guarantee of 12 percent, and a stronger superannuation system, will make Australians' retirement even better.
That is why this occasion, in this place, is so significant.
Because this building, this Parliament 20 years on, needs to get right behind 12 percent.
Regret to reform would be tragic
And on this important occasion, I think it obligatory to recognise the future's lament if we in the Federal Parliament don't take this opportunity, later this year, to back the legislation that will deliver 12 percent...
Of all the human emotions, it is perhaps regret we should fear the most.
It is both instant and long-lasting.
In politics, the worst regret is always the regret for the path not taken, the timidity of a moment that cost us the skirmish, the skirmish that cost us the battle, the battle that cost us the war.
Too often in politics we deal, or we end up dealing, not with the problem, but the politics of the problem.
The rhetoric of the problem. Dare I even say -- the spin.
We try to paper over with bravado the fragility within.
We lose the moment, and in doing so - the future.
No big economic reform is easy.
The founding fathers of superannuation - Paul Keating and Bill Kelty knew this.
They knew that no change to our public life, no social contract -- indeed no progress -- could be taken for granted.
It has to be fought for, with all the guile and persistence of Fred Hollows, and all the brash force of Henry Chauvel, racing his horses for Beersheba water.
Victory is never certain.
And to be fair, probably all of us - whatever our political stripe - who have the privilege to serve fully in this place, sooner or later realize that the big public policy struggles are inevitable, and intricate, and close-fought, and exhausting.
So when Hawke and Keating wanted to float the dollar or deregulate the financial markets they had to summon all the powers of their political persuasion.
The need to explain why it was necessary, to calm the anxiety and explain the detail of what such reform would do - this was perhaps unprecedented in Australian public life.
And when John Howard wanted to introduce a consumption based tax or re-write Australia's gun laws - he had to do likewise.
The devil was well and truly in the detail. And the sell wasn't easy.
The persuasion of the national interest
Right now we are seeing our Prime Minister do this once again, by putting a price on carbon pollution -- to give Australia a future of clean energy and less contamination to our atmosphere.
Prime Minister Gillard is pressing the advantage of doing the right thing by the nation, even if vested interests and loud voices yelling 'no' make the going all the slower, all the tougher.
The Prime Minister is of course being very ably assisted in this task by Treasurer Swan and Minister Combet - with an army of good Labor voices and minds behind them.
Just as an army of commonsense, real world voices raised their game to advocate for and help deliver compulsory superannuation two decades ago.
The agents of change in our national story already written - from both sides of the political divide - had to consistently and persistently argue the merits of the case and keep a firm grip on the detail and sketch out - with daily alacrity - what would happen when the changes were actually implemented.
The superannuation reforms the Gillard Government has announced - lifting the Super Guarantee from 9 up to 12 percent and how it's afforded through the mining tax - has met with a fiercely hostile opposition. And so once again we find the going harder than such good ideas deserve.
Yet as the Minister for Superannuation I am finding that the strongest argument for these retirement savings reforms is not purely through a recitation of the details.
But a simple plea that we must, for dignity of hardworking Australians in retirement and to place less pressure on the age pension, secure the goal of adequate lifetime retirement savings.
A 70 percent replacement rate in post work life - of average earnings prior to retirement constitutes the winning tape for adequate retirement.
This plea is especially applicable now because of the arithmetic we are in, in this Parliament, compared with the years, in the 1980s and 1990s, of large majorities in the Lower House, and of civilised reason in the Senate.
When it comes to lifting super to 12 percent, I know that most of you, in this room, absolutely get it.
You get it right in your bones.
And so those of you share that view with your Federal Government tonight.
We believe that longer life is a gift that should be celebrated.
We believe there's little point in working hard and retiring poor.
We want Australians to live long lives that have quality and meaning.
We want those lives that go up to and last beyond a hundred years to have been well-lived, both at the start and at the end.
Which means, as the numbers of the old go up, we want to deliver a better deal, a new deal, on superannuation.
Our starting point is that 9 percent is simply not enough, especially for women, who have breaks in their career rearing the next generation, when they are not earning, and therefore not putting in their 9 percent away for the nest egg.
It's why we are taking, as Paul Keating planned many years before, the 9 percent up to 12 percent. And in doing this we are strengthening superannuation.
By reforming the future of financial advice - we are strengthening superannuation.
By increasing the concessional caps for over 50 year olds from $25,000 to $50,000 when balances are below $500,000 - we are strengthening superannuation.
By giving people the ability to have first time breaches of excess contributions up to $10,000 assessed at their marginal rate of tax, rather than incurring a potentially higher rate of excess contributions tax - we are strengthening superannuation.
By making superannuation concessions fairer for 3.5 million low income workers who currently get little or no concession on their super savings - we are strengthening superannuation. And ensuring that it is not just for the well off.
By raising the SG age limit from 70 to 75 from 1 July 2013, coinciding with the increase in the rate of the superannuation guarantee - we are strengthening superannuation.
Every one of these new legislative initiatives deserves the enthusiastic support of the present elected Parliament.
A matter of adequacy
The actuaries tell us the average Australian needs a 70 percent replacement rate of his or her accustomed income to live in retirement comfortably. The OECD recommends this too.
At present only 35 in every 100 of us are likely to fulfil the Australian dream of sea-change or tree change, or a happy grey nomad lifestyle towards life's end.
Being satisfied with just 9 percent compulsory superannuation means being satisfied with a big percentage of Australians outliving the money set aside to see them through the Third Age.
As we live longer - 9 percent just doesn't build enough.
It's why the Minerals Rent Resource Tax is so important to our nation's future.
The MRRT pays for the tax concessional treatment of the additional 3 percent Superannuation Guarantee - with workers retirement contributions taxed at 15 percent instead of their higher marginal personal income tax rate.
Those of us over 65 now are only 3 million in number, but by 2050 there'll be 8.1 million of us.
Today there are fifty of us in work for every ten of us in retirement. By 2050, there will be twenty-seven of us in work for every two of us in retirement.
These days we're probably at school and in college until we're 20 or 25.
We then work for 35 years, and after that we have another twenty or even thirty years to think about things, play bowls, go fishing, join reading groups, write family histories, and the rest of it. Thirty years, perhaps. Forty, maybe.
Life itself, our life on earth, has been redefined by these new unchangeable figures of a long and largely healthy life.
It's of great concern to me, and I know of great concern to the Prime Minister, that whilst women live longer than men, their super balances are in fact on average 30 percent lower.
This is a serious challenge to Australian women's financial independence.
Currently, around 2.1 million women get no tax benefit from contributing to superannuation, due to the 15 percent superannuation contribution tax being at or below their income tax rate.
The Gillard Government is therefore acting on the recommendation of the Henry Review which said that superannuation tax concessions be distributed more equitably.
From 1 July next year, we will make the system fairer by ensuring no tax is paid on the 9 percent superannuation contributions for Australians earning up to $37,000 and that the money is instead directed into their superannuation.
60 percent of the beneficiaries of this policy are women.
The superannuation savings of 2.1 million women earning less than $37,000 will be boosted by $550 million in 2012-13 alone.
So a 30 year old woman on average wages will have an extra $108,000 in retirement savings providing her with an extra $2,900 to spend each year of her retirement.
This is what good public policy - from a Government that is confident in Australia's future - is all about.
The future of superannuation
In August 2011 looking at the great economic reforms of Hawke and Keating and Kelty - reforms like superannuation - can be a bit like looking at the silverware in our nation's economic trophy cabinet.
But I believe each generation has to make its own history.
To build new achievements.
We can respect our history - as families, as tribes, as nations - while still making our own history as a generation.
Surely we don't want to look back in 20 years time and regret not raising superannuation to 12 percent.
We want to say "do you remember when we lifted it to 12 percent - to where it needed to be".
Do any of us really think we would have saved $1.4 trillion without compulsory super?
I believe there are four pillars which today assure a quality of Australian life for all our fellow citizens:
- the minimum wage
- the age pension
- Medicare; and
- compulsory superannuation.
I might add that I think a National Disability Insurance Scheme has the potential to be the new fifth pillar. So last week was a wonderful week measured by the significance of first big steps.
In mid 2011, two decades after compulsory superannuation was introduced, superannuation stands as one of Australian Labor's most enduring and far sighted reforms.
The mission of adequate retirement savings is not yet completed, but the journey here has been a great national direction.
We will know that we have succeeded when all Australians recognise that superannuation is as vital a pillar for our quality of life as Medicare or the minimum wage.
And let me say when that happens, after 12 percent is achieved, Governments need to step right back and stop the tinkering with the tax treatment of superannuation.
I truly believe we are not quite there yet, but the Government's reform agenda together with the good work the industry is doing on building the brand will help us get there.
Why this Parliament must back 9-12 percent
Our superannuation reforms will deliver a great good to Australians upon their retirement and the Australian economy more generally.
The great good of a more comfortable post work life.
The great good of Australians retiring on a 70 percent replacement rate.
The great good of concessional tax, compound interest and dividend imputation.
The great good of seeing Australia become even better at financial services.
The great good of reducing the cost of capital.
The great good of more capital becoming available for nation-building infrastructure.
The great good of low inflation, high savings and a future some Europeans now dream of.
The Gillard Government understands the forces of economic transition that we have to navigate to secure future waves national prosperity.
That the ageing of our population is one of these forces is undeniable and the need for greater retirement savings is therefore irresistible.
And I submit, is logically inevitable.
We always hear a lot from financial planners and investment strategists about savings and investment but it is politicians who can make the real difference. And it is the politicians who need to grasp the relative immediacy of longer life spans - with it's all too predictable dislocating consequences.
Under Prime Minster Gillard's leadership our national Government is acting for the long term and we are strategically placing the nation where the challenges and opportunities of the future can be met with confidence and conquered with commonsense.
Australians need not fear the future - we should be optimistic.
20 years on from that inspiring 1991 Budget - the goal of lifetime income security for Australians remains a worthy one.
And this generation, I believe, is a worthy one to pursue that goal for the nation.
I commend it to you.