Minister for Financial Services & Superannuation
14 September 2010 - 1 July 2013
Superannuation Guarantee (Administration) Amendment Bill 2011
Second Reading Speech
2 November 2011
-- CHECK AGAINST DELIVERY --
Time to change
Mr Speaker I am introducing this Bill to the House because the Parliament should pass laws which are optimistic, positive and constructive about Australia’s future.
This bill will increase the Superannuation Guarantee charge from 9 percent to 12 percent
And this Government will abolish the Superannuation Guarantee age limit.
This Bill passes the test of being optimistic, positive and constructive.
We are living longer than ever before. Australians are reorganising their lives to adapt to longer life. So we must change our laws to move with the new rhythms of life.
Those of us over 65 now are only 3 million in number, but by 2050 there'll be 8.1 million.
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 ten of us in retirement.
These days we're probably at school and in learning 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 in the best country on earth, has been redefined by these new unchangeable figures of a long and largely healthy life.
Longer life full of quality and meaning is the great gift of 20th century Australians to 21st century Australians. And we should celebrate it.
The goal of lifetime income security celebrates long and quality life.
This bill declares that the Australian people understand change is inevitable.
This bill declares Australians reject the proposition that Australians should stay frozen in the moment.
This bill declares that Australians do not believe change is too hard.
This bill declares that Australians understand that as we are living longer, we need to smooth our prosperity over longer life.
History of superannuation
Until 1985, private retirement income under the superannuation provisions applied to the very wealthy and some well paid employees in the public sector.
Until 1985 the great majority of working Australians had no viable access to the generosity of the superannuation tax provisions.
Until 1985 most Australians had relied on the taxpayer provided Age Pension as their principal post-employment income system.
The first move towards universal access under the superannuation provisions came as part of the Hawke government's Accord with Australian trade unions.
The Australian Labor 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 far sighted 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. Then on 20th of August 1991 the Hawke Government's ninth Budget laid the groundwork for modern superannuation as we now know it. 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 three percentage points of ordinary time earnings in 1992-93 to nine percentage points of ordinary time earnings by 2002-03.
Over the period when the Superannuation Guarantee Charge grew from 3 to 9 percent of employer contributions, unit labour costs fell. This meant that the cost of superannuation was rarely 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 original 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 safety, 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 1992-93 and 2002-03 has smoothed the transition path and demonstrated how long run reforms can be successfully introduced in our country.
Running the system as efficiently as possible is essential as it grows bigger balances and maximizes the return to the taxpayers of the 15 percent concessional tax rate.
Regret to reform would be tragic
I think it obligatory to recognise the future's lament if we in the Federal Parliament don't take this opportunity to pass the law that will deliver 12 percent compulsory superannuation contribution.
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.
I understand 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 Harry Chauvel, racing his horses for Beersheba water.
Victory is never certain.
And to be fair, probably all of us - whatever our political leanings - 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.
Long lasting economic change - whether floating the dollar or deregulating the financial markets require all the powers of political persuasion.
We in the Gillard Government believe 9 to 12 percent is profoundly necessary, and we wish to calm the anxiety and explain the detail of what this reform would do.
This bill is pressing the advantage of doing the right thing by the nation and future generations, even if vested interests and loud voices opposite yelling 'no' make the going all the slower, all the tougher.
But this bill has an army of good voices and minds behind it.
Just as an army of commonsense, real world voices raised their game to advocate for and help deliver compulsory superannuation two decades ago.
I am inspired that always and every time, the agents of change in our national story already written - from both sides of the political divide – have 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 through revenue generated from the mining tax – has been 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 the dignity of hardworking Australians in retirement and to place less pressure on the age pension, secure the goal of adequate lifetime retirement savings.
We measure adequacy through a simple test. What percentage of your income can you generate in your post work life?
This is what is known as a replacement rate. Something in the order of 65 percent or even better, 70 percent of average earnings prior to retirement, I believe, 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 our nation absolutely get it.
Australians get it right in their bones.
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 ninety and 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 their future.
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.
The Superannuation Guarantee charge percentage will be increased gradually and modestly with initial increments of 0.25 percentage points on 1 July 2013 and 1 July 2014. Further increments of 0.5 percentage points will apply annually up to 2019-20, when the SG rate will be set at 12 per cent.
These superannuation measures and others contained in the Stronger, Fairer, Simpler package of reform, along with the increases in the age pension that the Government introduced in 2009, and the Stronger Super package of reforms will allow Australians to secure higher standards of living in retirement than ever before in Australian history.
This bill will also make superannuation fairer for Australians of all ages.
Currently, the Superannuation Guarantee only applies to people under 70. The legislation will lift the SG age limit to 75.
However, as a result of strong representations from members of the Labor caucus and cross-bench -- including the Member for Petrie, the Member for Blair, the Member for Lyne and the Member for New England -- I have decided to remove the age limit for superannuation guarantee contributions altogether.
This means that an additional 18,000 Australian aged 75 and over will get the benefit of superannuation if they continue working. This will commence on
1 July 2013 to provide sufficient lead time for older Australians and their employers to adjust.
Making superannuation contributions compulsory for these mature-age workers will improve the adequacy and equity of the retirement income system, and provide an incentive to older Australians to remain in the workforce for longer.
A matter of adequacy
The actuaries tell us the average Australian needs something between a 65 and 70 percent replacement rate of his or her accustomed income to live in retirement comfortably. For example, the Melbourne-Mercer Global Pension Index recommends something close to 70 percent.
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 Resource Rent 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 marginal personal income tax rate.
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 around 40 percent lower.
This is a serious challenge to Australian women's financial independence.
A 30 year old woman earning around $70,000 will have an extra $108,000 in retirement savings providing her with an extra $2,900 to spend each year of her retirement, thanks to the increase in the SG from 9 to 12 percent.
This is what good law - 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 $1.3 trillion without compulsory superannuation?
I submit to the House that 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.
But let me be clear - 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 understand 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 Gillard 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 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 around the world now dream of.
The great good of a 30 year old retiring at 65 with $108,000 extra in their superannuation.
The Gillard Government understands the forces of change 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 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.
Lifting the Superannuation Guarantee change to 12 percent is profoundly sensible.
Australians are optimistic about the future. We, in this place should be just as optimistic.
This bill keeps faith that Australians should and can live long lives full of quality and meaning. This bill keeps faith that the goal of lifetime income security for Australians is achievable.
And this Parliament, I believe, should not miss the opportunity to do good.
I commend these ideas to you.
And commend this Bill to the House.