SUBJECTS: Superannuation, IFSA Member Charter.
DAVID SPEERS:
Chris Bowen thank you for joining us. The retail funds have announced a Charter of reform. Have you agreed that this is the way forward? Do you support the charter put forward?
CHRIS BOWEN:
I certainly think it's got some positive elements which I welcome. I said for some time now that commissions are problematic on a number of levels and they've indicated a very strong desire to move away from commissions – a form of payment for advice - which I welcome. I've said it's problematic, I've said that privately and publicly and I think the Investment and Financial Services Association (IFSA), the peak group of retail funds have shown good leadership on that issue.
SPEERS:
What sort of saving would this give to a superannuation investor in getting rid or rolling back some of those ongoing measures?
BOWEN:
Well there'll always be a cost to advice. The important thing for me is obviously that it's as low as possible but also very importantly that it's very transparent and we don't have the perception or the reality of people giving advice based on commissions. I think it's a very important step to move away from that and I think the financial planners and the retail funds deserve to be congratulated. I've told them it's best that they sort it out and they're indicating they will sort it out and move to a more fee-for-service as opposed to a commission-based approach.
SPEERS:
They also want some other changes, truth in advertising, an ability to compare apples with apples when it comes fees, costs involved with superannuation. Do you think the industry super funds will go with this though?
BOWEN:
Look obviously, there'll be robust views around some of these matters and I've seen that in their charter. I'd want to have a talk to them about that. I think people should be generally free to advertise as they see fit and if they have a case to make in terms of fees and charges, they should be free to make it. But I'd certainly look at IFSA's proposal as I look at every single proposal that comes to me from the superannuation industry regardless of where it comes from.
SPEERS:
I guess the concern they have is about some of the industry funds in the advertising – we've all seen them where they say 'in 30 or 40 years time, you'll be this much better off under a retail fund'. Can you really make those sorts of projections when you don't know what's going to happen in the market?
BOWEN:
Well look people will obviously always advertise in a way which they prefer to make their case. It's an important part of a market economy and it's up to individuals to make their judgments based on the information that's laid before them.
SPEERS:
But is it truth in advertising - advertising in 30 or 40 year projections?
BOWEN:
Well of course if anybody had a concern about any particular advertisement being misleading there's provisions under the Trade Practices Act for them to pursue it and that's not what we're talking about here. IFSA's made a thoughtful contribution to the debate here I think. And there are some issues that need to get on the table but I'm not going to rush to judgment on every particular issue that they raise. The issue that's been my priority has been commissions and they've moved on that, which I welcome.
SPEERS:
They also want the government to do a bit more from its own point of view as well and in particular, some of the inconsistencies in the taxation area so that there can be genuine choice when it comes to some of these fees. Are you going to act on that?
BOWEN:
Well superannuation tax will be one of the key features of the Henry Review. We will be working through those issues in a methodical and measured manner in conjunction with the Henry Review. I've been now Minister a little over a week and I'll be considering those issues in due course in conjunction with the Henry Review. There'll no doubt be issues to address.
SPEERS:
There was a Treasury paper in the budget which suggests the age at which you can access your superannuation should also be increased in line with the age at which you'll now access the aged pension – as was announced in the budget. Is that something you'll consider?
BOWEN:
Well look we've indicated we don't have any plans to do that. The important point to remember there is that the Howard Government increased the age at which you could access superannuation and that process is still underway and that process hasn't been completed. So we have to let that process work through, but again we'll work the issue through with the Henry review; but it's not on our agenda.
SPEERS:
Superannuation has taken a big hit with the current economic crisis, we saw some superannuation option lose almost 20 per cent last year. Can you understand people particularly in their 40's or 50's being a bit more reluctant to put as much money in?
BOWEN:
I can certainly understand the disappointment. Around the world pension funds and superannuation have been buffeted, Australia less than some other countries, less than the USA and the UK. Our superannuation is actually in pretty good state compared to them. I know that's of cold comfort to people nearing retirement and of course the other point is that you're much better off in the longer run with superannuation, even though we may have all taken a hit…
SPEERS:
Do you acknowledge that confidence has been knocked around?
BOWEN:
I do acknowledge that confidence has been knocked around and I see one of my roles is to point out that in the long run superannuation will return. Nothing has perpetual positive returns. There is no investment in the world which will give you a positive return every year, year on year. Superannuation is no exemption to that…
SPEERS:
But super is good for the government, it's good for taxpayers; it lessens the burden on the age pension – all taxpayers. Why then at the same time are you lowering the amount people can put into super as a salary sacrifice?
BOWEN:
Well super is also good for individuals. Despite the negative returns more recently, over the long run the return for super is 4 per cent above inflation. So we're all better off that we have super over the long run. Now super is still treated quite concessionally in tax terms. Yes, we've made some changes in the budget these were tough decisions, not ones we just rushed in to, but one that we felt was necessary to keep the budget on a sustainable footing. But it is still treated quite concessionally and that's appropriate. But to suggest that we've taken away all the concessions from super wouldn't be accurate.
SPEERS:
What about the superannuation guarantee. It's currently at 9 per cent. Is it your aim to see it increase and by how much?
BOWEN:
What I said previously is in an ideal world if increasing retirement incomes is your policy objective then the higher the contribution, the better off you'd be. Obviously the flip side to that is the higher the pre-retirement contribution, the lower the pre-retirement income. So there is a balance to be reached there. Again we'll address this methodically and cautiously in conjunction with the Henry review but we'll also be advised by various strong views in the community and in the superannuation sector.
SPEERS:
Is it your goal to achieve the 12 per cent contribution target?
BOWEN:
The policy setting at the moment is 9 per cent and that's the policy as we stand but of course there are always issues to be addressed and in an ideal world if you're trying to increase retirement incomes - which is a good thing - then the higher contribution rate, the better. But it's not as simple as saying we're going from 9 to 12. There are a lot of issues that need to be worked through.
SPEERS:
Okay.Chris Bowen, thank you.
BOWEN:
Great pleasure.