It's a really great pleasure to be here at this conference in my home town of Melbourne.
I'm particularly delighted that it is the biggest conference that I understand has been held with more than 1,700 participants. I think it's a great credit to the CEO, Andrea Slattery, who is now moving on, for the wonderful work you have done throughout the years that you've been involved in not only establishing the organisation but making sure it goes from strength to strength.
As I was preparing these remarks I couldn't help but reflect that there are so many similarities between your organisation and your belief statement and my own political philosophy.
You believe that, "every Australian has the right to control their own destiny", and I couldn't agree more.
Supporting the family, giving people choice in their lives and building a nation that encourages wealth creation.
These are the fundamental beliefs and reasons I entered politics.
And, as the Minister with responsibility for superannuation, I ask myself every day, how can we best safeguard and help grow the compulsory retirement savings of the Australian people? How do we empower people with choice and flexibility to ensure their superannuation best meets their individual needs?
You, of course, believe that every Australian has a right to control their destiny, and that is so essential. But not everybody wants to run their own SMSF.
Unlike those of you here today, many of whom are advisers, there are some Australians who don't want to personally manage their retirement savings. They want to be able to outsource the management of their retirement nest eggs to experts in the area.
This is a choice the government fundamentally respects which is why it absolutely critical that our superannuation industry as a whole has well‑governed standards of oversight, probity and accountability as its foundation.
That is why, despite the views of some in the industry that were articulated yesterday, who want to protect particular sinecures, the government is absolutely committed to better accountability reforms that will give members an understanding that their superannuation is secure.
For many others with smaller balances, it is simple not cost-effective to have their own self-managed fund.
But for more than one million Australians, who for a variety of reasons want to be more autonomous, self-managed super funds provide those Australians with choice and flexibility in actively investing in their retirement future. And that is why they are so critical.
The growth of SMSFs
In fact, during the past decade alone, the number of SMSFs in Australia has grown by 87 per cent to almost reach 575,000 in June last year — with an average of 36,000 new funds established in each of the past four years.
The SMSF sector is the fastest growing in terms of members.
More than a million Australians are now members of the self-managed superannuation funds sector.
Interestingly, the age profile of members has changed over that time.
The majority of Self-Managed Super Funds still have two members with a median age of 58 and a half, with around 47 per cent of members being women.
However, the median age of members in newly established Self-Managed Super Funds has decreased significantly from 55.8 years of age in 2008 to 48.4 years of age in 2015.
In other words, more Australians are making the choice to manage their own retirement savings and they're doing that much earlier in their working lives.
For the number crunchers who are here today, and I know there are a few:
- In 2015, Self-Managed Super Funds received $32.9 billion of contributions — making up almost a quarter of the total contributions to the superannuation pie.
- The sector now holds assets worth about $635 billion, which is 30 per cent of Australia's total $2.1 trillion superannuation assets pool.
- More than $252.1 billion — or 40 per cent of assets — were invested in Australian listed trusts, shares and other managed investments.
This is clearly quite an achievement.
Also, Self-Managed Super Funds have also provided a substantial injection into Australia's economy, creating jobs and supporting economic growth.
Removing barriers to choice
The self-managed superannuation sector has come a long way since the superannuation guarantee was legislated in 1992. In fact, the Prime Minister of the day, Paul Keating, has said that he was surprised by the extraordinary growth of the self-managed superannuation sector. He said, "I never expected SMSFs to become the largest segment of super. They were almost an afterthought…"[1].
As the superannuation minister in a Coalition Government I would like to be similarly pleasantly surprised by the ability of Self-Managed Super Funds to continue to grow because we very much believe in the core values of individual choice and self-determination.
It took a Coalition Government in 2005 to introduce this key principle to superannuation through its choice of superannuation fund legislation. That is, to ensure that employers must provide their employees with a choice of superannuation fund for compulsory superannuation contributions.
However, perhaps unsurprisingly, the Labor Party is more interested in protecting some of these arrangements for industry funds than affording all those the right to choose their super fund.
It is important to remind ourselves that 12 years on from the landmark introduction of choice in super, there are still around two million Australian employees without choice of fund because of their enterprise bargaining agreement arrangements or workplace determinations.
The result of this for these individuals is that they are shackled to funds they didn't choose to sign up for, and its impact is threefold:
- it prevents them from making decisions about their savings,
- it discourages engagement, and
- it limits competition between funds – including the choice to manage one's own savings.
Take for example, Katherine, who we heard from as part of the Royal Commission into Trade Unions.
Katherine, in her 60s, was working as a researcher. As a result of the relevant enterprise agreement, Katherine was prevented from choosing her own superannuation fund.
This was despite the fact that Katherine and her husband – who was retired – had their own self-managed superannuation fund.
Because Katherine's employer was obliged to make compulsory contributions to an APRA-regulated fund under the agreement, she and her husband indicated that they were financially worse-off.
It is from hearing cases like this that the Government wants employees to be able to choose the fund that best suits their needs — whether it is an industry fund, a retail fund or a self‑managed superannuation fund.
That is why, in March 2016, we introduced a Bill that would allow employees to choose their fund where they are employed under a workplace determination or enterprise bargaining agreement.
We estimate that these changes will make it possible for around an extra one million workers to choose the fund that receives their compulsory employer superannuation.
While the Bill lapsed due to the election, we have every intention of continuing to progress this important reform.
Superannuation Tax Reform Package
That leads me to the Superannuation Tax Reform Package.
I know this legislation is front and centre of your conference here, and I also acknowledge that many of your members are affected by the changes.
At its heart the Government's legislation consists of a package of measures that will improve the sustainability, flexibility and integrity of our superannuation system overall.
As our population ages and fiscal pressures increase, it is important that superannuation tax concessions are affordable and well-targeted.
It is important that all Australians are encouraged to save for their own retirement.
The new measures support the key objective of superannuation, which is to provide income in retirement to substitute or supplement the age pension. Superannuation is not a vehicle for tax minimisation, unlimited wealth accumulation or estate-planning purposes.
Not everyone is happy with all aspects of this legislation, especially people with funds that are very, very significant, but even under the new rules the earnings on their funds will still receive a very generous tax concession. The capital will remain untaxed.
A key focus of the package is a range of flexibility measures which will help people to be able to save for their retirement.
As Self-Managed Super Fund trustees know, people have different work patterns and they change around their lives.
However, the current system favours high income earners who work full-time — without breaks — for the entirety of their working life.
Deductible contributions
We are allowing more people to make tax deductible personal contributions to their superannuation fund, up to the concessional contributions cap.
Under the new rules, individuals can get a deduction for personal contributions to their fund up to the concessional contributions cap, no matter what their employment arrangement.
This measure will improve the superannuation balances of more than 800,000 Australians.
This will benefit partially self-employed contractors, individuals employed by small businesses who do not offer salary sacrifice arrangements at the moment or freelancers by giving them greater access to voluntary concessional contributions than they currently have right now.
Catch-up contributions
The Government will also help people catch–up on their superannuation contributions.
We will allow individuals with a total superannuation balance of less than $500,000 to carry forward unused concessional cap space — for up to five years — to use if they have the capacity and choose to do so.
This measure will support working Australians to build independent wealth for their retirement, and improve the flexibility of the superannuation system by enabling those with interrupted work arrangements to make catch-up contributions.
Professional standards and the SMSF sector
The Turnbull Government has also taken the necessary steps to ensure that future retirees have access to the highest quality advice when it comes to superannuation products.
Access to appropriate financial advice can significantly improve peoples' long-term financial wellbeing. However, reduced trust acts as a barrier to consumers seeking financial advice.
That is why the Government has delivered on its commitment to raise the education, professional and ethical standards of financial advisers.
Under the Professional Standards reforms, an independent standard setting body will be established to govern the professional standing of the financial advice industry.
The independent body will be responsible for:
- developing and setting the education and professional development requirements;
- developing and setting an industry exam; and
- developing the Code of Ethics.
The new regime will commence on 1 January 2019. From this date, new advisers entering the profession will be required to hold a relevant degree. Existing advisers in the industry will have until 1 January 2021 to pass the exam, and until 1 January 2024 to meet education standards that are equivalent to a degree.
The reforms also include a uniform Code of Ethics for the industry and from 1 January 2020, all advisers will need to comply with that Code of Ethics. The Code will ensure that people will have access to financial advisers who will provide advice that is in their clients' best interests.
In developing these reforms, I would like to acknowledge how active the SMSFA has been in representing the views of the self-managed super funds sector.
The feedback we have received has been instrumental in creating a holistic professional standards framework.
Closing remarks
So I want to finish by again thanking the Association for the opportunity to be here amongst all of you today to speak at the conference.
It's going to be a very busy year for superannuation.
There are, after all, very few industries that have such far-reaching effects on people's later lives.
And it does mean the system must be the best it can possibly be.
Whether it is through changes to provide people with more choice or better professional standards, the Government is committed, like you, to making that happen.
Thank you.
[1] Paul Keating, "Where did SMSFs come from, and where are they going?", Cuffelinks Newsletter, 14 Feb 2013