ROSS GREENWOOD:
Many thanks for your time Kelly.
KELLY O’DWYER:
Great to be with you Ross and your listeners Ross.
ROSS GREENWOOD:
OK I’ve tried to set that up a bit to try and raise the issue about the constant changing of superannuation. I mean, when you were going into the last election, there was significant criticism of the Government for the changes that you were trying to bring through, which have largely gone through the Parliament now. But the fact is, every time government of any persuasion tries to change, there is going to be criticism because it affects somebody’s planning.
KELLY O’DWYER:
Well look, the reason people are so interested in superannuation is for the very good reason that it is the second largest financial asset for most Australians after their home. And as you’ve quite rightly pointed out, it’s a $2 trillion industry and it’s one that is growing. And as you’ve also pointed out, Ross, in your introduction, the needs of people are actually changing over time. We talk about people working for longer but the way that they work is also changing and we need to be able to have a superannuation system that is able to respond to that, one that offers greater choice, transparency and also accountability from an industry point-of-view as well. And that’s why we are so focused on making sure that it delivers for individuals, for mums and dads who’ve got their money in superannuation and I certainly know that there have been occasions where, for many Australians, it hasn’t delivered. I received a letter after the last election where there was an individual who had done some part time work for the AEC. They managed to meet the conditions for release for the superannuation guarantee that was paid into a superannuation fund, but when they looked at the money that they were going to get out after having done that work, they found that in fact the fees and exit charges that were being applied to them were actually higher than the balance they had in the fund. That seems a bit ridiculous, which is one of the reasons that we’re actually looking at fees and charges amongst a whole range of other issues.
ROSS GREENWOOD:
Could I raise something with you and it’s a bit of basic maths, the ordinary person might not stop and think about, but we really very deliberately said that there’s $2 trillion in superannuation. Now we know that the fees and the charges on your superannuation fund, well they can be, depending on where you’re investing, anything up to one per cent. It can be less, it can be a little bit more. But let’s take one per cent as an average on this and you’d like to think the fees are coming down. One per cent on $2 thousand billion is $20 billion a year. In fees that could potentially come out of superannuation funds. $20 billion is a massive industry and you can understand why every fund manager in the world has flocked to Australia. The question is whether Australians are getting good value for the fees that they pay.
KELLY O’DWYER:
Indeed and that is absolutely right. There are lots of people in the industry who think the system is perfect and there should be no change whatsoever. But the truth is, when you look very closely at it, the industry has done very well for itself and the question is – are individuals themselves getting the retirement income they deserve for the money that they’ve actually put in? Are they being appropriately protected given that this is a mandated system and are they being given appropriate choice? You talked about young people before, there are many, many young people who, by virtue of lots of different part time jobs, accumulate a range of superannuation funds and because of enterprise bargaining agreements, they might be forced to be in multiple funds and the default arrangements as they’re set up right now force those young people to pay insurance premiums. If you’re paying out multiple insurance premiums right from when you first start your job, you can find that that steadily erodes the retirement income you’ll ultimately get in the years to come, instead of consolidating into one particular account.
ROSS GREENWOOD:
Well I’ll tell you what, I’ve got a letter here coincidentally, which goes exactly to this point, is Grant who’s in Bondi, says “Hi Ross, my 17-year-old son’s been working part-time for the past two years whilst attending his final two years of school. I’ve extolled the need to start saving early and that includes superannuation. After two years his fund recently sent a statement with a zero balance. Why? Because he had compulsory life insurance of several hundred thousand dollars for the past two years that he has no need for eating away at his superannuation balance. And the super fund gets a commission of 20 per cent plus every month on his life insurance contributions. What a joke. The solution? Everyone under 25 is entitled to opt in to life insurance in their superannuation and for it not to be automatic. What 17-year-old needs $300,000 in life insurance? No debts, no commitments, no dependents, simply a rort. Your thoughts? Appreciate it.” Well you can tell my thoughts by the fact I’m even reading that to you!
KELLY O’DWYER:
Well, I think the point is strongly made and well made. This is exactly the reason why the Government has asked the Productivity Commission to look at this very specific issue – the issue around the impact of insurance premiums on retirement incomes, particularly for those people, young people, and whether in fact we ought to have opt in rather than opt out arrangements. As I said before, the default arrangements are that you have to opt out. And it’s very hard, I mean I can give you a personal example – last year I was actually looking at my own superannuation arrangements and looking at consolidating one of my accounts, and I was looking at how I could do that, particularly in relation to insurance, and you can’t do any of this stuff online either. It’s actually quite difficult to do it. So you actually have to write in and make those changes by writing an old-fashioned letter and actually getting the fund to change your arrangements. In today’s day and age, is that really acceptable? Why are we making it so difficult for people to be able to make these choices about their funds and their arrangements?
ROSS GREENWOOD:
You know there’s one small thing about this, and you and I both understand this, and as we get a little older we perhaps understand a bit more – that is that young 17-year-old I spoke about, or indeed the person who’s younger, locked into that life insurance arrangement, is basically subsidising the life insurance of somebody who’s much older and potentially much more wealthy. And the reason for that is because it’s a pooled arrangement and so everybody is in the pool. And of course the person most likely to claim is somebody who is older, not somebody who is younger. But everybody pays the same premium. So it keeps down the rates of insurance for older members, more wealthy members, and it means that younger people probably pay an inordinate amount as compared with what they probably should pay themselves.
KELLY O’DWYER:
That’s exactly right and that’s exactly how it works right now. And the question is – is it in the best interests of the members of the fund? We’re asking that question and we’re asking the industry to justify some of these arrangements. There are also arrangements where there are profit-share arrangements with a number of these funds as well, and again, the question is – are individual members actually getting the benefit of that or, in fact, is the fund itself getting the benefit and that not being passed on?
ROSS GREENWOOD:
OK. A final one I want to ask you about, because I know that the Treasury’s MyRetirement review right now is another one that is being undertaken. The Actuaries Institute, and I’ve spoken with them in the last little while, have indicated that they believe long-term, the whole system of our retirement savings should change from accumulation, or if you like, lump sums when people retire, to basically being ongoing pension-style payments. Now the question is – I wonder whether the public would cop this or not, or indeed whether this is the way the Government would prefer to start to treat their superannuation?
KELLY O’DWYER:
I think it’s important for people to be able to have flexibility about their arrangements and I think it’s important for people to be able to have choice. I think the point is well made that over time, people are potentially going to want different things at different points in time and we need to have products that are able to meet those needs. Right now, I think if we’re being very honest, we don’t have the sort of products that many people would actually want in their retirement to give them an income stream in retirement that they can rely on at certain points of time in their life. So it might be, for instance, that someone who’s very compos mentis, who’s very actively engaged in their superannuation, wants to actively manage their superannuation retirement savings though an SMSF, but later on they may want, at the age of 80, to have a retirement stream kick in for them that they can rely on where perhaps they’re less actively engaged. So we want people to be able to have different products that are more innovative and we are looking at how we can help to provide the right framework where those products can be developed.
ROSS GREENWOOD:
Well there’s no doubt there will be changes as the demographics and as the age of our population does alter as well. The Government, of course, has got to keep on top of this, otherwise remember, those age pension payments that the Government will end up making will skyrocket and balloon out of control, which affects other future taxpayers as well. Kelly O’Dwyer is the Minister for Revenue and Financial Services, and as always, Kelly, appreciate your time here on the program.
KELLY O’DWYER:
Great pleasure Ross.