Mr Wes McMaster, National President of the FPA, Mr David Butcher, CEO, Ladies and Gentlemen, thank you for inviting me to speak to you this evening.
I understand that earlier today you heard from a number of very distinguished speakers, including Senator Jocelyn Newman, Minister for Social Security, Senator Gibson, Chair of the Government's Taxation Consultative Taskforce and Mr Alan Cameron, CEO designate of the proposed Australian Securities and Investments Commission.
This distinguished list of speakers does great credit to your organisation. It is also testimony, I believe, to the importance of the financial planning industry to the welfare of Australians. This importance will undoubtedly continue to grow with the ageing of the population, the increasing range of financial opportunities and the greater financial literacy of the community. Australia, like other developed countries, is fast becoming a nation of financial planners, either as advisers or the advised.
Let me say that the Government welcomes this development because prudent financial planning offers tremendous benefits, not just to individuals, but to the community as a whole.
As Assistant Treasurer, I assist the Treasurer in a range of areas, but most particularly in terms of superannuation and taxation. I therefore particularly welcome the opportunity to address you tonight, because we share a keen interest in these areas.
Let me start with superannuation and retirement planning more generally. Retirement planning is a subset of financial planning, but it is obviously a major element of lifetime financial planning.
The Government is committed to encouraging Australians to properly plan for their retirement and, above all, ensure that all Australians enjoy security and dignity in retirement. This will be achieved by:
- encouraging individuals to undertake private savings, particularly by way of superannuation, to secure a higher standard of living in retirement than would be possible from the age pension alone;
- ensuring the provision of an adequate public safety net in the form of the Age Pension for those Australians who are unable to support themselves in their retirement years;
- ensuring a retirement income system that is equitable and facilitates consumer choice; and
- ensuring a retirement income system is fiscally sustainable and delivers an increase in national saving.
The Government believes that these objectives can best be met by Australia's current three pillared retirement income system comprising:
- compulsory superannuation savings through the Superannuation Guarantee;
- voluntary superannuation and other private savings; and
- a means tested Age Pension and associated social security arrangements.
Superannuation plays a central role in the Government's retirement income policy. The Superannuation Guarantee arrangements, combined with voluntary superannuation and other private savings, are a necessary, prudent investment in Australia's future.
Indeed, by contributing to the funding of future retirement income, superannuation contributions supported by taxation concessions are the key component in containing the future budgetary cost of the Age Pension in the face of our ageing population.
In this respect, the Retirement Income Modelling Unit (RIM) has projected that expenditure on Age and Service Pensions will rise from 3.2 per cent of GDP in 1994-95 to 4.7 per cent in 2050, taking into account the reduction in pension outlays resulting from superannuation savings undertaken under the compulsory SG arrangements. In the absence of the SG, pension outlays are projected to increase by a further 0.3 per cent of GDP by 2050.
Superannuation savings are also important in contributing towards increasing Australia's national savings over the long term. RIM projects that superannuation assets will rise from around $317 billion now to around $390 billion by 2000, around $575 billion by 2005 and to over $1500 billion by 2020. RIM also estimates that the SG and the other existing and proposed superannuation arrangements, including the measures announced in the 1996-97 and 1997-98 Budgets, will have a positive impact on national savings of around 1.5 per cent of GDP in 2001-02 rising to 3.6 per cent of GDP in 2019-20.
You might recall that a while ago some people, including the Labor Opposition, were forecasting the end of superannuation as a voluntary savings vehicle. I am pleased to report that, like Mark Twain, the reports of super's death have been proven incorrect.
Super continues to enjoy generous taxation incentives and people continue to put money, billions of dollars a year, into superannuation. We expect superannuation contributions and assets to continue to grow strongly in the years ahead.
Preliminary results from the soon to be released December 1997 ISC superannuation survey indicate that superannuation assets grew by 17% during 1997, a strong result in light of the October slump in the capital markets. Contributions during 1997 were up 13% compared to 1996, increasing to nearly $32 billion. The strongest growth continues to come from member contributions, which increased by 27% over the previous year to $11.5 billion. Employer contributions increased by 6% to $20.2 billion.
Under the former Labor Government, superannuation was essentially seen as the only form of saving that was deserving of tax concessions. Essentially, all other saving income was taxed at marginal rates, which as we know, are quite high in Australia.
This Government is not so one-eyed. Last Budget, the Government announced the introduction of a Savings Rebate, which provides a broad-based incentive to save. It provides the biggest incentive to save via superannuation, but it also encourages savings in other forms. It will help people to plan their financial affairs better, because it recognises other important savings motivations, such as saving for children's' educations or to raise a deposit for the family home.
And I should also mention that this Government wants to lower personal income tax rates through fundamental reform of the tax system. Lower income tax rates means lower taxes on savings and promote higher savings and investment. The Opposition, by refusing to support tax reform, want those high taxes on savings to remain.
Choice of Fund
The Government believes a strong superannuation system should provide appropriate opportunities for people to choose the fund into which contributions are made on their behalf.
In the past, the fund into which employer contributions were made was often prescribed in a federal award. Frequently, employees had no opportunity to have the money paid into a different fund, even if they thought another fund would provide a better outcome.
The Coalition believes that is unfair. For that reason, the Coalition came into Government with a policy of providing choice of fund. We are continuing to implement that policy.
In the 1997-98 Budget, the Government announced that employees would have greater choice as to which superannuation fund or Retirement Savings Account (RSA) receives compulsory employer superannuation contributions made on their behalf. Last November, further enhancements were made to that policy. Legislation was introduced in December and {today/tomorrow} the Senate Select Committee on superannuation {reported/will report} into the choice provisions.
As you would expect, I will be examining the report very carefully. {and do not propose to comment on any specific details at this stage. I do welcome, however, the support for the principle of choice shown by the Committee. }
Choice of fund will provide employees with a greater degree of control of their superannuation, which in turn will give them a greater sense of ownership of their savings. This will have a positive effect on attitudes in the community and will help promote a savings culture in Australia.
Also, the choice of fund arrangements will be more flexible and responsive to the retirement income needs of all Australians. The initiative will increase competition and efficiency in the superannuation industry, leading to improved returns on superannuation savings and placing downward pressure on fund administration charges.
The Government also expects that as a result of the additional marketing opportunities opened up for them by the choice of fund arrangements, participants in the industry will be striving to win business and will actively assist employers with information about their products. The Government is also committed to an education campaign to promote awareness about the opportunities that choice provides to employees.
Informed choice will also be assisted through the provision of Key Features Statements. The Government, through the Insurance and Superannuation Commission, is actively consulting with a range of interested parties on these important issues and is keen to promote easy comparability of funds by consumers.
Superannuation and Divorce
It used to be said that the only certainties in life were death and taxes. It could now be said that, superannuation can be added to the list, particularly with the advent of Superannuation Guarantee.
The growing importance of superannuation as an asset raises concerns about its treatment on the dissolution of marriage. In the past, the treatment of superannuation by the courts has often been unsatisfactory, and there are no clear guiding principles which courts can use. This can cause inequities where spouses have divergent superannuation assets.
In recognition of this unsatisfactory state of affairs, the Coalition promised in the 1996 election campaign to "examine the treatment of superannuation following the dissolution of marriage".
True to this promise, the Prime Minister announced on 8 March 1998 that the Government is actively working to introduce reforms to bring about greater fairness and certainty into the treatment of superannuation in the event of a marriage breakdown. A greater degree of certainty as to outcomes will reduce the levels of disputes between parties and make litigation less likely.
The Prime Minister also indicated that the Government is developing a position paper in coming months which will form the basis for community consultation on this issue.
The Government has a number of policy objectives in respect of this issue and these will be reflected in the discussion paper. In particular, the Government is concerned that:
- superannuation should be included in the division of property on breakdown of a marriage;
- there should be clear rules for valuing superannuation;
- men and women should be encouraged to settle their own affairs equipped with full information;
- reforms should be consistent with the broader goals of retirement incomes policy; and
- reforms should minimise complexity and limit the costs of litigation and settlement and take into account the features of the superannuation fund involved.
The Government will be consulting closely with the superannuation industry in the development of the position paper. This consultation is important to ensure that the proposals in the position paper offer workable solutions.
I spoke before about the important role played by superannuation and private savings generally, in Australia's three pillar retirement income system. The Government is aware that the success of Australia's retirement income policy depends in large part on ensuring that individuals can be confident that their private savings are being wisely and securely invested.
With this in mind, I would now like to spend a few moments talking about legislation that the Government has recently introduced to revamp the regulatory requirements for managed investments.
Managed investments are a large and growing segment of the capital markets, and play an important role in savings and investment capital formation.
- In 1980, when the first retail cash management trust was launched in Australia, there was $2 billion under management. Today, approximately $85 billion is invested in managed investment schemes, and the amount invested continues to grow by around $20 billion a year.
- These figures demonstrate the significance of managed investments for savings and investment capital formation in Australia.
Managed investments are popular since they allow investors with small sums to participate in opportunities which traditionally required large investments, thus allowing investors a way to diversify their portfolios.
- For many investors without the skill or confidence to participate in direct investments, managed investments provide an easier investment option through reliance on the expertise of managers.
In December last year, the Government introduced the Managed Investments Bill into the Parliament.
The Bill's key reform is that it will require each scheme to have a single responsible entity in which the current responsibilities of both the trustee and management company are combined and vested.
There are a number of factors supporting the move to the single responsible entity concept.
- The concept, by removing the current third party between investors and fund managers, will improve investment decision-making and make the corporate structure for managed investments consistent with other corporate structures.
- It will also make clear, both to the responsible entity and investors, the nature of the responsibilities owed to investors. This will impose additional discipline on fund managers.
The single responsible entity concept will clarify and simplify the legal duties and responsibilities of participants in the managed investments industry.It will do this by imposing clear statutory duties in relation to investors and the scheme it operates, and by providing a right of civil action against the responsible entity by any member of the scheme who suffers loss or damage because of conduct contravening provisions of the Law.
It will harmonise the management of non-superannuation funds with the regulatory structure applying to superannuation funds since 1 July 1994, thus simplifying the compliance task of funds operating in both the superannuation and non-superannuation investment funds sectors.
- From the point of view of investor protection, it will ensure that the liability for any loss of investors' funds through negligent or illegal activity rests entirely with the responsible entity.
The need for this regulatory reform to the managed investments industry has also been supported by the final report of the Financial System Inquiry.
The Bill has been passed by the House of Representatives, and is currently being examined by the Parliamentary Joint Committee on Corporations and Securities. That Committee is now expected to report on 30 March 1998.
The Government anticipates that the Bill will be passed shortly thereafter.
The new arrangements contained in the Bill are designed to ensure that the law strikes the right balance between providing effective investor protection and facilitating an efficient financial and investment market for managed funds in Australia.
Conclusion
In conclusion, may I congratulate you on holding this Principal Dealers' Forum. The Government is committed to a retirement income policy, which promotes higher standards of living in retirement and reduced pressure on the pension system, while promoting choice, flexibility and competition. Legislation before Parliament, particularly the choice of fund provisions and the savings rebate, strongly support the development of a saving culture in Australia. I am sure that the Financial Planning Association will continue to play an important role in assisting Australians to plan for their financial future and to take a keen interest in public policy in this area. Legislation currently before the Parliament is designed to support these principles. The Government also strongly believes in encouraging Australians to be actively involved in planning for and providing for their retirement income and I am sure that your organisation will continue to play an important role in this area.