SUBJECTS: Government's Stronger and Fairer Superannuation reforms, Cooper Panel report into superannuation, MySuper, Government's Future of Financial advice reforms, 'lost' superannuation, First Home Saver Accounts, asylum seekers
DEBORAH CAMERON:
The Minister for Financial Services is Chris Bowen, who joins me now. Minister, good morning.
CHRIS BOWEN:
Good morning, Deb.
CAMERON:
First of all, the reality of personal financial management and financial security in Australia. Everybody is saving for super; they're saving to get a house; they're saving to, you know, find time to have a family and live happily in the house. Now, when you're dealing with all of those things, they all seem to come to a crunch point in about your early 30s. Personal superannuation contributions often just slide by. Does that need to change?
BOWEN:
Well, we do need to save more for retirement, there's no question about that. We need to save more individually. There's a big savings gap because we're all living longer and when you're living longer you've got to make your superannuation last longer. Of course, that means more health costs as we get older as well. And we simply haven't been saving enough for retirement, and that's why we've done three things: we've increased the superannuation guarantee from nine per cent to 12 per cent; brought in some other reforms, particularly for low income earners; we've tried to get rid of commissions and we are getting rid of commissions, which eat away your retirement income over a long period of time.
That was Stage One and Two, and then Stage Three is improving the efficiency of the superannuation system to get fees lower because even a small reduction in fees over the 35 years or so that you might be in the workforce, longer in most of our cases, can make a big difference to your retirement income by the time you come to retire. So that's on superannuation, and then of course we've got some other initiatives to encourage and make it easier to save outside the superannuation system as well.
CAMERON:
Now, what's interesting also, though, is the sort of national attitude to saving, particularly among people in their late 20s and early 30s. They need money to spend because they need to have a life, but at the same time, you know, they look at superannuation, it is decades away and they're just simply not focusing on it.
BOWEN:
Yeah, look, I think that's one of the great challenges of superannuation and there's no easy answer to that. I think there's two things we need to do: we need to make superannuation simpler and easier to understand, and easier to navigate. You know, there's a whole lot of people who've lost touch with their superannuation. There's millions of lost super accounts out there. There's billions of dollars sitting there that people won't be reconnected with when they retire because they changed jobs, their super fund's changed, they didn't move their super over and then they might have moved house and just lost touch with the money. That is something we need to fix and something we are fixing through this response to the review I announced yesterday.
And then secondly, for those who just won't engage in super – and I'm realistic about how much improvement we can make if you're 19 or 23 and focused on having a good time or focused on starting a family, then you may not be focusing on your super – we need this low cost account which you have basic protections for. So you have at least peace of mind to know that your savings will grow over time; they won't be eaten away by excessive fees because you haven't been focused on your superannuation.
CAMERON:
Now, I drew a bit of a comparison to a universal health cover-type model in that low cost structured superannuation scheme that you've outlined there. Is that a wrong comparison?
BOWEN:
Well, I'm not sure I'd describe it that way. I think what we're doing here is just basically saying there will be an option for those who don't actively pursue their superannuation, or indeed there might be some people who are interested in their super and are engaged in it but don't feel necessarily qualified or inclined to be getting in and making changes to investment decisions or analysing options. They would just like the peace of mind to know that there's an account there with low fees which is building your super over time, not being eaten away, and where the trustees, the directors, have some very fundamental responsibilities to you as a non-engaged superannuation investor. And that should be available for everybody.
For those who are more comfortable and don't want that protection, that's fine, and there's a range of options outside that which go to having an investment fund or an investment option within your existing superannuation account which is more complex, which might be higher risk, or all the way to self managed super, taking it on yourself. All those options would remain.
CAMERON:
What message are you sending to the superannuation industry? The Cooper Review has highlighted some complaints with the way that the super funds are run, especially those that seem to be run more for their own benefit and the benefit of their commission agents than for those who've made investments in the super.
BOWEN:
Well, look, there's plenty of things that the superannuation industry as a whole agrees on, agrees with in this report, and that is making the superannuation system more efficient. I term it 'dragging it into the 21st century'. It's served Australia well, but hasn't kept pace with technological advances. For example, there's far too much paper in the system, there's cheques being written. It's very hard for people to keep track electronically of their super in many instances. So we need to shake it up and modernise it, and most of the superannuation industry agree with that.
There are some parts of the superannuation industry that agree with this MySuper idea, the basic default fund option. There are several sectors which say, 'Yep, that makes sense, we will do that, no problem.' There are other sectors who oppose that and say, 'Well, no, that doesn't fit our model.' It's my job to sit down with all of them, as I have been doing and continue to do, to try and reach a position which benefits the investor, the superannuant and the worker, which is my job. But at the same time, the superannuation industry, I must say, has served Australia well, has developed our national savings over the last 20 years in a very robust fashion and we need to keep that, but we need to build on it and improve on it significantly.
CAMERON:
Now, what's interesting there is to hear the tone of the way you're speaking. The superannuation industry is, in some comparisons, classed as bigger than the mining industry. The quality of public policy debate has not been brilliant in recent examples: climate change and the miners' tax debate were two of them. Now, do you think that dealing with the forces of the superannuation industry you might encounter some of the same sort of destructive turbulence that came from opposing forces in the miners' and the ETS debates?
BOWEN:
Well, I hope not, and I don't think so. I've been Superannuation Minister for 12 months and we've done a lot of reform, and we've worked together. There's some people who agree with everything we've done and other people who disagree with some of the things we've done, but everybody in the superannuation industry would acknowledge we've had an open door. Anybody who wants to get in to talk about their issues can.
And I'd point to our Future of Financial Advice reforms, for example, which I announced in April. Very significant reforms for the way we regulate financial advice in Australia, particularly in relation to superannuation. Controversial in some parts, but everybody got in, had their say, and everybody had an opportunity to contribute to the policy development, and as a result we brought in some very significant reforms which were then welcomed, not only by the industry funds, as you would expect, but also by the Financial Planning Association and the Investment and Financial Services Association, now the Financial Services Council.
So I think if you sit down and talk with the superannuation industry, you can get reform, which some people agree with and some people won't, but which is based in the best interests of the superannuant and the investor, and that's my job at the end of the day. But I'll be doing so in a way which tries to bring the superannuation industry with us.
CAMERON:
My guest this morning is Chris Bowen, who's the Minister for Financial Services, Superannuation and Corporate Law. We've had a note come in from Robert, who asks why are there lost super accounts if everyone provides their tax file numbers and they never change?
BOWEN:
Well, Robert's hit the nail on the head. The trouble is the law has prohibited superannuation funds from using tax file numbers to put people back in touch with their superannuation. Tax file numbers were originally used as simply a tax mechanism – they weren't envisaged to be used for superannuation – and for 20 years that's been the case, and I think that's silly. I think people should be able to use their tax file number to get back in contact with their superannuation and superannuation funds should be allowed to do it with them. So that's a significant reform recommended to us yesterday which I'm very, very attracted to because it's in nobody's interest to have millions of dollars lying around in lost super.
CAMERON:
Now, how radical are you prepared to be, because for example, the Reserve Bank is considering an interest rate rise today. It probably will stay steady but who knows? Housing affordability is a huge issue in western Sydney where your electorate is. Saving for a house deposit is very difficult and it proves to be an enormous drain on families and family time spent together. Now, do you think people who are building up a healthy superannuation balance, should they be able to draw on it or borrow against it if they're buying their own home?
BOWEN:
No, I don't support that, Deb. That's an idea that's been around for a long time and I can see the superficial attractiveness of it. I can see that. But superannuation is about retirement, and as I said earlier, we're all living longer, we're all going to be in the retirement phase much longer. The average age of retirement 40 years ago was much less than it is now, so we all need to make our super last longer. Once you start dipping into it to say, 'Well, let's use it for a house deposit or let's use it for education, let's use it for health costs,' which are arguments that come up from time to time, and I can understand why they come up, then you are really eating away at your retirement income.
Now, there are things that we can and are doing to help people saving for a house deposit. For example, the First Home Saver Accounts. Now, I suspect a lot of people who are eligible for a First Home Saver Account, which gets very similar taxation treatment to superannuation, so gets very concessional tax treatment, aren't taking that option up. And I'd encourage people who are trying to get the money together for their first home deposit to have a good look at those First Home Saver Accounts because they can be helpful in getting together that deposit.
CAMERON:
Minister, the Prime Minister is making a major policy announcement on asylum seekers today. Now, you are in the relatively safe western Sydney seat of Prospect. But the Prime Minister says everyone should now say what they want to say, what they think about asylum seeker policy. How much balance is there in the debate where you live?
BOWEN:
Well, look, I've been asked this over the last 24 hours, Deb, and certainly asylum seekers is a big issue in western Sydney. Of course it is. I've made the point that my electorate, Prospect, about to be renamed McMahon, is an area where we have a high proportion of refugees settling, and so my community, I think, understands the benefits that refugees bring to Australia and they also understand the trauma that many of these refugees have been through. I spend a lot of time in schools in my electorate talking to kids who are refugees and in intensive English centres, in particular. There's one school in particular, Holroyd High in my electorate, which does a fantastic job.
Having said that, I also spend a lot of time in my electorate office dealing with my constituents who have relatives in refugee camps in Africa and in the Middle East, and trying to help them resettle. And so my electorate, I think, fully understands the nuances and complexities of the argument to say, 'Well, we need to have a compassionate policy but by the same token, we also need to have an orderly policy.' And the people who have been waiting – I see some pretty awful cases, Deb – people who have been waiting many years in refugee camps and I see the pictures of the circumstances in which they're living, and you need to have an orderly process to get those people in as well, because we take 13,500 refugees and year and for every one who comes in as an unauthorised arrival, that's one less we take through the orderly process. I think my electorate understands those arguments and it is a nuanced issue. It's not as simple as simply saying, 'We'll turn the boats back.' What are you going to do if there's a boat in distress through fair means or foul? It's just not that simple; you do need to have a nuanced and methodical approach and that's exactly what we'll be doing.
CAMERON:
Minister, thank you very much for your time this morning.
BOWEN:
Nice to talk to you, Deb.