SUBJECTS: Superannuation system, Superannuation Guarantee, Henry Review, Cooper Review, Age Pension
DERRYN HINCH:
On the line the Federal Minister for Human Services, Financial Services, Superannuation and Corporate Law, Mr Chris Bowen. Good afternoon.
CHRIS BOWEN:
Good afternoon Derryn, nice to talk to you.
HINCH:
I think you are caught in a bit of a cleft stick here and I'll tell you why. On the one hand you want people to save more, to become self-funded retirees, so they need a pension and they won't be a burden on the tax system, but on the other hand, by making that more attractive, look at all of those billions of dollars in lost revenue from superannuation concessions. Would that be right?
BOWEN:
There's nothing you say there that isn't correct Derryn. There are substantial tax concessions for superannuation; about $25 billion a year the Government gives up in terms of tax concessions for super, built as you say, the pay-off for the nation is that people have a much more comfortable retirement income and not on the age pension so that frees up taxpayer funds for other things.
What I said Derryn is that we are all getting older, the Australian population is ageing, we are living longer, and we need to have a discussion about how we are going to put money aside for the future - both as individuals and as a nation. There are a whole lot of mechanisms that we can employ to increase people's retirement income through super and I think they all should be on the table.
HINCH:
Okay, now this idea of a super guarantee increase - this idea of Paul Keating's but he didn't get there - has been stalled for many years on nine. Is it true that you want to get it to twelve?
BOWEN:
No, what I said is that we need to be boosting retirement incomes and that is one of the options. The other option, as you indicated is tax. One of the things I pointed out is that low and middle income earners often left out of this debate. They actually get very few tax concessions for super when you look at how they are treated, because we tax super at 15 per cent, but for 1.2 million Australians that is there tax rate, so it is not concessional. If you are up on the highest tax rate 15 per cent is a very low tax rate in comparison, but if you are already pay 15 per cent anyway then that's not a tax concession at all. So I've said that we shouldn't forget them in this debate either.
HINCH:
But don't you want those on higher wages to push more and more into super so they are guaranteed that they will never ever draw on a pension? They pay higher taxes because of their incomes, and by letting them have those concession of 15 per cent and pushing $100,000 - or it's been reduced to $50,000 now - each year into super, you are guaranteeing that they will never get a dollar from the government.
BOWEN:
Well that is certainly the case in relation middle income earners, you are quite right. When you look at higher income earners they would be very unlikely to go onto the pension, because they would be saving through one mechanism or another. Saving is good for the nation because it means there is that pool of funds available and that has been very useful over the last two years, with for example, more than $1 trillion of money that we have in superannuation and that has been very useful for companies in terms of investment over the last few years. That's true. But the main focus of superannuation must be to ensure that lower and middle income earners have as comfortable retirement income as possible and if it can be avoided, don't go onto the age pension. It's not in there interests or the interests of the economy, more generally, to have more people than necessary on the pension. The pension is there, it is very important, it is a very important policy mechanism to support people, but people are better off if they don't need to go onto the pension in the first place.
HINCH:
Now Ken Henry, he says that the 9 per cent compulsory contribution would afford a comfortable retirement income. Do you think that is not enough?
BOWEN:
Look, what I say to that is, people have different views about whether 9 per cent is adequate. Let's have a discussion about whether we can do a bit better than adequate, for people's retirement. I want people to be as comfortable as possible in retirement. That might mean a bit more than the bare minimum; a bit more than the just adequate. But look these debates will go on and off and it is appropriate that we have a national discussion about what's the best way to boost people's retirement income.
HINCH:
Alright, the final question. One of the things that effects people - apart from the fact that we all got clobbered by the global financial crisis and ignored the fact that we all had great returns for four or five years before that - I think one of the things that gets in peoples crawl is that the management funds fees are sometimes absolutely reprehensible.
BOWEN:
Yes, two points there Derryn very quickly. The first point is, that's right, over the long run returns on super have been much higher than inflation so we are much better off, even though we have had recently these very concerning, negative returns, but your other point is dead right, even a small reduction in fees over the 40 years in the workforce can have a really big impact on their retirement income and I have said that too, we need to be looking at driving more efficiency and putting downward pressure on charges in super, by getting that efficiency in the system. It is still very paper-based, still very complex for people, hard to navigate, and difficult to roll-over when you change jobs...
HINCH:
...and you need to get more transparency in there so people know exactly what their money is being spent on...
BOWEN:
Couldn't agree more. We need make the system simpler, more transparent, and we have the Cooper review underway to work out the best way to do that. But I agree that that is as equally as important as those other issues we have discussed today.
HINCH:
Alright Mr Bowen, thanks for your time.
BOWEN:
Anytime, good to talk to you.