SUBJECTS: Superannuation system, Superannuation Guarantee, Henry Review, Cooper Review, Age
LEON DELANEY:
The Federal Minister responsible for superannuation, Chris Bowen. Good morning.
CHRIS BOWEN:
Good morning Leon.
DELANEY:
How are you today?
BOWEN:
I'm doing fine. How are you?
DELANEY:
Not too bad at all. Here we are in The Financial Review and you are the Minister for Superannuation; in The Australian you're the Minister for Human Services; in The Telegraph you're the Minister for Financial Services. Which one is it?
BOWEN:
Well, they're all true Leon. [laughs] They've actually all got it right. They're different portfolios but I do them all.
DELANEY:
Okay. Obviously, yesterday you were talking to a conference, a SuperRatings conference, in Melbourne and indicated that, of course, superannuation is currently under review, both by the Henry taxation review and also by another review specifically looking at superannuation. And it's been reported that you've suggested that perhaps the contribution level should be increased from the current level of 9 per cent. Is that right?
BOWEN:
Well, what I've said is that we need to be - now that superannuation's nearing 20 years old - need to be reviewing the system and making sure we're getting the most out of it. And I've said the 9 per cent you could regard as the minimum for adequacy, and we need to be examining whether we can do better than adequate in terms of people's retirement incomes and providing a pool of savings for the nation, increasing our national savings rate.
Now, the Superannuation Guarantee is one part of that discussion that should be on the table. The tax arrangements are another part. There's lots of different ways that we can do this and also improve efficiency. A very small reduction in fees and charges in superannuation over the 30 years that you're paying can make a big difference to your retirement income. So what I did yesterday was outline some of the criteria that we would apply when considering the results of these two reviews: the Henry Review into taxation which will also examine retirement incomes and the Cooper Review which is into the efficiency of the superannuation system.
DELANEY:
While it's true that the reduction of fees and charges of a modest degree would have a big impact on the final outcome, it's also true of tax, isn't it?
BOWEN:
Well that's true too, Leon, that's dead right. That's why I'm saying all these things need to be on the table. Yes, the Superannuation Guarantee needs to be on the table. It was originally planned that it would be 15 per cent. That was Paul Keating's plan when he introduced superannuation. The previous Government didn't follow through with that. So I'm saying, you know, discussion about the Superannuation Guarantee needs to be on the table, the tax arrangements need to be on the table and of course we need to be driving it. In many ways it's a no brainer to be driving better efficiencies and lower fees and charges.
DELANEY:
Yeah, obviously if people have sufficient retirement incomes that reduces the reliance on the taxpayer's purse at the final outcome, doesn't it?
BOWEN:
Dead right. We want to make sure that people have as comfortable a retirement income as possible, but also that means people not being on the Age Pension, and as we're ageing as a society that means that the Age Pension is more sustainable if more people have saved through superannuation.
DELANEY:
Yeah, this question of increasing the compulsory contribution, though, business doesn't like that. In fact, Heather Ridout from the Australian Industry Group is quoted in The Australian as rejecting an increase in the compulsory level because she said it would lift the cost of employment, or, if it was offset by wage costs, it would reduce take home pay for employees. One way or the other it would cost, either in jobs or in take home pay, according to her. Is business paying enough at 9 per cent? Should there be other ways of finding an increase?
BOWEN:
Well look, I do accept there is a trade off here and largely that trade off is between post-retirement and pre-retirement income. So what that means, you know, is that if you're putting more aside pre-retirement, your post-retirement income will be higher but you'll have a bit less pre-retirement.
Look, these arguments were around when superannuation was introduced and many people opposed superannuation when it was introduced on that basis. They said it would be a tax on employment and unemployment would be the result. And that hasn't been the case because it gets built in. If you do it gradually enough, it gets built into people's calculations and when an employer sits down to do their wage negotiations, they say, 'well, we're putting a bit more into superannuation because we need to under the law and therefore we'll trade that off with your wage increase'. And unions and employees are generally very in favour of that because it means better retirement income.
So there is a trade off to be had, but what I'm saying is let's not close the debate, let's have it open for discussion. And we need to be doing more to promote better retirement incomes for people, so people have a more comfortable existence, so that there's less pressure on the Age Pension system, it's more sustainable, and that we have a pool of savings available for the nation which superannuation has provided. We have a bit over one trillion dollars under management but it could be higher.
DELANEY:
Yes, alright, you're saying let's have the debate but when do we close the debate and when do we actually produce the policy? When do we decide this is what we're going to do; this is how we're going to increase those retirement incomes?
BOWEN:
Well, we're getting these two reviews. We're getting the Henry Review towards the end of the year. The Cooper Review is providing three reports over the next 12 months. It's my job then, as far as they impact on superannuation, to take them through the Government, have the discussion inside the Government about how we handle it, how we respond, and then provide a policy response over the course of the next 12 months.
DELANEY:
Okay. Rather than requiring businesses to pay above the 9 per cent contribution, it's previously been suggested that perhaps there could be a co-contribution both from the employee themselves and also from the Government to bring it up to a total of 15 per cent.
BOWEN:
Yes, and this is my point. I mean, all these options need to be on the table for discussion and, you know, we can't rule out the tax treatment.
One of the points I made yesterday, Leon, was that for many people, 1.2 million Australians, actually effectively don't get any tax concession for the money they put in superannuation because they're already on the lowest tax rate. If you're on the highest tax rate, you get a very good tax treatment for superannuation. You get a very big discount. If you're a low or middle income earner, much less so. And it's low and middle income earners who we want putting more money aside for superannuation because they're the ones who we might be able to give a more comfortable retirement to and off the pension.
For higher income earners, yes, superannuation's good, and yes it's good to build the national savings through those, but they're unlikely to ever be knocking on the door of a Centrelink office as it is, whereas those low and middle income earners really need that incentive to save.
DELANEY:
Yeah, that's where the help's needed most. Thanks very much for your time today.
BOWEN:
Always a pleasure.