Good afternoon.
Thank you to Catriona Wyatt and the team at CEDA for the opportunity to
address such a diverse group with a keen interest in superannuation.
I want to focus today on the importance that the Government places on national savings in the context of retirement incomes policy and the Government's commitment to keeping up the momentum for building on and improving our superannuation system.
Superannuation, or pension funds, have been forced to the forefront of debate around the world by the significant recent volatility in global financial markets, particularly in the US.
The last decade has produced an extended period of high and stable returns, which has potentially built a degree of complacency amongst both investors and fund managers. But when indexes around the world are on a negative roller-coaster ride and many retirement funds are posting sustained losses, it tends to sharpen the focus of consumers and governments alike.
It has been reported in the press this week that Britain's 100 largest pension funds have a combined pension fund deficit of at least $71 billion.
The British share market has fallen 48 per cent in the past two and a half years, and in a country that has not made the shift from defined benefit to defined contribution superannuation schemes, the impact is being borne by employers who may struggle to remain solvent under the weight of their pension fund losses.
Just over a week ago, while announcing the passage of corporate law reform through the Congress, US President George W Bush announced the era of low standards and false profits was over and that no boardroom in America was above or beyond the law.
Regardless of whether the US reforms signal an end to the corporate scandals on the US scene, it is very likely that pension fund and superannuation fund managers around the world must now adapt to operating in a very different and much less forgiving corporate environment.
While investment returns will inevitably rise and fall over time, you can be sure that as long as Governments continue to encourage greater private provision of retirement incomes, investors will be closely watching the performance and behaviour of those entrusted with their life-time savings.
And it will remain of interest to Governments, as the Treasurer's recently released Intergenerational Report 2002-2003 would suggest.
The Intergenerational Report assesses the long term sustainability of government finances over the next 40 years, and shows that Government policies need be adjusted if the next generation is to avoid harsh tax burdens.
The Intergenerational Report adds further weight to the message that I have been sending out since entering this portfolio: we need to prepare now more than ever before for an ageing society. We need to promote a culture of savings through debate, through policy development, and through legislative reforms.
SUPERANNUATION - THE AUSTRALIAN SYSTEM
The basis for future retirement incomes policy in Australia will be our three pillar system of retirement incomes, that is, the superannuation guarantee, the age pension, and voluntary savings. This three pillar system enables Australians to achieve a higher standard of living than would be provided by the age pension alone.
While the age pension is an essential safety net for those who have limited capacity to save, we need to focus on strengthening the cost effectiveness of the superannuation system as a whole - particularly given the forecasts of the Intergenerational Report.
But I can say that in relation to many of the problems being faced in Europe and elsewhere, Australia has a strong and secure system of retirement incomes.
And I am proud to say that it is a system that has been improved and nurtured, and grown quite dramatically, under this Government - funds in the superannuation system have more than doubled in size in the past six years, from $247 billion to $527 billion in December 2001.
During this time this Government has worked hard to improve the system.
The first piece of legislation that I sent to the Governor-General for Royal Assent, in my role as a Minister, was one that took years of work and well developed thought, it was the Family Law Legislation (Superannuation) Amendment Act. I followed the passage of this Act from its inception as an idea back in 1997, through its policy development, a committee inquiry and then through the Senate.
The policy underlying this legislation recognises that the traditional household has one main earner, usually the male, and one partner who supplied no market labour, or had little or no market income. By sending one partner out to work, the other partner was explicitly giving the income earner the support base that he or she needed to remain unencumbered in his or her career by being involved in domestic duties such as raising children.
The new legislation allows parties to reach a settlement taking superannuation into account, or permits the Family Court to divide the superannuation as an asset based on actuarial calculations.
This policy recognises the social and economic realities that occur in traditional households, the earning power for the partner who has a support base at home, and the inequities that can arise upon divorce.
The Coalition has also introduced:
- The superannuation spouse rebate which allows individuals to make superannuation contributions on behalf of their low income spouses.
- Capital gains tax relief to allow the proceeds from the sale of a small business to be used for retirement purposes;
- Capital gains tax reforms which amended tax arrangements so nominal capital gains of superannuation funds are taxed at the concessional rate of 10 per cent;
- Retirement Savings Accounts to allow banks, credit unions, building societies and life offices to directly offer low cost superannuation accounts;
But there is no room for complacency with something as important as Australia's retirement savings policy, and in the lead-up to the last Federal Election the Government released the most significant package of superannuation reforms that have been seen in this country in years.
Although the many policies that make up the package are quite varied in their scope and content, the themes are very clear: to encourage a culture of savings among all Australians.
This is to be achieved through assisting those with greatest capacity to save for their own future as well as those who are unable to do so, and by starting to break the nexus between superannuation and employment that keeps so many Australians outside of the superannuation system.
Although the Government had already moved to allow the splitting of superannuation assets upon divorce, a family-friendly Government can not in good conscience deny couples that stayed married the same rights.
It is this Government's policy that from 1 July 2003 superannuation contributions will be able to be made by one spouse into a separate account in the other spouse's name.
This initiative recognises that a partner who works in the home, or is a low income earner, does make a significant contribution to building a family's assets. These efforts are recognised economically through this splitting measure by giving more certainty and greater independence to the partner as he or she approaches retirement age.
Unfortunately, the Labor Party have said they will oppose this measure, claiming it will be used to avoid tax. This attitude completely ignores the importance of financial independence for those spouses, mainly women, and is grounded in the outdated ideological assumption that a non-working partner is essentially nothing more than an extension of their breadwinner spouse, and who does not need retirement savings of his or her own.
In addition, the Government will allow recipients of the Baby Bonus to contribute their bonus, as well as any other amount, to superannuation, even if they have never worked before.
This provides a new mechanism for parents at home caring for children to continue to save for their retirement.
The Government has also introduced child superannuation accounts and increased the maximum age limit for personal contributions to superannuation from 70 to 75. Through concrete policy actions, the Coalition has clearly demonstrated its commitment to a "cradle to grave" culture of savings.
But this Government does not want to push older people into retirement. We want people to have the choice to work longer and to contribute to their future savings longer.
We recognise the challenges of a culture which has hitherto driven older workers out of the workforce prematurely. It is something the Government has already begun to address with the phased increase in the preservation age from 55 to 60 between the years 2015 and 2025.
This will mean that for someone born before 1 July 1960, the preservation age will remain at 55 years, while for someone born after 30 June 1964, the preservation age will rise to 60.
But as we have signalled, increasing participation rates among older age groups is something that Governments must continue to address into the future.
In a package currently before the Parliament, the Government is doing even more to assist Australians at both ends of the income scale, through co-contributions and a decrease in the superannuation surcharge.
While lowering the superannuation surcharge will help those who are most able to save for their own retirements to do so. The superannuation co-contribution for low income earners will match savings made by low income earners, providing them with up to $1000 directly into their superannuation accounts per year.
True to form the Labor Party is also planning to oppose this package in the Parliament, despite the fact that ALP members railed against the surcharge when it was introduced, and despite their claim that they support the idea of co-contributions for low income workers.
Clearly lowering the surcharge will encourage greater self-reliance in retirement among those in the community with the greatest capacity to save for their futures.
And submissions to the current Senate inquiry clearly show widespread support for lowering the surcharge.
But I suppose the class warriors can not help themselves. They can not turn down an opportunity to play the politics of envy. They are saying they will oppose the reduction in the surcharge, in the same way that they have been opposing Choice in Superannuation since the Government first proposed it.
Obstructive tactics and the attitude of the Opposition is of course a critical factor affecting the future of supreannuation in this country.
Since 1996 Labor has mounted a sustained attack on key initiatives designed to build on and improve the current system such as the introduction of choice in superannuation.
The right to choose the fund in which to invest superannuation has twice been introduced into Parliament and been opposed both times by Labor and the minor parties in the Senate.
Of course, the case for choice is overwhelming and the momentum has not been lost on Labor's retirement incomes spokesman Senator Sherry and his Party.
In a spectacular gesture of catch up, Labor have now somewhat tentatively announced support for choice. But, not necessarily for the model that the Government has painstakingly developed through negotiation and consultation over years.
Labor seems to be supporting a sort of Hobson's Choice with a hearty dollop of regulation and plenty of new red tape, which has been described by one of the leading industry figures here today as a potential nightmare.
The changes would place a greater administrative burden on funds and at the same time restrict their ability to charge members to administer them. Labor has fervently opposed allowing choice and portability, opposed bringing into the market the kind of competition that can drive down fees and improve service.
Now, as dissatisfaction spreads about some of the fees charged by some funds, Labor's answer is to add another layer of regulation and red tape, to engage price setting and to make the Government responsible for setting fees and charges rather than the market.
The public and the industry will not thank Senator Sherry for adding complexity to the system, while trying to standardise the service provided and set the fees.
Labor knows it is simply untenable to continue to oppose the idea of Choice -- letting workers take control of one of their largest financial assets. But by loading up his options paper - which clearly states that it is not a policy but simply some ideas - with a raft of unreasonable riders, Labor is attempting to look like a supporter while acting like a roadblock.
Senator Sherry's conversion on the road to Damascus is based on political opportunism, and a recognition that Labor's opposition to Choice is leaving a bad taste in the voters' mouths.
Unfortunately for Australians, the unions don't want Choice, in fact I read in the Financial Review just yesterday that the Miscellaneous Workers Union have condemned the Sherry options, so you can bet they won't be letting Labor vote for Choice.
The real question all my colleagues in the Senate need to ask themselves is this: how can we argue that Australians are bright enough, and informed enough to be allowed to exercise choice in just about everything in their life except their superannuation savings which for most Australians are the most significant asset they have after the family home?
All members of the community with money invested in superannuation should have the right to choose. Employers should have no more right to dictate where a worker invests their super than they do to dictate which bank or insurance company their employees should do business with.
Choice of superannuation is a commonsense freedom that should be granted to workers, and combined with the Government's policy of portability, provides them with the vital ability to invest their retirement savings in the way that best suits them.
The importance of this is obvious when many funds are delivering negative returns.
Protection and transparency are in place through the Government's regulation of superannuation and through the FSR Act. Significant funding has been set aside to educate the public about the Choice of superannuation reforms and the Government stands ready to deliver on its commitments.
Through choice of funds we will achieve an increase in competition and efficiency in the superannuation industry. This in turn will lead to improved returns on savings and a lowering of administrative charges as funds compete for members.
Employees will be the winners in this if the Senate simply lets the Government implement the package it put to the people.
The Government has also made significant strides, with little constructive input from the Opposition, in improving the safety of superannuation.
What we have been able to do in Government is do more to protect workers, and move to compensate those who do lose money from their superannuation as a result of fraudulent conduct or theft.
I recently announced that I had approved compensation payments to superannuation funds which were formerly under the trusteeship of Commercial Nominees of Australia Limited (CNAL).
Previous Government policy from the 1997 Financial Sector Inquiry was that only 80 per cent of any such losses would be compensated, but I was able to announce at that time that the Government would increase that amount to 90 per cent.
Rather than get behind what is a very positive move by the Government, the ALP began attacking the Government and calling for 100 per cent compensation.
I notice that such a proposal has since made it into Senator Sherry's "options paper".
This argument that the Government should have no discretion but to pay 100 per cent of eligible losses clearly indicates that the ALP does not understand the basics of internationally recognised principles of financial regulation. It is well understood in financial markets around the world that 100% guaranteed outcomes does not encourage prudent behaviour. This is the concept of moral hazard that the ALP seems to find so complex.
It is something that even Labor used to understand when it was in Government. In 1991, after the failure of two life insurance companies due to fraud, then Treasurer Paul Keating capped the payout to affected policy holders at 90 per cent.
Mr Keating's successors in the ALP are now proposing a policy of 100% guaranteed compensation that is contrary to legislation that Labor itself put in place when it was in Government. It is also proposing that the responsible Minister should have no discretion.
I have a responsibility to the taxpaying public, and I have a responsibility to ensure that Australia meets stringent international standards of sound economic practice.
With an ageing population and in a volatile world economy, it is as important as it has ever been for Australians to participate in the current debate surrounding superannuation.
I will be mindful of how the system is performing and examining ways the Government can strengthen it.
Fundamentally, the question one needs to ask is, how much consumption people should forego during their working life to provide for their consumption in retirement, and whether Governments should be foisting that decision on them.
Retirement incomes are important and, like everyone else in this country, I want to see them increased.
Tax concessions, Government contributions and even added regulation on industry as being proposed by Labor, must all be paid for. And the person who invariably pays is the taxpayer, the investor, the average Australian worker.
When formulating policy we must be aware of approaches that inform current thinking about society and the economy, understand competing approaches to the retirement incomes debate, and recognise the right of every Australian to provide for their own needs, both now and in retirement.
CONCLUSION
I have enjoyed speaking with you today and I look forward to future Contributions to this debate from CEDA and its members.