Introduction
Thank you for the opportunity to address Women in Superannuation today.
Being involved in the superannuation industry, I am sure you have a great interest in, and ability to contribute to, the very important debates about superannuation policy. In particular, Women in Super can make a valuable contribution in relation to how superannuation and retirement incomes policy can reflect the particular interests of women.
I want to talk with you today about some of the policy challenges we face, to reflect on how the Government is working to improve the opportunities for economic and financial independence for us all, and to highlight aspects of the Government's policies within some of my own portfolio responsibilities that are of particular interest to women.
The Howard Government places great importance on the financial future of all individuals, on our ability to save and prepare for retirement.
Helping individuals to save for their retirement requires a set of policy responses that recognises that people have different expectations, different goals, different priorities. These days, people want choices. They want financial independence and opportunities. That is true for both men and women. One size does not fit all and it is the challenge of Government to formulate policies that make choices meaningful.
But you cannot develop policy in a vacuum. As you would all know, the findings of the Government's Intergenerational Report 2002-2003 highlight the need to consider the long term implications of policies such as retirement incomes policy, and to consider the needs of future generations.
The Intergenerational Report adds further weight to the message that we need to prepare now more than ever before for an ageing society. From a woman's point of view this need is heightened given that women tend to live longer.
"What women want" is not only the stuff of movies and Mel Gibson's imagination. I don't think that it's too difficult to understand that after their personal health and safety, what women want most, what they rate most highly, is financial security and opportunities for themselves and their families.
In order to achieve financial security, superannuation plays a fundamentally important role in building a nest egg and security for retirement.
We cannot discount the fact that our society is ageing. We need to value the contribution of mature aged workers and extend their opportunities to stay in the workforce rather than encouraging increasingly early retirements.
While the ageing demographic clearly has important implications for labour market policy, superannuation policy may also be harnessed to foster increased participation among older Australians who need to save more and longer for their retirement.
This 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.
In respect of superannuation I am keen to promote a culture of saving and an understanding that people should be encouraged to think about their long-term financial security from an early age. I am particularly interested in the issue of financial independence of women, the relationship that women have with superannuation and their ability to save for retirement.
But what should people be putting away for their retirement? What is adequate?
With the massive growth in superannuation savings under the superannuation guarantee and improvements to the age pension, retirement incomes are higher than ever. And as the SG system matures, those incomes will improve.
It is clearly false to suggest that most retired Australians will be living in abject poverty, unable to afford heating for their homes or meat on their dinner plates.
For superannuation payouts alone, before taking into account the age pension, recent Treasury estimates indicate that the average payout is $72,000 today, and will rise to $136,000 in real terms by 2020.
Whether or not a particular replacement rate is optimal is a matter of judgement for the individuals involved, but it is generally accepted that most people will not need as much money in retirement as they do during their working lives.
I encourage all Australians to take a close look at their own superannuation savings and decide for themselves if they should be putting more away now for a more comfortable life in the future.
The Superannuation Guarantee, in conjunction with the Age Pension, is projected to provide a woman who has experienced an interrupted career on average weekly earnings with a replacement rate of 63% on retirement at 2032.(1) That is, at retirement, she will have 63% of the spending power she had before retirement.
Data suggests that men are the main purchasers of long-term financial products, which to be fair, is one reason why funds design their schemes to fit male work patterns. Two-thirds of men plan financially for their retirement. Yet only half of women in full time employment and roughly one-third of women in part time or casual employment plan financially for their retirement.
It is just as important, if not more so, for both single and married women to plan for their retirement, as it is for men. It is risky to assume that in retirement women can always rely on the income of their husbands or partners, particularly as many women will head into retirement alone.
The Australian Bureau of Statistics estimates that 1 in 4 women will never marry and that 1 in 3 marriages will end in divorce.
Add to that a woman's longer life span on average, and the broken work patterns of women who raise families, and it is plain to see the importance of financial planning to women, especially for their retirement.
In small business, where female ingenuity and intelligence pays off, 33% of Australia's small business operators are women.
Self-employment through small business offers flexibility, independence and other benefits that may not be available as an employee. While the statistics are not readily available, there seems to be a natural correlation between women who are small business operators and those who run self-managed superannuation funds.
`What is adequate' is an individual choice, but what has the Government done to assist women in reaching a general level of sustainable retirement incomes?
What has this Government done to assist women?
The Government is committed to enabling all Australians, including women, to achieve greater financial self-reliance.
The most recent superannuation measures that I will talk about shortly have built on the Government's impressive record of improving the retirement income status of women:
- in 1997, the Government introduced an 18% rebate for superannuation contributions. This applies to contributions of up to $3,000 made on behalf of a low income spouse.
- the Government has increased the Age Pension payments and eased pension income tests as part of the New Tax System; Part rate pensioners are now able to keep more pension for ever dollar of private income they receive above the income test fee areas, as a result of the reduction in the pension withdrawal rate from 50% tp 40%. The pension income assets tests were also eased by 2.5% as part of tax reforms.
- major tax cuts for senior Australians have also been delivered as part of The New Tax System; For example, single senior Australians can have income up to $20,000 without paying income tax or the Medicare levy. Similarly, senior couples can have combined incomes up to $32,612 without payment tax depending on their income split.
We have improved regulation of small superannuation funds. Self-managed funds are now regulated by the ATO and are not longer subject to the full prudential requirements faced by larger funds.
The Government has provided many benefits to self-funded retirees under the New Tax System, including cuts in personal income tax for self-funded retirees of age pension age through the Senior Australians' Tax Offset (SATO).
Senior Australians who are eligible for a part Age pension also qualify for a Pensioner Card and its associated benefits.
One election commitment that particularly affects women is splitting of superannuation.
Doing `the splits'
The Commitments set out in "A Better Superannuation System" are now coming to fruition with a number of important legislative reforms well under way.
The Government is committed to giving financial security in retirement to both parties of a marriage.
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. It gives "doing the splits" a whole new meaning.
Traditionally, unpaid domestic work has been seen as economically unproductive - certainly for the one who is unpaid. This Government's initiative to allow couples to split future superannuation contributions 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 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, often women, and is grounded in the outdated ideological assumption that a non-earning partner is essentially nothing more than an extension of their breadwinner spouse, and who does not need retirement savings of his or her own.
The splitting initiative builds on the 18 per cent tax rebate made on behalf of a low income or non-working spouse that I discussed earlier. The rebate was introduced by the Government in the 1996-97 Budget and allows those with no link to the workforce to have their own superannuation.
The Government has also acknowledged the inadequacies of the treatment of superannuation on the dissolution of marriage by amending the Family Law Act. These amendments come into effect at the end of this year and will help many spouses, often women, to receive their share of superannuation savings from a marriage. Ultimately it will help them to have their own financial independence in retirement.
Moving away from the employment nexus
From a policy point of view, the broken work patterns of women require additional consideration when it comes to retirement planning. Women often take extended time out of paid employment to raise a family and some may then return to work on a part-time basis for a period of time.
The Government, since 1996, has introduced measures that help people to continue to provide for their retirement during these times and is building on those initiatives.
For some time now individuals have been able to make personal contributions while off work for up to 2 years, or for up to 7 years if they are on leave to raise a child. While this provides some flexibility to make superannuation contributions, to be eligible, the person must have had previous employment.
The existing spouse rebate already allows for a working spouse to make contributions on behalf of a low-income or non-working spouse. However, the Government has introduced measures that further reduce the nexus between superannuation and employment.
The contributions splitting measure and allowing recipients of the Baby Bonus to contribute their bonus, as well as any other amount, to superannuation, even if they have never worked before are examples of how this nexus is being reduced.
Taking this approach a step further, and endeavouring to encourage a culture of saving, the Government has introduced child accounts and increased the maximum age limit for personal contributions to superannuation from 70 to 75.
Surcharge on `catch up' contributions after an absence from work
We are all familiar with the notion that a woman has to do something twice as well as a man in order to receive half the recognition. This may not be entirely true, but I think that it is at least partly true. For example, Fred Astaire is arguably better known than Ginger Rogers, despite the fact that she had to do everything he did, only she did it travelling backwards and wearing high heels!
One issue that is often raised with me by women in particular is that of the superannuation surcharge. In particular, how it can affect those who have been out of the workforce and who have returned and wish to increase their superannuation savings as quickly as possible.
While 4 out of 5 surcharge payers are men, high-income earning women have a higher proportion of superannuation contributions as part of their overall pay than men on the same remuneration.
As a result women pay more surcharge than men on the same income level. One factor explaining this may be women making `catch up' contributions after returning to work from a break to raise a family or be a care-giver.
Increasing the opportunity for contributions to be made while not working will reduce the need for `catch up' contributions on returning to work after an absence.
It is true that in circumstances where `catch up' contributions are made by a high income earner on returning to work, and those contributions are surchargable, they nevertheless remain concessionally treated compared to receipt as salary or wages and tax at the top marginal rate, which would be 47 per cent plus the Medicare levy.
However, there are calls for the concessionality of those contributions to be increased.
In view of the fact that many people incurring the surcharge are in fact the people who have the desire and capacity to save for their own retirement, the Government decided to reduce the surcharge from 15 per cent to 10.5 per cent over the next three years.
Labor has said it will not support this measure. It remains to be seen whether this initiative will receive support in the Senate.
Clearly, lowering the surcharge would encourage greater self-reliance in retirement among those in the community with the greatest capacity to save for their futures.
Tax on super
I now want to make some comments about a subject that is frequently raised with me and that is tax on superannuation.
There have been calls for instance to reduce tax on the contributions phase as a further incentive to savings.
Whilst I am always interested to hear about better and more effective ways to improve the attractiveness of superannuation, I sometimes get the impression that some advocates for greater concessionality do not acknowledge the substantial concessions that already exist.
Superannuation is taxed concessionally up to 15%. It is the tax preferred investment for taxpayers in all marginal tax brackets. Specifically, in the case of SG employer contributions only, superannuation is a tax preferred investment over a working lifetime for all tax payers.
As you know, an individual can take their super benefit as a lump sum, which is taxed at concessional rates up to the lump sum Reasonable Benefit Limit of $562,195 for the 2002-2003 income year, with the first $112,405 generally tax free. Super truly is concessional, contributions made by an individual from money that has already been subject to personal income tax are returned to the member untaxed, and are not counted for RBL purposes. Income stream products qualify for even more concessional tax and social security treatment with the Pension RBL limit at $1,124,384 in this financial year.
The bottom line is that super is simply the most effective way to save for retirement.
Concessions last financial year were worth in the order of $9.5 billion and that will continue to grow. That is the largest single Federal Government tax expenditure.
It is the extremely valuable tax concessions available to superannuation investments that mean the Government must take active steps to ensure that super remains an income replacement long term investment and is not simply abused as a wealth creation tool.
When proposals to provide even greater concessions on the taxation of superannuation are put forward, they should be considered in terms of how that increase in Government tax expenditure might be funded, and how it should be balanced against other key priorities such as health, education and welfare.
Choice of funds
In keeping with today's policy challenges, a fundamental plank in the Government's plan for the future of superannuation is to give individuals choice in where to invest their retirement savings.
Choice will deliver control into the hands of those with the greatest stake in superannuation - employees. It will inject greater competition into the system, leading to better services and lower fees from superannuation providers.
In a robust democracy Australians expect to be able to choose where to invest for their retirement and to be able to access sufficient information to make an informed choice. They don't expect to have their superannuation benefits trapped in a poorly performing fund and to have no right to choose another fund.
What is even more iniquitous is that some people already have choice! Those employees given choice by employers can select a fund that meets their needs. Funds have varying investments and return profiles from which people can choose. There are also so called `ethical' funds which select certain types of `ethical' investments as well as self-managed super funds.
We already know that choice works!
Choice of funds has been operating in Western Australia for four years and has been a real success. There is no evidence of the mis-selling or churning of accounts that occurred in the UK. This shows the maturity of the Australian market when compared to other markets that experienced problems when choice was introduced.
The WA market has evolved to keep employer costs to a minimum. For example, the largest State based superannuation fund operates a clearing-house for employers to make contributions efficiently and cheaply to multiple funds. Employers that use the "clearing-house" need only write one cheque and provide the details of the funds of which their employees are members.
There are two fundamental planks that will underpin successful implementation of Choice. Disclosure by financial services providers, and education.
In respect of disclosure, the Financial Services Reform Act requires disclosure of key information such as all fees and charges, characteristics of the product, significant taxation implications, the applicable cooling off regime and other important information to help consumers to make good decisions. There has been recent debate about whether or not the disclosure requirements are sufficient. But it is true to say that the FSRA provides a more consistent and comprehensive disclosure regime than has ever existed before.
In relation to education, the Government will be providing $28.7m for education purposes and administration of choice over four years.
In contrast to overseas experience, the Howard Government will focus on consumer education and awareness and the need for individuals to carefully consider their options and their financial goals. By introducing choice, the Government is not trying to drive people out of their existing superannuation fund. We are not expecting the world to change overnight. We are giving those people who wish to move to a new fund, the chance to do so. We are simply giving people a CHOICE.
To suggest that individuals should have no say in where their superannuation benefits are paid is patronising. Employers don't choose their employees' share investments, their employees' cars or their employees' homes. Why should they choose their employees' superannuation fund?
Choice of superannuation is closely related to portability of superannuation - another important policy commitment made by the Government.
The hurdles preventing portability of super savings have lead to more than $7 billion in superannuation funds that are unable to find an owner and to more than 2.5 super accounts for every Australian worker. We need people to take ownership of their accounts and consolidate where they wish to-portability will allow this to happen.
Recent research by Queensland academic Jon Standford has been reported as showing that if the number of super accounts was reduced by 50 per cent, then $500 million could be saved annually. Figures in this realm indicate the real need to provide people with the opportunity to consolidate their accounts.
I have recently released a consultation paper on this and encourage you all to read it and to make comments to the Treasury. Now is the time for you to be actively part of policy making on behalf of women.
Conclusion
As women in this audience, I encourage you to think about your own retirement plans and savings. As women in the superannuation industry, I call on you to encourage and assist women to plan for their own and their families' financial futures.
I believe that an opportunity exists for all of us to make a difference in the superannuation industry. For example, currently women are under-represented on trustee boards. This means that the financial circumstances women face may not receive adequate consideration by the industry.
Women make up 13% of superannuation trustees. This is on par with the private sector in general, where the proportion of women on boards has doubled in the past five years. In 1999 13% of non-executive private sector directors were women, this is an increase from 4% in 1995.
It is important that women are represented on trustee boards and in other senior positions in the industry. This encourages other women to participate and excel in the industry. But there is another equally important reason why women should do this:
It would ensure women's financial needs are properly considered.
Superannuation is the issue of the moment. It is vitally important to people retiring today and to those who may not retire for 40 years.
As you know, the Government has an important role to play in the superannuation story. But it is not the only player. The Government can do much but it is also important for individuals to be encouraged and empowered to make their own decisions and contributions to their financial future.
I would like to leave you with the words of Andrea Dworkin, an American activist for women's rights, "Women have been taught that, for us, the earth is flat, and that if we venture out, we will fall off the edge. Some of us have ventured out ... and so far we have not fallen off."
As women we need to continue to challenge the flat earth theory about women and finance. We can not only manage our household budgets, and manage in our workplaces, we can also excel in the financial system and I urge you to take up the challenge and just do it!
Thank you.
1 Female with interrupted career starting 1992, full-time work from 25-29 and 45-64, not working 30-34, 17 hours per week from 35-44.