Thank you for that warm welcome. It’s great to be with you for the Tax Institute National Superannuation Conference.
You are here today because you understand and appreciate the need for constant improvement in your professional career.
The need to learn new things to get ahead; the need to provide the best service to your clients; and the need to keep up-to-date with industry best practice.
In fact, the Tax Institute would say if you’re not committed to improving then you’re likely to find yourself left behind.
The Turnbull Government believes the same is true for Australia’s superannuation system.
It’s a dynamic time for the superannuation sector and we appreciate the Tax Institute’s input in helping shape these processes.
More broadly, we appreciate the role of tax professionals in making sure the superannuation system and the rationale for change is well-understood.
As such, today I will provide you with some insights on where we are taking superannuation.
The scale of the superannuation sector, and its direct impact on the lives of the hardworking Australian people, means we need to ensure it is consistently delivering the best outcomes for members and meets contemporary standards.
Australia is a nation which faces significant demographic headwinds over the coming decades.
The most recent Intergenerational Report, published in 2015, showed that by 2055, the number of Australians aged 65 and over is projected to more than double, while one in every 1,000 people will be 100 years of age or older.
For us as individuals this is a great thing. It means we are living longer, healthier lives.
For our nation, and for our economy, however, we cannot afford to ignore the public policy consequences of an ageing population.
It means the number of people of working age for each person over the age of 65 is decreasing.
And for a little historical context –
When Otto von Bismarck introduced the first pension system in the world in 1889 for 70 year olds, for which everyone had to contribute during their working lives, the life expectancy of the average Prussian was just 45 years.
In other words most people never got to enjoy the pension.
Similarly, when US President FDR set up the first national pension system for those aged 65 in the 1930s Depression, life expectancy in the United States was just 62.
In Australia when the Government established the old age pension in 1908, the life expectancy at birth for men in Australia was just 55 and for women 59 years of age, so you really had to outperform to get to 65 years of age or older.
In 1911, this was only four per cent of the population.
Paid retirement was originally described as “a brief sunset to life for a few hardy souls”, now it is for everyone and because of multiple factors such as medical breakthroughs, better diet and fewer dangerous jobs, retirement lasts for a quarter of a century, and for more and more people that represents a quarter of their lives.
This means more and more pressure will be placed on our social security safety nets through increased healthcare costs and Age Pension outlays.
And, it means that a quarter of a century on from the introduction of compulsory superannuation, we need a retirement savings system which is capable in the long term of delivering on its promise of providing income in retirement which substitutes or supplements the Age Pension.
Superannuation Taxation Reform Package
That is why in November last year the Turnbull Government legislated a comprehensive package of structural reforms to the taxation treatment of superannuation – to improve the sustainability, flexibility and integrity of the system.
The measures ensure that superannuation taxation concessions are well-targeted and balance the need to encourage people to save to become self-sufficient in retirement with the need to ensure long term sustainability.
Many of these measures took effect on 1 July this year.
I am pleased to report today that the Coalition has done the job that we needed to do on the taxation of superannuation. That job has been finished and legislated. We have no further plans.
Our approach gives Australians certainty, and the industry stability about the Coalition’s superannuation taxation policy. It stands in stark contrast to the Labor Party and the Greens who will slug superannuants significantly more in tax as they prepare for their retirement.
Labor have admitted that their superannuation policy will cost superannuants an additional $1.4 billion. While according to the Greens’, their so-called ‘progressive super’ taxation plan would seek to extract up to $11 billion in taxes over four years. And it seems that this is just the starting point.
The only certainty the Labor Party and the Greens are able to provide Australians saving for their retirement is that they will hit them with higher taxes.
The Turnbull Government’s concessional catch up contributions from 1 July 2018, along with the abolition of the 10 per cent rule, are important changes that have already been widely applauded for helping people, including women with lower superannuation balances, to catch up with their male counterparts – yet Labor want to stop this.
Bill Shorten has declared that under Labor’s policy, they will restrict the ability of small business people; mothers who have taken time out of the workforce; and older Australians with low balances – to name just a few – from boosting their savings.
Superannuation Accountability and Member Outcomes reforms
It has been 25 years since the introduction of compulsory superannuation, and in that time the size of Australia’s assets has grown to an incredible $2.3 trillion and counting.
But for Australians, superannuation requires the mandatory deferral of today’s wages, or income, which will one day become their ‘retirement income’. For many, it will be joined by the Age Pension.
Given what’s at stake has a direct bearing on the lives of individuals and families across Australia; this should always be front of mind for policymakers and industry participants.
We must remind ourselves that it is only the retirement income delivered over a working lifetime of compulsory contributions by each individual superannuation fund that matters to those people whose money it is – the members.
“Average” returns for entire categories of funds – whether industry funds or retail funds or corporate funds – are often used to justify why there should be no changes to the settings underpinning the superannuation system. But these “category averages” don’t matter to individuals – only the actual return their actual fund achieves over a lifetime makes a difference.
Factors that can affect an individual’s retirement outcome can include high fees, high and multiple insurance premiums, having multiple accounts, and being in a fund or an investment strategy that is wrong for their life cycle.
That is why, as a Government, we have an obligation to the members of all superannuation funds to ensure there is a consistent minimum standard of oversight and governance in legislation so that no one member, or group of members, is let down by a superannuation fund which is poorly managed.
Simply put, the foundations of the superannuation legislation must be built solely around delivering for the people who it was built for – the members.
This is why we have asked the Productivity Commission to conduct a system-wide review of competitiveness and efficiency of superannuation.
And, this is why we will continue to pursue legislation that meets the standards of the Australian people and gives them the confidence that their money is being managed in their best interests.
Choice of fund
Ensuring that Australians have a choice of fund is also unfinished business.
Many Australians are still unable to choose where their superannuation is going due to enterprise bargaining agreements or workplace determinations.
Why should a student working two jobs, for example one in hospitality and one in retail, who is covered by separate enterprise agreements be required to have their superannuation paid to two different funds?
Why should they have to pay two sets of fees?
And likely two sets of insurance premiums too.
Frankly, it’s not good enough.
We want people to be able to make choices about their deferred wages — we want them to be active in making decisions about their future.
And most of all, we want the settings that underpin the system to be focused on their interests – on maximising their retirement savings from the first contribution and throughout their working life.
I also want to briefly mention the new reporting regime for self-managed superannuation funds (SMSFs).
Among other things, the changes require SMSF trustees to report to the ATO more regularly, including when a member commences, commutes or ceases a pension.
This builds on broader moves towards regular reporting for all superannuation funds.
However, I’m aware the Tax Institute has raised concerns about providing agents and funds with adequate time to prepare for the changes.
Recognising the significant change for SMSF trustees in moving to event based reporting, the ATO is providing them with a number of administrative concessions.
For example, events that happened during the 2017-18 year will generally not need to be reported until the annual return for the 2016-17 year is due, which for many funds will not be until May 2018.
Further, a pension’s commencement value —that is, the value of the assets supporting a pension — does not need to be reported until 28 days after the quarter in which it commenced.
Finally, SMSFs that took action before 1 July 2017 to avoid exceeding the transfer balance cap will not need to determine the precise value of the commutation until they are required to lodge their annual return which for many funds will not be until May 2018, provided the ATO’s Practical Compliance Guidelines are complied with.
I am also pleased to announce today that the Government is releasing draft legislation and commencing consultation on the core regulatory framework for the Asia Region Funds Passport and the Corporate Collective Investment Vehicle (CCIV).
The Passport will facilitate cross‑border trade in funds management between member economies.
We have been working closely with partner economies in our region on arrangements for the Passport, and are excited that the increased competition it should bring will result in lower fees and broader offerings for investors on and offshore.
Australia has $2.9 trillion funds under management – the largest pool of financial assets in Asia. The CCIV gives Australian funds a structure familiar to Asian investors, and will be more attractive for funds wanting to make use of the Passport arrangements.
Investors will generally be taxed as if they had invested directly. The CCIV will enable Australian funds to consolidate existing product lines and address legacy funds.
These important changes will not only allow our funds managers to attract investment from Asia’s growing middle class, but also give Australian consumers greater choice to invest in Asian assets though offshore funds.
We’ll also be consulting on the accompanying changes to tax laws next month and I encourage all those with an interest to participate in the consultation process.
So, to finish, let me thank you for the opportunity today.
The Turnbull Government envisions a contemporary superannuation system; one that leads to greater accountability and enhanced fund performance.
And, most importantly, one that delivers for superannuation members as they are building their savings and when they are in their retirement.