HAMISH MACDONALD:
Australia's $2.6 trillion superannuation system was established nearly 30 years ago to help move people off the state pension. But as we heard on AM this morning, a new landmark Productivity Commission report says the system has become a so-called unlucky lottery for millions of Australians stuck in under-performing funds. The two-year review is demanding a major overhaul, including an end to multiple accounts where people's retirement nest eggs are eroded by excess fees and insurance premiums. It also recommends the Federal Government end the practice where workers are defaulted into employer funds that can often be under-performing, a move that could boost accounts by nearly $400,000, we're told, over a new member's working life. Kelly O'Dwyer is the Minister for Revenue and Financial Services. Welcome back to Breakfast.
KELLY O'DWYER:
Great to be with you Hamish.
HAMISH MACDONALD:
There have been many reviews of the super system over the years, this one though particularly damning. It describes our compulsory super system as an unlucky lottery for millions of members. Are you surprised at the findings?
KELLY O'DWYER:
Well look, no I'm not surprised because I've had the occasion to look very closely at the superannuation system, but I think what it does now is it's blown the whistle millions of Australians on the fact that superannuation funds have not always been acting in the best interests of their members. They have often acted in their own vested interests.
They have charged very high fees and charges that where uncapped under the previous Financial Services Minister, Bill Shorten, when he made those changes. We have seen young people defaulted into very high insurance premiums, which they either don't want or don't need, which erodes the balance of their retirement savings, having a huge impact ultimately on what they end up with in retirement and we have also seen people forced to have multiple accounts. Around about a third of all of the accounts, the Productivity Commission says, are unintended multiple accounts and that's because employers have either forced people into a particular fund of their choice or unions have through the enterprise bargaining agreements that they have struck with particular employers.
We don't think that's right. And we know it needs to be fixed which is why we announced a sweeping set of changes in our most recent Budget, where we said we would proactively return people's money to them through the Australian Taxation Office if they've got a low-balance account or an inactive account or a lost superannuation account which will mean about $6 billion in that year being returned to members rather than being eaten up or eroded in high fees and charges.
HAMISH MACDONALD:
As you say, anyone that's looked at this industry would have known some of this stuff, anecdotally, but when you look at the actual numbers, I mean eroding retirement nest eggs by as much as $2.6 billion each year across the sector, I mean that's scandalous isn't it?
KELLY O'DWYER:
Well I think it is. I think it's a massive rip-off. I think that in particular young people have been ripped off. I think low-income workers particularly have been ripped off and it must stop.
The Government has further legislation currently in the Senate right now which the Productivity Commission does back, where we have said we need to give the regulator APRA more powers, more powers to be able to tell funds, to intervene in funds that are not doing the right thing, more powers for them to be able to look at how members' money is being spent to make sure it's not being misused, and we've also got legislation right now in the Senate that would mean that about a million Australians who are currently forced through enterprise bargaining agreements to put their money into a new fund rather than keep it in the fund that they have already got or to choose another fund entirely, it would actually stop enterprise bargaining agreements being able to deny that choice.
HAMISH MACDONALD:
That's not going to end all duplicate accounts though is it?
KELLY O'DWYER:
No it's not.
HAMISH MACDONALD:
So what are you going to do to that? Because that's the core recommendation here, or one of two anyway.
KELLY O'DWYER:
So I think the Productivity Commission has done a really terrific job in highlighting what the problem is. Certainly we are trying to fix a lot of the problems that currently exist and they've said going forward, we need to find a much better way of making sure that members' money follows to the member and I think they've come up with a really clever solution to be able to have a best-in-show arrangement where you've got the top 10 performing funds being selected by an independent organisation that will be able to look at the key metrics that will be in members best interests rather than the Fair Work Commission, which we know is an industrial commission , which is highly politicised and not always acting in the interests of members.
HAMISH MACDONALD:
Can we just be clear, are you going to follow that recommendation and you are going to create this body that lists a best-in-show of the top performing no-frills funds and that new workers will be given the option to opt into one of those?
KELLY O'DWYER:
Well Hamish I'm not in a position, it's the interim report, it's not the final report. They still need to do further consultation on the report but I'm certainly very encouraged by the proposal that they have brought forward. I think it's a really clever proposal. I think it certainly goes to solving a lot of the issues that they have correctly identified in the industry right now and I think we have to think of more ingenious solutions and I pay full credit to Angela MacRae and Karen Chester who have worked so hard on this report and who have often been met with I think quite I bit of obstruction from the superannuation funds themselves who haven't provided information that has been requested and I would encourage them before the final report to actually do that.
HAMISH MACDONALD:
Sure, it is one thing though for you to describe the idea is ingenious. It's another thing for you to implement it and I suppose that's the question we all have. What are you going to do with these recommendations? Do you see a way to create this body that would list the best-in-show and to create a system whereby new workers are given those choices? Is that what you are going to do or not?
KELLY O'DWYER:
Well as I said, it's an interim report, and so the Government needs to go through all of the processes we need to go through before I can make a declaration on radio to you to today Hamish. But I'm very happy come back on your program when the Government has the final report and when the Government is in a position to be able to announce what we're going to do, but I can tell you that we certainly look very favourably at the recommendations that have been made by the Productivity Commission. We know that there is a massive problem out there, and we are already putting in place measures which we ask the Labor Party to back that will benefit millions of Australians if they only back the measures that we currently have in place. As a result of our Budget package, we'll see $3 billion potentially returned to members in just one year because they won't be paying high insurance premiums, those people who have got low balances will see that money returned to them and those people with inactive accounts again will see that money returned to them if they don't opt in to high insurance premiums.
HAMISH MACDONALD:
A lot of these default funds though are run by the banks. If we do end up with a best-in-show list, you're going to end up with a lot of the industry funds, the union backed ones as you describe them, is that going to problematic for you?
KELLY O'DWYER:
I'm completely agnostic in terms of whether it's a retail fund or an industry fund. I simply want to see low fees, good governance, I want to make sure that members' money is being spent in their best interests and that their money is working for them, whether it's a retail fund or an industry fund. I don't discriminate. So I think what is very clear is that the Labor Party needs to back in the changes that we announced in the Budget. They need to be unequivocal in their support.
The Productivity Commission today has completely belled the cat on all of the problems that exist. It can't be ignored and the acid really is now on Labor to support our changes and do it quickly because otherwise it will cost millions of Australians millions of dollars in their retirement savings.
HAMISH MACDONALD:
But if this means that Labor has to be unequivocal and urgent in its position on this, don't you also have to? We're talking about individuals finding themselves with 40% less to spend in retirement and you're saying we can't really commit to this, we've got to go through processes. It is very clear what this Productivity Commission report finds.
KELLY O'DWYER:
Well we have committed to the vast bulk of the recommendations already. As I've said to you, we have already announced a package in the Budget that bans exit fees, that puts a cap on the fees, the administration investment fees, that currently erode someone's balance right now. I mean the Productivity Commission points out, for instance, that somebody right now who is 21 who goes into the workforce can potentially lose up to two years' worth of pay because of these high fees and charges. We're acting on it. We're doing it and we are saying to Labor 'get on board and back us in'.
HAMISH MACDONALD:
Are you a supporter of the compulsory super system? Do you still believe it is fit for purpose?
KELLY O'DWYER:
I think that the superannuation system is a good system to ensure that people can save for their retirement. I don't think right now it is working in the best interests of members and I think it does require significant change. That is why the Government has announced sweeping reforms to the governance arrangements, to choice of fund, to making sure that we ban high fees and charges through exit fees and put a cap on the fees and charges that can be applied to members in their funds, that's why we're reuniting people proactively with their own money, which is something that no other Government has ever done and that's why we're stopping high insurance premiums being forced upon young people and low-income workers who don't want or don't need it.
HAMISH MACDONALD:
The banking Royal Commission's obviously badly hurt the credibility of the banks and financial service providers like AMP. Does the Government need to avoid making changes here to super that's going to give banks more power in the sector?
KELLY O'DWYER:
But it won't give banks more power in the sector. I think this is such a spurious argument to say that in putting caps of fees, in banning exit fees, in stopping young people being defaulted to high insurance premiums, that this somehow benefits the banks, it doesn't. A lot of these arrangements occur in non-bank funds as well and we're completely agnostic. Whether it's a retail fund, a bank fund as you put it, or an industry fund.
We say it should apply to everyone equally. We're not picking winners on this, we're simply saying that we need to protect members' money and do the right thing by millions of Australians. This is a compulsory system. 9.5 per cent of people are forced to defer their wages today for their retirement savings. We have a duty and a responsibility as a Government to make sure that that money is properly protected and you're absolutely right Hamish to say that the Royal Commission has uncovered some truly terrible examples of bad behaviour within the industry, within the banking industry, and superannuation is also covered by the terms of the Royal Commission and I'm sure that they will also take a very close look at the superannuation industry as well.
HAMISH MACDONALD:
Before you go, we haven't offered you, you haven't accepted any money to talk to us on the program this morning.
KELLY O'DWYER:
No, no I haven't.
HAMISH MACDONALD:
Do you think serving politicians should ever put a price on being accountable to the public?
KELLY O'DWYER:
No I don't.
HAMISH MACDONALD:
And do you think Barnaby Joyce has therefore made a mistake?
KELLY O'DWYER:
I do.
HAMISH MACDONALD:
And would you like to see him not do that interview?
KELLY O'DWYER:
Well look, ultimately it's a matter for him and his judgement, I personally wouldn't do it. I don't think it's right. And I think most Australians are pretty disgusted by it.
HAMISH MACDONALD:
Kelly O'Dwyer, thank you.