NEIL MITCHELL:
Turning now to superannuation … I think we've already exposed, and I think there's no criticism of this (but) I think most of us are pretty ignorant when it comes to the problems with superannuation. But we've had a few already identified direct problems with the way the system works. It is sloppy; it has evolved into quite a monster. It has been described as an unlucky lottery.
Peter told me in the first half hour that he never knew that he had two accounts with one fund, one had his middle name and found out that one that had chewed through all his money with fees, and the other one had entrenched under-performing funds. A whole lot of recommendations from the Productivity Commission, on the line is the person whose job it is to tidy it all up, Financial Services Minister Kelly O'Dwyer. Good morning.
KELLY O'DWYER:
Good morning Neil.
NEIL MITCHELL:
Disaster?
KELLY O'DWYER:
Look, the PC has made it very clear that superannuation funds have been often acting in their own best interests and not in the interests of members. I have been calling this out for quite some period of time, and the Government has announced a number of measures in the most recent Budget which will ban exit fees, which will cap the fees that can be charged on accounts, which will stop young people from being ripped off, and low income earners from being ripped off, from being charged insurance premiums that they either don't want or don't need.
NEIL MITCHELL:
This to me looks in some ways to be at a level even greater than what we are seeing at the Royal Commission into the banks?
KELLY O'DWYER:
Well, I'm very confident that the Royal Commission, who have in its terms of reference superannuation, will come to this. We'll have a look at it. I'm sure that the Productivity Commission's report will be very useful in looking at all of the issues that do exist.
The truth is, Neil, I think a lot people in the superannuation industry don't recognise the fact that this is members' money. It belongs to them, it does not belong to the Government, it does not belong to employers, it does not belong to the union movement, it belong to the members and it should be protected for them.
It needs to be spent in their best interests, it shouldn't be misused and the Productivity Commission has been very clear in saying that things need to change.
NEIL MITCHELL:
Okay, how has this happened? Has it just evolved? Is it corruption? What is it? What's caused it?
KELLY O'DWYER:
Will I think the truth is that the superannuation industry has had payments made to it though the superannuation guarantee for about 27 years now, and that's money that's just flowed on in and the superannuation sector has said 'leave it to us, don't worry about it. Don't pay any attention to it. We don't need to be monitored too closely. And unfortunately that's what many Governments have in fact done.
Bill Shorten, when he was Financial Services Minister, made some changes that I think were very regressive. The uncapped fees, he defaulted young people into insurance that meant that they were paying high insurance premiums, I mean I receive weekly letters from people, as you probably get in terms of calls, from people who give me their stories about how they've been ripped off.
I had one person very recently, a disabled person, who was being charged $800 a month for their income protection insurance and they earned only $80 a month. Disgusting.
NEIL MITCHELL:
I think the other part of it though is that most people don't really understand do they? Particular younger people say 'I'll worry about that later' and we did a bit of a blind poll on it this morning. Most people couldn't tell me what the fund earned last year and most people, and I'm in the same category, wouldn't know their fees.
KELLY O'DWYER:
And most people don't realise that they've got multiple accounts and the Productivity Commission point out in their report that about a third of all accounts that exist are unintended multiple accounts, which means that people are paying two sets of fees two sets of premiums and their retirement savings are being eroded as a result.
And that's again one of the reasons why in the Budget we said we are going to reunite people with their lost super. If they've got low-balance accounts, we are going to proactively, through the Australian Taxation Office, put it together with their active account.
NEIL MITCHELL:
What are we talking about? How much money could it mean at the end of a working life?
KELLY O'DWYER:
The Productivity Commission say that for somebody starting out at 21, it could mean around $400,000, I mean it's a huge number, but it gives you an indication that if everything goes wrong, which it can do, you could be substantially out-of-pocket.
One example, just with high fees, for somebody who is on $50,000 full-time salary starting out at 21, it can mean two years lost pay just from the higher fees alone.
NEIL MITCHELL:
Okay, on a related area, we pay 9.5 per cent and it's going up to 12.5 isn't it?
KELLY O'DWYER:
It will ultimately go up to 12.
NEIL MITCHELL:
What's the rate in the public service?
KELLY O'DWYER:
The rate, depending on who you are employed by can be higher. It can be up to 15 per cent.
NEIL MITCHELL:
Why?
KELLY O'DWYER:
Because different deals are struck through the employment arrangement. I'm not justifying it, I'm simply telling you that different public servants argue for different deals.
NEIL MITCHELL:
Well why don't we all get 15 per cent, or at least all get around the same.
KELLY O'DWYER:
Well there is certainly a question as to whether or not it ought to be increased, and it is going up to 12 per cent and different employers can negotiate a higher rate with their employees, but it's not worth much if you don't get the foundations right, and this is the point that the Productivity Commission is making. It's basically saying that in some cases, if you've got an under-performing my super fund, it's equivalent to seven and a half years of lost pay. So you can put more and more money in, but if the foundations aren't right, you ultimately lose out one way or the other.
NEIL MITCHELL:
I know the super fund, the super deal for politicians has been fiddled over the years. What's the payment to politicians now?
KELLY O'DWYER:
I think it's around about 15 per cent. I would have to confirm that to be honest with you Neil. I didn't go into politics for the superannuation or the money.
NEIL MITCHELL:
You're no more across your own superannuation than the rest of us.
KELLY O'DWYER:
Well as I said, I'd have to confirm it, but I think it's around 15 per cent.
NEIL MITCHELL:
I would be interested to know, you don't know and I'm not critical of you for it because I reckon 90 per cent of the audience listening now doesn't understand their own super fund.
KELLY O'DWYER:
I think all of us need to be very clear that we need to be more connected with our superannuation.
NEIL MITCHELL:
In simple terms, how do you fix all this? What do you do?
KELLY O'DWYER:
Well the first thing you do is you've got to stop the proliferation of multiple accounts and the Government has already put in place a plan to reunite people with their money. Six billion dollars' worth of money, if the Labor Party would only support our reforms that we've announced in the Budget.
We are going to give people the ability to not pay high insurance premiums if they're under 25, if they've got a low-balance account, or again if they've got an inactive account, which again will mean more money in their pocket. And that will mean up to around about $3 billion in just one year. We're banning exit fees, that's $52 million straight away.
We're saying you shouldn't have high fees being charged, we're capping them. When Bill Shorten uncapped them, we're capping them, which again will mean about $570 million being returned to members. Straight away, this package should be supported by the Labor Party, who have equivocated on this. I mean these are no-brainer changes that are in members' best interests that we should just get on and implement.