ROSS GREENWOOD:
Let’s now go to the Minister for Revenue and Financial Services, Kelly O’Dwyer, in regards to this Productivity Commission release. Many thanks for your time Kelly.
KELLY O'DWYER:
Great to be with you Ross.
GREENWOOD:
You’re not far away from the family expanding, is that true?
O'DWYER:
Indeed, two under two in about two weeks’ time.
GREENWOOD:
Two under two, you’re going to need to do a bit of planning for the future, for retirement. In regards to the Productivity Commission, it is a draft report, but it’s put forward different alternatives as to the way in which a person may join a super fund, and at the very beginning or even during their working life, to try and make certain there is real competition. It’s not necessarily the industry funds versus the retail funds, it’s much broader than that isn’t it?
O'DWYER:
Well exactly right, and I think everyone is frankly really sick of industry groups, and by that I’m talking about superannuation industry broadly, fighting one another about their own vested interests. Frankly, everybody should be interested in the members’ interest, because at the end of the day, it is their money that has been set aside for their retirement income into the future, they’re deferring their wages today and we need to get the very, very best outcome for them. That’s why the Murray Financial System Inquiry, which was the inquiry that we did straight after coming in to election in 2013, it recommended that we conduct this independent review of the superannuation system to see if it was as efficient and as effective as it could be, and whether it was delivering the right outcomes for members. And so the Productivity Commission, as you have rightly pointed out, has said there are some problems with the system as it exists today, because the default model that exists today with default funds can actually reduce a retirees’ balance by around about $25,000 on average.
GREENWOOD:
Where does that money come from specifically? Where is the inefficiency that creates that loss of $25,000 over the working life of a person?
O'DWYER:
Well there are lots of inefficiencies and it usually starts very, very early on when people first get into superannuation. And it could be as simple as something like somebody who has started work for the first time, they might be a tutor for instance at university, they might be employed under a particular Enterprise Bargaining Agreement, which means they have to go into a particular fund with particular insurance payments that go with that particular fund. And they might, at the same time, also work part-time at one of the big major retailers and again, they might be covered by a very different Enterprise Bargaining Agreement. Another fund, another set of administrative fees, another set of insurance premiums, and the truth is that you can’t actually combine those funds at the moment under the existing rules because for people who are covered by enterprise bargaining agreements or workplace determinations, they have no choice of fund and fundamentally, that means that they are paying more fees than they ought to be paying and they have no choice about where their money goes.
GREENWOOD:
OK one of my bug bears and it goes on a similar point and that is if a person, say, joins a retail fund because their employer has chosen that particular organisation to look after their super, the problem always arises when the person leaves that employer. In many cases what happens is that the retail fund that they’re in, they just simply drift along with the fund but they don’t realise that when they come out of that employment, that often their fees will triple or even quadruple without them knowing about it, they just see their returns will fall. Now there’s issues such as this about trying to make certain that superannuation is genuinely portable and that they are in the most efficient schemes possible.
O'DWYER:
Absolutely right Ross, and this is the thing. It’s not about pitting one part of the superannuation industry against the other. It’s about making sure that people get the very best value for money. And you’re absolutely right to say this is another way that people’s balances are eroded or they’re not getting the compound interest that they otherwise ought to get as a result of having their money in a particular working fund if they’ve moved into a different set of employment arrangements. In fact, the terrible news is that for a lot of people, particularly people who are maybe part of the casual workforce, they can see, if they’ve gone from one job to another job, their entire balance eroded in a really short space of time. So it’s not actually there for them to provide what they need in their retirement.
GREENWOOD:
What about the whole MySuper plan? Because that was supposedly designed for people, especially with low account balances, from having their funds eroded. The problem for those people in many cases was though their funds might not have been eroded as quickly by fees, they were not always earning the types of returns that the so-called default funds were earning because they simply didn’t have enough money to get themselves into those mainstream funds.
O'DWYER:
And this is again something that we have asked the Productivity Commission to have a look at. This is another reason why the review is being conducted, which is to look at how effective the My Super arrangements actually are, how competitive the arrangements are and whether it’s delivering the sort of outcomes that people need for their retirement. We’ve also seen comments from the Productivity Commission that have talked about the fact that there are some funds with big size and scale, which can often be very efficient and very good for members, and there are others that are much, much smaller, whose administrative fees are much higher, who perhaps don’t offer, always, as much value for money. That’s why we’re looking forward to, when they get to Stage Three, their Stage Three report about how it all fits together and the key recommendations that can be made to the Government, to make sure the system works for everyone.
GREENWOOD:
Well with more than $2 trillion in the superannuation funds and growing still yet, it is important that it is as efficient as possible. Kelly O’Dwyer is the Minister for Revenue and Financial Services and Kelly, we appreciate your time on the program today.
O'DWYER:
Great pleasure Ross.