ROSS GREENWOOD:
Many thanks for your time Kelly.
KELLY O’DWYER:
Great to be with you Ross.
ROSS GREENWOOD:
I do want to talk to you about these superannuation member outcomes package, which is coming in, which, of course, is going to change the rules on the compulsory 9.5 per cent employer superannuation contributions. But in the meantime, I just want to go back to that point about constitutional change and the way the nation’s set up. In an ideal way, if you were, as Assistant Treasurer with the Government able to set up Australia from brand new, and of course that’s impossible, surely you would not have three-year electoral terms that are arbitrary, if you like, like we’ve currently got.
KELLY O’DWYER:
Well look, there’s nothing that’s going to be perfect, I think, in these circumstances, whether it’s three years, four years, maybe even five years. Different countries have got different arrangements. My view is, with four-year terms, you can either entrench a good government or a bad one. And we have to think about this very carefully before we proceed. But I’m not sure, Ross, that it’s the number one priority issue of most of your listeners out there. I think they want us to be focused on them, what’s impacting them day to day. And one of the things that I was able to announce today was the big transforming superannuation package, which will help a lot of your listeners.
ROSS GREENWOOD:
I get that, and I’ll come back to that very shortly because that is important, there is no doubt about it. But surely even a person listening to this program would recognise that stability, even if you vote in the wrong party at least they’ve got four years to try and get it right, and if you voted in the right party, they’ve got the stability to know that they can get halfway through an economic cycle, make changes that actually do count, and can see the results of those changes. It’s not as though we suddenly get a change of government every three years or so or we get a slightly held majority or something like that, and as a result, compromise is made to what otherwise might be very good legislation. That must be one of the frustrations for you as a politician.
KELLY O’DWYER:
Well look, that’s one of the arguments for four-year terms and I think you’ve articulated it very well Ross, but at the same time the contrary argument is, I suppose, that you can also potentially have governments that aren’t doing a particularly good job and it’s important that the democratic system works in such a way as to give people their say. That’s what the current system does. I think before we make any changes to the current system, there has to be a clear argument made as to why it does require change. I’m very open to this question. As I said, I don’t know that it’s the number one priority issue that is keeping people awake at night, but I certainly think what is keeping people awake at night is the need for good, strong government that works in people’s interests and that’s what we’re trying to deliver.
ROSS GREENWOOD:
OK let’s go to superannuation. There is now more than $2000 billion worth of people’s money in superannuation accounts. I mean the nest egg, the pot of superannuation, is building up and will continue to grow. It is going to become a significant influence in terms of Australia’s wealth long term. In regards to the value that people get, the bang for their buck from their superannuation, do you believe that really Australians generally get good value money from their superannuation funds?
KELLY O’DWYER:
Well I suppose it depends what fund someone’s in and I couldn’t say to you hand on heart right now that people have got complete confidence that their fund is working directly in their interests and the reason is because everyday Australians right now don’t actually have a lot of control over their superannuation providers. It’s a mandated system that they’re forced to put their deferred wages into, and they don’t have a lot of say over it. There isn’t a huge amount of accountability for where they put their money and we think that ought to change. Because as you say, we’re talking about $2 trillion worth of funds under management right now. That’s gone up from $130 billion odd when the system, the compulsory system, was set up around about 25 years ago. We also need to make sure that not only do we have strong rules in place, but we need to make sure we’ve got a very strong regulator that can enforce them to make sure that those funds are being managed in members’ best interests.
ROSS GREENWOOD:
OK where is it that you believe that members might not be getting value for money? I mean we’ve got two distinct type funds in Australia, we’ve got the retail funds that are owned by the banks and the life insurance companies, and then there’s the industry funds, which clearly are not-for-profit funds. In both cases, their returns are transparent. Which part of this is the consumer missing out on do you think?
KELLY O’DWYER:
Well they don’t get to see a lot of the detail. They don’t get to see, really, the outcomes that are being delivered with investment and insurance strategies that are put in place. We think that we should have, rather than simply just a scale test, we should be looking at the outcomes that are delivered in the default MySuper product space and that there should be an annual assessment of the product outcomes to ensure that those investment and insurance strategies are right, the fees are right, the scale and returns are promoting the financial interests of members. We think that there needs to be more accountability there for members, whether it’s through things like AGMs, which we’re going to put in place, or whether it’s through these better disclosure requirements and the ability of the regulator to intervene when funds are not acting in their best interests. We think that these are essential changes to give people confidence.
ROSS GREENWOOD:
Let’s go to that point about intervention because quite clearly, the Australian Prudential Regulation Authority, which regulates banks and insurance companies currently. You’re going to give them powers to intervene. What types of powers of intervention will APRA have?
KELLY O’DWYER:
So they will get a directions power, which will mean that they have the ability to take preventative or corrective action if they’ve got prudential concerns about a superannuation fund or if they’ve got concerns that a fund is not acting in the best interests of members. We think that this is very important because as I said, we force people to put money into the superannuation system and they need to know that that money is going to be there for their retirement income and that it’s not being used for other purposes that don’t relate to their best interests. And giving the regulator powers beyond simply moral suasion powers with these funds, actually giving them a stick, we think gets the balance right to give members that confidence.
ROSS GREENWOOD:
OK and is a simple guide for most people that if, say for example, as we saw last week, Super Ratings and Chant West put out the typical returns that funds would have, I think a balanced fund was 10.4 per cent after tax over the past year, so if I person’s fund was only, say, three per cent after tax over the past year, quite clearly you’d need to look at the type of fund and all that type of thing. But all things being equal, if it was only three per cent, would that raise a trigger with the organisation such as APRA to go and look at that fund, look at the processes and work out why those members are getting so much less than the vast majority of members?
KELLY O’DWYER:
Well I think we want APRA to be able to look at all of the funds, whether they’re retail funds, corporate funds, or industry funds, to look at all of the elements that make up fee arrangements, that make up the life insurance policies, to be able to see whether or not that’s actually working in members’ interests. One of the great challenges, I think, for many members who get into a superannuation fund, particularly those younger members as we’ve discussed before, Ross, is that their default arrangements are you get into a particular insurance premium. If you’ve got more than one fund, and there are over 2.7 million Australians who’ve got more than one fund, that means two lots of fees, or three, or four, depending on how many funds they might be in, it means they might have their retirement income eroded by these fees, which are clearly not in their interest.
ROSS GREENWOOD:
And in fact, for insurance that they do not need…
KELLY O’DWYER:
And will get no benefit from, they’ll only be able to claim once.
ROSS GREENWOOD:
And this is all in place right now, so APRA’s got the powers to walk in if they see something untoward in any of these funds?
KELLY O’DWYER:
They don’t have the power in these instances to be able to direct a fund and we think it’s quite important that they have that power to be able to direct a fund. And we also think it’s important, as I mentioned in the insurance example, for people to be able to opt-out more easily. Ross, you’d be horrified to learn that you’ve got to pick up your pen and paper in some of these funds and write in, and sometimes actually get a Justice of the Peace to prove your identity before you can actually opt-out of these insurance arrangements. Now that’s quite clearly ridiculous when a lot of people would be looking at their statements online, where a lot of people would be using their phone to be able to telephone their funds, why can’t they use those devices to be able to opt-out of these arrangements?
ROSS GREENWOOD:
There’s no doubt about that. Kelly O’Dwyer is the Minister for Revenue and Financial Services in this country and as always we appreciate your time here on the program Kelly.
KELLY O’DWYER:
Great pleasure Ross.