HELEN DALLEY:
Just about everybody has a question about their super. Although there are 370,000 self-managed super funds in Australia, holding around $300 billion in assets, a recent survey showed that 21 per cent of trustees had low to medium knowledge of their obligations. Well the Federal Minister for Superannuation, Nick Sherry, is in Launceston, to help us improve our knowledge with this really crucial issue. And joining us from Canberra to talk with him is our political editor, David Speers, good morning David.
DAVID SPEERS:
Good morning Helen; and Nick Sherry, thanks for your time. Can I start with a pretty broad question I suppose, what does a Superannuation Minister do, that a Treasurer and Finance Minister can't do themselves?
NICK SHERRY:
Well good morning David; good morning to your viewers. Well I'm the first Superannuation Minister in any government. Superannuation is so important now in terms of a social policy, extra retirement income, but also to the economy (with) $1.2 trillion (in super savings); so as the first Superannuation Minister in any government, I bring a particular focus to what is a major social and economic policy area, a specialised knowledge and background, and a focus on changing and improving the system that is necessary for the next 10 or 20 years.
DAVID SPEERS:
Well, given Kevin Rudd has said that fighting inflation is his number one priority, and part of his five-point plan to do that is to boost national savings, what is the government doing about encouraging people to put more into superannuation?
NICK SHERRY:
Well in terms of savings generally, we've already made the start with our first home saver account initiative, and I'm actually involved in some of the design issues, and in the next few weeks we'll finalise that. I mean that's a very good example to deal with a problem of critical importance - home affordability. So that's just one example.
But, my focus in this first few months has been on delivering the election commitments we made. And just a couple of examples, on my plate at the moment I have got the task of overseeing the simplification of what are very complex documents in the financial services area, unreadable documents, they may as well be in Latin, because many Australians just can't understand issues around fees, risk disclosure documents, and in superannuation that's true as well.
A couple of other issues I'm focusing on, we have almost $12 billion in lost super, it's an extraordinary amount of money, over six million lost accounts. So again I'm focusing on delivering a program of auto rolling together, reuniting Australians with their lost super so they actually get it when they retire.
And, and the other area is improving the administration for employers with choice of fund. They've got to hand out forms, receive the forms back, pay into multiple funds, and that's a difficult new red tape burden, I must say, imposed by the previous government, and we're keen to introduce a central clearing house.
So I've been focusing on those practical issues. I title them renovating the house, if you like, to improve the way the system operates.
DAVID SPEERS:
Well, there is speculation that this upcoming budget, the first Rudd/Swan budget, will contain some new initiatives on superannuation. Can you tell us at least will it be a super friendly budget?
NICK SHERRY:
Well it's a good try David, but I don't make any comment on budget matters. As I've said, at the moment I'm focusing on delivering the practical promises that we made at the last election; to renovate the house as I call it, to improve the way the current system operates.
DAVID SPEERS:
Well, can you at least tell us though that as Wayne Swan and Lindsay Tanner, the razor gang process look to slash government spending, you won't be reintroducing any of those superannuation taxes that Peter Costello got rid of?
NICK SHERRY:
Well, while I can't speculate on budget matters, what I can say is that there have been two areas that have had a lot of focus over the last year. Let's take the Better Super changes, Labor provided bipartisan support for those changes, when they moved through the parliament last year. And secondly the 9 per cent superannuation guarantee contribution that employers paid, pay for their employees. Again, we've committed that we would not increase that and increase the payment burden on employers, but beyond those specific commitments we've made in the last year, I'm not going to get into budget speculation about what may or may not be in the budget.
DAVID SPEERS:
Alright, you mentioned the 9 per cent contribution level. Do you think long-term that is enough for particularly low-income earners, the so-called working families, to have enough for their retirement? Is 9 per cent contribution going to get them there?
NICK SHERRY:
Well, well superannuation is composed of two components - there's the compulsory 9 per cent super guarantee, introduced by Hawke and Keating, very, very farsighted visionary, that's to improve the retirement circumstances. For most, it's an add-on to the aged pension.
The other component of superannuation is a range of voluntary incentives and programs for employees and the self-employed. Now I happen to believe that 9 per cent paid by the employer is sufficient. I think where the focus has to be is improving the programs and incentives for employees and from government, but that's a medium term goal. This is a very, very complex issue because your outcome, your total savings pool when you get to retirement is a function of your years in the labour force, it's a function of the rate of return, fees and charges. And the difficulty that many face, particularly older Australians, is they haven't had compulsory superannuation - well they've had it for 20 years, but only at 9 per cent since July 1 2002. So for many, they haven't been in the system long enough, because the system, the 9 per cent hasn't existed for long enough. So, there is an, what we call an adequacy problem, there's an adequacy gap for some in the workforce. Now certainly my hope over the medium term is to add to the programs available to add to the retirement income savings of Australians through superannuation. There's a big debate still about adequacy and how we can improve the circumstances of Australians, and I'm keen to identify ways where we can provide extra assistance, but I think that will be over the medium term.
DAVID SPEERS:
Well you've said there that it won't be employers then forking out any additional contribution, but if it is to be workers, the government, a mixture thereof, what about this idea of so-called soft compulsion, where workers are required to put in the extra 3 per cent on top of the 9 per cent unless they choose to opt out, so it's a voluntary opt out if you like. What do you think of that idea?
NICK SHERRY:
Well I've had a look at it, a close look at it actually, in the context of the UK where it's to be the basis of their new system in the year 2012. And the idea is of course is there's a level of contribution that is paid and you have to opt out and it reverses what's called inertia. What we do know in the theory of superannuation savings is that a significant group of people, usually a majority, won't opt in if you set a figure that is required to be paid. And you say, well, look you should opt out. We do know that most will not opt out. The one great concern I have with this approach as a principle, as a principle, is that it adds another layer of complexity around regulation decision making. And whilst the Australian system is still very complex, it is remarkably simple in terms of the 9 per cent, it's compulsory. Opting out provisions are quite complex. I mean if you opt out, when do you opt out? When do you opt back in? What's the information that has to be made available?
So, it has some attractions, but I'm pretty cautious about it because of the regulatory complexity, which would be another set of regulatory complexity we have to deal with in our system. I'm particularly focusing on programs that would clearly add to the retirement benefit for employees. So, as I say, opt out, it's something to consider but beware of the complexities involved in the process.
DAVID SPEERS:
There are a few bugbears the industry has, and superannuation investors as well.If I can just run through a few of them - in 2003 you called for a ban on commissions on superannuation sales, are you doing something about that now?
NICK SHERRY:
Well, the critical part of the formula are the fees that Australians pay, and commissions have been criticised because of the conflict of interest and because of the higher fees that can result if it's not a competitive framework where people are putting downward pressure on payments including commissions.
There's a constant complaint about complexity and cost in disclosure in the superannuation space, and therefore commissions are justified as part of that; it's a way of spreading the payment.Once we've gone through the simplified disclosure regime and we've actually got a lower cost operational system, I think then it will beg the legitimate question about what the fee structure should be. So, I think in the medium term we'll look at it after we've dealt with this disclosure simplification cost production process.
DAVID SPEERS:
Well another problem is when theft and fraud occurs. At the moment victims, at least if they're with a major fund, are covered for, are eligible for 75 per cent compensation where theft and fraud occurs, and certainly we've seen some examples of this. Do you think though that compensation should be lifted to 100 per cent?
NICK SHERRY:
Well compensation for theft and fraud at the moment, where it occurs - and I'd have to say after 20 years in our system, it's very small in the context of the system. I think that out of $1.2 trillion super savings last year, four or five million was actually stolen. Now where that happens, it's small in the context of the system but obviously for the, last year the few hundred people affected, it was catastrophic. We actually have up to 100 per cent; sorry up to 90 per cent of compensation, up to, depending on the circumstances. I think that's an appropriate level of compensation where theft and fraud occurs, which as I say is very, very, rare in our system.
DAVID SPEERS:
And Minister, just finally, for a lot of people who are just about to retire, or who have just retired, the volatility in the share market must be quite traumatic for them; you know this is their life savings. Do you understand their concerns? Do you have any message for them? Can you understand people being a little bit more nervous about superannuation given the volatility that we've been seeing in the market?
NICK SHERRY:
Well yes, we've seen a significant volatility and it is a worry. I think the important thing about superannuation, a couple of characteristics - firstly superannuation is diversified. The law requires the trustees to spread the investment over different classes of investment, so you spread the risk. The second point I'd make about superannuation is it's a long-term rate of return; it's the long-term rate of return, at least five to seven years. And, if we have negative rates of return this financial year, - we've still got just over three months to go - it's against a background of the last four or five years, where we saw rates of return of 10, 12, 15 per cent. So it's that average long-term rate of return which is critical, because people are in the system for 30 to 35 years, and then when they move into retirement phase, they're likely to live for another at least 15 to 20 years on average. So it's that long-term rate of return, diversification, that's one of the great strengths of our system. People should not focus just on this year's rate of return.
DAVID SPEERS:
Alright, Nick Sherry, well some advice there I suppose for all of those who are concerned about their super at the moment. We're out of time; we appreciate your time in talking to us today.
NICK SHERRY:
Morning David
DAVID SPEERS:
Helen, back to you.