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Superannuation
What will Rudd do with our super?
December 3, 2007
Larissa Tuohy
In 1992, Paul Keating’s Labor government introduced Australia’s compulsory, employer-funded Superannuation Guarantee (SG) regime; one of the first of its kind internationally and a landmark shift in retirement planning. So with a new Labor government now at the helm, can we expect further major changes to the way in which we will manage our super nest eggs?
In the lead-up to this year’s election, the Liberal party played on business community fears by claiming that Labor superannuation policy would result in the 9% SG being increased to 15 per cent. However, Minister Nick Sherry, who now holds the portfolio for superannuation and corporate governance, was quick to issue a rebuttal, and ease the minds of employers. Instead, he commented, Labor would provide additional incentives to low and middle income earners to add to the 9% SG, through personal contributions. Employers, he said, would not be required to contribute more than the existing amount.
Head of technical services at Asteron, Louise Biti is confident no major shake-up is on the horizon. "Labor have expressed concerns about the inadequacy of super savings and indicated a desire to see contributions increase up to 15%. But it is more likely that Labor will consider policies to encourage voluntary personal contributions."
Director of HLB Mann Judd Andrew Buchan adds: "Labor views the 9% as insufficient for workers on average incomes, and is probably right in this regard. Their target is 15% but this is a 66% increased impost on business. I think we will see this occur over the medium and long-term, but not necessarily in the first term of government."
Industry super funds are likely to see an income boost under Rudd. Labor has stated that employees should be able to access low cost funds through their workplace, and it has been suggested that industrial awards should contain not-for-profit funds as the default arrangement.
Biti says: "Statistics show that many people use the default funds rather than making their own choice, particularly while they have balances under $100,000. This policy may see an increased uptake of industry super funds by new workers. I don’t think it will cause large scale switching by individuals with current super funds."
Buchan adds: "Labor’s victory has been driven by the Union movement and they will want a return on their investment in the victory. A given will be greater reliance/participation of industry funds."
A superannuation clearing house is also planned, which will allow businesses to make payments into a central facility, rather than make payments to a myriad of providers. For organisations with 20 employees or less, this service would be free of charge while other employers would be required to pay a small fee. The clearing house would be contracted to the private sector, effectively taking over employer responsibilities of making super payments.
Biti says that commercial clearing houses already exist, and further consultation on this proposal would be wise. "Policies to reduce red tape and the cost of compliance are always worth consideration." But she adds: "We need to avoid repeating the largely unsuccessful experience with the Australian Taxation Office operated Superannuation Holding Account Reserve, which was set up to receive small employer contributions."
There can be no doubt that Labor will add its own stamp to the super environment over the years to come. Speaking at the Investment and Financial Services Association annual conference this year, Sherry said his party had set a goal of 65% of pre-retirement income in retirement for the majority of Australians – no mean feat and one which will almost certainly require new super savings schemes of some sort.
But given the enormous changes introduced by Howard as part of the Simple Super regime, as well as the choice of fund rules, Labor may be best advised to take a slow and steady approach, or risk the wrath of the business community, which is already feeling the burden of legislative refinements.
Biti says: "I would hope that Labor do not make major policy changes to superannuation – at least in the short-term. However, I would like to see Labor consider a number of changes to simplify rules and remove anomalies."
Buchan adds: "Now is the time to consolidate those changes and see how they are working. The simplified super system is still complex."
Labor super initiatives
1. Super funds are likely to be encouraged to make greater investments in infrastructure.
2. Labor has expressed bi-partisan support for the previous government’s announcement to make amendments to tax law to allow those suffering from a terminal illness to access their super benefits before age 60 without incurring the lump sum tax on their benefits.
3. SG contributions will be calculated according to an individual’s salary prior to any salary sacrifice arrangements.
4. New standard disclosure forms will be introduced for financial services products, amending the current forms required under the Financial Services Reform Act.
5. All members of super schemes will receive regular pension/superannuation forecast, in line with assumptions set by the government actuary.
6. A new system will be implemented to automatically consolidate lost and inactive super accounts, using tax file numbers.
7. All exit fees on superannuation funds will be prohibited, prospectively.
8. Labor will consider creating a single regulatory structure – a Financial Services Authority. This would involve the combining of the Australian Securities and Investments Commission (ASIC) and the Australian Prudential Regulation Authority (APRA).
Larissa Tuohy is the former editor of Money Management magazine.
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