Superannuation

The DLP supports Australia’s three pillar retirement system based on savings through compulsory superannuation contributions supplemented by voluntary member contributions and a safety net provided by an aged pension.

The DLP wants to encourage as many Australians as possible to adopt a “hands-on approach” to their savings planning for retirement to maximise the benefits available to them through the superannuation system.

The DLP opposes legislation that would make retrospective changes to superannuation.

 

The DLP will introduce legislation to:

  • Abolish the Superannuation Guarantee age limit.
  • Require funds to advise members at least annually that they have the right to switch to a fund of their choice.
  • Replace annual audits with forensic accounting reports.
  • Remove regulatory hurdles to encourage the development of a corporate bond market in Australia.
  • Encourage funds to invest in rural and regional Australia
  • Reinstate the level of government co-contributions for voluntary member contributions.
  • Abolish MySuper option.
  • Require all employee funds to have independent trustees
  • Introduce government funded superannuation contributions for full time carers
  • Prevent future legislative changes that reduce member benefits

 

 

 

Discussion

 

Superannuation Guarantee Age limit

The current age limit on the Superannuation Guarantee unfairly discriminates against older workers and effectively reduces their income.

The Superannuation Guarantee currently only applies to workers up to the age of 70.  Under the DLP’s plan, the Superannuation Guarantee charge will apply to any employed worker, no matter his or her age.

 

Choice of Funds:

The Productivity Commission draft report page 54 states “switching rates between funds have declined from an initial rate of around 5% in 2005 to 2% in 2009”.  Many members in default funds are unaware that they have the ability to switch from one fund to another, this also adds to their disconnect from taking an active interest in their fund.

There is a natural disinclination for funds, unions and employers to actively advise members that they are free to switch to other funds.  This can best be addressed by requiring funds to include on their annual advice to members a notice that they have the right to switch to a fund of their choice if they so desire.

 

Greater transparency in Funds

“The ‘government has articulated four principles that will guide its assessment’:

‘Simplicity’, ‘Efficiency’, ‘Equity’, and ‘Adequacy’.  Glaringly absent is the word ‘transparency’.  This omission is, unfortunately, consistent with the style and approach of the governing Act, the Superannuation Industry (Supervision) Act.  It’s also consistent with the regulatory oversight apparent from APRA and ASIC and with which those operating in the superannuation industry seem comfortable.  Neither APRA nor ASIC appear to undertake any form of direct auditing of the superannuation funds.”

“APRA publishes a summary of all superannuation fund performances online.  However this summarises the returns supplied to APRA by the funds.   It is not an independent assessment of the funds’ performance.

That is, under current legislative requirements, APRA reports what the funds are reporting.  ASIC’s available online information on superannuation funds is also scant, relating mostly to advice on process. ASIC does provide general information on how to compare funds and funds’ performance and supplies some general tables.”

(Extract from “Keeping Super Safe” Institute of Public Affairs. Louise Staley 2010)

To increase overall confidence in the superannuation system, fund transparency and governance should receive the highest level of scrutiny.  This can be assisted by replacing the audit requirement of the fund with forensic accounting reports.

This will provide a higher level of scrutiny, be more transparent, definitely more objective and more independent, and instil greater confidence in all participants including Trustees, Employers, Union representatives and most importantly the members of the Fund.

 

Corporate Bond Market

Australian Superannuation Funds on average have approximately 11% of their investments in bonds, whilst Europe, America and Canada have approximately 40% invested in Bonds.

There is a need to change Government regulation to encourage development of a corporate bond market in Australia.

Existing Taxation levels and regulations are preventing a growth in Superannuation funds participating in corporate bond issues at a time when recent corporate bond issues will return 2.75 per cent above bank bills and they’re a lower risk than equity or property.

 

Investment in Rural & Regional Australia

In the past 10 years over $50 billion has been contributed to the compulsory element of Superannuation Funds from rural and regional Australia alone, very little has been re-invested back into the regions.

Is it perfectly reasonable for people living in rural and regional Australia to desire to ensure, that the superannuation that each person contributes to, should be equitably re-invested into that part of the country that they are living and employed in?

As the wealth of the nation, including all of our food production, is carried out in regional Australia, and with the growing worldwide concern about future food security, it is reasonable to assume that many people residing in our major cities would also support part of their super contributions being invested back into the regions, where the vast majority of the nation’s wealth is being generated.

The DLP will look to changes in policy settings that would encourage superannuation funds to re-invest in rural and regional Australia.

An example of this could be a change in taxation policy to exempt Superannuation Funds from all or part of the 15% tax currently levied on the earnings of the Funds, on that portion of their investments portfolio that was invested into rural and regional Australia, thus increasing the net return to members.

 

Reinstate co-contributions for voluntary member contributions

We have an ageing population.  Australians need to trust the superannuation system and fund more than the mandated minimum contributions.

Treasury projections published in the 2010 Intergenerational Report outline a key challenge, that between 2010 and 2050 the proportion of Australians aged 65 to 84 will double, while the proportion of people older than 85 will quadruple.

Concurrently the proportion of Australians of working age will fall 7 percentage points to 60 per cent by 2050, meaning that the number of working people to support retirees will halve (IGR, 2010).

A recent Deloitte report warns that the average lump sum will be only $217,000 which means that the member has a 78% chance of outliving the income stream from their superannuation.  These calculations take into account the rise in compulsory superannuation contributions from 9% to 12% (Deloitte 2008).

Therefore to encourage lower paid workers to make voluntary contributions to their superannuation the DLP will reinstate government co-contributions payments to their original level.

 

MySuper option

On the 30th June 2013 all fund members who are in a default fund will be transferred into a My Super fund option.

Whilst there are no limits on fees that can be charged in a MySuper fund, there is a ‘name-and-shame’ process as employers must provide a report to the ATO every quarter setting out the fees and the performance of the fund for the quarter.  This will all be published on the internet.

MySuper funds must perform to at least the level set out in the Product Disclosure Statement otherwise the ATO can transfer the members to another MySuper fund.

The employer must provide a statement (either quarterly or annually), that the size of their fund is not disadvantaging their employees.

The end result of this low fee, no frills (must perform option) is that the members of the fund are never likely to receive more than bank interest less charges & fees, and gradually most funds will be  amalgamated  further transferring the control of massive amounts of money into fewer and fewer hands.

 

Independent Trustees

Industry funds have spun off a web of interlocking companies and trusts that undertake much of superannuation administration and management.

The inclusion of Independent Board Members, or preferably the appointment of an Independent Trustee would create more confidence in the superannuation industry.

 

Contributions for Full Time Carers

There are approximately 771,000 full time primary carers in Australia.  These primary carers have taken on the role of providing full time care for an elderly parent or a mentally or physically disabled child.

Their role as a Full Time Carer prevents them from obtaining full time employment and receiving compulsory superannuation payments available to employees.  Most will reach retirement age with little or no means of financial support.

As these Carers provide a major contribution to society and a massive saving to Government expenditure they are entitled to receive a government funded contribution based on 9% of average weekly earnings.

 

Prevent future Legislative changes

All Australians need to be encouraged to actively participate in the superannuation system and to make additional contributions as required to bolster their savings, to provide an adequate retirement income.

Continuous changes to the system by Government undermine confidence in the system and are a major discouragement to members making additional contributions.

Future Governments should be prevented from making changes in taxation, contribution and benefit payment laws that would reduce the benefits to members that existed at the time of joining a fund.