Whatever the result of the forthcoming federal election, ASFA is well placed to talk to the next government and explore ways we deliver on the promise of the Australian superannuation system. Ensuring we always start with the relevant data and evidence before reaching our policy positions, ASFA has always been scrupulously non-partisan in advocating those positions.
In the lead up to this election, ASFA has released a toolkit for the Government to use to enhance our superannuation system and to make sure it continues to provide significant and material benefits to Australians in retirement. It proposes measures for the future government to consider which I will briefly outline.
Moving the SG rate to 12 per cent as soon as possible
The super guarantee is scheduled to increase to 12 per cent from 2021 (concluding in 2025). It is pleasing that both sides of the political divide have expressed support for the increase which is crucial to ensure more Australians achieve an adequate standard of living in retirement above the Age Pension. For all income earners, even those very close to retirement, moving to 12 per cent will mean a more comfortable standard of living in retirement.
It would be even better, budgetary pressures permitting, for the move to 12 per cent to occur sooner rather than later. Each year we delay will cost Australians superannuation savings that could have helped improve their life in retirement.
ASFA modelling shows that an average income earner aged 30 today, and on a $70,000 salary, would have $71,600 less when retiring at 67 if the SG stays at 9.5 per cent. For this person, bringing forward the timetable for lifting the rate of SG by two years will boost their retirement savings by an additional $7,000.
Stabilising the tax settings for super
Over the last few years a range of measures have been introduced with the aim of making the retirement income system more equitable and robust. In very recent times the Protecting Your Super and Improving Accountability/Member Outcomes packages have introduced further reforms that will have a big impact on insurance in superannuation, the role of the regulators and the superannuation landscape more generally.
Whether you regard it as tinkering or wholesale reform, there is no question that constant meddling with policy settings ultimately undermines confidence in the superannuation system. We need a period of stability so that people in the industry can take a breath and ensure that recent changes to the superannuation system are properly introduced and bedded down.
Boosting balances for women and low-income earners
Australia’s compulsory superannuation system is a great public benefit. However, it can leave those with broken work patterns or on low or part-time incomes, predominantly women, at a disadvantage and unable to fund a comfortable lifestyle in retirement.
To redress this imbalance, we support a number of reforms. The first thing that needs to be done is the removal of the $450-a-month earnings threshold for payment of the SG. While this would help both men and women, almost two thirds of the beneficiaries would be women.
The next is the payment of superannuation on parental leave payments which addresses the problem of broken work patterns and recognises the need for income replacement to incorporate super.
Finally, we support the extension of the existing Low Income Superannuation Tax Offset (LISTO), a targeted and efficient system, to enable ‘top up’ contributions for eligible members. These top up amounts would be determined by the ATO, and provided until these members can accrue a sufficient balance or critical mass to benefit from compounding returns.
Lifting the bar for MySuper
Over the last year there has been much talk about underperformance in the system and the various models for doing so. While some of the proposals are somewhat arbitrary and heavy-handed, we owe it to members to commit to the removal of habitual underperformers.
We support doing this not by picking winners but through a Right to Remain test based on a careful definition of underperformance, timely resolution and the orderly transfer of fund assets, potentially with the help of the regulators.
Ensuring appropriate insurance for members with insurance in super
The role of insurance in superannuation is a vital part of the retirement system and is widely undervalued. 70 per cent of Australians get their insurance through superannuation; coverage is extensive, the premium cost rates achieved through group are affordable, and 90 per cent of premiums gets paid out each year to help members and their families deal with the challenges that illness, injury and death can bring.
At the same time, it needs to be acknowledged that the cost of insurance reduces retirement benefits for those who don’t make a claim and that there needs to be a balance between the two. However, the balance struck must protect younger members—40 per cent of full-time employees are under age 25, many of whom have houses and dependent children—and also those in hazardous occupations who might not be otherwise able to get insurance. For these reasons we regard 21 as a more suitable threshold for age-based restrictions on default cover than age 25 and we support exemptions for those in high risk or dangerous occupations, should the Government decide to revisit this in the future.
Providing SG for gig economy workers
The rise of the gig economy, along with the existing exemption for the self-employed, threatens to weaken the coverage of the SG regime and create a class of Australians who have low superannuation balances at retirement. They will become a burden on the Age Pensions system while being denied a standard of living in retirement that their ‘employee’ counterparts will enjoy.
To prevent this from becoming an entrenched problem we support the inclusion of the self-employed in the SG regime or at least that the Government should consider doing so. More urgently we think that those employed in the gig economy should be recognised as ‘dependent contractors’ by amending the SG legislation so that SG is payable.
ASFA’s fundamental purpose is to help all Australians achieve the best possible retirement. These measures have been designed with that goal in mind, and we look forward to working constructively with all members of Parliament, old and new, to bring these measures to fruition.