Joel Fitzgibbon (Hunter, Australian Labor Party, Shadow Assistant Treasurer and Revenue) Share this | Link to this | Hansard source

I have great pleasure in speaking to the motion to take note of the report titled Improving the superannuation savings of people under 40 by the House of Representatives Standing Committee on Economics, Finance and Public Administration. At the outset I congratulate the chairman, the member for Cook, the deputy chairman, the member for Rankin, and all members of the committee on their very hard and extensive work on what I thought was a pretty challenging inquiry. In addition, I congratulate all of the members of the secretariat, who, as we all know in this place, do the real grunt work. They not only sit through the hearings but have to read through every submission—probably more extensively than we do, if the truth be known. Also, they have to prepare the draft report and then the final report and, along the way, put up with the idiosyncrasies of each committee member. So I congratulate Mr Stephen Boyd, Mr Peter Keele, Ms Bev Forbes and their team.

Superannuation is an increasingly important issue for the Australian community and the Australian government. The most pressing issue in superannuation today is the question of adequacy of superannuation savings. Since the introduction of the superannuation guarantee, we have had an exponential growth in superannuation savings, but it is well known that, at a rate typically of nine per cent, someone starting work even at a young age is not likely to have retirement savings that are adequate enough at retirement age to make them entirely self-sufficient in retirement.

It is a very important challenge for us to ensure that that changes and that young people do recognise that, unless they go beyond what the superannuation guarantee delivers to them, they are going to be relying—at least in part—on a pension. Looking at the figures, I am sure that it would not give them the lifestyle they are looking for.

I must say that it was fairly bold of the committee to seek a reference that was restricted to the under-40s. I think it is fair to say that that is where the biggest challenges are. Indeed, from the very beginning of the inquiry, the terms of reference narrowed the opportunities the committee had to make substantial recommendations. That was borne out during the various discussions held by the committee. It seemed that every time someone had a good idea, there were another 10 reasons why we should not embrace that idea.

Going back to my thank yous, I acknowledge that I was not as active a participant in this inquiry as most other committee members were. That was simply because my shadow ministerial responsibilities did not allow me to attend all of the hearings or to read through all of the submissions. But I have very great confidence in the members who did sit on the committee. Like most House of Representatives committees—and indeed like most joint committees—the members worked in a very cooperative way. They put politics aside as they tried to work through these very difficult issues.

There are some good recommendations in the report. In particular, I think it is a very good idea to have a benchmark target for young people so that they have, in effect, put in front of their eyes very early in their working life exactly what they will need to gain retirement savings that are adequate to deliver the sort of lifestyle they require. Of course, that will be a general benchmark; it will not apply to everyone equally. It is also true that people can go and seek information from a financial adviser if they are so motivated; but the reality is that people at that age tend not to do that. It is probably not until they get past the age of 40—or at least until they start having children and start thinking about retirement and the need to cater for not only themselves but their children—that they really start to focus on that issue. I think that is a very good initiative.

I also think that encouraging people to enter into a voluntary scheme of co-contributions is a good idea. Of course, with all of the other pressing needs that arise at that younger age—the family mortgage, the school fees, even just feeding the children and all the things that seem to come at once in one decade—people are not likely to make the additional voluntary contributions unless they are prompted to do so. I think that giving people the opportunity from the very beginning of their working life, and getting them into the habit of making those contributions, is very helpful.

I welcome all the initiatives to attempt to align the system for employees with people who are in small business. It is well known in this place that we have a growing number of self-employed people in this country. As people start to utilise their skills in the area of self-employment, it is very important that we ensure that that part of the workforce is in the superannuation system as well.

Financial literacy is also important, and it goes to many of the things I have been talking about. It is worth noting that the committee struggled with the concept of the bottom threshold for SG contributions. We acknowledge that it seems unfair to those who are moving from job to job, but we realise that it could be a compliance cost nightmare for the small business people who have the paperwork to do and who have the obligation to make SG contributions. I thought it was interesting that, after a lot of debate, we decided in the end that it should probably stay where it is, but we will freeze it so that, over time in real terms, the figure will decrease and more people will come into the net of the SG system.

Superannuation savings in this country are now approaching $1 trillion. That is a significant achievement in itself but it is not enough. Whenever we talk about superannuation it is worth reflecting on what the former Hawke and Keating governments did in putting that system in place. It has been an enormous success. It is also interesting to note that this committee report was effectively gazumped by the government’s superannuation announcements on budget night. The committee, of course, looked at the tax on the way in, the tax along the way and the tax on the way out—at all of those things that might impact on adequacy. While there are some very important recommendations, the committee concluded that the system as it stands is pretty right and that it remains highly concessionary. There is a lot of complexity because of the grandfathering of various changes over the last decade or more.

As a result of our lack of big recommendations, as important as the recommendations are, I think it is fair to say that the committee concluded that the system, particularly as it applies to under-40s, is pretty right. You then have to ask yourself about the big superannuation changes announced by the government, and you can only conclude that there is some disparity between the thoughts of the committee and the thoughts of the government. I will leave it for others over the course of the next 12 months, as we debate those proposed changes, to conclude who was right and who was wrong.

One thing that the government, the committee and all members of this place would agree on is the question of inadequacy. It remains to be seen whether the government’s proposals are sufficiently targeted at that adequacy issue. While they are very strongly targeted at those who are exiting the system soon and very heavily targeted at reducing complexity, it remains to be seen whether they do what we hope would be done with respect to adequacy.

Various submissions were made to the committee about tax deductibility—for example, on undeducted contributions—and those points were well made. Indeed, I wanted the committee to consider whether there was some merit in allowing people to draw down on undeducted contributions—that is, the contributions of money on which they have already been taxed at the marginal rate. The view is that people voluntarily put money in there and do not enjoy the concessions given to other contributions under SG or otherwise and that they should be able to draw down on that money now. It is an open-ended question. It would not be expensive for the government; it would increase savings at younger ages and would address that adequacy question. The committee, in its wisdom, decided not to further pursue that issue, but I would like to put that out there as a possibility for future thinking. Again, I congratulate the committee and the committee secretariat on their very good work. (Time expired)

Steven Ciobo (Moncrieff, Liberal Party) Share this | Link to this | Hansard source

I am pleased to speak to the motion to take note of the report by the House of Representatives Standing Committee on Economics, Finance and Public Administration titled Improving the superannuation savings of people under 40. Until recently, to the best of my knowledge, I was the only member aged under 40 of the committee that looked into this issue with respect to generations X and Y. As a young Australian, I took great pride in the work that the committee undertook on a bipartisan basis with respect to the recommendations that we put forward.

I acknowledge the strong and hard work of the chair, Mr Bruce Baird, the member for Cook, as well as other members of the committee. I particularly acknowledge the hard and diligent work of the committee secretariat, who proved once again their incredible worth when it comes to inquiries of this kind.

Of particular interest to me was the opportunity to travel and hear from a variety of people in different state capitals and other centres talking about some particular challenges of superannuation. There can be no doubt that, for people of my age demographic or those who are perhaps even younger, the word ‘superannuation’ seems to bear little, if any, relevance to their lives. The eyes of most people, when you talk to them about superannuation and retirement, simply glaze over, and it is pertinent that we should undertake this inquiry—and I am pleased we did—because the findings in some respects would seem to be common sense, but in other respects did draw on some useful analysis that the committee was able to undertake, which I am sure will go a long way towards better informing government with respect to the future development of policy.

In particular, we know that Australia does have an ageing population. As the baby boomer age demographic moves through and we see an increasing number of people reaching the age of 65 and over, we will recognise that within Australian society there will be large demographic change. I am reminded of the fact that, 10 years ago or thereabouts, the number of Australians aged 65 and over was in the vicinity of 12 to 14 per cent of the population. We anticipate that over the next couple of decades the number of Australians aged 65 and over will reach close to 30 per cent of the Australian population.

From a public policy perspective, this does present a number of unique challenges. At a time when many Australians—due to it largely being a legacy issue—believe that, having worked and paid taxes all their lives, they are entitled to an age pension that will keep them in the manner to which they have become accustomed, it would seem to me a significant policy challenge indeed to try to meet this expectation. This issue has been recognised by governments of both political flavours and, in this respect, I certainly welcomed the introduction of the superannuation guarantee. This committee’s report sought to expand on that superannuation guarantee and assess whether generations X and Y, those who will have had the advantage of the superannuation guarantee throughout the entirety of their working lives, will by the year 2042 have an adequate level of superannuation savings such that they could expect to not be reliant, or only in a very minimal form, upon the age pension. In this regard, I found the report to be particularly interesting.

We found, in the main, that there is a great divergence—what we called an expectations gap—for young Australians between the annuity they would expect to flow from their superannuation lump sum, which has been compounding over a period of some 10, 20, 30 or 40 years, and what they thought they would be getting when they reached retirement age. It was very clear to the committee that there was a great gulf between people’s expectations and the reality. Indeed, recognising this gulf has given rise to a number of the recommendations that the committee has made to the government.

I must at this point acknowledge the very good announcement made by the federal Treasurer, Peter Costello, in this, the 2006 budget. The degree to which we have simplified superannuation and the ramifications of cutting tax for those annuities or lump sum payments as people exit a taxed fund will make a very material difference to so many people’s lives in the future. It is very important. While I do not wish to understate the significance of this decision from a public policy point of view, the fact remains that we still need to undertake further work and further reform if we are going to ensure that future generations of Australians do enjoy the very best when it comes to their superannuation savings.

In this respect, I would like to touch upon a number of the recommendations that the committee made. In particular, there is the recommendation that, as the best starting point, as a default position, Australians in new employment should automatically have three per cent of their salary, on a salary sacrifice basis, put into a default fund which they would have for their superannuation. Experience internationally, in both the United States and the United Kingdom, has demonstrated that there is a high level of disincentive for people to actually cancel that three per cent voluntary contribution, especially when it is in fact a default position. Having this three per cent default position does in fact make a material difference to the ultimate lump sum that is accrued in a superannuation fund by people making this voluntary contribution over and above the superannuation guarantee. That was a recommendation that I certainly wholeheartedly support and endorse because it is very clear that not enough young Australians have a full comprehension of or interest in their superannuation lump sum and what it means for their future. With Australians living longer and longer, it is very clear that people need to understand that having a small superannuation lump sum will simply not provide them with the income that they will need in their retirement.

Another key recommendation targeted financial literacy among two key constituencies. The constituency I would like to touch upon is female Australian workers, who often exit the workforce for various reasons, the most common being to raise a family. It is very clear that many women unfortunately do not have adequate time in the workforce to accrue the lump sum of superannuation that they need in order to ensure that they have an annuity in their retirement. It is very clear that Australian women face a real challenge in this respect, and I was particularly pleased that in recommendation 3 of the report we talk about what it is that the government can do to help to educate young Australian women about the need to set aside funds in superannuation for their retirement.

We have made progress in this respect but still there is certainly much more that needs to be done, and it is high time from the public policy perspective that we continue building on the good work we have undertaken thus far but really start to focus Australian women’s minds on the fact that when they leave the workforce, when they focus on raising a family, there is a cost associated with that with respect to their superannuation and that we should ensure that we do what we can to provide an adequate lump sum for women—be it in the form of some of their maternity payment going into superannuation or be it in the form of other assistance going into superannuation—to assist them in that regard.

Similarly, we decided as a committee that it would be worth while to develop a benchmark savings target. This would involve an individualised projection demonstrating on an annual basis to fund members what they would need to save, what their target would need to be and what kind of an annuity they could expect flowing from superannuation in order to keep them in the manner in which they would like to live with respect to future annuities. I welcome recommendation 4, which touches upon this particular aspect. Certainly much has been done in recent months as well by the Treasurer, Peter Costello, to ensure that those who are self employed are adequately looked after with respect to superannuation, and I welcome moves in that regard. Recommendations 5 and 6 in the report touch on this. Likewise, recommendation 8 deals with financial literacy for women aged under 40 with respect to superannuation.

In summary, it is very important that young Australians recognise that providing for their superannuation, providing for their retirement income, is a key component to ensuring that they have a healthy, long-term ability to draw down funds from their superannuation in the form of an annuity that will ensure that they are not solely reliant on public funding, and that is the age pension. It is clear that there are several components to that. The superannuation guarantee is one component, personal savings are another component and for many Australians the age pension would be a third component. But at a time when Australians are getting older and the demands on the public purse are increasing, it is important that we focus the minds of Australians on their need to make personal contributions over and above the superannuation guarantee, and I welcome that. For hospitality workers on the Gold Coast, those who are transient through a number of jobs, I welcome measures in this report that highlight their need to build a lump sum of superannuation as well over a period of time and I certainly believe that more hospitality workers need to focus in this regard as well. This is a good report. I am pleased the committee worked in a bipartisan spirit to reach the outcomes that were embraced in this report and I commend it to the House.

Sharon Grierson (Newcastle, Australian Labor Party) Share this | Link to this | Hansard source

I too commend the committee’s report Improving the superannuation savings of people under 40. This report was undertaken in the context of an ageing population and obviously the quest for an adequate retirement income, which is essential given that people will be living longer and there is a need to offset the costs of an ageing population.  Reducing the age pension costs against increasing costs of home and aged care is a challenge, particularly when there will be a reduced workforce supporting an  ageing population. 

It needs to be acknowledged that the Hawke-Keating government’s economic credentials and policies, particularly in introducing compulsory superannuation contributions in lieu of forgone wages, have benefited this nation enormously. In fact the billions of dollars of current super savings have made a major contribution to the economic growth sustained since 1996. This inquiry had a particular focus on young people, and I must acknowledge the excellent contributions many made. It was clear that young people do like having a guaranteed super contribution collected from their income, but they did have the view that superannuation is something you think about when you become much older. When choosing what they should do with any accumulated savings or surplus income, young people were more interested in retiring their HECS debt or acquiring a property rather than sinking money into the less tangible superannuation fund. I remind all young people that currently the interest charged on HECS debts is the lowest in the market and encourage them to pay the minimum.

Several submissions were received urging the committee to recommend allowing early access to superannuation savings. This was rightly resisted, in my view. Early access would really just allow people to borrow from themselves, from their future security, taking quite a gamble that they would attain sufficient prosperity to offset this dipping into their superannuation. The facts, of course, do not support this kind of risky speculation. However, the committee, in considering the changed nature of work for young people, with the increased use of casual employment and the tendency towards multiple jobs and careers, did recommend that the income threshold of $450 should be maintained, not increased, and even perhaps lowered.

Having watched many young people work in the hospitality industry, I know that many employers seek to dodge the superannuation guarantee levy by maintaining a large casual workforce and making sure that very few of them are given sufficient hours of work per week to guarantee collection of the superannuation contribution. I actually was one of the committee members who supported the abolition of the threshold, but I understand the added risk of this measure encouraging employers to resort to the black economy and paying cash under the lap to avoid compliance obligations. So, with some reluctance, I did agree with the recommendation, but I would like to see a youth employment advocate with real powers to pursue any employers who exploit young people in the workplace.

The need for improved financial literacy training was supported by the committee. I must praise the New South Wales government’s initiatives that see young girls in high school being given this sort of training in school hours in special workshops. It is a wonderful idea and I was delighted to share my experiences in this regard with one group of participants from year 10.

Our recommendation that all employees be placed in a voluntary scheme with the ability to opt out is quite radical but is worth consideration by the government. A three per cent imposition—as a default voluntary contribution—was suggested, and I look forward to this recommendation being debated. The need for better individualised information from super funds and better regulation and supervision of this information from ASIC would be a welcome improvement on current practice. Realistic savings targets and projections would allow people to make informed choices about their financial future.

Recommendations that would harmonise the tax treatment of invalidity payments for self-employed people and bring unincorporated small business into the superannuation guarantee system should also be fully pursued by the government. In fact, I think there has been some espionage going on, because the government moved towards one of those recommendations in the last budget. The recommendation that maternity leave and maternity bonus payments should include the payment of super guarantee contributions is an excellent one, since women clearly are disadvantaged by moving in and out of the workforce because of family commitments.

The committee also supports the co-contribution measures now in place and would like to see a concerted campaign to inform a wider audience, particularly young people, of the benefits of this scheme. Co-contributions are also a way for many women to attempt to catch up in establishing an adequate and realistic superannuation savings account. The recommendation of the report to remove the 10 per cent work test regarding eligibility for the co-contribution would help to overcome the current disadvantage to self-employed women and others who have been out of the workforce who are still making superannuation contributions as well as to people returning to study and retraining—a fact of modern life. The latter is imperative, given the skills shortage in this country and the need for continuous learning and up-skilling that characterises modern employment.

The recommendation for a single default super fund for casuals and young people is one I would particularly like to see implemented, especially when people are members of so many different funds. I can imagine a government tendering this kind of service as a no-frills, low-cost service that allows people who belong to multiple funds to belong instead to just one fund. It is common practice for many young people to lose track of those multiple funds that they belong to and then, to many of them, those superannuation contributions are lost forever. Our suggestion that this be an opt-out provision, allowing for choice if so desired, is a good one.

There was more we could have explored, given time to pursue some issues raised in evidence. For example, one witness told us of the situation for expats when they work overseas for lengthy periods. They may pay or accumulate super in another country, then receive their pay-out when returning and use that for the cost of their return airfare or for their resettlement costs in Australia. But then they discover that they are perpetually behind in accumulating superannuation towards their retirement. In fact, that witness recommended perhaps putting some information on travel documents or passports to explain that. It would also be worth the government exploring bilateral arrangements with some countries to allow the superannuation to stay with the person and the funds to be transferred back to Australia.

I have concerns that many young people with multiple accounts have their amounts diminished by multiple fee collection and multiple collection of death and disability payments. However, our recommendation for a default for those in multiple schemes would help to overcome this.

I also congratulate the secretariat on their excellent support of this inquiry. Anything we can do in this parliament to assist those under 40 to plan for their financial future is worthy of support. I note the comments by the member for Hunter that the last budget did show the Treasurer’s preference to assist people over 60 and to give some sort of superannuation benefit to them. It is clear from this inquiry that there is a real need to look at getting more people into superannuation rather than encouraging bonuses and greater payments when they retire. But I think that is a debate that has to be had.

I also recommend this report to the parliament and thank the committee members. It is a committee that, unlike some, worked in a very bipartisan way. Its leadership is excellent and I pay full tribute to the chairman, Mr Baird, and to the secretariat.

Debate (on motion by Mr Ticehurst) adjourned.