Thursday 22nd November 2007
Liberals on super
The Liberal government has made three major changes to superannuation.
Choice of fund legislation
Choice of funds aims to sever the relationship between super and industrial arrangements. At present, super contributions are treated as deferred wages and entrusted to mutually owned industry funds, which act as collective savings vehicles for the sole benefit of their members. The federal government’s laws open up the superannuation market to retail funds – primarily banks and insurance companies – which operate for profit.
Voluntary co-contribution scheme
Under this scheme, a low- or middle-income earner who earns up to $58,980 and puts up to $1,000 into super will receive an additional $1,500 from the government into their account. The ACTU says, while it is a positive initiative, the scheme should be extended to incomes up to $80,000.
Simplified superannuation was a government initiative that removed tax on any superannuation lump sum payout at age 60. Retirees who were receiving lump sum payouts of $130,000 or less already got the tax-free benefit. The main beneficiaries are high-income earners with large accumulated balances.
Industry super under threat
While the federal government’s assault on workers’ rights through WorkChoices has been well documented, another war, less visible to the public, has been waged on another hard-won employee right.
In July 2005, the Howard government implemented its ‘choice of funds’ legislation, with the aim of undermining the industry super funds.
David Whiteley, CEO of Industry Funds Services, the peak body for industry super funds, said these ideological laws threatened what has been a remarkable union success story.
‘The commercial reality for industry funds is they face a hostile government and, in the banks and insurance companies, very well-resourced competitors,’ he said.
‘The ideology behind “choice of fund” is to treat super like any other financial service rather than an industrial right. The consequence is that rather than joining the common industry fund at their workplace, people are forced, over time, to seek financial advice and be sold a super product by a financial planner. This model delivers individuals less super and reduces national savings,’ he said.
Undermining industry funds that have made super both accessible to a larger number of people and delivered enviable returns flies in the face of common sense.
According to SuperRatings – an independent superannuation analyst – for the five years to 31 December 2006, nine of the top 10 super funds were industry super funds. The same survey shows that nine of the bottom ten funds are retail (commercial) funds.
According to David Whiteley, ‘The introduction of industry funds following union campaigns changed the face of national savings in Australia.
‘This year, less than 25 years later, there is over one trillion dollars in super. Over half the workforce is an industry fund member. The industry super funds manage around $180 billion of workers’ retirement savings.’
Labor’s super alternative
Labor has provided bipartisan support to simplified superannuation, which removes tax on any superannuation lump sum payout, and has promised other initiatives to boost workers’ retirement savings.
Labor is proposing the rolling together of all lost accounts. There are now 5.7 million lost accounts containing $9.7 billion. Lost super is increasing significantly each year. Many people never collect their savings and /or pay multiple fees. Labor will introduce automatic rolling together of lost accounts into the member’s last active account using their tax file number. A member will have the right to opt out of the process if he or she wishes. It will not apply to defined-benefit funds or accounts with a significant exit fee.
Exit fees will be prohibited.
Salary sacrifice and employer contributions
Under Labor, the superannuation guarantee is to be based on pre-salary-sacrifice income. Currently, when an employee opts to salary-sacrifice a contribution the employer can reduce the compulsory 9% super contribution by basing it on the new lower salary or wage. This will be prohibited under Labor. Labor has also undertaken not to increase the employer SG contribution.
Labor says it will stimulate higher contributions by providing account forecasts. Australians have little idea what their final benefit is likely to be at their access age of 55 to 60 or pension age of 65. Labor will introduce a universal forecast that will include what a member’s account is likely to be. It is based on UK and Swedish practice, where it has led to significantly increased contributions.