With an election looming this year, it is more important than ever to understand and consider the various party positions in relation to superannuation.
Australia is a leading player on the world stage in terms of its substantial pool of assets to be used to support a workforce in retirement, thanks mainly to its compulsory nature and prudent investment. A cornerstone of the regulation of superannuation is the ‘sole purpose test’ which stipulates that superannuation savings must be used as retirement benefits for fund members and their dependants. However, some governments lose sight of the long-term benefits of super and undermine the system as a cash cow to use at their disposal. Here is a brief summary of recent attacks on the system underwritten by the current government.
Attack - delay the legislated 2.5% increase for all workers
This is the preferred position of many Coalition ministers who use COVID-19 and the weak economy as their excuse for not supporting the already legislated increase (a whopping 0.5% at 1 July). Their bogus argument, no doubt supported by employers’ lobbyists, is that a small increase in super will stymie future wage increases. The Treasurer has also weighed in expressing concern about the increase which was blocked/postponed by the Abbot Government in 2014 which, as we know, was always kind to workers! Their argument does not stand up to scrutiny as empirical evidence and does not support the line that a small increase in super contributions now will result in a freeze on future wage growth. A 12% employer contribution by 2025 is the goal!
Attack - withdraw your money from super to purchase real estate
Certain backbenchers are advocating this position, again demonstrating their disdain for the compulsory nature of superannuation and fundamentally, the importance of the sole purpose test. However attractive this argument may seem, large withdrawals of capital from the super system now will result in a depleted balance and a much less dignified retirement, no doubt forcing many on to the Age Pension. The benefits of compounding investment earnings over a working lifetime would be greatly reduced. Actuarial estimates which I have read posited that this type of scheme could result in a 10% to 15% price increase for real estate as well. Just what we need! Real estate prices soaring even further thanks to the inflow from depleted super accounts.
Attack - your future, your super 2021
The Australian Institute of Superannuation Trustees (AIST) supports the intent of this legislation but is critical of some measures contained in the package indicating that, if passed in its current form, the bill is “likely to cause consumer harm”. The change of the wording of the ‘best-interest’ test to the ‘best financial interest’ brings certain repercussions which could adversely affect trustees’ focus regarding regulatory oversight. Under trust law trustees have always had a fiduciary duty to act in the best interest of their beneficiaries. ACTU Secretary Scott Connolly,has described the proposed change as “insulting” considering what has been achieved in the industry fund sector. In his view the proposed change could result in trustees being distracted from the core function of achieving better retirement outcomes. He said, “In our assessment, it’s pretty stark that it’s really an attack once again on the best performing sector – the profit-to-member funds”.
The AIST has used data from APRA to show that industry funds have outperformed retail funds by about 2% per annum on average over five years. Eva Scheerlinck, AIST CEO, reinforced the urgency of underperformance issues in the retail sector which should be addressed by the government. The current bill covers MySuper products only, and exempts administration fees (which on average are materially higher for retail funds) so it does not address underperformance in the entire sector. Thus, once again the performance of products provided by retail funds, will escape fair scrutiny. While the new bill purports to be cleaning up underperforming funds (with which the AIST agrees), the legislation fails to achieve this goal but does succeed in artificially boosting the apparent performance of retail funds vis a vis industry funds.
So, keep your eye on the super ball and protect it when you vote!