With draft legislation only weeks away, there is still no bipartisan support for some of the key proposals of Stronger Super, a survey of some of the key players has found.
Participants included Financial Services and Superannuation Minister Bill Shorten, opposition superannuation spokesman Matthias Cormann, Financial Services Council chief executive John Brogden and Australian Chamber of Commerce and Industry (ACCI) chief executive Peter Anderson.
Should small and medium business employers be removed from the process of superannuation collection, with the Australian Taxation Office (ATO) fulfilling this role, or is the Medicare clearing house model more efficient?
Shorten: The superannuation clearing house for small businesses, run through Medicare, is an efficient and popular way for businesses to outsource the requirement of making superannuation payments to multiple super funds. It is directly helping ease the red tape burden on small businesses.
The reason Medicare was chosen is very simple: their core business is moving small amounts of money between different accounts many, many times; exactly what is required in this case. More than $70 million in superannuation contributions have been made since the clearing house was introduced on 1 July last year, with 123,000 superannuation contributions made using the clearing house on behalf of more than 38,000 employees.
At the end of the day, the clearing house is another option for small businesses of less than 20 employees to use to simplify their operations. Not every small business will want to use the service, but they all have the choice.
Anderson: Red tape on employers in administering compulsory superannuation is a headache and needs to be reduced.
The super clearing house is not a bad idea and ACCI supports it, but it only has limited usage amongst small business. We need to clear up the superannuation rules for all employers, not just small business.
Cormann: The coalition plans to streamline superannuation clearing house arrangements for small business through the ATO. This will cut red tape for small business and improve compliance.
Under the coalition's proposal, small businesses would report superannuation payments to the agency that already collects their PAYG (pay-as-you-go) payments, instead of having to submit additional forms to Medicare, which they currently have to do under Labor's flawed scheme.
The take-up rate by small business of the Medicare clearing house arrangement is very low. Less than 1 per cent of small businesses are using the Medicare clearing house process.
The coalition policy has received strong support from the Council of Small Business of Australia because they recognise it will cut red tape and assist small business.
Brogden: Imposing a conduit between the employer and the super fund was an idea that was floated before we understood what could be achieved in SuperStream through data standardisation and payroll software. SuperStream will revolutionise the manner in which employers pay their employees' superannuation. The data standards for employer contributions will be embedded in payroll software and paying super will become like any other payment, such as bills or salaries.
Cormann: The coalition will support any changes making our superannuation system more efficient, transparent and competitive and which deliver better value and maximise retirement incomes for all superannuants.
The efficiencies from the SuperStream proposals certainly have the potential to deliver real savings over time, which should benefit superannuants.
We will await the continued release of the actual SuperStream proposals to assess whether the changes will in fact provide for a more efficient, transparent and competitive system that can deliver real savings for Australians.
Does the current process for allocating default funds under the modern awards system constitute anti-competitive behaviour in the super industry? Is it a fair process?
Shorten: What is unfair is when members' savings are directed into underperforming funds because of kick-backs and incentives like commissions.
APRA (Australian Prudential Regulation Authority) statistics for the 10 years to June 2010 show that retail funds have been the worst-performing sector in the super industry, with their return not even keeping pace with inflation. Retail funds returned 2.5 per cent on average, while inflation averaged 3.2 per cent. Industry funds outperformed inflation, delivering 3.9 per cent.
Roy Morgan research also shows that financial planners continue to shun industry funds.
The government wants to ensure that Australians' super savings are getting the best returns and are prudently managed.
Therefore, it has asked the Productivity Commission to review the process for default funds to be nominated in awards in the first half of 2012, but what is more critical is that we get rid of conflicts in the financial advice industry through our FOFA (Future of Financial Advice) reforms.
Cormann: The current process to select default superannuation funds under modern awards is a national disgrace. It is a closed-shop, anti-competitive process, riddled with inherent conflicts of interests, which channels consumers into potentially underperforming funds.
If we win the next election and the government has still failed to act on this, we would act immediately to develop and implement a more open, transparent and competitive process for the selection of default funds in modern awards based on advice from the Productivity Commission.
Brogden: The only way default funds can be added to an award is through the recommendation and agreement of employer groups and unions. This process is not only inadequate, but riddled with conflicts of interest. Many union and employer group representatives who decide which funds will be listed in awards are themselves trustees of the superannuation funds they recommend.
The government has committed to the Productivity Commission designing a process for the selection of superannuation funds by July 2012. This is too late.
The Parliament must have the Stronger Super legislation and the Productivity Commission report in front of it when it legislates.
There is no use commoditising default superannuation in MySuper and then failing to allow full competition in awards.
How important is the increase in the superannuation guarantee (SG) from 9 per cent to 12 per cent?
Shorten: Experts tell us the average worker needs 60 or 65 per cent of his accustomed income to live comfortably in retirement. The OECD (Organisation for Economic Co-operation and Development) recommends 70 per cent.
But higher superannuation is not only good for individuals; it's good for the country. One of the reasons Australia is doing so well economically compared to the rest of the world is because we have this enormous pool of savings from superannuation - a massive $1.36 trillion, rapidly-growing pool of funds that means more money is available to be invested in the broader economy.
Increasing the compulsory super guarantee will therefore not only benefit the retirement savings of individuals, it will benefit the economy and the country and reduce the need for the taxpayers of the future to fund the pensions of retirees.
Cormann: The government has failed to make the case in favour of increasing compulsory super from 9 per cent to 12 per cent.
Instead of increasing compulsion, the coalition favours increased incentives to increase voluntary superannuation contributions and savings.
Whenever there is government compulsion around how people have to allocate their own money, there ought to be a line in the sand. The government's own then Treasury secretary Ken Henry recommended that that line in the sand should be 9 per cent. The Henry tax review recommended against a further increase in compulsory super, observing that it would hit low and middle-income earners the hardest.
Ultimately any increase in compulsory super would be paid for through a reduction in people's take-home pay pre-retirement.
Finally, the current proposal by the government to increase compulsory super is unfunded over the medium to long term. The government has linked this measure to the mining tax revenue. By the time the 12 per cent compulsory super level is reached in 2019/20, the cost of this to the budget from reduced income tax revenues is estimated at $3.6 billion. The mining tax revenue that same year is estimated to be only $3 billion.
Of course, the increase in compulsory super is only one measure linked to the mining tax. Overall we have estimated a budget black hole from the mining tax package of about $20 billion over the next decade, further worsening our structural deficit position.
That, of course, is not in the best interest of superannuants across Australia who are looking for a sound financial and economic environment to maximise their superannuation investment returns.
Brogden: Millions more Australians will face a better and more secure retirement if the superannuation guarantee is increased to 12 per cent. All our research shows that Australians need at least 12 per cent SG to have an adequate retirement lifestyle.
The phased-in increase, combined with cuts in corporate tax, mean it will not be a burden on employers.
We have a national savings gap of $900 billion - this is an important step in addressing that gap.
The United Kingdom recently reversed its decision on the banning of commissions on risk insurance inside super. Is that an indication that the ban does not work and should Australia follow the UK's example?
Shorten: The government has flagged that it is considering the matter.
Cormann: We welcomed Bill Shorten's decision to drop his ill-considered proposal to ban commissions on risk insurance inside superannuation.
Brogden: The government's proposal to allow commissions on directly-advised life insurance outside super while banning them on the same product inside super makes no sense.
It would distort the market and would likely see less insurance purchased, worsening Australia's underinsurance problem.
It was, therefore, pleasing to hear Minister Shorten indicate at the Financial Services Council's annual conference that he was prepared to reconsider the position on risk commissions in superannuation.
