THE FUTURE OF SUPER
Ladies and gentlemen, sometimes democracy is capable of achieving great things.
Witness last week and the establishment of a national disability insurance scheme - DisabilityCare, the evolution of an idea whose time has come.
An idea with the potential to end the virtual exile of people with disability from their own communities, that midnight anxiety of an ageing parent wondering who is going to look after their beautiful adult child with a disability when they no longer can.
There are sensible biblical injunctions against pride, but if ever there is a moment for Australians to be proud of their democracy, this is it.
And I have to tell you, I’m feeling particularly proud of being an Australian and a member of the Australian Labor Party right now.
What’s the lesson we should take from this wonderful national achievement?
It’s that ideas are powerful.
Especially when they are backed by belief and courage.
Just five years ago a national disability insurance scheme was just an idea and a dream.
A seemingly impossible idea.
A dream that didn’t have a hope.
Then a group of incredibly courageous and determined parents and advocates asked me to take their cause to Canberra, which I did.
Now it’s about to become a law.
It was the same with superannuation thirty years ago.
Back in the 1980s we just accepted that if you wore a suit you got superannuation, and if you wore overalls you got the pension.
Just like we recently accepted that if you had a heart attack you got Medicare, but if you had a profound disability you got charity.
We just couldn’t see that it didn’t have to be that way.
Then along came Paul Keating and Bill Kelty, with the idea that superannuation should be a right for everyone.
The idea that people on average wages or on two, three times average wages should not have to work hard and retire poor.
History now records that their idea became a law too.
It took a lot of fight to get the Superannuation Guarantee on the statute books.
But it happened.
And as a result we now have one of the best retirement systems in the world.
One which stands alongside the minimum wage, the Aged Pension, Medicare and now DisabilityCare as one of the five pillars of Australian social democracy.
Superannuation makes possible the enjoyment of the best that Australia can provide.
But we need to take superannuation forward, not backwards, now.
We need to make superannuation even stronger and more resilient, now.
So today I want to talk to you about another idea—an idea that will remove our superannuation system from the maelstrom of electoral politics and empower ownership of superannuation policy to the people it was designed to benefit.
How do we protect superannuation and ensure it meets the needs of people for a decent retirement and the needs of the country for a long-term investment capital?
I believe the answer lies in creating of a Charter of Superannuation Adequacy, overseen by a 100 per cent a-political Council of Superannuation Custodians who will ensure superannuation policy is treated as a long-term savings vehicle.
To ensure that investors will have a consistent regime in order to plan effectively for their retirement over a 20, 30, 40 year period.
And today I want to start a national conversation about lifting superannuation above politics, and how we should do that.
Removing super from the political arena
The time has come to remove superannuation from the realm of contested politics and look generations ahead.
The reasons for this are simple.
Superannuation is a retirement savings right for all Australians.
Our prosperity as a nation depends upon the personal financial prosperity of each of us as individuals.
Our success is the result of our own abilities and efforts.
The more transparent, accountable and democratic superannuation is, the better the system will be and the more enshrined it will be as an inalienable entitlement.
While it’s true public policy must always be able to respond to changing economic and other circumstances, when it comes to super too much change too quickly risks diminishing public confidence.
And the sheer scale of moneys involved—and their importance to Australian families and our economy—means that a very, very high burden of proof in decision-making should apply.
We in public life, regardless of political persuasion, simply owe it to every Australian to try harder and do better on this—because the Australian people have so much at stake.
Super—about bringing Australians together
Those of you who know me know that my support for superannuation is unwavering.
Superannuation is typically Australia—pragmatic, egalitarian, with a touch of vision.
To me, the great genius of super lies in the way it has brought together previously un-reconciled aspects of our nation.
Think about it.
In past times, the typical way to lift living standards for working Australians was to make it a fight between capital and labour.
A win-lose contest.
But in super, we have found a way of raising the retirement income and living standards of millions of ordinary Australians not by setting them against capital, but by encourage them to accumulate capital through compulsory savings.
That’s a win-win for everyone.
And the process of creating superannuation was itself a great example of bringing labour and capital together.
It’s my firm belief that if we can once again harness the unifying spirit that brought superannuation about 25 years ago, we can master our economic destiny of the next 25 and 50 years.
So let’s look back at that moment in our history.
Super – the history
Back in the early 1980s, the great majority of Australians still did not have superannuation and little or no access to the generous superannuation tax provisions then available.
Businesspeople, public servants and very few others were its sole beneficiaries.
Looking back now, it seems an extraordinary inequity.
Looking back now, it seems as outmoded as ashtrays in cars, black and white TVs and rotary dial telephones.
But Paul Keating and Bill Kelty then pursued an opportunity to achieve the long-range egalitarian objectives of the Labor movement and promote the national interest, and do so in a way that assisted the needs of the economy and business.
They looked beyond the budget cycle to another socio-economic era altogether.
In the Superannuation Guarantee they found a way to provide reward for economic growth without raising inflation and unemployment.
Their model was both simple and fair, with three strong features:
- First, an aged pension as a basic living payment means tested for all
- Second, mandated superannuation for those earning income, with the eventual aim of providing all contributors with 70 per cent of their pre-retirement income.
- And third, voluntary savings for those with means, aided by concessional taxation within a reasonable benefit limit.
This represented an extraordinary step forward in retirement living standards and creation of wealth in Australia.
As Keating recognised, the previous pension system had made too much of people’s expected retirement income hostage to the political realities of the day.
He grasped the crucial moral issue: that the right to a decent retirement should not depend on the electoral cycle, governmental whim and Treasury doctrine.
He saw that superannuation represented the possibility of decoupling the social right to a decent retirement from the risks associated with short term politics.
And he said superannuation would ‘make Australia a more equal place, a more egalitarian place, and hence, a more cohesive and happier place.’
How right he was.
And how great his legacy is.
In the decade after the introduction of the Superannuation Guarantee in 1992, the steady rise of superannuation contributions to nine per cent coincided with rising profit ratios and rising economic growth.
The superannuation increases were deferred wages growth paid for by increases in the productive capacity of enterprises and supported by concessional taxation, dividend imputation and compound interest.
And it created a truly massive pool of capital—now at $1.5 trillion and expected to rise to reach $6 trillion over the next 25 years—which has assisted investment and wealth creation ever since.
Our super system now comprises the fourth largest pool of privately managed funds anywhere in the world.
One that will continue to help insulate us from global economic shocks well into the future.
That’s an extraordinary achievement.
Labor did it
Labor is justifiably proud of Australia’s superannuation system.
We conceived it.
We created it.
We nurtured it.
Then—maddeningly—we had to stand back and watch as the system was kept in suspended animation from 1996 to 2007.
Denying our nation further savings and investment and jobs.
It took a Labor Government to invent super and convince ordinary workers to forego 9 per cent of wages.
And it’s going to take a Labor Government to complete super by elevating it, ensuring independent custodians operating in the best interests of the people are able to test policies against the long term core values of superannuation.
Only Labor loves the system enough to take the generational horizon approach.
Preparing the system for new challenges
Now the system must be prepared for new challenges, most notably the fact that people are living longer and that the baby boom generation is retiring, reducing the ratio of working to non-working people.
Today there are fifty of us in work for every ten retirees.
By 2050 it will be 27 in work for every ten retirees.
The number of us aged over 65 will increase from 3 million to over eight million.
We must start planning for this right now.
That’s what this proposal today will enable us to do.
Current policy settings are the right ones
The right responses are already being made.
And we believe our current policy settings are making the system better, stronger and more resilient.
The increase to the Superannuation Guarantee will begin this July when the first modest quarter-per-cent rise kicks in.
9.25 per cent will be followed by 9.5 per cent and so on until the rate reached 12 per cent in 2019.
And we must go to 12 per cent. We must ignore the doubters and naysayers who say stop or defer the increase. We cannot repeat earlier mistakes by leaving the system jammed.
Also, the continuation of the Low Income Superannuation Contribution is ensuring that the 3.6 million Australians who earn below $37 000 a year are able to continue to save tax free.
We are also decreasing the cost of fees and charges.
This is crucial—because for superannuation to truly work, everyone must contribute and benefit.
It has to be democratic.
It also has to be focused on its ultimate aim—which is to encourage and reward Australians to invest for a comfortable retirement.
That’s why other recently announced changes to superannuation investment incentives have been necessary.
Yes, superannuation investment should be incentivised to save for retirement—but it cannot provide an open-ended set of tax concessions for Australia’s highest income earners.
The fact is, beyond a certain point people no longer need a 100 per cent taxpayer subsidised concession to invest in super, and this must be recognised in the way the system works.
And that’s why correcting the anomaly of open-ended concessions experiment that was introduced in 2007.
By strengthening the system’s fairness, we benefit everyone and the nation.
Labor is moving the system to 12 per cent.
And we’ve settled on the right tax treatment.
So certainly we do not see the need for any further tax treatment amendments beyond what have been announced.
A new forum to plan for the future of super
But it is time to look even further ahead and secure the system’s long-term health.
Planning for the next 20, 30, 50 years is underway and must continue.
And this raises the question: what is the best forum in which to conduct this planning?
My very strong view is that it must not be conducted in the gladiatorial arena of electoral politics. Superannuation should be bipartisan.
The last thing—the very last thing—we need is for decisions to be made to score ideological points.
For instance, the role of equal representation between employer and employee representatives in industry superannuation funds must not put those particular funds in the firing line of any proposed proxy war on unions.
We have given APRA the power to look through the governance of all superannuation funds.
We should leave the independent regulator to independently regulate.
Equal rules must apply to all funds, because the collateral damage of any proxy war will be the retirement savings of millions of our citizens.
To put it plainly, superannuation now comprises the biggest asset Australians have apart from the family home, and that means decisions about super must not only be above political considerations, they must be seen to be above political considerations.
Ideology especially must play no part.
The Council and the Charter
The two policies addressed in the discussion paper we are launching today have been designed with this challenge in mind.
The broad proposal is for the eventual establishment of a Council of Superannuation Custodians whose task will be to advise on whether any proposed changes to Australia’s superannuation system by the government of the day are consistent with an agreed Charter of Superannuation Adequacy and Sustainability.
The Council itself would be an impartial, expert and apolitical body that is able to act as the stewards of the superannuation system, reporting to parliament on its sustainability and its prospects for attaining the vision the nation has for it.
The proposal does not take decisions about superannuation away from the Parliament, in the way the Reserve bank now does over interest rates.
But the broad principle of protecting the collective wealth of the Australian people by putting it under the stewardship of a neutral Council that people can trust, is similar.
That’s why I characterise the Council and its Charter broadly as a ‘reserve bank for super’—helping the parliament make decisions about super calmly and apolitically in the way that the Reserve Bank makes decisions about interest rates calmly and apolitically.
And the discussion paper being released today provides an opportunity for all Australians to have a say in the design of the Superannuation Charter and the powers of the Council of Custodians.
The discussion paper also asks people about what the powers, independence and legislative standing of the Council of Superannuation Custodians should be.
Importantly, it asks them what standard of retirement they think is adequate and how much money they think they will need.
Some will want enough to holiday in Paris.
While others will be happy with a caravan by the beach and a new fishing rod.
Personally, I think that the goal of 70 per cent of pre-retirement income is a good target to aim for.
But whatever the percentage or dollar amount is, people must have their say, because in a democracy, it is vital that we are all involved in such fundamental and far-reaching issues.
Proper preparation of ideas is always the key to their success.
I envisage the Charter group will consult before making recommendations.
This can be done in a reasonable timeframe.
I fundamentally believe that if you don’t rush good public policy – if you take time – there is more likelihood of attracting consent and consensus.
Any other approach creates antagonism.
I would like to get this moving well before the election so good ideas do not get tangled up in the battlefield of a federal election.
I want this idea to be alive now because I believe this is what the electorate wants.
The days of bickering and partisanship must stop – we must press on to create the greatest savings system in the world – vested in individuals not government funds, second in aggregate terms globally as well.
One thing is for certain: our superannuation system gives every Australian a direct stake in the big decisions about the economic future of the country.
It’s only right that we get passionate about it.
Emotion is sometimes beneficial.
That’s how we got DisabilityCare. People fought for it and formed an unprecedented unity of purpose.
But there are some issues where it is far better to keep emotions at bay.
To engage in quiet reflection.
To undertake deeply informed discussion.
Superannuation policy is one of them.
Our actions in superannuation will never be wiser than our thoughts.
Lifting superannuation out of adversarial politics won’t happen overnight.
Like all true long-term reforms, it will take time to execute properly.
It will need the development of consensus.
It must be accepted because it just makes sense.
It must seem inevitable – like a national scheme of disability insurance now seems to have always been inevitable.
So let’s make it inevitable.
Let’s make it bi-partisan too.
No going back – no looking back.
Let’s get the super industry, the Opposition and citizens with a super account behind this push to make our national system of retirement savings safe and secure.