Australia’s political leaders have preferred to tinker with the nation’s $500 billion superannuation nest egg rather than overhaul the system or even engage in a full-blooded debate about its ultimate purpose and potential. But there are signs that the Labor Party is at last willing to consider radical alternatives with even a possible turn down the Singapore road now on the agenda.
Over recent months there have been several developments on the super front from both the Government and Opposition, and the fall in the markets has begun focussing extra attention on this neglected policy area.
For the Coalition, which has at most been lukewarm about compulsory superannuation, it has become clear that there is no longer to be any “big bang” reform as foreshadowed by Treasurer Peter Costello after the GST was bedded down a couple of years ago.
Far from being the next big policy agenda on Costello’s desk, the Howard Government has decided instead to make occasional incremental changes to improve and refine the system it inherited.
On top of the current agenda is to find a way to put married couples on the same footing as divorced couples who, by courtesy of an unrelated Daryl Williams divorce “reform”, can now split their superannuation savings at the same time they themselves split.
The idea was to ensure that the spouse who had no super would have access to half the super saved by the main breadwinner. So attractive is the super split for retirement incomes, particularly on RBL ceilings which stipulate how much can be saved in super, that accountants are encouraging happily married husbands and wives to enter into “sham divorces” to take advantage of the rort.
This absurd situation is just one of the dozens of anomolies brought about by the myriad rule and taxation changes that have been bolted onto the system over the years by successive governments.
The result is a lack of any coherency or long-term planning. For the ordinary wage earner, the system has become so complicated they have no choice but to place themselves in the hands of financial advisers.
As a rule, super fund fees and other charges were overlooked during the great bull market of the last decade when funds were posting double digit returns each year, but they will come under greater scrutiny now that the super funds are posting negative returns for the first time in anyone’s memory.
Super fund members will start hounding trustees about their diminishing nest eggs and there will be enormous pressure on funds to perform or face having to cut their fees.
Further pressure on these fees and charges could also come from the one significant reform the Howard Government has been endeavouring to introduce for some time – member choice of super funds.
Most employees in industries governed by an award have their super put into the fund their employer chooses or an industry fund. Under the Government’s proposal, from July 1, 2004, individuals will be able to choose whatever super fund they prefer in much the same way that self-employed people do at the moment.
This reform was vigorously opposed by the Labor Party until very recently mainly because it wanted to protect the interests of the large industry funds which are run by the unions. It also claimed that it will be more costly and spawn even more greedy sales agents in the marketplace taking advantage of uneducated workers.
However, the Government argues that choice-of-super, coupled with greater statutory requirements for disclosure of fees and commissions, will result in more competitive pressure in the system.
As promised during the election campaign, the Government is also proposing to phase down its iniquitous superannuation surcharge from 15 per cent to 10.5 per cent over time.
The surcharge (read tax) is aimed at high income earners over $85,000 but with fringe benefits and other items, can more often cut in at much lower incomes while at the same time being highly discriminatory against single income families.
Incredibly, after railing against the Government over the surcharge for five years or more, the Opposition Labor Party is now opposed to the reduction in the rate.
The ALP, which can rightfully lay claim to being the party which laid foundations for the Australian super system, had dropped the ball over recent years on one of its proudest achievements.
Labor’s super policy at the last election was woeful, and if possible it has been worse than the Government when it comes to boldness, innovation and consistency on super.
However, the Opposition super portfolio was recently handed back to Tasmania’s Senator Nick Sherry who, together with fellow Tasmanian Senator John Watson (Liberal), share the title of being Parliament’s super experts. Both know more about super than even the Treasurer who has a ready army of advisers from the Treasury and Finance Departments at his disposal.
A few weeks ago, Sherry released a discussion paper on superannuation in which he announced that Labor would finally drop its opposition to choice-of-super, provided a number of other safeguards were met. The discussion paper provides a number of good initiatives on portability and consolidation of super accounts (there are 24 million accounts for eight million people with super).
Sherry proposes banning entrance and exit fees which eat up small super funds, capping fees, and optional salary sacrifice for all employees. Some time down the track a second ALP discussion paper is promised on the more important issues of adequacy of contribution levels (which Labor shirked at the last election) and, tantalisingly, education and health accounts.
With Sherry at the super helm would Labor be daring enough to go down the Singapore road?