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Monday, 19 June 2006
Page: 147

Mr CIOBO (4:48 PM) —I am pleased to speak to the motion to take note of the report by the House of Representatives Standing Committee on Economics, Finance and Public Administration titled Improving the superannuation savings of people under 40. Until recently, to the best of my knowledge, I was the only member aged under 40 of the committee that looked into this issue with respect to generations X and Y. As a young Australian, I took great pride in the work that the committee undertook on a bipartisan basis with respect to the recommendations that we put forward.

I acknowledge the strong and hard work of the chair, Mr Bruce Baird, the member for Cook, as well as other members of the committee. I particularly acknowledge the hard and diligent work of the committee secretariat, who proved once again their incredible worth when it comes to inquiries of this kind.

Of particular interest to me was the opportunity to travel and hear from a variety of people in different state capitals and other centres talking about some particular challenges of superannuation. There can be no doubt that, for people of my age demographic or those who are perhaps even younger, the word ‘superannuation’ seems to bear little, if any, relevance to their lives. The eyes of most people, when you talk to them about superannuation and retirement, simply glaze over, and it is pertinent that we should undertake this inquiry—and I am pleased we did—because the findings in some respects would seem to be common sense, but in other respects did draw on some useful analysis that the committee was able to undertake, which I am sure will go a long way towards better informing government with respect to the future development of policy.

In particular, we know that Australia does have an ageing population. As the baby boomer age demographic moves through and we see an increasing number of people reaching the age of 65 and over, we will recognise that within Australian society there will be large demographic change. I am reminded of the fact that, 10 years ago or thereabouts, the number of Australians aged 65 and over was in the vicinity of 12 to 14 per cent of the population. We anticipate that over the next couple of decades the number of Australians aged 65 and over will reach close to 30 per cent of the Australian population.

From a public policy perspective, this does present a number of unique challenges. At a time when many Australians—due to it largely being a legacy issue—believe that, having worked and paid taxes all their lives, they are entitled to an age pension that will keep them in the manner to which they have become accustomed, it would seem to me a significant policy challenge indeed to try to meet this expectation. This issue has been recognised by governments of both political flavours and, in this respect, I certainly welcomed the introduction of the superannuation guarantee. This committee’s report sought to expand on that superannuation guarantee and assess whether generations X and Y, those who will have had the advantage of the superannuation guarantee throughout the entirety of their working lives, will by the year 2042 have an adequate level of superannuation savings such that they could expect to not be reliant, or only in a very minimal form, upon the age pension. In this regard, I found the report to be particularly interesting.

We found, in the main, that there is a great divergence—what we called an expectations gap—for young Australians between the annuity they would expect to flow from their superannuation lump sum, which has been compounding over a period of some 10, 20, 30 or 40 years, and what they thought they would be getting when they reached retirement age. It was very clear to the committee that there was a great gulf between people’s expectations and the reality. Indeed, recognising this gulf has given rise to a number of the recommendations that the committee has made to the government.

I must at this point acknowledge the very good announcement made by the federal Treasurer, Peter Costello, in this, the 2006 budget. The degree to which we have simplified superannuation and the ramifications of cutting tax for those annuities or lump sum payments as people exit a taxed fund will make a very material difference to so many people’s lives in the future. It is very important. While I do not wish to understate the significance of this decision from a public policy point of view, the fact remains that we still need to undertake further work and further reform if we are going to ensure that future generations of Australians do enjoy the very best when it comes to their superannuation savings.

In this respect, I would like to touch upon a number of the recommendations that the committee made. In particular, there is the recommendation that, as the best starting point, as a default position, Australians in new employment should automatically have three per cent of their salary, on a salary sacrifice basis, put into a default fund which they would have for their superannuation. Experience internationally, in both the United States and the United Kingdom, has demonstrated that there is a high level of disincentive for people to actually cancel that three per cent voluntary contribution, especially when it is in fact a default position. Having this three per cent default position does in fact make a material difference to the ultimate lump sum that is accrued in a superannuation fund by people making this voluntary contribution over and above the superannuation guarantee. That was a recommendation that I certainly wholeheartedly support and endorse because it is very clear that not enough young Australians have a full comprehension of or interest in their superannuation lump sum and what it means for their future. With Australians living longer and longer, it is very clear that people need to understand that having a small superannuation lump sum will simply not provide them with the income that they will need in their retirement.

Another key recommendation targeted financial literacy among two key constituencies. The constituency I would like to touch upon is female Australian workers, who often exit the workforce for various reasons, the most common being to raise a family. It is very clear that many women unfortunately do not have adequate time in the workforce to accrue the lump sum of superannuation that they need in order to ensure that they have an annuity in their retirement. It is very clear that Australian women face a real challenge in this respect, and I was particularly pleased that in recommendation 3 of the report we talk about what it is that the government can do to help to educate young Australian women about the need to set aside funds in superannuation for their retirement.

We have made progress in this respect but still there is certainly much more that needs to be done, and it is high time from the public policy perspective that we continue building on the good work we have undertaken thus far but really start to focus Australian women’s minds on the fact that when they leave the workforce, when they focus on raising a family, there is a cost associated with that with respect to their superannuation and that we should ensure that we do what we can to provide an adequate lump sum for women—be it in the form of some of their maternity payment going into superannuation or be it in the form of other assistance going into superannuation—to assist them in that regard.

Similarly, we decided as a committee that it would be worth while to develop a benchmark savings target. This would involve an individualised projection demonstrating on an annual basis to fund members what they would need to save, what their target would need to be and what kind of an annuity they could expect flowing from superannuation in order to keep them in the manner in which they would like to live with respect to future annuities. I welcome recommendation 4, which touches upon this particular aspect. Certainly much has been done in recent months as well by the Treasurer, Peter Costello, to ensure that those who are self employed are adequately looked after with respect to superannuation, and I welcome moves in that regard. Recommendations 5 and 6 in the report touch on this. Likewise, recommendation 8 deals with financial literacy for women aged under 40 with respect to superannuation.

In summary, it is very important that young Australians recognise that providing for their superannuation, providing for their retirement income, is a key component to ensuring that they have a healthy, long-term ability to draw down funds from their superannuation in the form of an annuity that will ensure that they are not solely reliant on public funding, and that is the age pension. It is clear that there are several components to that. The superannuation guarantee is one component, personal savings are another component and for many Australians the age pension would be a third component. But at a time when Australians are getting older and the demands on the public purse are increasing, it is important that we focus the minds of Australians on their need to make personal contributions over and above the superannuation guarantee, and I welcome that. For hospitality workers on the Gold Coast, those who are transient through a number of jobs, I welcome measures in this report that highlight their need to build a lump sum of superannuation as well over a period of time and I certainly believe that more hospitality workers need to focus in this regard as well. This is a good report. I am pleased the committee worked in a bipartisan spirit to reach the outcomes that were embraced in this report and I commend it to the House.