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Economics Legislation Committee
Superannuation (Objective) Bill 2016

DALEY, Mr Brian, Capital Stewardship Officer, Australian Council of Trade Unions


CHAIR: Welcome. I should declare at the outset yet another potential or perceived conflict. Mr Daley is also a board member at AustralianSuper, my previous employer. He was, I suppose, in some way my boss at one stage. Thank you for appearing before the committee today. I invite you to make a brief opening statement, should you wish to do so, and then the committee will ask questions.

Mr Daley : I have an opening statement prepared and I actually have a copy of it. If it is of any assistance to the committee, I am happy to hand that up.

CHAIR: That would be terrific. I think we can agree that we would like to table that.

Mr Daley : I am not sure that it will speed things up, but at least the notes are there anyway.

CHAIR: Please proceed.

Mr Daley : Thank you for the opportunity to address the committee. The ACTU agreed with the view from the Murray report that it would appropriate for there to be an objective for superannuation. The context we see it in is different to the government. We base that on a number of our views of what the population would expect for and from their superannuation. We preface this by saying that it was the union movement, alongside others, who saw a modernised role for superannuation in the mid-1980s. Principal in our advocacy for superannuation then was that we saw a need for a system whereby working people were able to live a dignified retirement when they had finished their working life. By and large, that did not exist at the time.

Much has been written about the history which led to this situation and the social changes which underpinned the bringing about of better retirement arrangements. However, it is worth reiterating that these changes to public policy asked Australian workers to accept a deferment of wages to fund the development of a universal superannuation system. We say that when you do this it is appropriate to tell people what you expect the system to deliver for them. Retirement income is now a system with a series of moving parts that are needed to work in a complementary fashion to make it work effectively. We think that public policy makers should give confidence to the public's view of the system by telling people what we are aiming to deliver. The question becomes: is it a reasonable situation to say to the Australian people, 'We're not prepared to tell you what our ambitions are or what our objective for you is,' and at the same time expect them to say, 'We accept deferred wage payments, means testing and so on,' without having a proper bargain with them about what public policy is trying to deliver'? For these reasons, we have not shared the government's view of a narrow, limited objective.

When we considered what the aim of superannuation should be, we looked at a number of the concepts that people had espoused—a comfortable retirement and an adequate lifestyle—but we returned to what we think our original aim was in the 1980s and what we think the aim of public policy should be. We think the objective should be that our system should aspire to older Australians being able to maintain their standard of living in their retirement years. So we have proposed a relatively simple concept: public policy should aspire to Australians being able to maintain the living standards they have enjoyed into their retirement years. We say: how could we or any other policymaker argue other than for this? Surely we could never say to older Australians, 'Our aspiration for you is to have an inferior standard of living in retirement.' How could that be? In fact, we say that, if we do not define the objective system in this manner, then implicitly we are saying to Australians that we do not aspire to a maintenance of living standards. That is not what we believe we are doing and, further, we say this: even if the government does not explicitly say this is the objective of superannuation, in fact it is what people are aiming to achieve, and we might as well be frank with people about this and the plan we say will get us there.

If we are going to have this type of compact with Australians, as we say, we need to have a plan and a level of coherence about what we say we can deliver. That is why we have described the key elements of the system that need to work in harmony to deliver this objective. Those key elements—the issues which we say need to work in harmony to deliver a real objective of superannuation—are as set out in our submission. There needs to be adequate funding for the system so that superannuation balances can grow to levels which are needed to fund retirement incomes to the level needed. It is critical to use high-performing, low-cost funds. Without them, you simply cannot maximise superannuation benefits. We should encourage voluntary contributions so that those who can afford to contribute can reach self-sustaining balances and relieve pressure on the pension system. Tax needs to be fair and progressive to ensure those most in need are advantaged but not so that the system can be slanted in favour of richer people. Interaction with the pension system is also extremely important, ensuring we have a well-bounced system which maximises retirement income and provides a safety net for those in need. Investment can also be done to maximise the national interest. All Australians would support this.

CHAIR: The superannuation system in Australia has been an extraordinary success over the last quarter of a century and yet we have not had an objective for all of that time—not something that has been either legislated or specified. Why do you think that we now need to put an objective in place and specifically the objective are you are recommending?

Mr Daley : Whilst the system has not had an objective in itself, every individual Australian worker has had an objective as to superannuation. Every Australian worker who has sat down with a financial planner, either from their fund or elsewhere, at some stage in their life would have done a life plan as to how they will maintain their living standard into retirement and had a view as to whether they have sufficient money to do it or not. So there has always been an objective at that level for people.

Why do we need it now? I think it is now increasingly obvious that the levels of superannuation we are providing are struggling to meet what you might see as a mean, median or adequate standard of retirement and we need a comprehensive plan going forward in the future to get Australian retirement to the standard that it should be at. That can only be done with an objective that sets up an aim for the future and a series of subobjectives that tell us how we are going to get there.

CHAIR: Does it concern you that a lot of the words in the alternative objectives that have been put forward today by various submitters are so subjective in nature? Words such as 'adequate', 'dignified' or 'comfortable' have been used. These are words that mean very different things to different people, as do the words 'maintenance of standard of living'. As we go through our working lives, our standard of living ebbs and flows due to various factors. So maintaining a standard of living is quite an opaque concept.

Mr Daley : I see the point you are making. I will say this in response to it. We all aspire in the design of the system to some form of median or mean approach to how it will work. We cannot possibly reach a system where we have an individual objective in legislation for every Australian person, so we have to be reasonable about how we are going to implement words such as 'adequate', 'comfortable' or 'standard of living in retirement'. That will be based upon what, over time, we will come to see is what Australians needs to maintain their standard of living in retirement. So there will be an averaging style approach to that. From that, individual Australians will find out whether they are reaching that. Government can make assessments as to whether they are reaching that average. Individuals will do their own level of financial planning or life planning based on that average. It is not a difficult concept to have an average, whether it is called 'adequate' or 'comfortable' or what, which is a benchmark from which people can work into the future. It is never going to be an individual situation where you can say that it is the same for every individual person. But we have to have some measure that we are aiming to deliver people.

CHAIR: One of the things you said is that you are concerned that a narrow limited objective was inappropriate. Do you think that if we start defining thing such as 'adequate', 'dignified' or 'comfortable' we will essentially be narrowing it even further and that the objective of superannuation as presented in the bill is in fact a reasonably broad interpretation?

Mr Daley : Again, I understand the point. I think that what happens in this arena in the wider world is that, as people do their own planning, they generally all reach that mark for themselves. So it does not become a limiting factor in itself that describes to some individuals, 'You must target this amount.' But as Australians move towards retirement they will all have an idea of how much money they need in retirement. Ultimately it is a function of the policymakers or the industry to aggregate those views and then to test them against some of the standards that are out there at the moment.

We have had no difficulty in ASFA defining a comfortable standard. I have mixed views about it. I am a fan of having a measure out there that people can point to and it at least it gives some benchmark to people as they go through their individual financial planning as to what a comfortable standard looks like, but there are aspects of what ASFA fits into its comfortable standard that I would not put in there as to the mix for average Australians and certainly not for the median or mean levels of income for Australians. They will have slightly different approaches to what 'average' looks like. It is up to the industry and policymakers to sort out how we come to a sensible outcome in defining that.

CHAIR: I agree with you. I have used the ASFA 'comfortable' standard myself in some of the work that I have done but, at the same time, I would be very reluctant to legislate that as the answer or the solution or the benchmark. As you said, we are already, as individuals, working towards our own mental benchmark. Why do we need to be so prescriptive in our legislation?

Mr Daley : Because all these other parts are so important to the system, and unless we have something that helps pull together all the other avenues of what makes the superannuation system sustainable then they will drift off in their own way—sometimes incompatibly with what they are supposed to be doing. We have publicly cited the recent pension changes which have been made, in our view, in a way which has not had an eye towards maintaining adequate retirement income levels. If you have a superannuation objective so that government basically says, 'We are actually going to look at what the key levers are for delivering superannuation in retirement and we need to make those levers work in unison,' then you have a better policy structure going forward.

CHAIR: Thanks very much, Mr Daley. Senator Ketter.

Senator KETTER: Thank you, Mr Daley. Can you go into a bit more detail about your proposed definition of who should be entitled to the SG? Are you aware of the government having put any work into this?

Mr Daley : We have some work going on as to the separate Senate economics committee inquiry into unpaid super; we are formulating a submission which tries to basically define some of what we see as the grey areas of employment at the moment. There is some doubt as to whom SG applies and whether or not it is being enforced in a manner that is appropriate going forward. I am happy to take that on notice. But, in general terms, we are looking at some issues around levels of contracting and independent contracting to see whether or not some of the definitions that have been applied in those are clear enough to allow SG to be collected. But we also have a view as to the changing nature of employment going forward. There are a lot of different forms of employment going on—in internet-provided services, work-in-kind types of services and the like—which are largely unregulated at the moment but which we think could benefit from better definitions, and that would ultimately help give some perspective about what we do about unpaid superannuation.

Senator KETTER: Are you aware of the government having put any effort in in this area?

Mr Daley : I have read the tax office submission on unpaid super, and I have read some of the other issues that have come out of the way in which the tax office follows the unpaid SGC component. That is probably the extent of the work I have seen that the government has done in that area.

Senator KETTER: Could you elaborate on your comments on the complementary approach to the age pension and superannuation?

Mr Daley : Certainly. We think this is at the heart of how you define 'standard of living' into the future, in that, going forward, all working Australians will have lump sums which will put them at some level at which they will have levels of interaction with the age pension. Certainly we now know that the level of interaction on full pension is about $350,000, and from that level there is a tapered withdrawal afterwards. What we would aspire to do with that interaction is to ensure, firstly, that government makes sure that there is an incentive to save—an incentive to be part of the superannuation system—so that, as your superannuation balance increases, there is some withdrawal from the pension but overall you are in a better situation, so that there is a reward for having been in the superannuation system and a reward for voluntary saving as well. So they closely interact, and measures like changing the withdrawal rate, which was done in the 1 January changes, have altered that interaction. That is another question to come to, but they are fundamentally issues which go hand in glove. They define what your total level of income will be; it will be a part pension and a part income stream from superannuation.

So there is a series that was modelling that was done, and I think some of the best modelling we have seen done was by Industry Super Australia for the inquiry into the economic security of women in retirement. It did a whole range to the level of what are the expected deciles that people will have going forward, which will show their likely income both from pension and from super. I think we also emphasise the need to be conscious of that going forward. Some of the changes to the system that have been made now are being made at a time when the superannuation system is still significantly immature, and we are going to see people retire with much larger lump sums, and therefore the amount of pension that they have to supplement the income that comes from their superannuation will be an important part of determining whether they achieve reasonable income streams in retirement.

Senator KETTER: Okay. In relation to paragraph 2.8 of your submission and your reference to post-retirement vehicles, I am just wondering if you could elaborate on your comments there and the principles that you have set out there.

Mr Daley : This is an issue that has been somewhere within the government's purview for half a decade or more now—a range of things. What is commonly called the Ripoll inquiry looked at the issues of best interest as opposed to the self-interest of financial planners when financial planning and product recommendation was done. Despite the fact that some of those issues have changed, there is still a significant gap in the community, in our submission. We would say that many Australians are still not receiving the best quality financial products that they could be receiving in retirement, because in many cases financial planners' remuneration is still heavily linked to the products that they sell or the institutions that they represent. To break that down into the future, a level of development for the level of the financial planning industry is needed, as is a level of development of those financial planning services—particularly at the not-for-profit fund level—where we are seeing the majority of people in the workforce having their superannuation paid into and those people are starting to reach mature balances going forward. So it is in that context, of developing a professional service to meet that growing cohort of people, that we largely direct those comments.

Senator KETTER: Thank you. Finally, can you tell us your view on the place of voluntary contributions and taxation arrangements.

Mr Daley : Certainly, as the current system stands at the moment, we have supported voluntary contributions from those who can make them. As a matter of principle, we would do so going forward so that people who have the capacity to save can save to a certain level and can, hopefully, lead themselves to a level of self-sustainability where they are not dependent on the pension. It is an important feature of the system. While superannuation contributions remain at 12 per cent and under, we are still struggling to reach the level of retirement savings and then retirement income that would be needed to fund what I would call the average of expectations of people in retirement. In that environment, voluntary contributions have been a necessary part of the system. In many ways, the recent pension changes, which I referred to a number of times, also are a bit of a clarion call for a need for further voluntary contributions, because it is only those people who reach well beyond the point where the pension phases out—in the low $800,000s—who are going to actually be able to, I guess, remove some of the disadvantages that the changes in the taper have brought to them. So voluntary contributions to get more people towards $1,000,000 and more people self-sustainable need to be a feature if we are going to maintain some sort of rigour at the top end of the system. If we do not do that, then people will increasingly withdraw larger amounts from their super and become more dependent on the pension going forward.

We have remained a supporter of voluntary contributions. We think a lot of the heavy lifting is being done on tax with LISTO, but it is abundantly clear that the tax concessions still favour the top one per cent or five per cent of people in the community. Ultimately, if government wants to reach a stage where there is some better form of financial neutrality, then some of those concessions are going to have to be looked at again.

CHAIR: I just have one follow-up question, Mr Daley. A lot of our witnesses today have come from the industry fund side of the industry. Where do you think the retail funds and also specifically the self-managed superannuation fund components of the industry, which we have not heard from, would differ in their view of what the objective of superannuation should be legislated as, compared to your view?

Mr Daley : I would have thought they would have had significant concerns about the subsidiary objectives that we propose.

CHAIR: The subsidiary objectives.

Mr Daley : I do not think that the way in which a retail fund financial planner approaches the issue of, 'How do we construct a financial plan for somebody who is 45 or 55?' is any different, fundamentally, to the way an industry fund planner approaches that. They do the same thing, notwithstanding whatever the objectives say. They all basically ask: 'How much money are you going to have to live on? How much money do you think you are going to need to live on to retain your standard of living?' All of them approach it that way, so they should have no real difficulty with the general objective, because that is what they do.

Retail funds would have significant problems with some of our subsidiary objectives because, quite simply, they do not offer the best fund arrangements, or fund arrangements which will allow people to achieve the sort of interest rate growth that they need to maximise their superannuation benefits. You desperately need the differential of four per cent between investment earnings and CPI. If you do not do that, you simply cannot meet the objectives that are in any constructed aim of retirement going forward, so they would—

CHAIR: But not all industry funds are performing at four per cent above CPI.

Mr Daley : All industry funds are performing at around CPI at the moment.

CHAIR: All industry funds?

Mr Daley : I am not going to say 'all', but you can take APRA tables and the like. APRA averages industry fund performance, and industry fund performance is in the order of CPI plus four. But we also need to be conscious that something like 80 per cent of people within superannuation funds are in the funds with larger scales of economy, and those funds are all performing at CPI plus four.

CHAIR: What about self-managed super funds? Self-managed super funds will be subject to the same legislation as industry super funds. Why would a self-managed super fund collective body—I cannot remember what the advocacy group for self-managed super funds is called—not agree with your proposals?

Mr Daley : I would imagine they see this submission as essentially being more of a collective style of arrangement to reach objectives rather than individual. If they properly represented their members, they would be telling their members that to achieve the sort of retirement income streams that they need they should be looking at different investment mechanisms than what they are doing at the moment.

CHAIR: Do you think self-managed super funds would prefer a broader objective for superannuation rather than a narrower one?

Mr Daley : I think it comes back to my point earlier. Whether it is a retail fund, a self-managed fund or an industry fund, I think every person in the community, every financial planner, every accountant and everyone who advises a self-managed fund will play essentially the same role in asking people, 'How are we constructing your superannuation going forward?' The aim is basically to give you enough money to live on in retirement, so they should have no problem with an overall objective that talks about maintaining living standards in retirement. That is what they do.

Senator KETTER: Chair, just for the record, I note that the letter that was tabled earlier today by the SMSF Association actually endorses the industry consensus position.

CHAIR: All right. Thank you very much, Mr Daley. That concludes our hearing for today; thank you very much to the secretariat and thank you to Hansard.

Committee adjourned at 15:50