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The superannuation scenario: funding the future: address to the South Australian Chapter of the Institute of Chartered Accountants of Australia, Adelaide.



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"The Superannuation Scenario: Funding the Future"

Address to the South Australian Chapter of the Institute of Chartered Accountants of Australia

By Senator the Hon Helen Coonan

Minister for Revenue and Assistant Treasurer

Adelaide, 23 August 2002

Introduction

Good morning. It gives me great pleasure to join you today as you launch

CA Women.

I come from two great traditions that have historically been dominated by men: the law and politics. So, perhaps more than most I understand the importance of networks where women can support, assist and work with each other - while at the same time maintaining a well developed sense of one's profession as a whole.

I want to talk with you today about some of the interesting policy challenges we face, to reflect on how the Government is working to improve the opportunities for economic and financial independence of us all, and to highlight aspects of the Government's policies within some of my own portfolio responsibilities that may be of particular interest to women.

While it is an admirable objective to be establishing this group within your association, it is worth noting that there may be unforseen outcomes. When Roma Mitchell, one of the great South Australians, was appointed to the Supreme Court, the Chief Justice, Sir Mellis Napier, who was in his eighties, seems to have been taken by surprise. His immediate reaction was that all members of the court must be addressed and referred to without distinction, and that Roma would be known as "Mr Justice Mitchell."

However, Dame Roma knew that humour was one of the great attributes that women can adopt in responding to challenging occupational situations. During an interview in her early years of the Supreme Court, Roma Mitchell was asked by a brash journalist "you are not married?" "I am not". "And you do not drive a car?" "I do not". Undeterred by the terseness of the replies, the journalist pressed on: "The Chief Justice, Dr. Bray, is also unmarried. Is there any chance that the two of you might get together?" "No", Roma replied, "that would be no good at all. He doesn't drive a car either."

So my advice to the women who join this association is always to be ready to challenge unfounded assumptions that you may face.

I think it is true to say that women in western countries have many more opportunities now than in the past. They can choose education, careers, family. They can be astronauts, they can travel the world, they can have large families, they can be doctors and lawyers and firemen - well, firepeople.

Some might say that this has led to a decreased fertility rate about which there is much debate at the moment. One thing is true, women have been forging pathways.

If it ever was, it is certainly no longer true that one size fits all or that assumptions can be made about what women want, what they need, or what they expect. Like their male counterparts, women want choices. They also want financial independence and opportunities

This is one of the challenging and exciting aspects of policy making in our time.

As Minister for Revenue and Assistant Treasurer I am very fortunate to be the first woman to hold a Ministerial position in the Treasury portfolio. I am responsible for taxation, insurance, and superannuation.

In respect of superannuation I am keen to promote a culture of saving and an understanding that people should be encouraged to think about their long-term financial security from an early age. I am particularly interested in the issue of financial independence of women, the relationship that women have with superannuation and their ability to save for retirement.

The Howard Government places great importance on the financial future of all individuals, on our ability to save and prepare for retirement.

While investment returns will inevitably rise and fall over time, particularly given the current world economic climate, you can be sure that as long as Governments continue to encourage greater private provision of retirement incomes, investors will be closely watching the performance and behaviour of those entrusted with their life-time savings.

And it will remain of interest to Governments, as the recently released Intergenerational Report 2002-2003 would suggest.

The Intergenerational Report assesses the long term sustainability of government finances over the next 40 years and shows that Government policies need be adjusted if the next generation is to avoid harsh tax burdens.

The Intergenerational Report adds further weight to the message that we need to prepare now more than ever before for an ageing society. From a woman's point of view this need may be heightened given that women tend to live longer.

We need to look after the concerns of all: from the youngest to the oldest in all walks of life. Accountants, financial planners and those in the financial services industry have a key role - a responsibility - to help all of us maximise our financial futures.

The Howard Government is committed to reforms which provide greater opportunities and flexibility for individuals and families.

Baby Bonus

One of the hardest times financially for families comes with the birth of their first child. In recognition of the contribution made by those leaving the workforce to have and raise children, the Government introduced the First Child Tax Refund, or "baby bonus" as it is colloquially known, up to a maximum of $2,500 per year over five years.

Low income earners do not miss out with a minimum $500 rebate for a parent earning less than $25,000 in the assessment year. This proposal will repay a parent who acts as the primary carer after the birth of their first baby born after July 2001.

The `baby bonus' is also an opportunity to promote a wider national savings culture, and the Government is making changes to allow recipients of the bonus to make that contribution to a superannuation fund - regardless of whether they are working.

Reforms in superannuation

A major platform of the Government's election campaign last year was a package of reforms titled " A Better Superannuation System". These commitments are now coming to fruition with a number of important legislative reforms well under way.

The Government is committed to giving financial security in retirement to both parties of a marriage. From 1 July 2003 superannuation contributions will be able to be made by one spouse into a separate account in the other spouse's name. It gives "doing the splits" a whole new meaning.

Traditionally, unpaid domestic work has been seen as economically unproductive. This Government's initiative to allow couples to split future superannuation contributions recognises that a partner who works in the home, or is a low income earner, does make a significant contribution to building a family's assets. These efforts are recognised economically through this splitting measure by giving more certainty to the partner as he or she approaches retirement

age.

Unfortunately, the Labor Party have said they will oppose this measure, claiming it will be used to avoid tax. This attitude completely ignores the importance of financial independence for those spouses, often women, and is grounded in the outdated ideological assumption that a non-earning partner is essentially nothing more than an extension of their breadwinner spouse, and who does not need retirement savings of his or her own.

The splitting initiative builds on the 18 per cent tax rebate for up to $3,000 of superannuation contributions made on behalf of a low income or non-working spouse. The rebate was introduced by the Government in the 1996-97 Budget and allows those with no link to the workforce to have their own superannuation.

The Government has also acknowledged the inadequacies of the treatment of superannuation on the dissolution of marriage by amending the Family Law Act.

As a lawyer who practised family law in my early career, this is one measure I am particularly pleased about. The amendments, which are expected to come into effect later this year, will allow a married couple to split superannuation interests between themselves on their separation. Couples will be able to agree on how best to divide the superannuation, taking into account their individual circumstances.

If they are unable to agree, the Family Court will be able to order a split of the superannuation. This process will assist many spouses, often women, to receive their share of superannuation savings from a marriage and to have their own financial independence.

More generally, the Government's election commitments are designed to improve significantly the overall attractiveness, accessibility and security of superannuation.

Superannuation Surcharge, Co-contribution, Self employed

The Government is reducing the superannuation surcharge from 15 per cent to 10.5 per cent over the next three years. It is increasing the fully tax-deductible threshold for superannuation contributions by the self employed and introducing a Government co-contribution of up to $1,000 a year for personal contributions made by low income earners.

These initiatives significantly increase the incentives for all Australians, including women, to save for their retirement. In particular, the Government co-contribution will help women on lower incomes to increase their retirement savings by making voluntary contributions to superannuation which are matched dollar for dollar by the Government up to $1000.

Unfortunately the Labor Party is planning to oppose the co-contribution package in the Parliament, despite the fact that ALP members railed against the surcharge when it was introduced, and despite their claim that they support the idea of co-contributions for low income workers.

Clearly lowering the surcharge will encourage greater self-reliance in retirement among those in the community with the greatest capacity to save for their futures.

Another key election commitment is the Government's choice of funds policy. We know that many people have more than one superannuation fund. The Government's choice of funds and portability policies are designed to provide Australians with greater ownership and control of their

retirement savings. They will allow employees to choose the fund their superannuation guarantee contributions are made into and to move superannuation between funds. This will enhance competition and efficiency in the superannuation industry, leading to reductions in fees and charges, and will deliver better retirement outcomes for many Australians.

Of course, the case for Choice is overwhelming. The Government is committed to it. The opposition parties have not in the past supported the Bill and I continue to call on my Senate colleagues - from all parties - to support its passage in these sittings.

Adequacy

Superannuation assets make up the largest part of household wealth after the family home. Debate about

superannuation is important. Adequacy is certainly an issue about which there is much debate.

Judgements about whether or not retirement savings are adequate are subjective and, of course, very much dependent on one's goals.

Treasury estimates show that the Superannuation Guarantee in combination with the Age Pension, could produce replacement rates in excess of 60 per cent for men working for 25, 30 or 40 years. This also holds true for individuals with interrupted working lives, as so often happens with women in the workforce.

Whether or not a particular replacement rate is optimal is a matter for the individuals involved, but it is generally accepted that most people will not need as much money in retirement as they do during their working lives. Most retirees simply do not have the same day to day expenditures as working people. By and large they will not longer be repaying a mortgage, putting their children through school or meeting the costs of going to work.

As accountants, I am sure you understand that even though retirement can seem a long way off for many people, it is desirable to consider future needs, and encourage affected groups to save more now for a more comfortable retirement in the future.

Conclusion

I do not want to dwell on superannuation any longer. I want to return to where I started - about women with ambition forging pathways.

You have chosen an important profession - I commend the initiative being taken here today to launch a group with a women's focus.

I am sure that the CA women's group will be seeking new horizons and I encourage you to go boldly. We have many challenges. And, as you know, a woman's work is never done. I wish you well.

Thank you for asking me to join you today.

 

© Commonwealth of Australia 2000