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Address to the Australian Eagle Insurance Co Ltd Seminar - "to learn is to earn"



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ADDRESS TO THE

AUSTRALIAN EAGLE INSURANCE CO LTD

SEMINAR - T O LEARN IS TO EARN"

Thursday 7 February 1991

The Hyatt Hotel Canberra

"AWARD SUPERANNUATION AT THE CROSSROADS'*

SENATOR RICHARD ALSTON Liberal Senator for Victoria Shadow Minister for Social Security, Child Care and Retirement Incomes

COMMONWEALTH

PARLIAMENTARY LIBRARY M1CAH

SUPERANNUATION

In recent years the Federal Government has sought to claim considerable kudos for the introduction of award superannuation. We are constantly told that in partnership with the ACTU the Australian superannuation system has been fundamentally reshaped with a series of historic announcements commencing with the first

round of 3% of productivity arrangements.

Now that we are looking at a second 3% - without even the

pretence of being productivity based - some commentators have predicted the imminent demise, or dramatic reduction, of employer funds and assumed that the growth of award superannuation is irreversible.

But a sober assessment of the achievements to date paint a

starkly different picture - one that is a tribute to the ability of the ACTU to extract superannuation contributions from selected employers irrespective of capacity to pay for the benefit of trade unionists irrespective of need.

The fact is that the present award superannuation regime closely reflects the interests of the trade union movement:

- all compulsory contributions are made by employers only

- scant regard is paid to non union members let alone those

outside the workforce

- the promotion of an early retirement age of 55 encourages double dipping and undermines the importance of saving for retirement

- the reluctance to move to a common pension age of 65

perpetuates very costly and inequitable discrimination

- allowing the Industrial Relations Commission to force

employers to contribute to a few large union funds

undermines the fundamental principle of freedom of choice.

The Accord has always been a highly political document designed to lock a major interest group into the Government's political agenda irrespective of whether it delivers productivity gains or real wage increases, or enhances Australia's international competitiveness.

Indeed its failure to deliver these goods, particularly in recent times has made it little more than a conspiracy against the public interest.

Accord Mark VI, negotiated during the last election campaign was no exception. It committed the Government to supporting a second round of 3% employer contributions payable between 1 May 1991 and 1 May 1993 with the implementation timetable to be negotiated between the parties, and if necessary, arbitrated upon by the

Industrial Relations Commission.

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But whilst it might have achieved short term political and industrial peace it did nothing to address the fundamental question of how to set and achieve an appropriate minimum

standard of superannuation for the great bulk of the workforce.

It was therefore an encouraging sign last October when the Government appeared to be giving sympathetic consideration to a BCA request for the Government to convene a national conference with employers and the union movement to consider the future of

occupational superannuation.

The ACTU indicated its willingness to take part in such a

conference but since that time there has been a deathly silence with the Government making it clear behind the scenes that the employers and the ACTU will first need to come to an agreement

on the contentious issues.

This may be a predictable corporatist response from a Government which thrives on presenting done deals as synonymous with economic progress but it falls far short of any claim to being in the national interest.

But so disinterested has the Federal Treasurer been in addressing the growing crisis, that he has not even bothered to reply to the BCA request, which is now more than four months old.

The Opposition would welcome a broad based conference open to the public and committed to dealing with the fundamental issues, but unfortunately it would seem that Award superannuation has now been consigned to the too hard basket.

BACKGROUND

Let me go back a bit.

The origins of award superannuation can probably be traced back to the early 1980s when the union movement desperately needed a new issue in order to arrest falling membership levels and to offset the prospect of declining real wages.

This led to a 1985 agreement between the Federal Government and the ACTU which culminated in an historic decision by the

Arbitration Commission in June 1986 to vary industry awards to provide for superannuation coverage, generally in the form of benefits financed by an employer contribution of 3% of ordinary time earnings. This agreement was designed to head off a 4%

across the board wage increase and was intended to reflect productivity trade offs.

Since that time award superannuation has remained an industrial relations solution to a wages claim rather than an attempt to address the desirable level of employee benefits.

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Industry Funds

A major ACTU objective from the outset has been to link

superannuation benefits to industrial awards so as to allow unions to negotiate rights for all workers, not just union members.

The union movement also intends to remove as many discretionary powers from employers as possible. The ACTU does have some legitimate grievances about the high administration costs of many smaller company funds. Already industry funds have delivered

full vesting of all contributions, union representation on all boards of trustees and higher levels of investment and

performance disclosure.

However industry schemes offer only limited coverage, even for full time employees. Moreover the incidence of part time and casual employment is likely to increase in the years ahead, particularly for students, second jobbers, full time part timers

(working part time for a series of employers), working women and the semi retired.

Most awards require employers to contribute to a specified industry fund with little freedom of choice and this has been a matter of concern to many employers.

The union movement has aggressively marketed such funds and has vowed to achieve dramatic reductions in the established number of company funds, presently around 100,000.

There are currently more than 1.3 million workers covered by approximately 90-100 industry funds. More than half of these are covered by five major funds, each with more than 100,000 members as at March 1990:

BUS - an on-site building union scheme:

ARE - a general purpose scheme jointly sponsored by the Australian Chamber of Manufactures (ACM) and the ACTU:

STA - a metal manufacturing scheme:

HESTA - a health union scheme:

REST - a retail union scheme:

203.000 members

190.000 members

122.000 members

114.000 members

100.000 members

TOTAL: 729,000

Industry funds already have assets of $3-4 billion, or

approximately 3-4% of total fund assets and on current growth rates are estimated to reach 9% by 1995 and, perhaps by the year 2000, 20% of what is now routinely estimated to be by then a

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$600-800 billion market.

With the current ACTU drive towards 20 mega industry-based unions, pressure to "rationalise" industry super funds is likely to escalate quite rapidly.

The A C T U 's professed aim is to obtain universal superannuation for all workers by progressive increases in employer

contributions to around 12-15% of wages. Such a contribution level over a normal 40 year working life at current rates of inflation could be expected to produce a lump sum in excess of $200,000 - more than sufficient to put such an employee beyond access to the age pension and therefore achieve one of the major planks in the Government's retirement incomes strategy.

But such a scenario is light years away from current reality.

Coverage

Perhaps the most serious criticism of the operation of award superannuation to date is its limited coverage of the workforce and the prospect of this being exacerbated if the current claim for a further 3% is successful.

Despite disingenuous claims by the likes of Senator Cook that up to 80% of workers are entitled to award coverage the fact is that barely more than 40% of employees in the private sector are actually benefiting from superannuation payments. The bulk of the private sector workforce has been left for dead. Indeed a majority have been major losers.

Although approximately two-thirds of workers in the private sector do not belong to trade unions the ACTU has nevertheless taken it upon itself to forego wage increases on their behalf thereby bringing about a substantial reduction in real award wages since 1983. In return for such an involuntary concession

these workers find themselves also missing out on award

superannuation with the ACTU this time being totally uninterested on their behalf.

According to the latest ABS survey of major labour costs in Australia for 1988-89, the percentage of employees covered by superannuation is now 54.6%. But this figure masks an enormous disparity between the public and private sectors. Coverage in

the private sector (where less than one third of the workforce is unionised) is 40.6% compared with 90.4% in the highly

unionised public sector, where the average cost per employee covered is more than 50% higher.

Non compliance is most common in the small business sector which accounts for 95% of Australian companies and the vast bulk of the workforce. In many instances employees who are foregoing a wage rise are also missing out on their superannuation entitlements.

Based on 3% AWE, the annual shortfall could be around $2 billion

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for some 2.5 million workers. Employees in the textile,

hospitality and rural industries, as well as shop assistants and clerks are least likely to be receiving superannuation payments.

Even in sectors dominated by industry funds coverage is sparse. Of 733,000 full time employees in the retail sales industry the nominated industry fund, REST, has only 100,000 members.

The coverage in the transport and storage industries is even thinner, with TRANS COVER having only 60,000 members out of a total of 348,000 full time employees.

The reasons for non compliance are not altogether clear. Whilst the governments and the unions prefer to blame widespread employer ignorance, especially amongst small business, there is much to be said for the view that many employers are reluctant

to become hostage to industry funds which have a high potential for union control and are likely to be particularly susceptible to government pressure to participate in socially desirable investment projects.

This massive non compliance - currently running at the rate of about $17 million a week - has led to accumulated non payments of close to $1 billion and has put many of those businesses still afloat at serious risk of prosecution. Indeed if it wasn't for the fact that the Government and the ACTU have combined to turn

a blind eye, preferring to rely on "education" rather than an enforcement campaign, many thousands of small business employers could have already found themselves up before the courts for failing to comply with award provisions.

Yet in the face of this one sided outcome to date, the Government and the trade union movement are pressing ahead with a further claim which can only compound the distorted nature of the

exercise. Their determination to ignore the need to set minimum standards and instead to insist on superannuation being treated as an industrial relations issue simply means that with award superannuation, the rich will get richer and the poor will get

poorer - all this from the party which professes to have a

mortgage on social justice.

Preservation Age

Another reason for major concern about the future of occupational superannuation is the Government's refusal to block the double dipping gap between the ACTU supported preservation age of 55 years - the de facto early retirement age - and the age pension

age of 60 for women and 65 for men.

There should be no doubt about the high moral principles which underlie the Government's refusal to move in this area.

When I announced in October last year that the Coalition favoured raising the preservation age to 60 years, Senator Richardson

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agreed with me but was quickly trumped by Australia's own Placido Domingo.

The basis for the Treasurer's opposition was revealing. He did not argue against it on the merits but because "it would be very difficult, politically and industrially" - in other words, the leader of the political closed shop, Bill Kelty, wouldn't wear

i t .

Was there ever a clearer example of the triumph of expediency over principle - hardly encouraging credentials for one who pretends to aspire to restore some backbone to the leadership of this country.

Current average levels of superannuation pay outs are not much more than $30,000 - nowhere near enough to disqualify from the age pension, but in some cases sufficient to reduce it to some extent. As a result there is a well nigh irresistible temptation

to retire early, use the pay out to discharge the mortgage, fix up the house or take a trip and then double dip by qualifying for the age pension in due course.

It is therefore not surprising that despite $4.3 billion being spent on tax incentives for superannuation, 76.7% of persons of age pension age are still wholly or partly dependent on the age or service pension and the proportion of government outlays consumed by the age pension continues to increase.

Employer Attitudes

All the employer peak councils oppose the current 3% claim, with the BCA (representing big business) and the CAI (representing small to medium business) both agreed that the first priority ought to be to ensure a minimum level of coverage for all

employees rather than a flat additional 3% increment which is likely to flow only to the industrially powerful and those who already have more than adequate coverage.

Already most companies in the oil, banking, life and general insurance and computer hardware industries, as well as large retailing institutions are making contributions in excess of 15%, more than enough to be already exceeding the limit of their lump

sum Reasonable Benefit Limits - the tax supported contribution ceiling.

This presumably helps to explain why the BCA, which only three months ago was arguing that a further 3% was "totally

inappropriate", is now advocating an indicative employer contribution target of 10% by the year 2000.

The CAI supports the call for a national conference but the ACM is more diffident, fearing that it might be locked into

supporting a 10% target. The small business community remains resolutely opposed to any increases which do not adequately

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reflect employer capacity to pay.

THE WAY AHEAD

Let there be no mistake. Award superannuation is at the

crossroads. If the Government condones the ACTU railroading another 3% onto major employers in the same manner as last time we will have achieved the worst of all possible worlds - a small number of employees with more than adequate coverage, the

majority with none at all and the rest with quite inadequate cover and certainly no where near enough to make a dent in the age pension.

So what should the response of a Coalition Government be when it comes to office some time within the next two years? Should it go along with award superannuation in its present form, albeit unwillingly, on the basis that it is a fait accompli but seek to

speed up progress, perhaps on a productivity linked basis?

For my money the answer is no.

The Opposition is certainly not opposed to occupational

superannuation. Indeed we would support and encourage its spread, particularly via enterprise agreements. We would also not be seeking to unscramble the omelette by interfering with any accrued entitlements under current awards.

But we certainly take a dim view of a system which simply

prescribes an arbitrary level of contribution to be made by employers only, irrespective of the state of their businesses, the level of employee entitlements or the state of the economy. We would therefore seek to amend the Industrial Relations Act to

provide that whilst the Commission could play a role in

facilitating the spread of a prescribed minimum level of

contributions where appropriate, it could not facilitate, let alone insist on, arbitrary across the board increases.

We would also seek to amend existing awards so that future

contributions could be paid to employer union or industry funds at the nomination of the individual employee.

The present award requirements for mandatory contributions to industry or union funds are a complete denial of freedom of choice and a recipe for the inevitable abuses which flow from excessive concentrations of power and wealth.

We would similarly be anxious to ensure that any trend towards mega unions does not lead to a similar aggregation of mega funds. We would therefore look to put in place a trade practices model to guard against such oligopolistic tendencies.

If it was good enough for the Treasurer to block the proposed ANZ/National Mutual merger - despite its obvious potential to achieve the substantial economies of scale necessary for

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effective participation in the international arena - it is strange that we have not heard one word of similar concern about the dangers of excessive concentration of union funds.

Indeed the opposite is the case. The Treasurer has never

recanted on his infamous speech to the ACTU on 26 September 1989 when he said: "If the trade unions at any time are placed in a hostile political environment, they will face it not only with their negotiating power in the labour market, they will face it

being a significant controlling element in that $600 billion of savings". In other words might will be right as long as it is on the side of labour and not capital.

The Coalition endorses the principle of equal representation on boards of trustees, but we do not accept the present collegiate basis for nomination. The representatives should not be

appointed by employer or union peak councils but should be democratically chosen by the employer and the employee so as to directly reflect their wishes.

Whilst the BCA target of 10% by the year 2000 has a certain

clarity and simplicity about it, at this stage it is more

important to widen rather than deepen the spread of occupational superannuation. Instead of continuing its unilateralist approach, with employers bearing the overwhelming brunt of award superannuation, the Government should urgently consider biting the bullet and introduce a much broader based tax deduction or rebate scheme for personal and employee contributions rather than

its recent dog's breakfast proposals.

The question of outstanding non compliance with superannuation award provisions must be addressed - but not by the Government's present heavy-handed approach, which is to legislate to give the courts the power to order backdating of entitlements.

On top of the second round of 3% this would be the last straw for many small businesses. A more enlightened approach would be to allow 150% tax deductions for small businesses or simply to

encourage trustees to privatise award superannuation by paying a commission to agents who, unlike the trade union movement, would then have a practical incentive to promote the spread of compliance.

The Prime Minister's continuing pollyanna predictions about economic recovery being just around the corner are by now being heavily discounted, particularly with conflicting signals from the US about the nature and timing of world recovery in the wake

of a cessation of hostilities in the Gulf.

But just as the taxpayer cannot afford ever increasing levels of Age Pension and social welfare funding in the absence of

increased productivity, so the private sector cannot afford to bear the burden of ever more superannuation contributions irrespective of increased profitability.

Unless the Government is prepared to make fundamental adjustments

to award superannuation it will put its whole retirement incomes strategy at risk.

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