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Wednesday, 9 October 1991
Page: 1625


Mr WILSON(11.22 p.m.) —-I would like to make a further contribution to this debate. A few minutes ago I was saying that there is an increasing demand by people approaching retirement who are making provision for their retirement years through superannuation to have more control over where those funds are invested. I think that the choices should be expanded so that people can have individual superannuation accounts, that the investment can be of their choosing--subject to satisfactory prudential standards and subject to a performance bond from some registered financial institution whose bond is acceptable to the Government that gives an assurance that when that person reaches retirement age the funds will be there to meet the pension requirements.

We are already doing that sort of thing with roll-over funds. It should come down to the contributions that are being made by 25- to 35-year olds so that they can have some say in where those funds are being invested. The funds may well be suitably invested on their family homes. There is evidence that says that the greatest protection for the majority of Australian citizens as they approach retirement age is the ownership of their own homes. As more and more of their effective income is being siphoned off into superannuation funds that do not necessarily invest in housing, it is becoming more and more difficult for people to make that purchase of that particular asset which will give them some safety and security when they do reach retirement.

We need to have a total rethink in this area. I was interested to read of new ideas that are being introduced in this regard. The banking industry is particularly concerned, to some degree out of self-interest. In this quarter's publication by the National Australia Bank there is an article entitled `Superannuation: trends in savings and investment'. It opened up by saying:

Tax incentives and the inclusion of superannuation benefits in industrial awards are resulting in strong growth in superannuation savings. Indeed, even before award based superannuation became widespread, superannuation assets were the fastest growing component of financial asset holdings of households.

The article went on to say:

Contributions to and interest on life and superannuation assets have fully accounted for household savings in recent years, with other household savings--

which include bank deposits--

being negative.

It says, as we all know, that in the coming decade the growth in superannuation assets will continue at at least the rate at which it has been proceeding in recent times. There is an expectation by many experts that by the year 2000 the superannuation funds will be responsible for the investment, and management of the investment, of some $600 billion.

That is having a serious effect on the banking industry, so what has the banking industry done? It has looked at the United States and it has looked at the United Kingdom. It has found that the United States has an individual retirement account system--an IRA system--where individuals can have bank accounts in certain qualified banks, into which they pay their retirement savings and have a degree of control over those savings. The banks have to satisfy certain requirements to ensure that the savings will be available for retirement and, of course, the deposits go into the banking industry. The banks are suggesting that we should do that here. I think it is a good idea--it is a step in the right direction--but it does not broaden the freedom of choice as to investment nearly as far as I believe we should go.

If one then turns to the United Kingdom one finds that the banking industry there has TESSA accounts--tax exempt special savings accounts--which were introduced on 1 January 1991 to encourage long term savings through tax relief on interest earned. That is a similar idea, motivated by a banking industry which wants to recapture some of the community savings that have been moving into the long term savings superannuation area.

That is all right for the banking industry, but I do not believe that those savings should be the captive either of the superannuation funds and their managers or of the banks and their managers. They should be able to offer those funds, but individual Australians should be able to have individual accounts and determine whether they invest their retirement savings in their own houses, a holiday cottage, shares, fixed interest securities or unit trusts of one kind or another. That is provided that a financial institution is prepared to give a guarantee or performance bond and--to the extent of the tax sheltering that we offer today, and would offer if my more radical and far more rational proposal were to be adopted--that tax sheltering was protected and, therefore, the provision of a stream of income in retirement. Then the Government could deal with those institutions that could give those guarantees, in much the same way as we now rely on the superannuation funds and their managers in the expectation that those funds will be able to deliver assets that can support a stream of income for the superannuants when they do retire.

That, of course, raises another question as to the extent to which people's expectations will be realised as a result of a significant proportion of their income--their real remuneration package--being put into superannuation funds. In that regard one needs to be asking proper questions about the appropriate level of prudential supervision with regard to the community's long term savings.

The two points I want to emphasise tonight are, firstly, that all people should be entitled either to tax rebates over their working lives that encourage them to put savings aside into long term savings vehicles so that those savings are available for their retirement, or to a pension, the capital value of which, as I mentioned, is about three times average weekly earnings. The tax rebates should be equal in value to the pension. People should get one or the other but not both. If they get part of one and part of the other, the entitlement should be equal. There should be no bias one way or the other.

In that way, we could do away with the complex network of tax that applies to superannuation funds, to contributions, to the income derived from them and to the benefits paid out. We could do away with the assets and incomes test and all the ancillary tests that relate to different types of investment and savings, as they are reflected through the assets test. We could do away with the complex arrangements within the income tax system that tax pensioners at different rates and have very high marginal tax rates for those who then cease to be entitled to age pensioner taxation relief.

The second point I want to emphasise is that Australians are intelligent. They want to be able to run their own lives. They want to be able to deal with their own long term savings and to be responsible for them. The Government should say, `We expect you to provide for your retirement in a way that assures you of a stream of income in retirement. Provided you satisfy those requirements, you should be able to make your own choices as to where you invest your own savings--whether in your own house, your holiday house or an investment portfolio of your own choosing'.

We must move to a situation where people are encouraged and rewarded for being self-reliant rather than one where we penalise those who make those endeavours and reward those who do not attempt to do that and who rely on others to cross-subsidise them in their retirement even, when they could have afforded to have made provision for their own retirement.