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Thursday, 12 September 2019
Page: 2764


Dr MULINO (Fraser) (11:22): I rise to speak on the Treasury Laws Amendment (2018 Superannuation Measures No. 1) Bill 2019 and the second reading amendment. Of course, I echo the sentiments of the previous speakers—that the superannuation sector in Australia is something that our nation should be very proud of. It provides a great deal of security in retirement for millions of Australians and, in addition to that, a great deal of macroeconomic stability and other benefits for our nation.

By way of context, it's worth noting that 15 million Australians now hold a superannuation account, and, as earlier speakers have mentioned, there are over $2.8 trillion in assets, which is roughly 140 per cent of GDP. This is likely to grow to something in the order of $9.5 trillion in 2035 as our population grows and ages.

Our superannuation system is characterised by being a three-pillar system. There is the old age and retirement benefits system and there is the compulsory savings in the superannuation guarantee, and then there is, on top of that, the third pillar, which is voluntary savings. That structure is supported by international agencies, such as the World Bank. It is a structure which many commentators say balances and supports many different objectives. I think it's important to note that Labor has a very proud legacy here. The old age pension system was introduced by legislation passed in this place—or a place physically down the road a little bit, but metaphorically in this place—in December 1980 by the Andrew Fisher government. Clearly, that was one of the early Labor government's proudest measures and one that has truly stood the test of time and provided a great deal of protection against poverty for millions of Australians ever since. Of course, the second pillar of that system, the superannuation guarantee, was one of the great legacies in the eighties and nineties of the Hawke-Keating government. So our three-pillar system is built on two pillars which were landmark Labor social policy reforms and economic reforms that have truly stood the test of time.

As earlier speakers have indicated, some aspects of these profound economic reforms are now under threat from some members opposite, and that is something which we will defend to the utmost. But these pillars of this system are providing great protection for members of our community, and we need to ensure that those pillars are protected. And as the member for Moreton just outlined, some aspects of this system need to be strengthened, notwithstanding the fact that the system as a whole does rank very highly.

As earlier speakers on this side have indicated, we support this bill. It is a technical bill which supports integrity aspects of the superannuation system and is non-controversial. Schedule 1 amends the Superannuation Guarantee (Administration) Act 1992 to allow individuals to avoid unintentionally breaching their concessional contributions cap where they receive superannuation contributions from multiple employers. Schedule 2 deals with non-arms-length income and ensures that non-arms-length income rules for superannuation entities apply in situations where a superannuation entity incurs non-arms-length expenses in gaining or producing income. And schedule 3 deals with limited recourse borrowing arrangements. We support these arrangements and this bill, but I do think it's worth stressing that this bill goes only a limited distance, and it is very important to put on the public record that there are a number of aspects of the system that need further attention and that need it urgently.

As I said before, we have a three-pillar system, the structure of which is supported internationally and which is rated very highly by independent experts routinely. I want to just, for context, put on the public record that a pension system is there to achieve a number of objectives. And I just want to put those on the record because, when we think about what we need to do as a parliament in relation to our pension and superannuation system over the coming three years, we need to bear these high-level objectives in mind.

A number of different agencies and experts have different sets of objectives and they generally overlap. But I want to put the World Bank's objectives on the public record as ones that I think are very robust. The first objective that they stress for a pension system is adequacy—that the system provides benefits sufficient to prevent old-age poverty and a reliable means of smoothing income for the population as a whole, from working age to retirement age. Adequacy is clearly a prominent feature of the debate on the pension system in this country. The second is affordability—that the system is within the financing capability of individuals and society and doesn't unduly displace other social and economic imperatives. The third is sustainably—that the pension and retirement system is financially sound and can be maintained over a foreseeable horizon under a broad set of reasonable assumptions. The fourth is that it's equitable—that it provides income redistribution from the lifetime rich to the lifetime income poor. I'll comment on that a little bit more in some broader observations around some priorities that we should be putting on the agenda as a parliament in relation to our pension and retirement system. The fifth is that it be predictable—that benefits are, where appropriate, protected by law and not based on discretion or administrative fiat. The final one is that it be robust—that the system be able to withstand major shocks, including economic, demographic and political volatility. Of course, that's a very timely recommendation, given the world that we are in at the moment.

These are some objectives that I would argue any pension or retirement system should seek to achieve. Now, the three-pillar system is designed to try and achieve those multiple objectives by having multiple components, some of which have higher returns, some of which have more individual choice and some of which provide more protection against poverty. So it seeks to achieve multiple objectives through having those three different pillars.

I think it's important to note the Melbourne Mercer Global Pension Index, which is now in its 10th year. It's a very highly respected international ranking of international pension systems, and ours routinely ranks in the top handful. The Melbourne Mercer Global Pension Index ranks international pension and retirement systems against adequacy, sustainability and integrity. Of course that overlaps with those more disaggregated outcomes that I just outlined from the World Bank.

I want to put on the record that when we discuss this system, I think we always have to bear in mind that we're trying to achieve multiple objectives. Adequacy is one, but there are others. There's equity, there's a surety of income in retirement and all of those other measures that I outlined before. And it's from that broad context that I want to talk about two issues. One is adequacy and the other is returns. This follows some of the comments made earlier by speakers on this side.

A lot of the debate at the moment in relation to adequacy focuses on the replacement rate and how that is associated with contribution levels and mandatory contribution rates. As speakers on this site have indicated, we support an increase in the superannuation guarantee. Others, on the opposite side, have been questioning that. I think that is an important thing to call out and challenge. We will defend the reform agenda that we have put on the record for a number of years now.

I want to stress that we have to drill down from the overall average contribution rate and the replacement rate that leads to, because there are groups in our society which won't necessarily be sufficiently assisted by increasing the contribution rates. As the member for Moreton spoke about, at the moment we see major gaps in account balances based on gender and also based on income levels. And so it's not enough, I think, for this parliament to look at the overall contribution rate. We're going to need to think more deeply about how individual groups within our population may or may not fare.

As the member for Moreton spoke about, there is already a significant gap. If we look at workers aged 30 to 34, the average balance is $45,580 for men and $33,750 for women. For workers near retirement, the gap is even larger. For workers aged 60 to 64, the average balance is $270,710 for men and $157,050 for women. Under current policy settings, the median balance on retirement—and I think the median is the more relevant one here, because it reflects the typical and isn't skewed by very high balances—will be $310,819 for women and $628,634 for men. This of course is exacerbated by the fact that women are expected to live longer, so they will have a longer period of life post retirement, on average, to provide for.

I simply want to make the point that adequacy is a very important debate. Obviously, it is being addressed to an extent by the broader debate about nine to 12 per cent, but I do think we need to drill down beneath that, because of groups within our society. The gender gap is one issue, but of course there is also a very wide income distribution. What we're seeing in society at the moment, and this is probably a trend we're likely to continue to see, is the hollowing of the middle class. So if we disaggregate by income, we may see significant account balance gaps for lifetime income earnings.

Of course, this is driven by a range of things. It is driven by the incomes people have over their lives, by differential income trajectories for a person and also by gaps in the workforce. If different people have different gaps due to unintended unemployment or, in the case of women, staying home to care for children—that may change over time, but at the moment that is still falling disproportionately on women—these are all different social phenomena that are having significant impacts on people's account balances. They will impact significantly on their incomes and also on the riskiness of their lives post retirement—not just on their average income.

The next point I want to make is in relation to returns. Again, it's a significant issue which this parliament is going to have to address. While we support a bill of this nature, we really need to see a much broader agenda being brought to this chamber to deal with some of these very fundamental issues.

I'd just make the very simple point that a dollar invested over 35 years at five per cent will return $5.51. A dollar invested over 35 years at 7½ per cent will return $12.50. That's a 2.5 per cent gap, which is not that much when looked at at an annual rate, but, if you sustain that over 35 years, it reflects over 2½ times difference in one's retirement income. So returns matter. There are a number of recent reviews. I won't be able to list them all, but they include the Cooper review, the financial system inquiry, the recent Productivity Commission review and, of course, the royal commission. They're all stressing how important it is that we look at returns, because there are a number of underperforming funds in our system, and that is affecting a number of people's retirement incomes.

I can look at a couple of basic stats. The Productivity Commission showed that at least $269 billion in assets and five million members are stuck in underperforming funds. Another statistic is that, if members in the bottom quartile of MySuper products were defaulted to top quartile, they would collectively gain $1.2 billion per year. Look at that on an individual level. A typical full-time worker could retire with 54 per cent less superannuation if they were invested in a bottom-quartile fund instead of a top-quartile fund. That's equivalent to 13 years' lost pay. This discussion about quartile funds sounds very technical, but it really matters. It matters in a very practical and profound way to somebody's quality of life when they retire. Again, it is not just quality of life in terms of their average income but quality of life in terms of their capacity to withstand shocks when they're retired.

Another really profound statistic for me is that a third of accounts—roughly 10 million accounts—are unintended multiple accounts and that together these erode members' balances by $2.6 billion per year in unnecessary fees and insurance. Now, I'm not suggesting that comparing returns is simple. We need to ensure that we compare funds over sufficient time periods. We can't just compare annual returns over a very short period, because that won't necessarily reflect funds' performance in a reasonable way. Secondly, we need to reflect risk-return trade-offs. Some funds might have a higher return but also have higher risk. So, rather than simply ranking, I believe we need to look at funds against a risk-return frontier to fully judge them in a sensible way.

Finally, we also need to look at fees. To compare apples and apples, if two funds are achieving the same risk-adjusted return over the medium or long term, I believe it is reasonable to say that if they're both achieving that same risk-adjusted return over the medium term then the lower-fee fund is doing a better job for its members.

So we need to look at all these issues. We support this bill, but the agenda should be so much broader.