Thank you for inviting me to launch Nigel Baker’s new book, The Super Secret.
The more that’s written about superannuation the better.
May I commend Nigel on the authorship of this book, as far as I know it’s only the third in recent years behind Mary Easson’s (Keating’s and Kelty’s Super Legacy); and my own book which was published last year, Bad Egg: How to Fix Super.
I hope you generate as many calls to journalists from Mr Keating as my book managed.
I received a tremendous reaction to my book because it got people thinking about an issue that there is too much interia about.
Think about it, Australia has bet a big part of the farm on super: 10 per cent of all wages and now the third biggest pool of managed funds with just the 53rd biggest population.
I have had a number of difficult and angry conversations with people who had hoped I would “run the lines” of the super sector, having been a super insider.
But, unlike the Labor union stooges in Parliament, that’s not how I roll. I know who I work for: it’s the people of New South Wales, not a bank or a financial institution and certainly not a union.
Day in and day out, we hear the words from the mouth of Stephen Jones and Co written at Trades Hall or Industry Super HQ Casseldon Place in Melbourne.
Labor members have dollar signs in their eyes when they see the $10m paid from
super funds to unions each year which is on track to hit $30m a year by 2030.
This is not to mention the $12m Industry Super Australia is currently spending to campaign against our government and the $40m it spent last year putting Greg Combet’s head on television.
I have taken another path. As I said in my first speech, I am a Menzian Liberal. I eschew vested interests. Vested interests destroyed the United Australia Party.
One of the great battles of our generation is to get the super system to work for workers - not for banks and unions. And I am on the side of the workers. If my former colleagues in finance are upset then it shows I am doing my job - working for the people of New South Wales.
We have lived with the existing super system for 30 years - too long. Most people wrongly accept that it’s working.
People are aware the fees are high at $30 billion a year, but are not aware of how much of their hard earned savings are being squandered by the funds.
Nigel’s first Chapter is called “It’s Your Money, Manage It Well”; congratulations Nigel, this has been my mantra ever since I entered the Senate in July 2019. If only this was how our financial regulators used this as their guiding principle in enforcing the law!
As much as I have been critical, I am not against super, it’s a good idea. People who want to abolish super only remove themselves from the debate. The very idea of having private savings is sound but we must be open minded about fixing it. Because at the moment, super doesn’t work.
1. Super doesn’t work
Let me briefly touch on some of the key measures, even though the system doesn’t have an objective: It was drawn up on a napkin in a Canberra pub.
The napkin was subsequently lost to history. No modelling was done and no proper policy framework has ever been enacted. Paul Keating gave the keys to the super city to the banks and unions. This was against the advice of the 1976 Hancock Review which recommended a government default fund.
I will now step through three key metrics:
You don’t have to look far to see evidence of malfunction. There is a 70% reliance on public pensions today and the 2015 Intergenerational Report says we will have 70% of people still on the pension in 2055. There will be more part pensions and fewer full pensioners.
For super to be working effectively we need half the population off the pension.
Raising the compulsory contribution would not help. Under a 12% Superannuation Guarantee, the pension reliance would be almost identical according to modelling by Rice Warner Actuaries.
The super industry not only benefits from $32 billion in annual fees but also gets $40billion worth of tax concessions. It only saves $9 billion according to the Association of Superannuation Funds of Australia.
The system costs vastly more than it saves. No projection exists which says it will ever be budget positive. How can you have a savings system that costs more than it saves.
According to the Australian Bureau of Statistics our 2018 national savings to GDP ratio was 24.7per cent. Gross national savings were around 25 per cent in the 60s, they averaged around 18 per cent in the 90s. As the Parliamentary Library told me last week:
We have a higher level of gross foreign investment now than we did in 1992, both in terms of annual transactions (annual inflows of FDI as a percentage of GDP) and in terms of the overall level (the total value of FDI in Australia), which has increased from27 per cent in 1992 to 54 per cent in 2020.
That means that even with a $3 trillion pool of super, our savings rate is similar to historical trends and we’re more reliant on foreign capital than we were without super!
So that’s three failures from three factors.
It may not work, but we should make it work. We should do a few things:
1. Set an objective so we know where we’re going and what we’re trying to achieve
2. Pass our laws “Your Future, Your Super” to cut fees and improve transparency
3. Cut fees further with a government default fund
4. Open up super for homeownership to meet the Callaghan Review’s findings that the best way to avoid poverty in retirement is to own your own home.
With these changes, the system’s future would be at least sustainable.
2. Lessons From the Pandemic
Before we take on these structural reforms, we should take heed of a few lessons from theCOVID-19 pandemic which has been a once in a century jolt to the economy. I believe three positives have emerged:
The Success of the Early Release Scheme.
Australia’s early release super scheme was one of the most successful policies of the coronavirus recession.
It was hotly contested by Labor and the super industry but it worked. It was a success for two main reasons: firstly, it helped Australians improve their personal balance sheets, and secondly it drove engagement with super.
The policy resulted in around $38 billion being withdrawn from the $3 trillion system -less than 1 percent of super savings. The idea that super would be quarantined from helping Australia during the biggest economic downturn in a century was nothing more than a rent seekers’ fantasy.
The average one-off payment of $7000 supported 3.5 million Australians. A further 1.4million took another average payment of $8000.
Data from the Australian Bureau of Statistics Household Impacts of COVID-19 survey confirms57% of Australians who accessed their super early used their money to pay household bills, mortgage, rent and other debts. In addition more than 30%added to their savings.
The early release scheme broke the back of the problem which beset compulsory super since it was introduced in 1992: apathy.
By breaking the seal of preservation and allowing people to access their own money Australians realised super wasn’t monopoly money that fell out of the sky only to be locked away and eaten by fees and junk insurance.
We should consider using this scheme again in future but for targeted policies.
One policy we should adopt is super for home ownership. My policy ideas in Bad Egg were vindicated by the Retirement Income Review. I argued in the book last year that the First Home Super Saver Accounts should be expanded to allow Superannuation Guarantee contributions.
Super has damaged home ownership, especially for lower income Australians and this trend must be reversed. Home ownership is more important than super. I am not saying that super for housing is a silver bullet, especially in an overheated property market. But it could especially help lower income Australians get onto the property ladder.
I have had constituents write to me to explain their situations. Their only shot at getting a first home deposit is to access their super.
The Retirement Income Review clearly states that private property ownership should be the focus of the retirement system with home owners having better retirement outcomes than renters and more equity to draw down on in their later years.
More Australians are struggling to buy a house and pay off their mortgage than ever.
The average deposit for a first house doubled between 2000 and 2015.
According to the independent review:
“About a quarter of retirees who rent privately are in financial stress, primarily because of high housing costs... Renters who retire before Age Pension eligibility age have the highest level of financial stress in retirement.”
I will continue to push for more young Australians to have access to their super so they can purchase a first home. Financially and morally we must pursue this. The Big Super lobby and their political subsidiary the Labor Party are against this and are seeking to smear people who argue in favour of home ownership.
What’s Big Super’s plan for home ownership? Let Big Super construct build to rent homes which can be rented out to Australians, thereby snuffing out the chance for first home ownership.
ASIC is waking up
It had become evident that the regulator was asleep at the wheel but it is now finally flexing its muscles.
This is so important because there is no point having laws if they are not enforced by regulators.
ASIC has now accused the $60 billion REST Super of misleading and deceptive conduct alleging the industry fund tried to stop members transferring their savings to a better performing fund.
ASIC also disclosed to parliament last year that it had 16 investigations into retail super and five into industry funds.
This is good news. This is what regulators are meant to do. They are meant to keep funds honest and stop the vested interests from wasting members’ savings.
And there’s more for them to do.
Take the dubious ‘merger’ which involves Maritime Super’s $6 billion under management with Hostplus’ $55 billion.
Under the arrangement, Maritime would continue to maintain its current crop of directors and executive at a cost of $2.5 million for an entity which is effectively as hell company.
The idea of mergers is to create economies of scale and to reduce costs not to mention remove persistent poor performers like Maritime, instead they’ve been put onto a life support via a quasi merger. Frankly, it’s a rort.
We also need to see action on the vain advertising undertaken by Greg Combet at Industry Super. They have spent $50 million on advertising in the last two campaigns and APRA is now conducting an investigation into this expenditure.
At Senate Estimates last week, APRA assured me there would be a report or at least findings into this investigation and the prospect of enforcement or prosecutions. If the sole purpose or fiduciary test has any meaning, APRA will find that political style advertising with Mr Combet’s face is in breach of the rules.
Time will tell.
I’d like to finish with a couple of quotes, one from each side of politics.
Firstly, when you hear someone defending the status quo, don’t forget Jack Lang’s quip:
“Always back self interest. At least you know it’s trying.”
This is the Big Super / Labor mantra. This is what they should put in their next round of adverts.
And more recently from former Prime Minister Tony Abbott bemoaned the lack of books written by Liberal Party politicians when he said:
“the relative scarcity of books from the conservative side of politics by Liberal and National Party politicians could prompt the conclusion that we have little worth saying!”
This of course is not true and it’s good that you’ve added a new volume to the collection of superannuation books. You will now be a dinner party invitee of choice.
Most of all, I hope we see more books, more analysis and more thoughts like Nigel’s on this strange but huge experiment of superannuation.
Given the state of affairs, it is essential before Australia further commits to this scheme.
I call on all parties to be straight with the Australian people.
A 12%superannuation rate will not deliver a new legion of self funded retirees, just as the Medicare levy doesn’t pay for Medicare just as the NDIS levy doesn’t pay for the NDIS
Anyone wanting to advocate for a new superannuation plan must show how it will help the system deliver on national savings, reduce pension reliance and the budget balance.