Bruce Baird (Cook, Liberal Party) Share this | Link to this | Hansard source

On behalf of the Standing Committee on Economics, Finance and Public Administration, I present with pleasure the committee’s report entitled Improving the superannuation savings of people under 40, together with the minutes of proceedings and evidence received by the committee.

Ordered that the report be made a parliamentary paper.

by leave—I particularly commend the efforts of members of the committee in looking at this issue. I commend them for the very hard work that they provided and their skill in writing the various papers for the committee. By 2042 Australia’s population is projected to comprise significantly more people aged over 60. This will coincide with the retirement of the majority of Australians currently aged under 40. Given the high costs associated with an ageing population, it is vital that the future retirement income needs of this age group be considered now. Australians under 40 will be the first to benefit from a fully mature superannuation guarantee system spanning most of their working lives. The SG was introduced in 1992 and was fully phased in by 2001 to its current rate of nine per cent. It was designed to jointly reduce the future fiscal burden of providing age pensions to a growing ageing population and to enable more people to fund their retirement at a standard of living higher than the age pension.

The inquiry into improving the superannuation savings of people under age 40 has enabled the exploration of many issues, including whether a superannuation savings gap exists in this age group; the fundamentals of Australia’s retirement income system; whether the superannuation regulatory framework requires change; superannuation literacy; incentives; and system improvements.

The inquiry found that, unlike previous generations, the under-40s age group believe in the concept of self-funded retirement and accept their compulsory contribution to a superannuation funded retirement. However, the lifestyle expected in retirement by many under 40s far exceeds that which could be funded from SG savings alone. At their current rate of contributions, most under 40s would not meet their retirement income expectations without the aid of a part-pension or additional funding from other sources. Additional voluntary savings would be required to bridge this ‘expectations gap’.

The inquiry considered three major aspects of the superannuation regime: preservation, the adequacy of the compulsory superannuation system, and the earnings threshold to qualify for access to the compulsory system. The underlying principle of superannuation is that contributions may not be accessed until a certain age or event. This principle of preservation allows incremental savings to compound over time. The committee found that preservation of superannuation should not be eroded by schemes allowing early access to superannuation. Additionally, superannuation taxation concessions are provided by government to encourage savings for retirement purposes only, not for pre-retirement expenditure.

The adequacy of the SG rate, now set at nine per cent, was found to depend largely on whether the compulsory system is intended to provide self-sufficiency in retirement. Australia’s retirement income system is based on three pillars: the age pension, the SG, and other personal contributions to retirement savings. Given this framework, the goal of self-sufficiency in retirement is ultimately the goal of the individual. In addition, increased superannuation savings will reduce future government spending.

To bridge some of the ‘expectations gap’, the committee recommended that when a new employee commences work they are automatically placed in a ‘voluntary’ contribution arrangement, which they could chose to opt out of at any time. This contribution scheme would initially be set at three per cent. Overseas experience in similar schemes has shown people are inclined to inertia and do not opt out.

The ability to accumulate superannuation depends on an individual maintaining ongoing, full-time employment over a working life, in a position earning above the SG threshold—currently $450 a month. A person earning less than the monthly threshold is not legislatively entitled to the SG. The committee believes retaining the threshold at its current rate of $450 or lower will ensure, over an extended period of time, that more multiple-casual job employees will gain superannuation coverage with negligible impact on business compliance costs.

The report identified that there is a need to better inform and educate Australians about superannuation. Self-employed women and multiple casual job workers were found to be particularly disadvantaged in their ability to accrue superannuation. The committee addressed that in the report as well. The inquiry revealed that a fully mature SG system will be enjoyed by most under 40s for their full working life. I commend the report to the House. (Time expired)

Craig Emerson (Rankin, Australian Labor Party) Share this | Link to this | Hansard source

The genesis of the Standing Committee on Economics, Finance and Public Administration inquiry into improving the superannuation savings of people under 40 was a concern that superannuation is not considered an attractive option by Australians under the age of 40. There was also a concern that, while there is a compulsory component for superannuation, where there is discretion, under 40s tended to prefer either to spend their money on consumption or to put it into other savings vehicles.

The committee therefore had a look at the idea—which has been floated on many occasions—of allowing some of the superannuation savings to be used as a deposit on a home or on alternatives such as learning accounts and so on. But the committee came to the conclusion—and one that I strongly support—that superannuation is a savings vehicle designed for retirement, and to access those superannuation funds before retirement would effectively defeat the purpose of superannuation. The committee very wisely found that the preservation of superannuation should not be eroded by schemes that allow early access to superannuation. It also noted that superannuation tax concessions are very large. They are provided by government to encourage savings only for retirement income purposes, not for expenditure either on consumption or savings in other forms before retirement.

The second major issue was the adequacy of the superannuation guarantee rate of nine per cent. The committee found that the question as to whether it was adequate to provide a reasonable income after retirement depended in part on whether you formed the view that superannuation should be the only post-retirement income or whether there could also be access to the age pension. We agreed that there could be access to the age pension, but one of the real problems about the adequacy of nine per cent is that it requires people to start with the nine per cent when they first start working and to work continuously throughout their working lives. If that did not happen then there were real problems with adequacy.

We were then looking at what possibilities might be available to boost contributions above that nine per cent so that we could achieve adequacy. That is where we came up with quite a novel scheme: when new employees commence work, they are automatically placed in a voluntary arrangement where they can choose to opt out at any time. It would not be compulsory, but we recognise that most people, through inertia, would say: ‘I’m in the scheme. I won’t bother filling out the paperwork to opt out, even though I have a right to opt out.’ We felt that that might increase the superannuation contributions and, therefore, the adequacy of retirement incomes.

We had a long debate about the threshold at which the superannuation guarantee applies. It is currently $450 per month. We received representation from some employers that that should be lifted. We believe that it should, at the very least, stay at $450 a month or be lowered. I thank the coalition members of the committee for agreeing not to entertain the idea of lifting that. People who have a lot of casual jobs might not earn $450 a month and therefore would miss out on their superannuation contributions from employers—which were, as one committee member pointed out, in lieu of a wage rise. That is how it came about. Good on the committee members for agreeing not to increase it but perhaps even to reduce it.

The most vulnerable in terms of adequacy are women and multiple casual job workers. We came up with a number of recommendations to improve adequacy for women, including relaxing the current co-contribution arrangements a little, and a suggestion that paid maternity leave also be subject to the superannuation guarantee. After all, again, that is in lieu of wages and, ordinarily, if you are earning those wages you would attract the superannuation guarantee. I also think the maternity payment should be subject to the superannuation guarantee.  Can I finish by saying this report was prepared in a spirit of bipartisanship. I pay tribute to each and every committee member for achieving a very good outcome.

David Hawker (Speaker) Share this | Link to this | Hansard source

I move:

That the House take note of the report.

In accordance with sessional order 39, the debate is adjourned and the resumption of the debate will be made an order of the day for a later hour this day.