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Let’s kick this political football out of the ground


The legendary football manager Bill Shankly built Liverpool into a powerhouse of the English game, and he once told an interviewer:

"Some people believe football is a matter of life and death, but I am very disappointed with that attitude. I can assure you it is much, much more important than that."

It’s reached such a stage with superannuation. How did it come to this? When I first became involved in wealth management almost three decades ago, it was unthinkable that superannuation would be one of the hottest social and political issues of the day. Now, I don’t know whether it’s wonderful or woeful that superannuation has become a major election issue, with undertones of social divide and even class warfare. Compulsory super for all workers did not start until 1992, when it was more likely that Azaria Chamberlain and a dingo would dominate the news, not some strange retirement savings plan.

I say ‘wonderful’ because millions of Australians are now thinking about and planning how to finance their retirement, and the superannuation pool has grown to $1.5 trillion, equal to the country’s GDP. In coming decades, the system will give strength to Australia’s public finances as a high proportion of the population will fund their own retirement.

But I also say ‘woeful’ because what should be an achievement to celebrate has become highly divisive. It has triggered a debate about whether someone with $800,000 in super is ‘rich’, with the latest furore over former Gillard Government Minister Joel Fitzgibbon saying a family in Sydney’s west earning a quarter of a million dollars a year could be struggling. The Treasury estimate that super concessions are costing $32 billion a year and rising rapidly has become the way to finance everything from the overall budget deficit, hospitals, schools and disability services.

It’s not just a political divide, as on the Labor side of politics, a steady stream of party stalwarts, such as Bill Kelty, Martin Ferguson and Simon Crean, and recently, Paul Keating within the pages of Cuffelinks itself, have been telling the current Government not to meddle with one of the party’s proudest achievements. They point out that many of traditional blue collar Labor supporters have accumulated $800,000 in super and invested at 5%, that’s only $40,000 a year.

An independent and bipartisan superannuation group

In my view there’s only one way we can go with this, as super is too important and too big (heading to $6 trillion and 200% of GDP by 2030) to be punted around by shock jocks and weekly opinion polls. We need a completely independent and bipartisan group to provide ongoing opinion and direction about our superannuation system. A decent model to start with is the Board of Taxation. Here’s an extract from their website:

“The Board of Taxation

The Board of Taxation is a non-statutory advisory body charged with contributing a business and broader community perspective to improving the design of taxation laws and their operation.

The Board is tasked with advising the Treasurer on improving the general integrity and functioning of the taxation system and commissioning research and other studies on tax matters approved or referred to it by the Treasurer.”

The operations of the Board are governed by its Charter, and are supported by a Secretariat provided by the Treasury.”

I envisage an independent superannuation body having up to 10 people in the group, comprising experts on matters affecting superannuation, such as taxation, demographics, investments, structuring, insurance, actuarial skills, etc. The individuals would be appointed by the Treasurer and be required to relinquish all commercial activities in the super space. In turn, the government would pay each person for having no conflicts and for joining the group. A properly-resourced secretariat with an appropriate budget would be available to the group as well as access to modelling and data from the ATO and Treasury.

The problem we have at the moment is that opinions come from so many people with vested interests or conflicts, be they industry associations, retail and institutional superannuation providers, industry funds, asset consultants, research firms, etc. For example, when an organisation like the SMSF Owners’ Alliance or the Financial Services Council puts out a research paper showing that the cost of super tax incentives is recovered in lower pension outlays, the work is dismissed by many due to a perception of obvious bias. An independent superannuation group would minimise the accusations of vested interests. The debate lacks pure, considered, unbiased, informed opinion.

The proposed group would:

  • produce white papers on the long term direction and needs of super
  • be a source of advice for Treasury and the government when developing policy, and in particular the long term implications of such policy
  • have bipartisan support and respect, based on a solid and well-considered path for its direction, and to minimise the tampering and tinkering that comes with all new government appointments.

Let's get to the facts

A useful example of an issue it could address is this $32 billion number currently being bounced around as the ‘cost’ to the government of the current superannuation concessions. A closer look shows it assumes that people would pay tax at their marginal rates rather than the rates within super. But we know that people arrange their financial affairs according to prevailing opportunities, and it’s more likely that behaviour would change rather than people paying the top tax rate.

An independent group would also minimise the ‘class divide’ issue that is inevitable when policy comes from one of the two major political parties. For example, is it correct to assume (as many people do) that a wealthy retiree over the age of 60 should not have the right to all withdrawals and all income free of tax? If someone has worked hard for 40 years, already paid tax at high marginal rates, deferred consumption by living in a modest house and buying a used car, legitimately used the system which encouraged self-sufficiency by making non-concessional contributions, and planned their life within the rules designed by the government, then many others would argue they have every right to object if they are hit by a major change.

We need checks and balances in the system that an independent superannuation voice would help provide to ensure super taxes are not altered merely in response to balancing the budget in one particular financial year. Any proposed change to the system would not only focus on the super taxation rules, but relationships with age pension eligibility, mortality, longevity, volatility, death duties and estate planning.

We need experts from within the industry to be part of this independent superannuation group, and these are not just the investment managers. Superannuation is a massive industry and it reaches into financial planners, custodians, real estate agents, property developers, dealer groups, trustees, platform managers, lawyers, consultants, accountants, tax advisers, brokers. The list goes on. It’s often said that a poacher turned gamekeeper provides valuable insights!

Superannuation is part of everyone’s future. The demographic trends of longevity and improving mortality will not go away. A Board of Superannuation would help any government of the day fight against the vested interests and rent seekers who would inevitably oppose any reform, and take some of the hyperbole from the debate.

At the end of his career, when Bill Shankly was asked to sum up his essential criteria for success in football management, he said, "I could speak common sense about the game and I could spot a player." That’s the sort of level-headed approach we need for superannuation.



June 08, 2013

It has been reported that compulsory super was started in 1946. "Prime minister Chifley agreed and established, as from January 1, 1946, the National Welfare Fund - a "Trust" fund with the Parliament as "Trustee." The compulsory contributions levy commenced on January 1, 1946. It was shown separately on the personal tax assessments for 1946, 1947, 1948, 1949 and 1950, and the compulsory levy was properly paid straight into the special "Trust" fund, and welfare claims were paid out of the fund. The balance in the fund in 1950 was almost 100 million pounds."
What happened to it? According to Labor and Liberal parties pensioners get a pension from their charity.

Sunil Perera
May 13, 2013

Making changes to superannuation just to balance the budget or to reduce the deficit is futile, as Chris Cuffe rightly makes the point people will arrange their finances in other tax effective ways.

For there to be confidence in the super system as a retirement plan there must be consistency.

marg gillett
April 05, 2013

I like the idea of an inter-generational financial report card. No matter what has been mooted yet - it still beats the re-introduction of death duties. Perhaps we should help others when financial help can make a difference rather than leaving a legacy! P.S I like the maths test for spam protection.

Elaine Collins
April 05, 2013

I liked John Brogden's comment that changes to super should only be considered each 5 years after the 5-yearly inter-generational report comes out and any such changes consider the trends (longevity, mortality, etc.) in that report. Then at least there is some certainty that changes to super will not be made in the intervening five years. it would make sense for this independent superannuation body to follow this strategy.

Jamie Forster
April 05, 2013

Perhaps such a group could exist as a sub-committee within the Board of Taxation.

Tax and super are intrinsically linked. No responsible person or entity would suggest chances to superannuation, particularly the way in which it is taxed, without reference to the broader tax system. Would they?


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