The Goal of Lifetime Income Security Ministerial Statement on Superannuation

22 June 2011

Mr Speaker, the Gillard Government believes Australians should achieve a more comfortable and secure life when they retire.

There is little benefit in working hard, but retiring poor.

In mid 2011, two decades after compulsory superannuation was introduced, superannuation stands as one of Australian Labor's most enduring and far sighted reforms.

Superannuation works - it is already delivering retirement security to millions of Australians and 12 percent will only make the story better.

The Gillard Labor Government has a vision for Australians to live long lives full of comfort and meaning.  We are living longer than ever before, but without better superannuation savings many Australians may have insufficient income security in retirement.

But if we invest we will make the nation's future stronger, creating a massive national wealth pool.

Mr Speaker, the story of superannuation is a strong story.

Between July 1992 and June 2003 when the Superannuation Guarantee was lifted to 9 percent:

  • The Australian economy grew robustly - GDP growth averaged 3.9 percent per annum

  • Unemployment fell from 11 percent to 6.1 percent

  • Labour productivity grew very strongly, well above its 30 year average, at 2.2 percent per year

  • Real unit labour costs fell over the period by 4.4 percent

  • Real wages grew; and

  • Australian business profitability grew by 6.1 percent a year and profits rose as a percentage of GDP.

I do not attribute all these outcomes to superannuation solely, but the numbers demonstrate increasing compulsory superannuation works with economic progress.

Mr Speaker I would not be exaggerating if I said that the introduction of the Superannuation Guarantee back in 1992 generated fear mongering amongst those opposed to compulsory retirement savings.

The then Member for Bradfield, the Opposition's spokesperson on superannuation in 1992, described the Labor Government policy as "absolutely abhorrent."

He claimed that: "hundreds of thousands of workers are going to lose their jobs" - and predicted the reforms "would cause even higher unemployment, reduce real wages, add to inflation and do nothing to provide genuine retirement income for the majority of Australians."

The then Member for O'Connor described superannuation as "stupid and dishonest."

Senator Alston told the other place that "imposing compulsory superannuation on individuals does not increase total savings."

And the then Member for Curtin said that "the superannuation guarantee levy will have a disastrous impact on business."

I remind the House today of these 1992 statements to simply remind all of us how wrong it would be to let prejudice, vagrant opinion unsupported by visible facts, distract us from the important task of building domestic savings to support economic growth.

It should be noted that the economic arguments advanced against the Superannuation Guarantee in the early 1990s - whether it was that business can't afford it; that it would be better in workers' pay; or that it will increase unemployment - and were subsequently disproved and discredited... Mr Speaker these are exactly the same arguments being trotted out by the naysayers today.

In 2011 it's time for the Gillard Government to continue improving the retirement savings of working Australian people.

Personal security is a priority - 9 percent superannuation is not enough to maintain the lifestyle most of us take for granted, especially women who have breaks in their career.

With our commitment to take the Superannuation Guarantee from 9 to 12 percent - we are strengthening superannuation.  And we are strengthening the chances of Australians who have worked hard and paid taxes being able to retire with a measure of decent comfort.

With our commitment to increase the concessional caps for over 50 year olds from $25,000 to $50,000 when balances are below $500,000 - we are strengthening superannuation.

With our commitment to make the system fairer by giving people the ability to have first time breaches of excess contributions up to $10,000 assessed at their marginal rate of tax, rather than incurring a potentially higher rate of excess contributions tax - we are strengthening superannuation.

With our commitment to make superannuation concessions fairer for 3.5 million low income workers who currently get little or no concession on their super savings - we are strengthening superannuation.  And ensuring that it is not just for the well off.

With our commitment to raise the SG age limit from 70 to 75 from 1 July 2013, coinciding with the increase in the rate of the superannuation guarantee - we are strengthening superannuation.

Mr Speaker these legislative commitments deserve the full support of this House and this Parliament.

As the responsible Minister I believe the inadequacy of the current 9 percent superannuation warrants greater attention in the broader national economic debate.

Financial experts generally believe the average worker will need at least 60 to 65 percent of pre-retirement income to live comfortably.  The OECD recommends 70 percent.

At present only 35 in every 100 Australians are likely to achieve their desired standard of living in retirement.

Despite having the fourth largest pool of funds under management in the world, in terms of adequacy, our retirement savings system ranks only 7th on global comparison.

And with mortality improvements, the average 65 year old man will now live to the age of 84 years.  And the chance of one member of a couple reaching 100 is astonishingly high.

So an increasing number of Australian retirees are going to outlive even substantial sums sets aside for retirement.

Adequate retirement is even a bigger problem for women, given that women on average earn 34.8 percent less than men.

Today, the average retirement lump sum of someone aged between 60 and 65 is $245,000 for men and $170,000 for women.

By 2036, those numbers will lift to $485,000 for men and $345,000 for women, and Members will note that this means women's super actually doubles.

But a significant part of this forecast growth in retirement balances is attributed to Gillard Government's reforms of the minimum mandatory 12 percent Superannuation Guarantee and Superstream's efficiencies.

This is why the Minerals Rent Resource Tax is so important to our nation's future.

It will pay for the tax concessional treatment of the additional 3 percent Superannuation Guarantee - because workers retirement contributions are taxed at 15 percent instead of their higher marginal personal income tax rate.

Mr Speaker, private sector research demonstrates that a couple in life-after-work need about $54,000 per year to live comfortably.

I am not satisfied the status quo of 9 percent will deliver a sufficient reward for decades in the workforce.

For an individual it is around $23,000 a year including the aged pension entitlement.

The average current retirement balance from Australian Super, I'm advised, is about $43,000.  If retirees try to live at the aforementioned adequacy standard their superannuation will be exhausted in just 3 or 4 years.

If a couple stick to a modest lifestyle they have an 80 percent chance of it lasting their lifetime as an allocated pension.  For those who have bigger balances or those with more time in the workforce contributing 9 percent who may ultimately achieve balances of $150,000 or $300,000 the outlook is still not greatly better.

Retiring at 65 the retiree with $150,000 can only expect to be able to live comfortably until they are 71 and the retiree with $300,000 until they are 80 years old. That is still well short of a retirees' life expectancy.

Because the undeniable fact, Mr Speaker, is that we are living longer.

The number of Australians over 65 years old is projected to grow from three million in 2010 to 8.1 million by 2050.

During the same period, the ratio of working-age Australians to those aged over 65 will decrease from 50 people for every 10 today, to just 27 working people for every 10 by 2020.

It used to be the case that we'd leave school in our teens, work for 40 to 50 years and then live in retirement for about 10 years.

Now we might be in education until 20 to 25 years of age, work for about 35 years, and then we have a post-work life of say 20 or even 30 years.

What it means to retire has been fundamentally redefined with the gift of longer, healthier life.

Longer life is the great gift from 20th Century Australia to 21st Century Australia. The legacy of health and medical science discoveries combined with living in the lucky country.

This longer life after work is why the Gillard Government's superannuation reforms are so very important to addressing the retirement savings adequacy gap that so many Australians are facing today.

Whilst women live longer than men, their super balances are in fact on average 30 percent lower than men's.

This is a serious challenge to their financial independence.

Currently, around 2.1 million Australian women get no tax benefit from contributing to superannuation, due to the 15 percent superannuation contribution tax being at or below their income tax rate.

The Gillard Government is therefore acting on the recommendation of the Australia's Future Tax System (AFTS) Report which said that superannuation tax concessions be distributed more equitably.

From 1 July 2012, the Government will make the system fairer by ensuring no tax is paid on the 9 percent superannuation guarantee contributions for Australians earning up to $37,000 and that the money is instead directed into their superannuation.

60 percent of the beneficiaries of this policy are women.

The superannuation savings of 2.1 million women earning less than $37,000 will be boosted by $550 million in 2012-13 alone.

The combined impact of our reforms mean the superannuation savings of 3.5 million low-income earners, either men or women, will be boosted in total by $830 million per annum in 2012-13.

So a 30 year old woman on average wages (around $60,000) will have an extra $108,000 in retirement savings providing her with an extra $2,900 to spend each year of her retirement.

If that 30 year old women undertakes some part-time work and spends time out of the workforce, she will still have an extra $78,000 in retirement savings, amounting to an extra $1,800 to spend each year of her retirement.

Data today does show that around 30 percent of the workforce receives more than 9 percent superannuation already.

This includes workers at companies as diverse as Linfox and National Australia Bank.

In fact, NAB has been paying its staff over 9 percent for about a decade now.

Mr Speaker, all Members of this Parliament will receive either the very generous Defined Benefit if elected before 2004 or receive 15 percent superannuation if elected after 2004.

So how can it possibly be reasonable or consistent for this Parliament to say one thing is acceptable for ourselves but vote against better conditions for the rest of Australia's workforce?

The benefits of increased superannuation are not only to the individual, but to the whole of the nation we love.

As of March 2011 Australia enjoys well over $1.36 trillion invested in superannuation.

This figure is estimated to grow to $6.2 trillion by 2036, including $550 billion directly from the Government's superannuation reforms which I have outlined.

This massive, rapidly-growing pool of funds means more money is available to be invested in the broader economy.

A proportion of this growing pool of funds will be allocated to the domestic economy, and will continue to be a great enabler of Australian enterprise.

Our multi-trillion dollar savings pool is a terrific business enabler because it means Australian companies have access to a large domestic savings pool.

It should not be overlooked that during the global financial crisis approximately 15 percent of capital raisings was undertaken here in Australia - largely due to our trillion dollar nest egg.

Our already strong degree of financial self reliance is one of the reasons why Australia weathered the global financial crisis so well.

And the post-global financial crisis growth of funds under management continues to drive a significant and sophisticated wealth management industry in Australia.

Mr Speaker, our superannuation reforms will deliver a great good to Australians upon their retirement and the Australian economy more generally.

The great good of a more comfortable post work life.

The great good of seeing Australia become even better at financial services.

The great good of more capital becoming available for nation-building infrastructure.

The great good of low inflation, high savings and a more secure future.

Mr Speaker the Gillard Government understands the forces of economic transition that we must manage shrewdly to secure the next wave of national prosperity.

That the ageing of our population is one of these forces is undeniable and the need for greater retirement savings is therefore irresistible.

The Gillard Government is acting for the long term and we are strategically positioning the nation for the challenges and opportunities of the future - be it climate change, the National Broadband Network or stronger superannuation.

Australians need not fear the future - we should be optimistic.

The goal of lifetime income security for Australians is a worthy mission.

I urge the House to consider these matters carefully over the coming Winter Recess, for when the Parliament returns in the second half of this year there is important work for us to do to secure and strengthen Australia's future.