Lib MPs in bid to ditch super boost

22 Jul Lib MPs in bid to ditch super boost

Adam Creighton — The Australian – 22 July 2019

 

Josh Frydenberg is facing growing backbench calls to ditch the superannuation guarantee ­increase to 12 per cent as the government prepares to launch a­ ­­­far­-reaching review into the effectiveness of the $2.8 trillion savings pool.

Seven Liberal MPs in the four biggest states, including chairmen of two parliamentary committees, have criticised the increase as unfair and inefficient, urging the government to halt the legislated increase from 9.5 per cent, or wind it back for low-income workers.

The MPs include Andrew Hastie, chairman of the house intelligence and security committee; Jason Falinski, MP for Mackellar; Amanda Stoker, who succeeded George Brandis in the Senate; and the newly elected senator for Queensland, Gerard Rennick.

Their remarks follow a series of reports that have questioned the efficiency, fairness and effectiveness of the savings system ­established in 1992 by the Keating government.

Mr Hastie told The Australian said he would prefer more people retired owning their homes.

“I’d rather have people have more of their own money to pay down their existing debt such as their mortgage and ease the cost of living now,” he said.

The superannuation guarantee requires employers to pay 9.5 per cent of workers’ gross ­incomes into retirement saving accounts they can access at 60.

Senator Rennick said lifting the compulsory saving rate drained money from the regions, which needed it, to the funds management industry in Sydney and Melbourne, which didn’t need it.

“The money doesn’t go into greenfield investments; they just buy existing shares rather than contribute money to the economy by starting infrastructure projects,” he said.

“There’s enough going to super now, and the best people to decide how they earn their money are the people who earn it,” he said.

In 2013, the Abbott government delayed by two years Labor’s timetable to increase the rate, which is now on track to reach 12 per cent by July 2025 following an increase to 10 per cent in July 2021.

The Treasurer has welcomed the Productivity Commission’s recommendation for an inquiry into the ­impact of super on ­national savings and the Age ­Pension.

“What we need to fully understand with this (legislated) increase is what is happening to retirement incomes, what is happening to the nation’s balance sheet,” Mr Frydenberg said recently, reiterating that the government had “no plans” to stop or delay the increase.

The review, yet to be formally approved by cabinet, puts the ­Coalition on course for a historic clash with the union movement and financial services sectors, which influence and manage the nation’s superannuation savings pool.

The super sector fears the forthcoming inquiry could recommend against lifting the compulsory saving rate, as the Henry tax review did in 2010 — advice the Rudd government ignored.

The tax concessions cost the government more in revenue than offsetting reductions in Age Pension outlays, it found.

Tim Wilson, chairman of the House of Representatives economics committee, said workers should have the option to opt out.

“I struggle with the idea that we should compel business to increase super contributions for the distant tomorrow when people are facing wage and debt pressure today,” he said.

Super accounts incurred more than $30 billion in fees in 2017, ­according to the Productivity Commission’s review of the efficiency and competitiveness of super, completed last year, which found a third of accounts were unintended and “evidence of ­excessive and unwarranted fees”.

Senator James Paterson said he hoped the review would look at the “wisdom of forcing workers to lock away even more of their income”. “All the evidence shows it comes at the cost of their take-home pay today and might not even improve their standard of living when they retire,” he said.

Mr Falinski said the super system was opaque. “Like many Australians, and the Productivity Commission, I am unconvinced the system is serving its customers, much less its intended purpose,” he said. “So in those circumstances, how can you possibly support an increase?”

A Grattan Institute analysis earlier this month found workers faced a $30,000 hit to their lifetime income if the rate increase went ahead, from a combination of lower wages during their working life and reduced access to the Age Pension later in life.

Craig Kelly, the MP for ­Hughes since 2010, said the increase would not need to be compulsory if it were a good deal for workers.

“If you want to go to 12 per cent, everyone is free to do so,” he said, referring to $25,000 concessional contribution caps that let workers to make voluntary super contributions.

“And there’s a strong argument for workers on lower incomes to be able to access it now, especially if it’s not going to change their pension entitlement,” he said.

An estimated 7 per cent of employees, including a fifth of those under 30 on low incomes, would prefer to take their 9.5 per cent super contributions as wage and salary income, according to the Parliamentary Budget Office in a policy costing released last year.

Senator Stoker said wage rises “must take priority” over higher superannuation contributions.

“This is an urgent economic and political imperative,” she added.

Two Nobel prize-winning economists, Eugene Fama and Richard Thaler, were critical of superannuation late last month, singling out the high fees and inferior default arrangements compared with systems abroad.

A typical member’s balance would be $165,000 higher in retirement, or about seven years’ worth of Age Pension, were un­interested workers contributions put into better performing funds, the commission found.

Economist Nicholas Morris found Australian super funds were about four times more expensive than equivalent funds in the US and Europe.

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