Conexus Financial has for some time, through our media coverage and live at our premium events, reported that the federal Coalition has been gearing up for a more wholesale attack on the superannuation system.
It is patently clear that our unique policy of compulsory super savings – a landmark Labor achievement and one Conexus wholeheartedly supports – has few friends in the ranks of the parliamentary Liberal party or its membership.
We were first to point out that a seemingly throwaway line by Shadow Treasurer Angus Taylor referencing the American voluntary (and woefully unequal) 401(k) retirement scheme was in fact a sign of the Coalition’s more serious long-term ambitions to dismantle the Aussie system.
The opposition pushed back hard against our editor-in-chief Aleks Vickovich’s analysis, and subsequently watered down the comments publicly the next day. And yet now we have more confirmation that super as we know it is in the Coalition’s crosshairs.
A report in The Australian on Wednesday morning suggested backbench Coalition MPs are pressuring Opposition leader Peter Dutton to embark on major superannuation reform. While the calls seemed to stop short of voluntary super, they made clear that the superannuation guarantee (SG) rate was on the chopping block potentially – with the figure of 9 per cent being floated as an alternative to the current 12 per cent.
Asked to confirm or clarify the report, Shadow Treasurer Angus Taylor would not comment specifically on whether the Coalition would take such a policy to the election, effectively leaving the door open to more reform.
“The Coalition is committed to the role of super in our retirement system,” Taylor tells this column. “The Coalition’s focus for policy reform in our super system will be on good governance, clear price signals, and transparency about the use of members’ funds.”
‘One-size-fits all’ could be flawed
Many in the super industry would no doubt assume that any move to reduce the size of the SG would be a politically motivated attempt to weaken the system. And the Coalition arguably has a track record on this.
But that doesn’t mean it is a terrible idea. There is considerable independent evidence that suggests the current SG rate of 12 per cent – let alone the 15 per cent espoused by some in the industry – is already too generous.
The 2020 Retirement Income Review conducted by highly respected academic and board director Deborah Ralston* and Treasury official Mike Callaghan coalesced around a rate of about 9 per cent. Geoff Warren, research fellow at The Conexus Institute* and an honorary associate professor at ANU, has conducted modelling which came to a similar conclusion that around 9 per cent (or even lower, at 8 per cent) is an optimal default rate.
However, Warren has also made the point that the idea of a “one-size-fits-all” rate is flawed. A more flexible or tailored system, in which additional contributions are encouraged but not mandated, may be a better approach to the blunt instrument of a higher SG. This, of course, gets complicated for individual members – which is why coming up with a high-quality and non-conflicted model of retirement and superannuation advice is such an important reform (and why Conexus is putting it squarely on the agenda at our upcoming Advice Policy Summit in Canberra in February).
The Retirement Income Review and The Conexus Institute have also said that the adequacy of a lower SG rate for the public would also hinge on the ability of funds to deliver quality retirement income solutions. And, as regulators have been at pains to point out, their ability to do that remains to be seen.
Self-interest must be overcome
Conexus is not endorsing a particular SG rate or concluding that 12 per cent is too high. But we would argue the industry must be open-minded to evidence – and must acknowledge that it has a very real self-interest and bias in securing maximum assets under management.
There is little doubt some critics of the super system are ideologically motivated. But rather than reject calls for a lower SG, a better way to appease them would be to ensure the sector has the best possible hygiene and pro-consumer protocols in place.
The Shadow Treasurer tells us: “The growing size and role of super means it is even more important that we get the policy settings right. If superannuation is to keep its social licence, funds must have a relentless focus on the interests of members”.
Make no mistake there is a threat implicit in his comments that the “social licence” could be taken away. On this, the Coalition goes too far, given the compulsory system has broad support among the public and ensures a more equal and inclusive society in Australia.
But on the issue of members’ best interests, Taylor is absolutely right. Our own authoritative surveys of members, conducted in partnership with CoreData, show clear deficiencies in the way funds are engaging with and providing services to members, especially the critical task of preparing them for retirement.
Rather than fall into the trenches of the predictable culture wars, or dismiss all criticisms out of hand, the industry needs to be willing to have a sophisticated and nuanced dialogue about the system’s design, flaws and benefits – and we will be doing our bit to help host this conversation across traditional divides.
On balance, the super system adds far more to our national fabric than it subtracts. But we all benefit from accountability and improvement. And this should be especially true for those tasked with $4 trillion-plus in workers’ retirement savings.
Colin Tate AM is founder and managing director of Conexus Financial, publisher of Professional Planner.
* Deborah Ralston is a member of the advisory board at The Conexus Institute, a not-for-profit think-tank philanthropically funded by Colin Tate AM and Conexus Financial.
Another example of the shortsightedness of the current leadership of the Coalition.
Well stated!