Australia’s superannuation system is one of the best in the world, designed to address aging demographics and reduce overall reliance on the age pension. Yet under successive Coalition Governments, it has suffered several shocks, each one weakening it, or delaying its growth. The COVID-19 pandemic has further increased its vulnerability, with current government policies seriously threatening to chip away at superannuation balances and retirement incomes.
Contemporary superannuation in Australia had its foundations in the 1983 Hawke Labor Government Prices and Incomes Accord, whereby the trade unions agreed to forgo a national 3% pay rise in exchange for a new superannuation system for all employees. The system was solidified in 1992 by the Keating Labor Government, which instituted a compulsory employer contribution scheme. This was designed to address the prospect of an aging population and the stress that increasing pension payments was likely to impose on the Australian economy. The plan took a three pillars approach, endorsed by the World Bank:
- compulsory employer contributions to superannuation funds,
- further contributions to superannuation funds and other investments, and
- if insufficient, a safety net consisting of a means-tested government-funded age pension
One of the most sweeping changes to the superannuation system was enacted in 2007, when the Howard Government allowed self-managed superannuation funds to invest in Australian residential property. The program was promoted as a way of boosting home ownership, yet its long-term effects have been to pump more money into an over-inflated housing market, making housing less affordable for the average working Australian family.
The Rudd-Gillard Labor Government’s plans for employer contributions to gradually increase from 9% to 12% from 1 July 2015 to 1 July 2019 were delayed for six years by the Abbott Government, and there is a significant movement within the current Coalition backbench to delay them even further as a response to the COVID-19 pandemic.
The integrity of the superannuation system as a storehouse of value for retirement is currently facing several threats, not only from reduced incomes as a result of the pandemic, but also from a variety of Government proposals to allow early access to superannuation savings, and delay or prevent scheduled rises in employer contributions.
On 22 March 2020, when COVID-19 in Australia peaked, Prime Minister Scott Morrison and Treasurer Josh Frydenberg announced that, as part of its second stage economic recovery plan, the Government would allow individuals in financial stress as a result of the Coronavirus to access up to $10,000 of their superannuation in 2019-20, and a further $10,000 in 2020-21. The Treasurer said that the initiative would build on existing provisions that allowed early access to super in the event of hardship, or on compassionate grounds. It was estimated this would put up to $27 billion dollars of superannuation back into the pockets of hardworking Australians. Mr Frydenberg said at the time that this was less than one per cent of the $3 trillion in Australian superannuation, and that the Australian Prudential Regulation Authority (APRA) advised the Government that the plan would not have a significant impact on the industry overall.
Opposition Leader Anthony Albanese criticised the proposal, saying that the Coalition never supported compulsory superannuation when it was instituted, and that they had “tried to undermine it at each and every opportunity”. He added that it was “not the best time for individuals to be withdrawing money from superannuation, given the impact that the fall in the share market has had…” and warned of the impact on the superannuation industry and its ownership of major national assets such as major airports.
The Australian Institute of Superannuation Trustees (AIST) has also warned that early release of super would have “potentially far-reaching implications both on individual Australians and the broader national economy.” The AIST said that to ensure good long-term outcomes for Australians and the national economy, early access to super should be a last resort and that “the mechanism by which members’ savings are accessed should avoid locking in current losses for members, and be administratively tenable”.
The Financial Planning Association of Australia (FPA) echoed these concerns, and urged Australians to seek financial advice before drawing down their superannuation. “Superannuation access should be used as a last resort. It is to be used to fund retirement and its primary purpose must be respected, even in these increasingly uncertain times,” FPA CEO Dante de Gori said.
AIST also warned Australians to be aware that unscrupulous operators and scam artists were targeting super fund members and offering to help with early withdrawals. AIST CEO Eva Scheerlinck said Australians should be cautious if they received unsolicited calls about their superannuation. “Unfortunately, as we’ve seen before with any early release super measure, there are unscrupulous operators who take advantage of people in financial hardship either through outright fraud in an attempt to steal their super or by offering unnecessary services for which a fee is charged,” Ms Scheerlinck said.
Slater and Gordon Lawyers have cautioned that, if withdrawals were to take superannuation balances below $6000, this would cause default Total, Permanent and Disability (TPD), life insurance and income protection insurance to be cancelled automatically. Workers in this situation would need to contact their super fund and ‘opt-in’ to continue their insurance coverage.
As recently as February 2020, Treasurer Frydenberg reminded the country that he and the Prime Minister “have no plans” to change next year’s legislated increase in the employer contribution to superannuation. However, he has stopped short of saying that the increase will definitely go ahead while characterising Labor’s concerns as bordering on the hysterical. Yet there may be good reason for concern. There is a significant number of Coalition backbenchers agitating to delay the scheduled increase, or to scrap it altogether, with the pandemic as a pretext. On 22 June 2020, Nationals backbencher Barnaby Joyce said that delaying next year’s increase in the superannuation guarantee rate would be “not popular” but “practical”, voicing the concerns of small business about the cost of labour. In the same interview, Labor’s Joel Fitzgibbon said, “the usual suspects were calling for a cut in the superannuation guarantee long before COVID-19”. Mr Fitzgibbon recognised the stresses faced by small business operators and noted Labor’s bipartisan support for assistance measures such as JobKeeper, accelerated depreciation and pay-as-you-go rebates. However, he castigated those on high incomes who “take every opportunity to deny low income earners the opportunity to set-up for their retirement income”.
Industry Super Australia joined the criticism of Coalition MPs who want to scrap or freeze the super rate increase, saying the move would cost a couple on average wages between $150,000 and $200,000. The ISA said more than 170,000, mostly young, Australians had already accessed their super early and “wiped out their savings”, and that the only way to avoid a generation of Australians being forced onto the pension in retirement would be to proceed with the legislated increase in the superannuation guarantee rate. They addressed the argument that increasing super comes at the expense of wages, saying that the same line was used by the Abbott Government to justify delaying increases in 2014, yet wages have been stagnant ever since. “The Prime Minister and Treasurer wouldn’t want to risk a generation of Australian workers being dumped on the pension to be their lasting legacy; they know we would all pay for that through higher taxes," ISA Chief Executive Bernie Dean said. “Australians overwhelmingly support the rate going up slowly as the key to dignity in retirement, giving the average Australian worker choice and control on how they live their later years.”
The most recent proposal from the Government that would allow draw-down of superannuation entails permitting women experiencing domestic violence to access superannuation savings to escape the danger. This move has been roundly condemned by the Opposition and by social service organisations, as it would effectively force victims of domestic violence to fund their own escapes. Labor’s Shadow Minister for Families and Social Services, Linda Burney, excoriated the Government over this proposal, saying that "denying adequate support but encouraging women to deplete their hard-earned retirement savings sends the clear message to women in abusive relationships that they are on their own”. Ms Burney said that whether a woman and her children can live with safety should not depend on a super balance and instead called for increased government investment in housing, services and support to help women and children leave violence.
Ms Burney also warned of the dangers of the Government’s early access to superannuation scheme in general, noting that more than half of the money already withdrawn from superannuation was by those under 35, and that there had been a 300% increase in money spent on gambling by those who accessed super funds.
Early access to superannuation and delaying the legislated increase in employer contributions would each have the effect in decreasing superannuation savings, depriving workers of the benefits of those savings compounding throughout their working lives. The full impact of reduced superannuation balances wouldn’t be felt for up to 30 or 40 years, when today’s young workers reach retirement age. By that time, any current political leaders would have long departed the political stage. The political leaders of the future would then be faced once more with the wicked problem that confronted the Hawke and Keating Labor Governments - an aging population and increased dependence on publicly funded pensions.
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