SMSF Association Virtual National Conference 2021
It’s great to be with you again, and I’m really sorry that I can’t be there in person. It’s a tough time to be a self-funded retiree or managing your own super fund. The economic uncertainty creates great opportunities for those people who are attracted to risk. But for retirees, this isn’t the case. It’s also a tough time to be an adviser of those retirees; a mountain of regulatory change piled on top of the economic uncertainty. I want to say a few words about the impact of current monetary policy before talking about the government’s proposed changes to superannuation.
We support the steps that have been taken by the Reserve Bank to intervene in the bond market to provide a line of low-cost funds to lenders and to keep the cash rate at an historic low. This has been critical in supporting households and businesses through the crisis and through what we hope to be a steady recovery. But unfortunately, most of the talk that we hear about the benefits of low interest rates, they don’t tell the whole story. If we think of persistent low rates as a net shift in wealth from savers to borrowers, then we can understand that there’s a group that are going to be worse off – self-funded retirees.
Now, it seems the government is blind to the predicament. This really is extraordinary, given that one of the big reasons that Scott Morrison is Prime Minister today is because of self-funded retirees. It seems that post-election, he’s dropped them quicker than a hot potato. The government may pretend that the impact of low rates on retirees is inevitable. There’s nothing they can do. Of course, that’s not true. Over the medium and long term, the Reserve Bank has made it pretty clear it’ll be rising wages and declining unemployment that are going to be the key to rates increasing again.
The government’s industrial relations policy appear to be working in exactly the opposite direction, lower wages and more job insecurity. But it’s the short-term policies that the government is putting in place that we should also look at, and there are a few things that stand out. Let’s look at deeming rates. At one per cent, the deeming rates for small investments sits alongside the Reserve Bank cash rate. But for too long, it remained well above the rate that investors could ever hope to get in the bank interest or short-term deposits.
In times of hardship, a swift response is needed from government, and the same can also be said for the rates the government charges retirees to access the pension loan scheme. If lower returns in the retirement cycle of investment are to be a feature of the future, then we’ll also have to reassess our assumptions about what is adequate to sustain retirees over the long term. So I want to turn to the government’s proposed changes to superannuation. First, I affirm Labor’s commitment to the legislated superannuation guarantee.
Our universal superannuation system is a national treasure. As you all know, there are a few things that can make a big difference to a life in retirement than a well managed superannuation balance, but as I record this message, the Prime Minister is reported to be mulling over a plan to cut superannuation. He said that he has no appetite for big changes. Well, there could be no bigger change than this. Cutting the superannuation guarantee would be a breach of a fundamental promise the Prime Minister gave before the last election.
It would mean that the electorate could no longer trust anything the government had promised on superannuation. This is important because promises made by Prime Ministers and every other elected representative must mean something. It’s doubly important in the area of superannuation because super is an investment for the long term. People planning for their retirement and the professionals who advise them need to know what government policy is going to be. They know there’s always going to be uncertainty in the market, but the one thing that they do need certainty on is government policy.
To justify a cut in the superannuation payments, the government commissioned its Retirement Income Review. It’s an interesting piece of work. There’s a wealth of useful data in there, some general observations that in there that the anti-superannuation brigade no doubt hated. It found our retirement income system was effective, sound and broadly sustainable. Of course, we welcome that. What we can’t understand is the finding that 9.5 percent was adequate when it’s simply not supported by the data, even the data in the review.
Then we dug into the assumptions used in the review to come up with that finding. Frankly, they’re heroic. A four percent annual wage increase over the long term, seven to eight percent real return on funds and a consistent 40 year working life. Now, we know these assumptions simply aren’t true. They haven’t been true over the last few decades and they certainly aren’t going to be true over the next few decades. Even under these assumptions, they found that many retirees would not have enough retirement savings to meet their needs in retirement.
Their solution is for retirees to sell down the value of the house when they run out of money in retirement. Nobody put it better than Paul Keating when he said, “Scott Morrison’s message to retirees is eat your house”. Their plan would account to a death tax for poorer retirees whose only major asset is their family home. And when you look at those who are pushing for these cuts, it’s simply hypocrisy. The key players in this push to cut superannuation have enjoyed a lifetime of superannuation delivered at rates well above the average.
The Treasurer, the Prime Minister, the Liberal backbenchers pushing for these changes all on superannuation in one term of government that many retirees couldn’t expect to get after a lifetime of work. They seek to keep others hanging on 9.5 percent when they themselves pull in 15.4 percent. So I encourage you to use your voice to let your MP and senator know what you think. You might like to ask them. Why is 15.4 percent fair for you, while 9.5 percent is alright for everyone else?
Ask them if they think it’s fair that they put away more in four years than the average woman retires with over her entire working life. Superannuation is about a dignified retirement. Every Australian deserves one.
Stephen Jones MP,
Australian Labor Party