Australian Tax Office Excess Franking Credits: “When people next receive their dividend refund cheque from the government, remember the government has had to borrow that money”

The Australian Government's public debt stood at an estimated $541.73 billion and growing on 8 February 2019.

On 8 February 2019 in Sydney economist Stephen Koukoulas made a short three minute statement before the House of Representatives Economics Committee ‘inquiry’ into the Labor Federal Opposition’s policy to eliminate excess franking credits.

Excess franking credits are refundable to a shareholder who receives a dividend but has no tax liability to use those franking credits against. 

It is free money - money for jam - granted to shareholders for the last eighteen years under a Liberal-Nationals federal government tax policy.

By 30 June 2015 these excess franking credit refunds were costing the federal government an est. $2.54 billion annually and, are currently estimated to be costing the Australian Government well in excess of $5.9 billion each year.

Below are the notes Koukoulas used for that oral Statement which boiled down to two issues, the cost to the budget and how the policy is distorting investment decisions from investors and lazy financial planners.

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Tax policy is always riddled with trade offs.

No government wants to tax anyone more than it needs to, nor should it impose a tax regime that is unfair if it means cuts to services, a heavy tax impost on others in the community or adds unnecessarily to the budget deficit and government debt.

Labor’s policy on refundable franking credits will impact the budget bottom line by more than $5 billion a year.

Without the change, this $5 billion, or $100 million a week, means less money is available for the government to provide health care, roads, education, disability assistance and defence.

It is disconcerting that every dollar of refundable franking credits is currently borrowed by the government.

When people next receive their dividend refund cheque from the government, remember the government has had to borrow that money:

… every cent of it.

… this adds to government debt that will have to be repaid one day in the future by our children and our grandchildren.

I think this is unfair.

The policy also distorts the way we Australians invest our savings.

Many investors put money into companies that pay high, fully franked dividends regardless of the underlying strength or potential of that business.

Look at Telstra. The banks.

It is blind, uneducated and lazy investing recommended by lazy financial planners.

It is only the dividend, not the underlying strength of the business, that guides the investment decision.

This is one reason why the Australian stock market is still 15 per cent below the 2007 peak, while the US, German and Canadian stock markets are substantially higher.

None of these countries have refundable franking credits.

Investors in those countries provide finance to dynamic growth companies and strong businesses.

In Australia, such companies are often shunned by investors because they pay no or low dividends.

Investors instead place their money with what are average firms that structure their businesses according to tax policy distortions.

Imagine if the ASX was at 10,000 points, not the 6,000 point level prevailing today?

I suspect the concerns about dividend refunds would be trivial.

The Australian tax distortions mean that local entrepreneurial firms have less access to local capital.

The money is instead tied up in dinosaur companies paying high dividends.

It is one reason why so many of the 21st century technology and start up firms in Australia head overseas to pursue their business models.

This costs the Australian economy growth and jobs.

With the policy change on refundable franking credits, there will be a greater incentive to invest in companies and other assets for reasons of growth and entrepreneurial flair…

… which will be a positive for the economy and jobs …

… and it will be good for the long term future of Australia.

Thank you

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One of the most blindingly obvious truths about Australian super funds

The 16 Industry SuperFunds operating in Australia are run only to benefit members, have low fees and never pay commissions to financial planners.

They have long had the reputation of performing well for members, so that a worker retires with a larger super balance than if he/she had joined a retail fund.

Needless to say that reputation is pooh poohed by a good many Liberal and Nationals politicians whenever the subject of compulsory superannuation came up.

It appears that it will now be harder for those same politicians to take that attitude now.

The Australian, 19 January, p.5:

Every one of the 50 worst-performing balanced superannuation investments over seven years has been operated by retail funds such as ANZ, Westpac and IOOF, with just one product offered by the for-profit sector making it onto the list of the top 135 performers.

In revelations that categorically bring to an end the fierce three-decade dispute between retail and industry funds over which is superior, secretive and highly detailed industry data obtained by The Weekend Australian shows that regardless of the investment timeframe or level of risk involved, retail funds are unquestionably consistently at the bottom and industry funds are consistently at the top.

Despite every worker being forced to divert a portion of every pay packet into compulsory super since it was introduced in 1992 — and the key choice most people face being whether to invest in an industry fund or a retail fund — no list of worst-performing super investments has ever been made public, with analyst companies refusing to release them.

Retail and industry funds account for more than $1.28 trillion of the nation’s retirement savings and the revelations back renewed calls from federal minister Kelly O’Dwyer this week for the creation of a Future Fund-style national retirement fund to keep the nation’s super savings out of the hands of the “many rent seekers and ticket clippers” in the sector.

The highly detailed data from SuperRatings, considered the most comprehensive and accurate in the nation and used by the Productivity Commission in preparing last week’s report into the $2.8tn sector, lists 278 “balanced” super options offered by the nation’s retail and industry funds.

Over the seven years to March 2018, of all funds in “accumulation” phase, where the member is still working, the 50 worst-performing were all operated by retail funds and all but one of the 17 worst performers were managed by Westpac’s BT or ANZ’s OnePath….

Retail funds have for many years argued APRA data showing their poor performance can’t be used to judge them because it looks at only the overall performance of “funds”, which usually operate numerous different investment options.This SuperRatings data specifically examines those individual options, negating that argument.

The tweet Malcolm Bligh Turnbull thought it was wise to delete from Twitter

On 22 March 2018 Australian Prime Minister Malcolm Bligh Turnbull deleted this tweet.

@hannj666

The video this tweet contained survives for a limited time elsewhere.

The reason why this tweet came and went so swiftly? Because many of the people with speaking parts are not low-income aged pensioners who just happen to have shares.

They are former business owners who are now self-funded retirees and, a least one of them structured his superannuation now in the pension phase on the premise that he would be receiving a taxpayer-funded cashback payment for unused franking credits - that is cash handouts for tax he never paid - for forever and a day.

One suspects that Turnbull suddenly realised that the video was not the tearjerker he originally thought it was.

ACTU claims that Turnbull Government's changes to the superannuation industry will make it easier for employers to steal workers' superannuation

Australian Council of Trade Unions (ACTU), media release, 1 November 2017:

The Australian Council of Trade Unions has warned that the government’s changes to the superannuation industry will make it easier for employers to steal workers’ superannuation, in addition to giving the big banks access to workers’ super.

Independent research shows that $5.6 billion of super is unpaid every year, causing millions of Australians’ financial security to be placed in jeopardy. Jim Stanford - Director of  the Centre for Future Work, reported that wage suppression and unpaid super could result in workers being short-changed $100bn by the time they retire.

Unions are warning that this will increase with the government’s changes, as it will make it harder for unions to ensure employers are paying workers' super.

Quotes attributable to ACTU President, Ged Kearney:

“Ensuring workers super is paid to the default industry fund is a difficult job for workers and their unions. Too many employers are trying to get away with avoiding their obligations already. Opening this up to allow in the banks will make it harder to ensure workers are paid properly. 

“The government’s changes will mean that workers’ super payments will be accessible to the big banks, and that as a result, it will be harder to ensure employers are paying workers their super.

“By removing single fund provisions from bargaining arrangements, the government is attacking people’s chance of a dignified retirement, by making it harder for unions to ensure that workers are being paid what they're meant to be paid.

“When workplaces have a single fund, super funds work with employers to ensure they are paying their workers the right amount of super, and on time. If the government gets its way good employers will find it harder, and unscrupulous employers will abuse the confusion and steal workers’ retirement incomes.

“Every year, billions of dollars in super is not paid to working people. It puts their future financial security at risk. Unions spend a lot of time ensuring workers super is being paid. Increasing the amounts of funds will make this work more time and labour intensive.

“We are deeply troubled that the government would make changes to super which will not address the massive theft of workers’ super, but in fact make it worse.

“Instead, the government has decided to attack working people, open up their financial security to the scandal plagued big banks, and make it harder for unions to do their job standing up for working people.”

“We urge the parliament to block the government’s superannuation bills to ensure workers financial security is protected in better performing industry super.”

More evidence that the far-right in politics and industry are determined to drive working class Australians into generational poverty?

The Sydney Morning Herald

Wage fraud, wage freezes, cuts to penalty rates and companies scrapping enterprise agreements will reduce the retirement savings of millions of workers by $100 billion by the time they retire, a report has found.

The report, the Consequences of Wage Suppression for Australia's Superannuation System by the Australia Institute's Centre for Future Work, says the government will pick up more than one third of the cost, equivalent to $37 billion in lost taxes due to lower super contributions and higher age pension payouts.

It estimates that three million people, or one in four workers, have experienced some form of wage suppression, which will adversely impact their super payout.

The author of the report, Jim Stanford, describes wage suppression as an economic "time bomb". He says while individual families are grappling with the immediate impact of wage cuts, the long-term impact when they retire is yet to play out.

[THE CONSEQUENCES OF WAGE SUPPRESSION FOR SUPERANNUATION, p.9]

Centre for Future Work at the Australia Institute, Jim Stanford, Ph.D., The Consequences of Wage Suppression for Australia’s Superannuation System, September 2017, excerpt from Summary:

Wages and salaries in Australia’s labour market are exhibiting their weakest growth in the history of the relevant statistics. Hourly wages are growing at less than 2 percent per year, and real wages (adjusted for consumer price inflation) are stagnant or falling. The unprecedented stagnation of wages reflects many factors, including chronic weakness in labour demand and the erosion of traditional wage-setting institutions (such as minimum wages and collective bargaining). But it also reflects, for millions of Australian workers, the aggressive efforts by employers (both private- and public- sector) to deliberately suppress wages below normal levels. These wage-suppression strategies take many forms: from the imposition of temporary wage freezes, to the unilateral termination of enterprise agreements, to the outright theft of wages through below-minimum payments. These pro-active measures to suppress labour incomes, breaking the normal link between labour incomes and labour productivity (which continues to grow at over 1 percent per year1), impose great harm on affected workers, their families, government budgets, and Australia’s macroeconomic performance.

There is another important consequence of these wage suppression strategies that is often not sufficiently understood by workers, employers, policy-makers and regulators: their flow-through impact on Australia’s retirement income system. When workers’ wages are unduly suppressed, then the normal flow of employer contributions into their superannuation accounts is also constrained. They will have smaller superannuation balances when they retire, and will consequently experience a lasting reduction in post-retirement incomes. Moreover, governments will share a significant portion of the resulting damage: they will collect less in taxes on superannuation contributions and investment income, and will pay out more in means-tested Age Pension benefits (since workers’ superannuation incomes will be smaller). These significant, lasting consequences from wage-suppression strategies should be documented and considered. They provide a powerful motive for all stakeholders to challenge employers’ wage-cutting initiatives. They also should be of direct concern to superannuation trustees and administrators – since the capacity of the superannuation capacity of the superannuation system to provide decent, secure retirement incomes for its members is being undermined by this growing pattern of wage suppression.

This report presents results from several quantitative simulations of the impact of wage suppression on superannuation entitlements of affected workers, their long-run retirement incomes, and corresponding fiscal effects on government. The report considers several specific scenarios, corresponding to different instances of pro-active wage suppression strategies that have been experienced by Australian workers in recent years. It traces through the impact of those policies on workers’ wages, superannuation accumulations, and retirement incomes. The simulations also describe the spill-over impacts on government (arising from reduced taxes collected on superannuation contributions and investment income, and increased Age Pension payouts). The simulations confirm that:

* Wage suppression undermines superannuation accumulations by automatically reducing employer contributions. Moreover, the damage is compounded over time due to the subsequent loss of investment income.

* Even temporary wage restraint measures (like temporary wage freezes) have lasting negative impacts on superannuation balances, by altering the trajectory of a worker’s wages for the rest of their career.

* The most dramatic instances of wage suppression – the termination of enterprise agreements by employers, and resulting large wage reductions as workers are placed back on minimum award conditions – can reduce the superannuation balance of a retiring worker by as much as $270,000.

* More modest wage suppressing policies (such as temporary nominal wage freezes, producing real wage reductions that are then sustained through a worker’s remaining years of service) reduce retirement superannuation balances by $30,000 or more.

* Government bears a share of the resulting losses, through both reduced tax collections before affected workers retire, and increased Age Pension payouts after they retire. In the worst-case scenarios, governments can experience fiscal losses of over $50,000 per worker (in real 2017 dollar terms).

* Millions of Australians have been confronted with one or more of these forms of wage suppression from their employers, so the aggregate impacts across the economy are enormous. Based on plausible estimates of the number of workers confronted with each form of wage suppression, the aggregate loss of superannuation balances on retirement (if the pattern of wage suppression is maintained) could ultimately exceed $100 billion (in real 2017 dollars) by the time affected workers retire, and the aggregate fiscal cost to government could reach $37 billion (in real 2017 dollars)………..

1 A recent Department of Finance research paper on productivity trends confirms that labour productivity continues to grow at typical historical rates – advancing at an annual average rate of 1.8 percent over the last five years alone. See Simon Campbell and Harry Withers, “Australian Productivity Trends and the Effect of Structural Change, “ August 28 2017, http://treasury.gov.au/ PublicationsAndMedia/Publications/2017/ Australian-productivity-trends-and-the-effect-of-structuralchange

[THE CONSEQUENCES OF WAGE SUPPRESSION FOR SUPERANNUATION, p.10]

New campaign warns industry super members and consumers of bank attempts to dismantle successful superannuation model

Medianet Release

  MEDIA RELEASE

20 March 2017

Keep bank ‘foxes’ out of the super henhouse, new campaign warns

A powerful new campaign warns industry super members and consumers of bank attempts to dismantle the model used by the most successful part of the superannuation system, and put at risk the retirement savings of millions of Australians.

At the centre of the Industry Super Australia campaign is a 30-second television segment which depicts the hand of a federal politician opening a hen house to waiting foxes. The tagline is “Banks aren’t super”.

The commercial responds to bank attempts to secure unfettered access to Australia’s default superannuation system for those who don’t choose their own super fund.

To achieve this, government would be required to dismantle the Fair Work Commission’s merit-based process of shortlisting workplace default funds for employees who are otherwise disengaged from the super system. 

These mostly not-for-profit default funds consistently outperform the retail super products sold by banks and others, ultimately leaving their members in a stronger financial position at retirement.

Industry Super chief executive, David Whiteley, said: “The banks are quietly pressuring federal politicians to remove the laws that protect Australians who save through workplace default funds”.

“Not-for-profit industry super funds have consistently outperformed bank-owned retail funds by almost 2 per cent per year over the past twenty years[1][1]”.

“If the banks succeed in bringing the default system down, the super savings of millions of Australians could be at risk,” he said.

Research conducted ahead of the campaign shows strong public distrust for banks             when it comes to super.

“The 5 million Australians who entrust their savings to an Industry Super fund expect us to call out exactly what the banks are up to - and our politicians to stare them down,” said Whiteley.

The advertisement broadcasts from Monday 20 March, 2017. View it here

In 2016, the federal government tasked the Productivity Commission with exploring alternative ways of allocating default super fund products. The Commission’s baseline is for a system with no defaults. A draft report is expected in the coming fortnight.

The government has also vowed to reintroduce a bill, defeated by the senate in 2015, that will change the way not-for-profit super funds are governed so they are more like the banks.

Industry Super Australia Pty Ltd ABN 72 158 563 270, Corporate Authorised Representative No. 426006 of Industry Fund Services Ltd ABN 54 007 016 195 AFSL 232514. Consider a fund’s Product Disclosure Statement (PDS) and your personal financial situation, needs or objectives, which are not accounted for in this information, before making an investment decision.) Past performance is not a reliable indicator of future performance.

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Distributed by AAP Medianet

[1][1] Source: ISA analysis of APRA Superannuation Statistics

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Australians do not trust banks with their super, 7 out of 10 want a not-for-profit system, Essential Research polling reveals

AAP MediaNet, media release, 3 March 2017:

Australians do not trust banks with their super, 7 out of 10 want not-for-profit system, new polling reveals

Explosive new polling shows that when it comes to superannuation, most Australians don’t trust the big banks and over two-thirds want the system to run on a not-for-profit basis with all returns to members.

The Essential poll of 1000 people, commissioned by Industry Super Australia, has found that only 31% trust that the banks will ensure the superannuation system works in their best interest. This compares to 38% for the Federal Government; 61% for the Fair Work Commission; and 69% for Industry Super Funds.  

Consumers feel strongly that their interests should be the sole focus - 70% believe all super funds should be not-for-profit with all returns to members rather than split with shareholders; just 6% disagree.

Industry Super Australia chief executive, David Whiteley, says the results send a clear message the public want superannuation to work solely in their interests and not as a profit-making opportunity for the banks’ wealth management machines.

“When it comes to super, the banks are legally required to act in the best interest of their customers; most Australians don't believe they do," said Whiteley.

“Consumers know aggressive cross-selling of advice, insurance and super is designed to boost shareholder profits rather than leave them better off.” 

“The banks’ relentless lobbying to remove consumer default protections could result in people ending up in under-performing funds and a nest egg that’s tens, even hundreds, of thousands of dollars short”.

“Australians have told us what they think – they don’t trust the banks and believe their culture and profit motive are at odds with the purpose of super,” said Whiteley.

It is a sentiment shared by 58% of respondents who believe the banks would use the compulsory nature of super to exploit fund members.

Two thirds of Australians agree that the banks are already too powerful and giving them more of the superannuation market would make the situation worse.

Instead 57% want a small number of high quality super funds run by trusted providers rather than a large menu of bank offerings. 

“Public opinion clearly runs counter to the banks’ efforts to change the super system to suit their vertically integrated business models. Astute policymakers will be listening,” said Whiteley.

The big bank CEOs will appear before a parliamentary inquiry this Friday and early next week. The Standing Committee on Economics’ Review of the Four Major Banks hearings are set for 3, 7, 8 March.

ASIC has recently launched court proceedings against Westpac for a 3-year sales campaign that alleges staff were rewarded bonuses for shifting customers from external super funds into a bank fund. ASIC alleges that Westpac failed its best interests duty to consumers; breached financial licence conditions and Corporations Law and failed to ensure related financial services entities provided services honestly and fairly.

The survey was conducted 15-26 February 2017 and weighted to represent the wider population.

Industry Super Australia provides policy, research and advocacy on behalf of 15 not-for-profit Industry SuperFunds who are the custodians of the retirement savings of five million Australians.

Next time a man tells you that there is a level playing field.........

Many older Australian women alive today reached retirement age without any superannuation savings. Some will still do so into the future if they have predominately engaged in unpaid work during most of their working-age life.

Superannuation was first paid in the mid‑1800s as a benefit to certain employees in the public service and larger corporate organisations. Invitation to join what were then a limited number of superannuation schemes was predominately restricted to males at professional/managerial level. Full benefits upon retirement could be taken as a lump sum. By 1915 super earnings were exempt from taxation [taxreview.treasury.com.au].

As recently as the late 1960s women often faced an employment bar on marriage and/or once wed were forced to withdraw from any superannuation scheme they may have had the good fortune to be previously eligible for. [Paxton, JA, July 2014, Women and Superannuation: The Impact of the Family Law Superannuation Regime, p.23]

Superannuation was fairly uncommon in Australia until the 1970s, when it began to be included in industrial awards.

In 1985, only 39 per cent of the workforce had superannuation—24 per cent of women and 50 per cent of men had access to super.

At that stage, superannuation coverage was concentrated in higher paid white collar positions in large corporations and, in the public sector.

Superannuation became a major component of Australia's retirement system following the introduction of the Superannuation Guarantee in 1992. The Superannuation Guarantee requires employers to contribute a percentage of an employee's earnings into a superannuation fund, which the employee cannot access until they reach the superannuation preservation age. For most employees, superannuation coverage expanded following the introduction of compulsory superannuation.

In 1993, 81 per cent of employed Australians were covered by superannuation and the gender gap in superannuation coverage had narrowed, with 82 per cent of employed men and 78 per cent of employed women covered by superannuation. The employer contribution rate has increased over time, from 3 per cent in 1992 to the current rate of 9.5 per cent. 
[Economics References Committee, April 2016, 'A husband is not a retirement plan': Achieving economic security for women in retirement, p.6]

The superannuation industry, including the Commonwealth's defined benefit funds, may prefer to forget past practices. There was a time when women were forced to leave their super fund on marriage and, as a result, were deprived of unvested benefits. The winners then were long-term (usually permanent) employees, predominantly male, who reaped their full entitlements on retirement……

It wasn't too long ago that during a family breakdown, women who sacrificed a career to bring up a family were unable to access their partner's vested super benefits. Family law changes now allow women to access a fair share of their former partner's superannuation.  [The Sydney Morning Herald, 6 March 2016]

The table below shows the disparity between men's and women's superannuation balances over time across all age groups.

[Economics References Committee, April 2016, 'A husband is not a retirement plan': Achieving economic security for women in retirement, p.9]

Industry Super/CBUS report "Overdue: Time For Action On Unpaid Super" published November 2016

How much super should you have right now and how much do you really have?

The Industry Super/CBUS report Overdue: Time For Action On Unpaid Super was published in November 2016.

The report states:

Introduced in 1992 at three per cent in lieu of a wage increase and as a means of boosting retirement savings, the Superannuation Guarantee (SG) is now a matter of right.

Today, employers are required to contribute at least 9.5 per cent (up from 9.25 per cent in 2014) to the superannuation accounts of every worker earning $450 plus a month.¹

In doing so, Australia has amassed a $2.1 trillion savings pool that, in shifting economic winds, increasingly holds both the nation and its people in good stead.

However, two new reports suggest some employers are undermining the system by not meeting their payment obligations. Separate analyses conducted by Industry Super Australia (ISA) and by Tria Investment Partners for Cbus indicate the non-payment of superannuation entitlements could be widespread and, in dollar terms, increasingly significant. These findings suggest further work is needed to fully understand the scale of this problem with consequential changes in ATO audit activity.

It also states:

Responsibility for ensuring SG payments are made rests almost entirely with individual employees.

High levels of disengagement, low levels of financial literacy and extreme information asymmetry mean that employees are ill-equipped to determine or address SG non-compliance.

Those most at risk of not having their SG contributions paid are younger, lower income earners working in industries with high levels of casualisation and sham contracting, including construction, cleaning and hospitality.

Small and medium-sized businesses are least likely to pay SG.

And that:

While individual experience may vary enormously, average impact of SG non-compliance is the loss of 7 months of contributions for a person earning the average wage in 2014.

Put baldly this report highlights the fact that Without action unpaid super will reach $66 Billion by 2024.

Key points in the report:

Two new reports suggest retirement incomes are being undermined by employers who are not meeting their Superannuation Guarantee (SG) obligations on behalf of workers.

These reports estimate that employers failed to pay at least $3.6 billion in SG contributions in 2013-14. The two components of the combined estimate are:

• Underpayment of SG for PAYG employees and sham contractors which Industry Super Australia (ISA) estimates was at least $2.8 billion in 2013-2014

• Unpaid superannuation for workers employed in the cash economy which separate research by Tria Investment Partners for Cbus estimates added an additional $800 million.

This equates to 30 per cent of workers not being paid part or all of their compulsory super.

Younger workers, low income earners and workers in the construction, hospitality and cleaning industries were most likely to miss out on superannuation.

On average, affected workers missed out on $1,489 or almost 4 months of superannuation contributions.

Using Tria’s projections and its own, ISA estimates that unless action is taken, unpaid superannuation will amount to over $66 billion by 2024.

These estimates are conservative - using a compliance benchmark of 8.5% of assessable income rather than the statutory rate of 9.25% in 2013-14. If these estimates took into account a loophole that allows employers to count employees’ voluntary contributions, via salary sacrifice, towards their SG obligations, the problem would be greater.

Government action is warranted. It should:

• Urgently investigate these new estimates

• Undertake detailed analysis of the types of industries and employers that do not pay SG

• Adequately resource the Australian Tax Office (ATO) to recover unpaid SG

• Immediately close the loophole that allows employers to count salary sacrifice amounts towards their SG obligations

• Investigate the feasibility of introducing real-time payment, reporting and compliance of SG using new Single Touch Payroll (STP) technology

• Introduce a direct, clear, enforceable mechanism for superannuation funds to recover unpaid SG from employers on behalf of members

• Retain existing penalties against employers who fail to pay SG and introduce stronger penalties, including personal liability for directors of companies that do not meet those obligations

• Extend the government safety net that protects unpaid wages and entitlements when a company becomes insolvent to protect unpaid superannuation.

The full report can be downloaded here.

Productivity Commission criticized over focus of superannuation inquiry

MEDIA RELEASE

7/11/2016

Super inquiry should look to the best, not second rate, systems

The Productivity Commission should focus on the world’s best retirement income systems rather than consider inferior models in its review into default superannuation settings, warns Industry Super Australia.

The retirement income systems of Denmark, the Netherlands and Australia are currently ranked first, second and third respectively in Mercer's 2016 Global Pension Index. Yet, Chile (ranked 8) and New Zealand (no

ranking) are being held up as exemplars in the Productivity Commission’s review process.

In its submission to the review, released today, Industry Super highlights key features of the successful Danish and Dutch systems that are already evident in Australia’s high-performing industry, corporate and

public sector default funds. (See table below.)

Specifically, they are:

• Trusted providers run on a not-for-profit basis only for the benefit of members;

• Industry or multi-industry funds generally affiliated with or approved by industrial parties;

• Wholesale rather than retail in structure to leverage scale and minimise costs.

Industry Super Australia chief executive, David Whiteley, said the focus on New Zealand’s and Chile’s pension systems had set the Productivity Commission review off on the wrong foot.

“The touchstone of a world class pension system comes down to the culture and values of the providers,” said Mr Whiteley.

“The best systems– just like Australia’s best performing funds – involve employers and employee representatives working together to deliver income security for retirees. They are not about generating profits for banks and financial institutions,” he said.

“The approach to superannuation in Denmark and the Netherlands - along with the part of Australia’s system built and maintained by unions and employers - is internationally lauded.

“The key difference is that these systems and institutions put member interests above those of others, including shareholders”.

“Super is different to banking and industry super funds are deliberately different to bank super funds,” he said.

The track record of for-profit entities in superannuation systems is poor, and, in Australia, regularly dogged by scandals. In the past week it was revealed the major banks’ wealth management arms will have to pay up

to $170 million in compensation to customers who were charged for services they never received. A separate analysis conducted by Rainmaker for ISA found that retail and bank-owned super funds have gouged up to $1.8 billion in fees by delaying the transfer of accounts to cheaper MySuper products.

“Official APRA data shows the for-profit retail sector has underperformed industry super funds and other not-for-profit funds by almost 2 per cent a year on average over the last decade. The retail model has

comprehensively failed to deliver fair outcomes for members,” said Mr Whiteley.

“What separates Australia from the best systems is that we allow for-profit funds to participate, despite clear and serious conflicts of interest and an unwillingness to act on them”.

Industry Super Australia supports the role of the Fair Work Commission in determining workplace default funds.

The Productivity Commission has been tasked with developing alternative models for a formal competitive process for allocating default fund members to products. Its draft report is due in March

2017.

For further information, including a copy of the submission, contact Phil Davey 0414 867 188

Industry Super Australia provides research and advocacy on behalf of 15 not-for-profit industry funds who, in

turn, are the custodians of the retirement savings of five million Australians.

The opinions above are those of the author in their capacity as spokesperson for Industry Super Australia (ISA). ISA, the authors and all other persons involved in the preparation of this information are thereby not giving legal, financial or professional advice for individual persons or organisations. Consider your own objectives, financial situation and needs before making a decision about superannuation because they are not taken into account in this information. You should consider the Product Disclosure Statement available from individual funds before making an investment decision. Industry Super Australia Pty Ltd ABN 72 158 563 270, Corporate Authorised Representative No. 426006 of Industry Fund Services Ltd ABN 54 007 016 195 AFSL 232514

Turnbull Government about to walk back superannuation changes and cost federal budget bottom line up to $335 million over first four years?

ABC News, 23 August 2016:

Independent costings suggest the Federal Government could end up losing money out of its proposed overhaul of superannuation changes if a key measure is watered down.

The Government has proposed a $500,000 limit on after-tax contributions to superannuation, in a move it says will save $500 million over four years.

The changes have upset a number of Coalition MPs, with some pushing for the $500,000 limit to be increased.

Analysis conducted by the Parliamentary Budget Office (PBO) — commissioned by the Greens before the Government's proposal was put in place — suggest any increase of that limit could see those budget savings evaporate.

The PBO document from last year modelled the impact of hypothetical caps on superannuation after-tax contributions, ranging from $500,000 to $800,000.

According to the PBO, placing a $500,000 lifetime cap — which the Government is proposing — will see an additional $165 million put into government coffers over four years.

Increasing that cap to $600,000 would see those savings disappear — and end up costing the Government $85 million over the same period.

An $800,000 cap would cost the Government $335 million.....

The analysis did not look at the impact of back-dating the measures to 2007, which is a key part of the Coalition's proposal……

Mr Morrison announced the cap in non-concessional contributions as part of an overhaul of the superannuation system, forecasting it would save $550 million, starting from July 1, 2017.

Mr Morrison has been negotiating with the backbench following concerns raised within the Coalition about aspects of the policy.

On Monday, Mr Morrison resisted rolling-back on superannuation unless savings were found from elsewhere.

"I would find it pretty hard to look my kids in the eye and tell them they have got to saddle a higher debt because someone who had a very big income wanted to pay less tax," Mr Morrison told 2GB.

The changes are yet to pass through Federal Parliament.

Will the Turnbull Government finally eliminate those overgenerous superannuation tax concessions for the wealthy?

Is talk of make superannuation policy fairer just part of the political spin in the lead-up to this year's federal election spin or will the Turnbull Government genuinely commitment to removing overgenerous superannuation tax concessions for the wealthy?

In 2015 Australian Treasurer Scott Morrision put superannuation tax concessions for the high-income earners on the table - signalling the possibility of cuts to tax concessions for this group.

By January 2016 Morrison was holding to this position with qualifications.

Public expectation began to build that the Turnbull Government would at last address those tax loopholes in the national superannuation scheme which allows high-income earners to use super as a form of tax avoidance or as estate planning, but leaves ordinary workers paying higher levels of tax on their own super.

An article in The Australian on 3 February 2016 contained this information on government policy relating to tax breaks for the wealthy and the current public mood:

More than 60 per cent of voters support increasing the tax on superannuation contributions for high-income earners in a Newspoll that will buttress plans by the Turnbull government to strip back the generosity of tax breaks on compulsory savings…..

Treasury estimated last week that the tax breaks on superannuation contributions would cost the government $16.2bn in tax revenue this year, or almost half the projected budget deficit. The concessional treatment of superannuation earnings costs the budget a further $13.6bn…..

Treasury has been pressing for a tightening of superannuation tax concessions since 2008. It estimated that in 2012-13, people on the top tax bracket were gaining concessions on contributions worth an average of $4900 a year while people on the bottom two tax rates got concessions of $320.

The response from the Turnbull Government was expected to fall in with the public mood and further announcements were anticipated.

Unfortunately, by 5 February an unnamed source in Canberra had let it be known that the government also has the Super Guarantee in its sights and intends to permanently halt increases in the amount of compulsory superannuation contributions paid by an employer into a worker's superannuation account.

If this comes to pass then an est. 11.5 million workers (based on 2015 figures) currently below retirement age will have less money to live on in their eventual retirement years and their employers with potentially more money in their own personal retirement kitty.

Broken down by gender that's an est. 6.1 million men and 5.3 million women (including in excess of est. 90,000 couples) with less retirement savings in their pockets to meet their living expenses when their working life ends. 

Prime Minister Turnbull has since denied there will changes to the Super Guarantee - or did he?

Mr Turnbull tried to distance himself from the proposal saying “the Government has got no plans to change the rise in compulsory super.”

However he did not deny the move was up for discussion, saying: “What is happening at the moment is that we’re having a very lively debate about tax and economic reform and so all sorts of proposals are swirling around.”

Somehow I'm not feeling confident this denial will last because I'm not sure that this particular federal government understands the real meaning of 'a fair go for all'.