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And if Paul Keating doesn’t have all the answers…..he sure has some ideas
The first Plenary session of the Conference started at 11am yesterday, with an introduction by Dr Don Stammer, a welcome address by Tony Lally, ASFA Chair, and a keynote speech by the Hon Paul Keating, former Prime Minister of Australia and ‘father of the modern super system’.
The actual topic of his address was “The future of super: Does retirement income, public policy and the design of the super system need to move in a new direction?”, and Mr Keating was right on topic, giving an extraordinarily far reaching overview of the history of super in Australia as well as remarkably detailed and specific recommendations about the future.
Mr Keating spoke first about the micro and macro economic reforms which allowed for the birth of the modern super system and stressed that the agreement by the Australian workforce to forego some its current salary as savings for retirement in the form of superannuation was only made possible due to the great gains in productivity in Australia and the ensuing growth in wages during the 1980s and 1990s.
Mr Keating then spoke about the ‘policy promise’ that is superannuation. That is, the promise of a ‘good retirement’. He said that when the system could no longer live up to its promise, the promise needed to change.
The current superannuation guarantee 9% is not enough, he said, and he welcomed the phasing in of a 12% superannuation guarantee.
Some years ago, a 12% super guarantee could reasonably have been expected to provide a reasonable retirement, but with our population now growing older and older, Mr Keating spoke of the coming of 2 Phases of retirement and the issues this raise for superannuation and retirement savings.
Phase 1 is for those aged between 60-80 years old
Phase 2 is for those (and there are more and more of them) aged between 80-100.
The current system, even when the super guarantee moves to 12%, is just not going to provide for a further 20 years of life.
But now for the all important question. What should we do about this?
Mr Keating had two suggestions –
- Force people to keep some of their lump sum until later in their retirement. For example, if you are able to access your lump sum at at 65, you should be obliged to put aside, say 25%. This amount could be deferred and accessible only from the age of 80.
- Raise the 12% super guarantee to 15%, but keep the additional 3% separate, not managed either by individuals or fund managers, but managed by Government. Mr Keating said that it has always been his view that superannuation should be held and owned by individuals, not in monster Government funds, but that money put aside specifically for Phase 2 retirement would be better managed by Governments, as in his view, capital markets have problems managing these multi-generational risks, but that Governments are well placed to do it.
Mr Keating then had a good dig at the Liberals, saying that they had missed an opportunity to raise the super guarantee when they had the chance.
“We all know you don’t expect conservatives to believe in much,” he said, “but you do expect them to believe in thrift.”
Having raised a laugh, Mr Keating then made a number of serious key points about the future of super. They included :
- Capped contributions to super must be raised. Governments may not wish to forego the tax revenue now, but they will de-risk their future obligations by encouraging everyone to fund their own retirement as much as possible ;
- Australians’ expectations of rates of return are unrealistic. The recent search for yield has led Fund Managers to take risks that they shouldn't be, and the only people that win are the fund managers, as they have no personal stake in falling returns, but every possible personal stake in any upside, as they are rewarded with high fees.
- The trend of many Australians moving to SMSFs is a direct consequence of their unrealistic expectations of returns and the higher risk positions that many fund managers have taken. They believe they can do a better job, with lower fees, but the reality is that they often can’t. Also their expectation of lower fees can also be misguided.
- Superannuation held by investors over 50 years old should be heavily weighted to the less risky asset classes.
Mr Keating finished by stressing that despite what is often written in the press, superannuation was never ever conceived as a top up or tack on to the welfare system, but rather for middle Australia to allow them a comfortable retirement. He called on ASFA to be vigilant about preservation of super and not to buy into the spurious claims that it would be a good idea for many Australians to be able to use their super to pay off their mortgage, for example, or otherwise access it for purposes other than retirement.
Asked some tricky questions by Don Stammer, Mr Keating gave some thoughtful insights but was quick to acknowledge that he didn’t have all the answers.
“But give me a week on the job and I would,” he said.
