Superannuation, which unions fought and worked for, is under serious threat from a Government which wants to deliver rewards to its loyal supporters in the financial institutions, the banks and insurance companies argues ACTU President, Jennie George.
I am very pleased to be speaking at an ASFA function because it has given me an opportunity to re-affirm the union movement’s interest in and commitment to superannuation.
Although I am certain that most people here are aware of the important role that the union movement played in establishing our system of universal occupational superannuation, I sometimes feel these days that this is seen as a bit of rather shady history; it might have happened, but people don’t like to talk about it. Actually, I am very proud of the part that unions played, together with many others, most particularly the former Labor Government, in creating a system which works as well as it does.
This superannuation system, which unions fought and worked for, is under serious threat from a Government which wants to deliver rewards to its loyal supporters in the financial institutions, the banks and insurance companies. As we know, these bodies feel cheated of their fair share of superannuation business (although they have a fair slice) and long for the good old days when they were the main beneficiaries of the superannuation system.
Before the introduction of award superannuation in the 1980s, superannuation was understandably not highly regarded by most workers. In many cases they had no access; where they did, they would find themselves losing all their benefits if they left the job before retirement; if they were lucky they would get their own contributions returned with minimal interest.
The union campaign around superannuation has given us a very different system:
- it is universal – no longer are women, blue collar workers and part-time workers excluded from the system;
- administration charges are low – workers can now join superannuation funds which charge no more than $1 per week in administration charges and around 0.5 per cent in investment charges
- no longer are they forced into schemes with five per cent payable in annual fees and exit fees of up to 40 per cent;
- it is totally vested – no longer can employers retain benefits of workers who resign, and use these to fund big payouts for senior staff.
Yet the Government, backed up by a few banks and insurance companies, and not many others, is seeking to launch an attack on at least the first two of these key features of our superannuation system.
The universality of the system is being undermined by the Government’s intention, from 1 July 1999, to allow employees earning between $450 and $900 per month, to “opt out” of superannuation; that is, to take superannuation contributions as cash instead.
These are people working around ten to fifteen hours per week; they will be predominantly young people and working mothers. A very large proportion work in the retail and hospitality industries. These are people who, perfectly understandably, are more focussed on their immediate financial needs than on their retirement; many, maybe most, will welcome the opportunity to trade superannuation for cash. But is this what it’s really about – giving a hand-up to the needy? I don’t think so, and the ACTU strongly opposes the Government’s agenda, which we think goes something like this.
First, the extra cash will look to many like a wage increase, disguising the effect of the Government’s efforts to reduce award wages and conditions for the lowest paid. It may also operate to disguise the effect of a GST on the disposable incomes of the low paid.
Second, irrespective of the promotion of this as individual choice, the reality is that, in practice, employers will be able to decide whether or not to pay superannuation on behalf of low-paid employees. In some cases the employees will receive the cash, in many they won’t. Or they’ll receive some of it, but not applied to loadings and penalties, or adjusted for increases in wages and in the SGC.
The Government says this is about giving low paid employees access to cash if that’s what they want. But it’s nothing of the sort. It is simply about chipping away at the superannuation system, to reduce participation, and direct benefits to the high paid and the financial institutions, the original and rightful beneficiaries.
After all, if the concern was about the needs of low-paid workers, the Government might take a look at those earning less than $450 per week. These workers have no entitlement to superannuation contributions under SIS, although some do have an entitlement, at least to three per cent, under their awards. Is the Government doing anything to boost incomes for these workers? No, it’s doing quite the opposite. Not only is there no suggestion that these workers receive a cash equivalent to the superannuation they don’t get, but the Government has introduced a Bill to remove superannuation provisions from awards, thus stripping some very low paid workers of their entitlement altogether, and with no cash-equivalent option.
There are real issues in this for retirement incomes for women, in particular, who often work part-time for some of their working lives, and who will be denied the significant addition to their total benefit which would come from contributions made during this time.
The Government is also launching an attack on the availability of low-cost superannuation, disarmingly and dishonestly called “choice”.
One of the great achievements of the industry funds has been the way it has forced down costs, not only in the industry funds, but in many others who wish to compete, particularly corporate funds. There are still a number of funds, in particular the master funds, which have relatively high fees and charges, generally because they pay commission to selling agents. These funds market themselves heavily through employers and are aggrieved that awards prevent employers from foisting these uncompetitive products on employees in exchange for some direct or indirect benefit for themselves. Choice, in itself, is not a problem. The union movement supports choice. The disputes which accompanied the introduction of award superannuation in the building industry, in manufacturing and in warehousing were about choice – the right of workers to choose where their superannuation funds went, rather than having this determined by employers.
Award provisions were brought in to protect workers from having inappropriate choices foisted on them. Many, if not most, awards, provide choice, whether this is between a number of industry funds, an industry fund and a corporate fund, or more open-ended choice. The main function of awards is preventing employers from being in a position to choose the fund, irrespective of employees’ interests.
If individuals don’t want to be in the fund specified in the award, I don’t have a problem with the award enabling them to join something else. The amendments put forward by the Labor Party and by the Democrats, both address the issue of choice in a way which gives individuals the ability to choose, but denies employers the ability to determine the issue for workers. They do this by allowing individuals to opt out of the award-specified fund if they wish to do so, as is currently the case in NSW and Queensland.
The Government’s legislation, on the other hand, repeals any protective measures from employees, strips the Industrial Relations Commission of its power to solve disputes and ensure that employees’ interests are addressed, and puts the choice process firmly in the hands of employers and fund providers. The effect on costs, if this misguided legislation was to become law, will be to push them up. Vast marketing budgets, together with commissions to agents and incentives to employers, will lead to fee increases for all funds. Even those funds which rightly recognise that intensive marketing of a mandatory contribution, such as the SGC, does not add value, will be forced to participate, at least to some extent, if they are to remain viable.
Whether or not there is a place for commissions to be paid in relation to traditional life insurance and retirement products, they cannot possibly be justified for mandatory SGC contributions, which everyone is entitled to receive. Marketing will not affect the amount of contributions, and can only reduce final returns as costs add up. There is a very strong case to prohibit the payment of commissions on SGC contributions.
The role of employers in the process will also be of concern. With employers obliged to establish a process for offering so-called choice to employees, it is naive to believe that they will not play a part in the outcome of that process. Employee surveys show that employer wishes are a crucial factor in employee decisions about superannuation, while many employers resent paying superannuation contributions, seeing this (wrongly) as one more example where they are forced to collect taxes on behalf of government.
There can be no doubt that many employers will steer employees towards a particular scheme or schemes, probably packaged together by one major financial institution. In some cases, commissions will be, in effect, split with the employer; in others, superannuation will be one of a number of financial services offered to the employer, which will make it financially attractive to the employer to push employees towards that fund. Finally, employers may simply find it more convenient to use one financial institution to provide all financial services.
The union movement has made it quite clear that we will not tolerate employers disadvantaging workers in this way. Superannuation is an industrial issue, because it is about workers’ incomes. Last year the ACTU took out a full page advertisement in the Financial Review to warn employers about the industrial and legal consequences of pushing employees into RSA’s.
The Government responded to employer concern about potential legal liability by purporting to exempt employers from such liability in the choice legislation. Even if this works, and most legal advice is that it doesn’t, implementation of employer choice is likely to produce a number of disputes.
The union movement will not sit idly by and see the destruction of a system that works, in favour of one designed to benefit the Government’s mates in the financial institutions, and satisfy the ideological fixations of some senior Ministers.
If the Government was to succeed in removing all award superannuation provisions, this could mean significant losses for many employees. I have already spoken about workers who have an award entitlement to superannuation even though they earn less than the SGC threshold. Awards generally also provide an entitlement to employees on workers’ compensation make-up pay, and provide for monthly payments of contributions to the fund, while SIS only requires that these be made annually. These and other issues are also likely to be the subject of disputes on the job, unless employers agree to include them in enterprise agreements.
I must admit I can’t work out what this Government is trying to do about superannuation. One goal, clearly, is to wipe out industry funds, together with union involvement in the running of funds. Given our achievements, I don’t think we have any reason to be apologetic. Although the industry funds’ assets comprise only round seven per cent of total superannuation assets in this country, they have been able to set the standard in areas such as cost minimisation and service to members, including “add-ons” like the successful super home loans and business loans. Unions are not retreating from superannuation – we have no reason to, and no-one has shown me how members would be better off if we did.
Other Government initiatives seem to be aimed at destroying the credibility of the system; for example, the introduction of the tax surcharge, which has been a complete debacle. Nobody knows how it’s supposed to work with defined benefit funds, while some industry funds have spent more in administering the surcharge than has been raised from members in tax. On one hand, it might look like the Government wants to destroy the attractiveness of superannuation, so that the SGC can be abolished and everyone breathes a sign of relief, opting out being the first step of this strategy.
On the other hand, retention of the SGC, if access is restricted until pension age, could be used to, in effect, replace the old age pension. It won’t do more than this, given the Government’s decision not to proceed with the former Government’s plan to increase superannuation savings to 15 per cent, the level required to provide adequate income in retirement. The replacement of this with the savings rebate shows, as much as anything else, the narrowness of this Government’s vision, putting the political imperative of being seen to reward past savings ahead of the goal of actually increasing national savings.
While superannuation is a necessary supplement to the social security system, given the aging of the population, the union movement never saw it as a substitute. The availability of superannuation before pension age is a critical element in the system, particularly the shift to earlier, often involuntary, retirement. If superannuation is simply a substitution for the pension, workers will turn against it. Many know that they have no hope of getting a job if they become unemployed in their fifties. That’s why, when the Government announced that the preservation age would gradually increase to age 60, the ACTU resolved that any move to increase it beyond this point would lead to a national industrial campaign, including stoppages of work.
It is hard, at this point of the political cycle, to be sure of where superannuation is going. It would seem that after the announcement of the tax package tomorrow, which is not expected to do anything in relation to retirement savings, that an election will be held relatively soon. It is unlikely that the superannuation choice legislation will come back before the Senate prior to that election.
There is every chance that Labor will win, which will give us the opportunity to restore some proper direction to superannuation. Whatever happens, this issue is too important to fall victim to short-term opportunism – the union movement will do all it can to make sure that doesn’t happen.
ACTU President, Jennie George
ASFA Luncheon, The Ballroom – Hilton Hotel, Sydney