We Still Don't Have Super of the Future
One of the most significant reforms of the last few decades was the superannuation levy and the resultant creation of the current superannuation industry.
While the Australian super system is one of the world's best, it has a number of major flaws that need fixing. The Howard Government's control, as from 1 July 2005, over the Senate provides the opportunity for long overdue reform.
One of the many flaws of the Australian superannuation system is that the Government gave monopoly rights to select super fund providers. Specifically, it gave industrial funds controlled by union and employers groups monopoly rights over the receipt of super payments made on behalf of workers through industrial awards and agreements. It also greatly restricted the ability of workers to change funds, even those not covered by awards.
Of course the decision to create industrial super funds and to limit choice had lot to do with the Keating Government's desire to throw a lifeline to the industrial relations club. The restrictions were also motived by the belief that workers are incapable of understanding the complexities of managing funds, of planing for the long term, and of assessing risk. Opponents of choice also argue that choice will necessarily lead to greater advertisement and therefore greater costs.
These arguments are largely hollow. Why is choice, personal responsibility and advertising considered a positive when it comes to the purchase of a house, a car, a bank loan, a university, and a job but not for a super fund? Greater choice will lead to more advertising by funds in an effort to retain and attract customers. But this is good, not bad, as it will help direct funds to the better performing firms and lead to a better informed investing public.
To be fair, the Howard Government has pushed reform of the superannuation system for the last eight years. In particular it has tried repeatedly to allow greater choice of funds. In July 2004 it finally got a choice of funds bill through the Senate. However, to do so, it was forced to agree to a range of amendments and exemptions, that greatly reduced the effect of the bill.
As a result, the 'choice' regime that comes into force on July 1 2005 still greatly restricts choice. The bill does not override restrictions on choice of funds in state and federal industrial awards or enterprise or certified work agreements. The bill also retains the exemption for state and public sector super schemes. The bill only provides choice to funds invested under the superannuation levy (of 9 per cent) and not to funds invested by way of salary sacrifice and in excess of the levy. Also, the expansion of choice is largely restricted to new payments, not past investments.
The new legislation does provide scope for employee to override awards and other restriction in some circumstance, but only with the approval of their employers. In short, it gives employer the choice, not, as it should be, the employee.
After housing, superannuation represents the largest stock of wealth for Australian households. And it is set to grow in importance. It is time to give people the right and responsibility to manage it and their future.