Is Super very Super?

A comment on the explosive election issue of Superannuation

There are few, if any, certainties in life. Nevertheless, I am willing to put significant money on the real possibility that the September Federal Election will be decided by the votes of the rapidly growing ranks of Seniors, many of whom are not happy chappies.

Right now, there are a number of issues that will determine where the Oldies vote will go. One is the desperate shortage of Age Friendly Housing, while another is the blatant discrimination against Seniors who want to stay in the workforce or return to it. However, the most powerful one is the uncertainty and complexity of Superannuation, combined with the poor financial returns that come from it.

Let me lead you through a chat about my view of the basic principles of how a good National Superannuation Program could best be run, without commenting on any details of the complex legislation that has grown-up around it so ridiculously in Australia over two decades.

I was Chairman of National Seniors Australia when Paul Keating introduced Superannuation for all employees. Even though I was not a Keating fan, I strongly endorsed his initiative, believing that it was a fundamental step forward in preparing the nation for the economic and social impact of a greying world, in which pensions will have the potential to bankrupt every nation on the planet. I reckon that it will go down in the history of Australia as one of the most important pieces of social legislation since the arrival of the First Fleet.

Since the days of that heady start, Superannuation has gone progressively downhill, except for the wise decisions to raise the percentage of employer contributions from three to six to nine, and now to 12. The ever-growing regulations and governance that smother our Super are enormously difficult to understand and unnecessarily mind boggling. We are in this state because, in the 20 years since Keating, too many changes have been made for short-term political reasons, and none of them have improved the situation. Anyone managing their own Super Fund has to pay accountants and lawyers extraordinary fees because the ordinary punter simply is not able to handle it alone.

Believing that there has to be a better way to make Super simple and take a lot of the overbearing uncertainty out of it, I made a speech at the Taxation Summit in Canberra in October, 2011, asking for the Superannuation Act, and all associated regulations, to be put through the shredder in its entirety so that a new Act can be implemented that is capable of being read and understood by human beings.

Nothing has happened, even though I have also raised it regularly at meetings of the Government’s Superannuation Roundtable, of which I am a member. I don’t lay the entire blame for this at Bill Shorten’s feet. His predecessors did little to help and he has to bring the large Super Funds along with him when he implements changes. They spend too much of their members money lobbying vigorously to protect their cosy empires, the future existence of which utterly depends on keeping their members confused enough to stay with them. I can understand also why such a big change is not politically possible before an Election. Still, I live in hope that Bill will lead the charge for a better system, or that at least one of the major parties will make an Election commitment to do it. It will be very popular with Senior voters.

It seems to me that in preparing such legislation, these fundamentals need to be the core issues of positive stability for Superannuation.

Every person who qualifies to participate in Super must be given every opportunity to build a capital sum which will provide them with an annual income which is greater than the Age Pension, including all the side benefits that a pensioner receives. This level of return will be achieved by using all of their funds annual income plus some of its capital. To achieve this, employer contributions may have to rise to 15 per cent.

This capital sum can be planned to last until the beneficiary reaches the average age of life expectation. Within the next couple of decades, the anticipated average will reach to at least 90 years of age. This means that there must be no age restriction on the right to continue to contribute.

No-one, for any reason, should be able to take all or part of their capital as a lump sum and decimate their Fund. Too many of those who now do this are known to go on to the Age Pension very quickly and defeat the whole purpose of National Superannuation.

All Superannuants should have a choice of either drawing a defined monthly amount of income and capital or take out an annuity.

Contributions and Income would be tax free until this return reaches a proscribed annual level which is deemed to be a wealth threshold. This will be necessary, otherwise Australia will have millions of citizens who pay no tax, thereby placing an intolerable burden on Young Australians.

A Wealth Tax on Super Funds whose assets are deemed to be excessive will be necessary. The level at which this is set will constantly be a matter of considerable political controversy. But, it must be set at a high level because a Fund with one million dollars capital is one that is owned by a poor person as it will generate an annual return of less than 50,000 dollars.

The system will be of such simplicity that accounting, auditing, legal and compliance fees will be minimal.

By the time this edition of Everald@Large hits the computer screens, the Government may have already announced new levels of taxation for Super Funds. Irrespective of what they are, the principles that I have outlined above need to be the basis of a new era of Superannuation.

Now for a peek at the future.

Superannuation only provides the income needed to live on a day-by-day basis. It does not help the nation as a whole cover the heavy and rapidly-growing burden of health and pharmaceutical costs incurred in keeping people alive until most of them are 90. We will need soon to have the courage to require every Young Australian to take out a Compulsory Age Insurance Policy, the cost of which will be deducted from salary. This policy would become operative when they reach 75 and, at this time, will cover all of their heath and pharmaceutical bills instead of these being claimed on Medicare. It will mean also that they will not have to pay for Private Health Insurance once they reach 75. This move will save Australia from bankruptcy, as it will provide for the heavy health costs of the last 15 years of life. Any surplus remaining in the policy will go into a deceased person’s estate, thus providing an incentive to practice preventative health and stay out of hospital.

In the meantime, the economic stability of Australia will depend on encouraging every Senior to stay in the workforce and pay their taxes for as long as possible. This being so, it will be commonplace for people of 80 still to be gainfully employed. It is easily done. This year I will be 82. I am self-employed and enjoying it. I have not yet reached my prime. After all, I am now only the medical equivalent of a 62-year-old who lived a century ago.

I will unreservedly support the Party that makes a pre-election commitment to implement all of the above in the next term of Parliament. I reckon that millions of Seniors will join me.