SUPERANNUATION LAWS AMENDMENT (2004 MEASURES NO. 1) BILL 2004Cognate bill:SUPERANNUATION LAWS AMENDMENT (2004 MEASURES NO. 2) BILL 2004 : Second Reading
Mr CADMAN (Mitchell) (1.09 p.m.) —There are two superannuation bills before the House today, the Superannuation Laws Amendment (2004 Measures No. 1) Bill 2004 and the cognate bill, the Superannuation Laws Amendment (2004 Measures No. 2) Bill 2004.
The former bill is attracting the most attention and is the one that the previous speaker, the member for Kingston, spent most time on. It deals with amendments to the Superannuation (Government Co-contribution for Low Income Earners) Act. The bill is an innovation and it adds to previous innovations introduced by this government to encourage people into superannuation. The government believes that, since we have a declining contribution to pensions by an ageing population, people need to be preparing for their retirement. The previous government started on this with its superannuation guarantee proposals for all workers, but this government has been more innovative and more in tune with the needs of the community.
Firstly, there was the capacity for parents to superannuate children from their day of birth. That process has attracted a fair bit of attention. It is a great savings mechanism and it gives young people the opportunity to set aside funds in a different format to savings in a bank account. It preserves funds for later in life, with the choice, if choice ever becomes a real feature of Australian superannuation, of adding during their working life to that superannuation investment taken out by their parents. It is encouragement that we are talking of here and encouragement that we are dealing with in these amendments to superannuation measures.
The proposals before the House extend the superannuation contribution by the government for low-income earners to include employees who earn below the $450 per month superannuation guarantee threshold. They also ensure that people who are now eligible for the co-contribution cannot double-dip. What is this about? The government is proposing that, for every $1 a person puts into a super fund, the government will put in $1.50. That is a pretty good deal. I have heard many commentators on talkback radio saying to people not of large means, `How can you walk away from a gift of $1.50 for every $1 that you put in?' That is the sort of investment that people should be making. They should be investing in super funds and taking advantage of this government incentive.
Of course there are limitations to it, both at the level of income and the amount that a person can put in. For a maximum of $1,000 the government will put in $1,500. That $1,500 goes to any person wanting to establish a super fund. As I said, when they change employment and their super fund continues to grow they will, we hope, be able to move their super fund to a place of their choice which offers the best returns and the best yield. In that way they will realise benefits at the end of their working life and have the certainty that they will continue to receive income. [start page 29505]
The Australian Labor Party does not want choice and it has not thought about whether or not people ought to receive an incentive of this type. We hear today instead fringe type complaints about what the government is doing. The opposition would be better off spending its time focusing on real issues and letting the bills go through the parliament. Then people will be able to choose their super fund and have every successive employer contribute to that fund and they will not have a proliferation of small sources of revenue scattered in a series of superannuation funds as they change from job to job; it will all be consolidated and earning real benefits for them.
It is interesting to look at some of the tables relating to the manner of investment of super funds and the size of super funds over the last nine years. For instance, in 1994-95 the amount in corporate investment was $48 billion, and over the last nine years it has only grown to $55 billion. The public sector has more than doubled from $51 billion to $115 billion. The big growth has been in the small funds, however—the mums and dads who have sought to provide for their own superannuation. These funds are generally those of fewer than five members and they include small APRA funds, single-member approved deposit funds and self-managed superannuation funds, which are popular with small business. The growth in those small funds has been from $20 billion in 1994-95 to $127 billion currently. This indicates a willingness and an enthusiasm among small businesses to prepare for retirement. They are establishing their own super schemes, investing the funds to earn the best benefits they can and thereby ensuring a future as well as growth in the value of their businesses.
In December 2003 the superannuation industry indicated that 88 per cent of all workers have superannuation coverage. It indicated also that the employer contributions totalled $35 billion and that member contributions totalled $19 billion, making a total of $54 billion in the year ended December 2003. That demonstrates to me that employers are making a major contribution to the wellbeing of their employees and that members are also contributing, and that is the way it should be: employers contributing roughly twice as much as employees.
The amount of funds directly invested is $210 billion, the amount placed with investment managers is $196 billion and the amount invested in life office statutory funds is $160 billion. So there is almost an equal spread between direct investment, investment with investment managers and life office statutory requirement. That background indicates a growing interest in superannuation, and it behoves the government to be careful about changes to super and to make sure that the incentive processes stay and that the long-term plans of people who have invested in superannuation are protected so that their ultimate benefit plans are not recklessly interfered with. That applies to self-managed funds as indeed it applies to the proposals we are looking at today, because nobody wants to find that the certainty they thought was in their plan is suddenly removed because of government initiatives.
Within the proposed amendments to the superannuation laws which extend the eligibility for government co-contribution, I highlight announcements made on 14 March this year by the Minister for Revenue and Assistant Treasurer, the Hon. Senator Helen Coonan. The comparison between the proposed legislation and the current law can be summarised in this way: the current laws, until these bills are enacted, have among their eligibility criteria that, to receive a government co-contribution, an individual must be in receipt of or entitled to employer superannuation support and not eligible to claim a taxation deduction for their personal superannuation contribution. For example, employees earning less than $450 per month and employees under the age of 18 and employed on a part-time basis are currently generally unable to qualify for the government co-contribution.
In the new legislation, the eligibility criteria will be extended: an individual will no longer require receipt of or entitlement to an employer super contribution and an employee contributing at least 10 per cent of their income will qualify for the government co-contribution for the coming year and subsequent years. Previously, employees not in receipt of employer superannuation support were able to claim a deduction for personal superannuation contributions. In the new legislation, a person will not be able to claim a deduction in the coming year and subsequent years for personal superannuation contributions if they now qualify for a government co-contribution. That is a simple process: if you qualify for a government kick-along with your super, you cannot claim your own contribution as a tax deduction. I think that is a very sensible thing: the government is providing $1.50 for every dollar you put in, and I think that on balance that contribution should come out of your salary.
The transitional rules are these: a person is eligible for co-contribution made on or after 1 July 2003 if the individual has a total assessable income and reportable fringe benefits of less than $40,000—the previous member was talking about overtime and all the rest of it, but it is assessable income and reportable fringe benefits all wrapped up into one amount of less than $40,000—has at least 10 per cent of their total income attributable to eligible employment, and is under the age of 71. That is another innovation introduced by this government: the age at which you can contribute to superannuation has been extended. A number of people in my electorate have come to me and said, `We want to work beyond the age of 60 or 65 but superannuation is not available to us; we want to continue to contribute to it.' That is something that the government has observed and it has extended eligibility to the age of 71; previously it was 65. To be eligible, a person must be under the age of 71 in the income year that the personal superannuation contribution is made and must not be a temporary resident of Australia. That is basically the way it works. I think that is reasonable; I do not think temporary residents should have access to this offer of support in superannuation. [start page 29506]
There have also been administrative changes to these laws. It is quite interesting that the administrative amendments will specify that the interest rate to be applied for late government co-contribution will be prescribed in the legislation. So if the government is late in paying, the money earns interest. However, a person must make their contribution within 28 days from the co-contribution payment being made—that is, a person's money must be in the fund no later than 28 days after the government dough hits the deck. So the government must pay within a set period. If it does not pay on time, interest is earned by the late payment, and the person must make their contribution within 28 days of the government money being in the fund. There is an imposition where the superannuation provided does not repay the government co-contribution amount within a particular time, and the requirements placed on the minister are also outlined.
So the interest rate and the time frame within which the provider must credit a government co-contribution are part of the new law. I think this is an excellent process, and the government is to be commended. I encourage people, both young and old, to take advantage of what amounts to a gift of a $1.50 for every dollar contributed towards a super fund. It is a great innovation—something that will encourage people to save for their retirement and it is worthy of our society.
The other bill before the House is entitled the Superannuation Laws Amendment (2004 Measures No. 2) Bill 2004. This bill improves the practical operations of the retirement income system and its interaction with other areas of the law. I see this measure as something that assists in making retirement savings accounts—SRAs—more readily available and adjusts the way in which they are applied. There are changes in the law in regard to actuary certificates, which are part of the process for accounts based on income streams. Another proposal relates to funds paying pensions of the prescribed type—for the IT regulations, and no other type of pension, an actuary certificate is not required. Actuarial requirements and the under-18 superannuation contribution deduction work test are also part of the change in the law. Persons under the age of 65 will not have to satisfy a work test in order to make personal superannuation contributions. In addition to being eligible, in order to claim a tax deduction for these contributions, a person under the age of 18 will now have to derive eligible employment or business income in the income year in which the taxation deduction is claimed. That is a sensible tightening up of the system so that it is not abused.
In referring to the Australian Prudential Regulation Authority report for this year, it is disturbing to notice that there have been several enforcement actions taken by APRA within the superannuation field. Of the 388 enforcement actions that have been taken by APRA, 261 related to superannuation. Authorised deposit-taking institution—superannuation funds, general insurance companies, life insurers and friendly societies—are included in the supervision by the Australian Prudential Regulation Authority, and the amount of attention given to superannuation is of concern to me. I notice that within the last 12 months, the number of enforcement actions that have been taken have risen from 107 to 261. This indicates that APRA has been concerned about the way in which funds and personnel have been looking after the retirement benefits of a lot of people. The low returns, APRA says, are also of concern to many. It report states:
The low returns in most superannuation funds have spurred interest by some trustees in investing superannuation monies in non-traditional assets, including hedge funds and instalment warrants.
There are many people who are unhappy with the returns that superannuation funds are offering. The level of activity required by APRA for enforcement is also a matter of concern. The number of directions that have been given to super funds, the number of prosecutions for delayed contributions and the number of show-cause letters have increased significantly. A stringent application of the law regarding super funds is essential. The HIH fiasco is a wake-up call to everybody. However, I would like to remind the House that it was the failure of a large corporation. It was not one of the small corporations that failed; it was a large one. So I encourage APRA to apply their energy to making sure that large funds with lots of resources and personnel that are not showing a very good return are the ones that receive attention to make sure that there is not another instance of an HIH failure. In fact, the encouragement given by the government should be recognised. (Time expired)
Author: Hon Alan Cadman MP
Source: House Hansard - 2nd June 2004
Release Date: 22 Jun 2004