27 April 2018
Speech - #2018010, 2018

In the role of: Minister for Revenue and Financial Services [19 July 2016 - 28 August 2018]

Address to the SMSF Expo, Melbourne

Check against delivery

Good morning, everyone — thanks so much John for that warm welcome.

I am delighted to be here today at the inaugural SMSF expo. I'd like to take the opportunity to recognise John, Deborah, Andrea and the rest of the SMSF Association for their fine work over the years advocating on behalf of their members in what is a crucially important sector of the superannuation industry, and for organising this fantastic event.

Before I turn to superannuation I want to say a few words about the banking Royal Commission.

As someone who believes very strongly in standing up for consumers I am greatly disturbed by the revelations that have aired during the Royal Commission.

Already the Royal Commission has highlighted in the most profound way, some of the devastating personal consequences that have resulted from corporate misconduct in the financial services sector.

Many people have asked why the Government opposed a Royal Commission for so long. And it is a legitimate question.

With the benefit of hindsight we should have called it earlier,
I am sorry we didn't, and I regret not saying this when asked earlier this week.

The Government did get the timing wrong.

What we did get right though, was embarking on an urgent and comprehensive reform program to fix the problems that we knew about.

The view we took at the time was to take action immediately based on the recommendations of the inquiry we initiated on coming into Government, the Financial Systems Inquiry, rather than commence a Royal Commission.

We knew there was a problem with consumers making complaints and getting compensation.

In November of this year, three months before the Royal Commission's final report is due to be handed down, the Australian Financial Complaints Authority (AFCA), which we established, will be open for business.

AFCA will provide a free service to consumers and small business, binding rulings for financial institutions, and will have the power to make banks, insurers and other financial service providers pay compensation.

We knew that the conduct regulator, the Australian Securities and Investments Commission (ASIC), needed an overhaul.

We bolstered ASIC with more than $120 million to focus on surveillance and enforcement actions.

We gave ASIC new powers. And, after an extensive review of the penalties for corporate misconduct that commenced in October 2016, we announced significantly increased civil and criminal penalties that include long jail terms, millions in fines and disgorgement of profit.

No longer will penalties simply be seen as the cost of doing business.

We have also appointed a new Chairman of ASIC, and have announced a new Deputy whose primary responsibility will be enforcement activity. And we have made it clear to ASIC our expectation is that of the Australian people - that they need to do more than just recognise a problem, they need to investigate and use the full force of their powers to promptly deter, detect, and prosecute misconduct in the financial services sector.

We knew also that there were some financial advisers out there giving bad advice, some of which was conflicted and not in the best interests of consumers.

That is why we established the Financial Adviser Standards and Ethics Authority (FASEA) to lift standards in the industry.

We knew that there was an issue with the churning of the sale of life insurance to consumers related to high up-front commissions. And we passed legislation to help fix this.

And the Treasurer has introduced a Banking Executive Accountability Regime to hold banks and their executives to account, as well as a bank levy because of the structural importance of the banks to our financial system.

We have taken action, and will continue to do so to fix the problems in the financial services sector.

As Minister, I am totally focused on this task.

We should also recognise that the banks and other financial institutions have a duty to repair trust and to compensate those people who have been damaged by their actions.

Their boards should act now.

Turning now to retirement savings and matters relating to the SMSF Expo.

Individual freedom, free enterprise and self-reliance are core liberal philosophies.

It's clear that these values are also ringing true with Australians when it comes to their retirement savings.

The sheer scale of this three-day event reflects the fact that more and more Australians are choosing to be the masters of their own destiny in managing their retirement funds.

We've seen the self-managed superannuation industry grow from 100,000 small funds holding around $28.2 billion in 1996, to more than 592,000 SMSFs holding over $721 billion in retirement savings today.

What's more, trustees are entering the SMSF sector at an earlier stage in their working life, with the median age of new fund holders decreasing to 47 years in 2016 compared with 50 years in 2012.

We believe that people who want to take responsibility for their future — for their money — should be able to do so. However, we also see several challenges within the regulatory landscape. And today, I would like to provide the Government's perspective on addressing some of those challenges.

Franking credits

There has been a lot of press recently about Labor's proposal to deny refundability of franking credits. It will come as no surprise to you to hear me say, again, that the Government does not support Labor's policy. Let me explain why.

I think it's important to reiterate in this debate that the ability to receive a tax refund is not a 'tax concession'. Rather, the system operates to prevent double taxation – that is, the taxation of profits when earned by the company, and again when the shareholder receives their dividend.

In effect, denying the refundability of franking credits denies passage - imputation if you will - of the full value of tax paid by the company to its shareholders. Perversely, it's those on lower incomes with lower tax rates who will be hit hardest.

Labor's proposal would negatively impact approximately 900,000 individuals, 84% of whom have taxable incomes of less than $37,000.

This includes retirees who rely on the dividends and franking credits they receive as a result of their diligent investments in Australian shares.

At least 440,000 of the affected individuals are pre-retirement Australians, who are neither drawing from superannuation, nor old enough to qualify for the age pension.

Hard working, tax paying Australians, small business owners and farmers among them, these are the people left high and dry by Labor's irresponsible policy.

There are also around 50,000 young Australians under the age of 30, who have taken responsibility for their finances by investing in shares to set themselves up to buy their first car, put a deposit on their first house, or support themselves whilst studying.

These are the people Bill Shorten and Chris Bowen will steal refunds away from. These are the people Bill Shorten and Chris Bowen see as 'the top end of town.'

The Opposition's policy will also take money from the pockets of retirees who want to manage their own investments. Around 200,000 SMSFs containing 365,000 member accounts would lose access to the refundability of franking credits.

The SMSF Association has estimated that Labor will cut about $5,000 of income from the median SMSF retiree earning about $50,000 a year in pension income.

Finally, and make no mistake, despite laughable 'guarantees' from the Labor party, the most vulnerable in our society, pensioners, who house their retirement savings in one of around 2,000 APRA regulated super funds, and any pensioner who chooses to join the SMSF family after 28 March 2018, will miss out.

It says everything you need to know about the Labor party under Bill Shorten that the prospect of somebody taking responsibility for their own retirement terrifies them so much, that they would prefer this regressive, cruel cash grab.

Quite simply, the policy is a shocker and it should be dropped immediately.

Challenges facing women in retirement

Another important area we must focus on is making sure that women are economically secure in retirement.

Across every age group, the gap between a man's and a woman's average superannuation balance is significant, and the SMSF sector is no exception to this.

ATO data show that female SMSF members aged between 25 and 64 on average have 21 per cent less savings in their accounts than male SMSF members.

Many factors contribute to this financial inequality, but in large part it is due to interrupted work patterns and the fact that more women than men work part-time. This in turn results in less compulsory and voluntary superannuation.

Our 2016-17 superannuation tax reforms assist women to increase their superannuation savings, including by introducing the Low Income Superannuation Tax Offset, levelling the playing field by scrapping restrictions on who can make deductible concessional contributions to their own retirement savings, and, from 1 July this year, allowing catch-up concessional contributions.

These reforms help to boost superannuation balances and give women more control over their retirement savings.

Compliance challenges

As all of you are no doubt aware, SMSFs are unique in having fund members act in a dual role as fund trustees. This structure means it is more important than ever to ensure you're fully aware of all of your duties and obligations.

Part of this responsibility is ensuring you educate yourself about your obligations and steer clear of those 'get rich quick' schemes we're all so familiar with.

Take advantage of the multitude of advice and guidance products available to you from the regulator, the ATO, including approved education courses, the Super Scheme Smart initiative and the new SMSF Regulatory Bulletin.

The SMSFA also houses a fantastic resource library on its website, while its proposed new Global Centre of Excellence for retirement savings is set to be a terrific resource focusing on all things cutting edge in the SMSF world.

In short, I encourage you to engage in your responsibilities, learn about the industry and really take pride in your role as trustee. After all, you're dealing with your retirement savings.

The Government's plan for super and SMSFs

In 2016, the Turnbull Government introduced a comprehensive package of reforms to ensure the superannuation system fulfils its purpose and ensure Australia is prepared to face the challenges of an ageing population.

These reforms improved the sustainability, flexibility and integrity of the superannuation system. The measures ensure that superannuation taxation concessions are well-targeted and balance the need to encourage people to save to become
self-sufficient in retirement, with the need to ensure long term sustainability.

To recognise the significance of these reforms for the SMSF sector, SMSFs have also been subject to a number of administrative concessions to assist the transition to the new reporting requirements.

These concessions include reduced reporting requirements for SMSFs whose members have total superannuation balances of less than $1 million, and an extension of time for the reporting of tax events in the 2016-17 financial year.

We have been working closely with you over the past couple of years and we will continue to do so, as the Turnbull Government recognises the importance of SMSFs.

We appreciate the role SMSFs plays in providing competition throughout the superannuation sector by providing an alternative to directing your mandatory super contributions to the larger funds.

We also appreciate the opportunity that SMSFs afford Australians who wish to take a more hands-on approach and exert more control over their own retirement.

That's why today I am thrilled to announce that as part of the upcoming Budget, we will expand the limit on the maximum number of members in an SMSF from four to six.

This change will allow for greater flexibility and, given the growth in the sector to date, will ensure SMSFs remain compelling retirement savings vehicles into the future.

I can also announce today that SuperStream will be extended to include SMSF rollovers.

This reform will allow SMSF members to initiate and receive rollovers electronically between an APRA fund and their SMSF.

This will reduce compliance costs, expedite the rollover process and further improve the integrity of the super system.

I have asked the ATO to work with industry on the design and implementation of this important reform, which is expected to commence late next year.

We will have some further positive announcements in the Budget.

Finally, the Government recognises that the superannuation system should deliver certainty and stability. Whilst the Government remains wholly committed to seeing through our 2016 reform package, unlike the Labor party, we have no intention of making any further changes to the taxation of super.

Closing remarks

So, to finish, let me say the Government has made our retirement system, particularly superannuation, stronger. We have looked at the challenges within the regulatory landscape and seen opportunities for improvement, for increasing choice and for better protecting the interests of all Australians.

I would like to, again, thank the organisers and the many sponsors of this Expo, including event partners the SMSF Association. The SMSF sector is one of the most dynamic parts our superannuation system — with over 1.1 million SMSF members and growing — and this event is proof of that.