10 March 2016
Transcript - #2016027, 2016

In the role of: Minister for Small Business and Assistant Treasurer [21 September 2015 - 18 July 2016]

Interview with Ross Greenwood, Money News, 2GB

SUBJECTS: Objectives of superannuation

ROSS GREENWOOD:

Many thanks for your time, Kelly.

MINISTER O'DWYER:

Great pleasure, Ross.

GREENWOOD:

Ok, so we know that Australia has an ageing population, we know that we have an issue in regards to incomes policy and the ability for the government long term to be able to afford Age Pensions, but surely trying to curb people putting more money into superannuation is only long term going to force more people onto Age Pensions?

MINISTER O'DWYER:

Well what we announced yesterday is that we want to legislate the objectives around superannuation, Ross, and the reason we want to do this is because we agree with David Murray who conducted the Financial System Inquiry that a clear objective for super is important and it is important because it means that you can have those discussions about fairness, and adequacy, and sustainability in the system with a framework in place. It means that you can provide a lot more stability to the superannuation system over time, it means that you have an understanding between governments and beyond any one particular government as to what it is there to actually do. We think a simple objective is really paramount here and the objective that David Murray came up with was to provide income in retirement to substitute or supplement the Age Pension, that is the recommendation that we agree with, we are now consulting with people for the next four weeks to ask their views around this particular objective and then we plan to legislate.

GREENWOOD:

Ok, Kelly can I just tell you here is my idea about superannuation right now. I have been working really hard all my life and let's say for example I was pretty fortunate and I was able to accumulate a million dollars' worth of super during my life, I think I might have wasted my money, I think actually the superannuation system might have let me down because I could have actually gone out and spent that million dollars which would have generated me at current interest rates about $35,000 a year and I could have actually blown that million dollars, gone onto an Age Pension, married couple with a house, what is the Age Pension $35,000 why on earth would I bother saving more money in superannuation when in actual fact I am only going to end up getting what the pension would have given me anyway.

MINISTER O'DWYER:

You are talking about saving money over and above the amount that is in the superannuation guarantee?

GREENWOOD:

Yeah that's right, I am saying if I could have got my total pot up to a million bucks during my working life that would have only delivered me what the Age Pension would give me right now based on 3.5% interest.

MINISTER O'DWYER:

We want people to be self-sufficient in retirement and we want to be able to give them the tools to be self-sufficient.

GREENWOOD:

You want to give them the incentive to retire because that is the whole point, and to be self-sufficient in retirement…

MINISTER O'DWYER:

We want people…

GREENWOOD:

because the fact is that is why the 15% tax rate was there - to be an incentive for people to save more money.

MINISTER O'DWYER:

Correct, that is why there are tax concessions to encourage people to save for their retirement, to increase self-sufficiency in retirement, that is very much at the forefront as to why that is there. I suppose the broader question is whether or not the current arrangements that are in place are fit for purpose and you can only know that if you actually have a very clear view of what the objective of superannuation is.

GREENWOOD:

Ok, but my only point to you is a million bucks in super is an awful lot of super, most people won't event get close to that but a million bucks will only deliver me the Age Pension, why would I bother saving extra money into superannuation if ultimately I am going to end up with some result which might be less than the Age Pension?

MINISTER O'DWYER:

People can make their own choices about their retirement income and their security in their retirement - different people will make different decisions, Ross.

GREENWOOD:

Ok, I have got another one for you while you are there. Do you know how long I am going to live? Me?

MINISTER O'DWYER:

No, I don't know how long you are going to live, Ross.

GREENWOOD:

Ok, do you know how long you are going to live?

MINISTER O'DWYER:

I don't, but I will tell you what I do know…

GREENWOOD:

Do you know if I am going to live to 72 or 92?

MINISTER O'DWYER:

Well I think that the intergenerational report does gives us a bit of an indication that you are certainly going to live a lot longer than you would have done even just twenty years ago.

GREENWOOD:

Ok, that's good. I understand that as well so therefore what that means is I need more savings to be independent of that age pension and not less. So what you say – that superannuation is not a wealth accumulation tool – we don't know how long we're going to live.

MINISTER O'DWYER:

Well what I've said – just to be clear – is it's not intended to an accumulation of wealth that can be passed down to subsequent generations…

GREENWOOD:

So how do you prevent that?

MINISTER O'DWYER:

The idea…

GREENWOOD:

Death taxes for example? Because that would be a really slippery slope for you to go down.

MINISTER O'DWYER:

No, I'm not – this is in the context of talking about the objective, Ross.

GREENWOOD:

Sure.

MINISTER O'DWYER:

And to be really clear, it's to why we give tax concessions for superannuation, what the purpose is and when we make changes to the superannuation system – and governments over time have made many changes, some of which have been good, some of which have been less good, but when they do that they should have a very clear purpose in mind and I think that that can bring a lot of stability to the superannuation system and provide people with a lot more confidence over the long term because you're absolutely right to say this Ross, that people do make long-term decisions based on government policy and we do recognise that when Government policy changes, people have to adjust their arrangements and that's simply not feasible or fair for people who are nearing their retirement to have policies switched on them overnight that will directly impact their retirement income.

GREENWOOD:

There has never been spoken a truer word. It's absolutely correct. Just another one for you – are we moving closer, maybe 20 years down the track, to the point at which a person may not be able to take a lump sum out of their superannuation when they retire to pay for the home, to I don't know, buy a car, go on a world trip, because ultimately it would appear to me that the real momentum inside of superannuation policy and also in the industry is to have everybody go on to a do-it-yourself pension, allocated pension, or a lifetime annuity. That way that wage keeps on coming back out of the superannuation and they don't have a chance to spend it down and therefore fall back onto the Age Pension.

MINISTER O'DWYER:

Well, certainly there are options at the moment for people in their retirement to actually get an annuity and there are some measures at the moment that make it more difficult for products to be developed because of the regulations that are in place and we're keen to ensure that there can be more products developed so that people have more choice in their retirement. So we're looking at those regulations and whether or not we can get rid of those that are actually holding back some innovation in this space to provide people with more choice. But at the heart of it, Ross, when I think about superannuation and I think about my superannuation, and I think every Australian should be thinking about their retirement and their superannuation because we force people to save money under the superannuation guarantee, what I want to be able to do is to have some choices around my retirement income, I want to be able to make sure that there is the world's best governance standards of my superannuation fund, I want to make sure that when I make those choices I've got the right tool kit so that I've got transparency when I'm comparing one fund to another fund and that we can make sure that funds are accountable for the fees and charges that they provide for because we know from David Murray's report that they are very high in Australia.

GREENWOOD:

I'll tell you what Kelly O'Dwyer the only thing you need to tell people is how long they're going to live and that way they might have some certainty as to how much money they might need as well. The Assistant Treasurer talking about superannuation. Kelly O'Dwyer always great to have you on the program, Kelly.

MINISTER O'DWYER:

Great to be with you, Ross.