As the Federal Coalition Government closes out 2018 and looks to an election year in 2019 it would do well to consider an audit of its achievements with respect to superannuation over its two terms on the Treasury benches.
The Coalition Government came to power in 2013 with a policy formula for superannuation which involved changing fund governance arrangements and altering the default fund regime, - two objectives which remain unachieved.
It also came to power with former Prime Minister, Tony Abbott and his then financial services spokesman, Senator Matthias Cormann promising no unexpected adverse changes to superannuation – something which fell by the wayside when Abbott was supplanted in a party room coup by another, now former Prime Minister, Malcolm Turnbull.
Worth noting is the fact that over the term of the Coalition Government there have been no fewer than four ministers covering the financial services/superannuation portfolio – current Finance Minister, Matthias Cormann, current Treasurer, Josh Frydenberg, former chief of staff to Prime Minister, John Howard, Senator Arthur Sinodinos, current Minister for Workplace Relations, Kelly O’Dwyer and the current incumbent, Stuart Roberts.
Of these, O’Dwyer was longest in the portfolio and was responsible for overseeing many the policy proposals still awaiting ratification by the Parliament.
So, what will be the superannuation legacy of this coalition government should it lose power at the next Federal Election?
- Delaying increasing the superannuation guarantee (SG) until 2025
- Reducing the concessional contribution cap to $25,000
- Introducing the $1.6 million transfer balance cap; and
- Replacing the Superannuation Complaints Tribunal with Australian Financial Complaints Authority.
What are on its to-do/yet to be achieved list?
- Increasing the number of independent directors on superannuation fund boards
- Opening up the default superannuation regime
- Making default life insurance opt-in for those aged under 25 or balances less than $25,000; and
- Introducing a 12 month amnesty to encourage employers to self-correct historical SG non-compliance.
Given that 2019 is an election year, what would an Australian Labor Party Government deliver?
- Ending the Coalition SG “freeze” and at a time when prudent fast-tracking it to 12 per cent
- Maintenance of the equal representation model governance model for industry superannuation funds
- A lowering of the annual non-concessional contributions caps to $75,000 and lowering of the annual High Income Superannuation Contribution threshold to $200,000; and
- Removal of the Coalition’s catch-up concessional contributions and tax deductibility for personal contribution.
- Maintenance of the Low Income Superannuation Tax Offset.
Interestingly, and as reported elsewhere in this edition of Super Review, a survey conducted during the recent Association of Superannuation Funds of Australia conference in Adelaide revealed not only superannuation industry preference for the Labor Party’s policy prescription but also a strong belief that the ALP was likely to win the next Federal Election.
That survey revealed close to 80 per cent of respondents believed the ALP would win the next Federal Election with the preference for the Federal Opposition’s policy proposals appearing to be coloured by strong negative sentiment attaching to the Coalition Government’s extended time-frame delaying the lifting of the superannuation guarantee and the perceived negative impacts of the Government’s proposed changes to insurance inside superannuation.
The same survey conducted during ASFA revealed nearly 86 per cent of respondent were opposed to the Government’s policy initiative making insurance inside superannuation opt-in for people with balance below $6,000 or aged under 25.
The Government’s priorities as it closed out 2018 were made clear by the Assistant Treasurer, Stuart Robert in his address to the ASFA conference where he outlined the bills still awaiting passage through the Parliament:
- Protecting Your Superannuation Package
- Improving Accountability and Member Outcomes in Superannuation Measures No. 1 and No. 2, and the
- Superannuation Guarantee compliance measures – including the SG integrity package and the SG amnesty; and
- Treasury Laws Amendment Bill No. 4.
Of those legislative measures, and as indicated by the results of the Super Review survey held at the ASFA Conference, it was the Protecting Your Superannuation Package which had generated the most push-back from the industry and, indeed, the most lobbying on the part of both superannuation funds and insurers.
That level of lobbying was made evident when, during a session at the ASFA Conference, Treasury Retirement Income Policy division head, Robert Jeremenko noted that a major insurer had been lobbying Senators and Members of the House of Representatives.
He suggested that the insurer should have raised its concerns with Treasury first.
While the Assistant Treasurer, Stuart Roberts also informed the ASFA conference of a carve-out for those working in high risk callings such as the electricity industry, this did not allay the concerns of many superannuation funds and insurers who well understood the internal dynamics of group funding of superannuation premiums.
The ultimate cost was strikingly revealed by research conducted by KPMG which estimated that overall impact on premiums as a result of removing default cover for members with low balances of less than $6,000 together with removal of default cover for members under 25 and those who had not made a contribution for 13 months would be 42 per cent.
It said the reduction in cover and insurance premiums collected could be expected to have further consequences for the insurers and the remaining members of the superannuation funds.
“Firstly, many superannuation funds’ insurance premiums currently involve a level of cross-subsidy between younger and older members of the funds,” it said. “Removing default cover for under 25-year-olds means one can expect fewer younger members with insurance. To the extent that there is a cross subsidy in the insurance premium rates, removing default cover for younger members means the premium rates need to rise to compensate for what is effectively an increase in average age and risk within the overall insurance pool.”
Actuarial research house, Rice Warner was equally critical of the Government’s policy approach, warning that it risked serious unintended consequences.
Rice Warner warned that under the Government’s approach some members could find themselves without any cover which could have disastrous consequences.
Commenting on the roll out of policy over the past three year Deloitte superannuation partner, Russell Mason pointed to the $1.6 million transfer balance cap and the reduction in concessional contribution caps to $25,000 as having been two of the most challenging issues faced by the industry.
He said the insurance inside superannuation changes also represented a challenge, albeit that they had yet to pass the Parliament.
It seems that the proximity of the Federal Election is such that the Coalition may never get to finish many of its superannuation policy assignments.