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Editorial: Opt in to opt out
In circumstances where there is broad agreement that the existing 9 per cent superannuation guarantee is simply not enough to provide most people with a comfortable retirement, it is worth reading the pre-Budget submission compiled by the Association ofSuperannuation Funds of Australia (ASFA).
Continuing a theme it unveiled at its annual conference in Perth last year, ASFA has eschewed the age-old argument that the Government should increase the superannuation guarantee to, say, 15 per cent. Instead, it is suggesting a classic ‘opt out’ regime. In short, ASFA wants the Government to implement a regime under which employers automatically deduct up to 3 per cent of a new employee’s salary as a voluntary contribution unless the employee specifically states that this did not occur.
The logic behind this is simple. The innate laziness and indifference of many employees mean they will never act to opt out of their ‘voluntary’ contribution, therefore, increasing the level of their retirement savings by default.
There would, of course, be an upside for some employees flowing from the Government’s adoption of such a proposal, with many people finding themselves entitled to benefit from the superannuation co-contribution regime.
The degree to which such a strategy would act to increase the ratio of Australia’s retirement savings would be considerable, especially if the Government adopted another element of the ASFA submission — that employers deduct 1 per cent of an employee’s wage increase and directed it towards superannuation.
While the Government has shown no particular liking for such strategies, it needs to be remembered how the superannuation guarantee actually came into being. It was a product of the prices and incomes accord between the former Labor Government and the Australian Council of Trade Unions. Quite simply, pay rises directed towards superannuation were seen to be less inflationary than those directed straight into workers’ wallets.
The downside, of course, is that any ‘opt out’ regime can be seen to be tantamount to a political sleight of hand. While it is arguable workers would, initially, be fully acquainted with their options, it is likely that levels of awareness would dissipate over time, creating the danger that many people would simply be oblivious to their options.
While most media attention flowing from the ASFA submission concentrated on the ‘opt out’ proposal, an equal amount should probably have been directed towards the reality that many of the challenges confronting the Australian superannuation industry relate to the relative indifference of employers, particularly small business owners.
It is in the nature of conducting a business in Australia that employers are confronted with a range of costs related to the Goods and Services Tax and the need to file Business Activity Statements. Superannuation is part and parcel of that equation.
While most large corporates have the administrative muscle to ensure superannuation obligations are being met, the same cannot be said for those companies employing 20 people or less. Nor is their job made any easier by the administrative regimes put in place by some large superannuation funds.
The bottom line is that the quarterly payment of superannuation contributions on behalf of employees involves much calculating and form filling. Even where electronic lodgement is concerned it can represent a burden for smaller operators.
Little wonder, then, that such people will be loath to embrace changes to the superannuation regime likely to generate further complexity and further paperwork.
Additionally, there is the question of why the Federal Government and, apparently, a large section of the superannuation industry are loath to consider simply increasing the level of the superannuation guarantee.
Increasing the level of the superannuation guarantee would represent an extension of the compulsory nature of superannuation in Australia, but would arguably be much more transparent than a system based on requiring people to ‘opt out’.
However, in circumstances where the Federal Opposition has also eschewed an increase in the superannuation guarantee, voluntarism would seem to be the order of the day.
AUTHOR
Mike Taylor
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