Podcast: does superannuation need a makeover?
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As superannuation heads towards its 30th birthday, some critics are asking if it needs an overhaul.
If you earn a wage in Australia, there is a good chance that you are being paid superannuation. Superannuation or as it's more commonly known 'super', is money put aside by your employer for you which is what you will live on when you hit retirement.
The Superannuation scheme in Australia is now 29 years old, and some are calling for reform to the scheme in some radical ways. Earlier this year, we spoke to Kirsten Hunter from Future Super about how the current system doesn't benefit women and other Australians who don't work full-time for their entire career.
This year has seen the controversial early release of superannuation for some Australians due to coronavirus, while some critics of the current system believe superannuation could be accessed earlier so more Australians can use that money to buy a home.
We had the opportunity to chat with Senator Bragg on Pocket Money about his ideas for the future of super which he says needs 'radical surgery', including the idea that Australian's should be able to access their super in order to buy a home.
Discussed in this episode:
- Bad Egg: How To Fix Super
- Senator Andrew Bragg
- Women and superannuation
- Finder's guide to superannuation funds
- Coronavirus early access to super explained
Read the transcript of this episode
Andrew Bragg 0:02
This scheme is not for the super industry, this scheme is for Australia. So it should be flexible to reflect their different needs.
Kate Browne 0:11
Hello, and welcome to Pocket Money. If you need a wage in Australia, there's a very good chance that you're getting paid superannuation. Currently, employees have to contribute a percentage of your pay into a nominated super account.
Sally McMullen 0:24
Yeah, that's right. And basically the purpose of super is it's kind of enforced savings that you can access when you're at the age of retiring. So that money that builds up over time provides a bit of an income for you that's either substitutes or supplements, the age pension that you'd be receiving. So superannuation, as we know it in Australia, is the grand old age of 29 years old. There you go. It's a millennial I never knew, but some are calling for a review of this game and in some pretty radical way. We actually did a really good episode on this earlier this season where we spoke to Kirsten Hunter from Future Super about how the current system doesn't really benefit women and other Australians who don't necessarily work full time for their entire career and therefore retire with a lot less
Kate Browne 1:17
This year we've already seen super in the headlines for a bunch of reasons including the controversial early release super scheme, but some Australians have been able to access to Coronavirus. Other critics of superannuation have said it could be better or people have floated the idea that Australians should be able to access their money earlier to perhaps buy a home or use it for other reasons. Senator Andrew Bragg is a senator from New South Wales and he's also a very passionate advocate about the future of superannuation in Australia. And he recently published a book on it called Bad Egg - how to fix super. I had the opportunity to chat with the senator about his ideas on the future of super including his suggestion that super needs, what he calls were "radical surgery".
Sally McMullen 2:01
Oh, I like it. superannuation is such a juicy topic and it really does impact every single Australian. So this is a really interesting episode. So let's jump into the interview, shall we? Let's do it.
Kate Browne 2:18
Senator Andrew Bragg. Welcome to Pocket Money.
Andrew Bragg 2:21
Great to see you
Kate Browne 2:22
Andrew, in your maiden speech in Parliament last year, you said that superannuation was not working for Australians and in your brand new book Bad egg, you've said that the system needs drastic surgery. Can you tell us at a top line level? Why do you think this is the case?
Andrew Bragg 2:37
Well, Kate, the main point I was making in my first speech was that the government is so heavily invested in Super that we want it to work. And I guess today What I'm saying is, above all, we want this system to work. We want it to get people off the pension. Otherwise, why are we doing this?
Kate Browne 2:56
You've said that so super superannuation needs objectives and metrics. Isn't the objective that Australians save enough for their retirement?
Andrew Bragg 3:04
What's nice to you say that I think that but the fact is we've never legislated that is a formal framework. As part of the research for the book, I was able to find out that this game was designed on a tablecloth or I should say, on a napkin, which was lost. So someone probably took it to the pub and lost it. It's a great big idea. I don't want to sound too political or partisan, but it is a great idea poorly executed. And so we've now had this game for 30 years. I think this game should be very clearly defined as there to get people off the pension.
Kate Browne 3:37
After you said Australians are being held back from say homeownership because of superannuation and then access to money that's being put away for Super in the future could be used to buy a home instead. Our research shows that like 22% of Australians so they don't think they'll ever be able to afford a home and another 12% have said they're not interested in buying their own home because they think itts out of reach. Tell us about this idea of accessing super to boost homeownership.
Andrew Bragg 4:05
So one of the big problems we have these days is the cost of a home. And also the cost of a deposit is so much higher than what it was 30 years ago when super started. And so with homeownership highly generally, it's very hard for especially lower income earners to cobble together the 10% you need in order to get a loan. And so I've had people write to me saying that they have 20 grand in their super fund, you know, they're 35 years of age, if I can't get access to their super, they'll never have a home. So this is a real problem. Now, when you think about low income earners being underwritten by the pension in retirement, it seems really mean to deny people the choice of being able to cobble together a deposit. And so I know that some people have been unhappy with the early release game. I mean, our view is it's been a very popular hugely popular game and you can see the numbers people have regarded as an important way to get access to their own money in an economic shock. But of course, it would be better if people could access super for a limited purpose, such as for home ownership. And so I think this whole idea of allowing people to access their super for a first home is a really sound policy idea. Now, I'm not saying this is going to solve the housing market problems, it's not going to change this supply, which is more supplies needed in big cities, but it will allow some people access to a home where they would never otherwise be able to.
Kate Browne 5:34
What are some of the disadvantages with that? You've touched on obviously the volatile property market, we've got disparity in housing prices, depending on where you live, how would you kind of box that out? So people weren't kind of you know, blowing their money on this and then potentially ending up with nothing to support themselves on later are they are there obvious risks that need to be negated?
Andrew Bragg 5:54
What is that way? Let's start with the facts. I mean, most people are on the pension. So most people are relying on the government in retirement, I mean, the super scheme has been unsuccessful in getting people off the pension. And so effectively, the downside here would be that people would have, you know, less money in retirement, but the best way to avoid poverty in retirement is actually to own your own home. The way that our tax and Social Security laws work, they actually favour you know, homeownership men trying to leave on the equivalent of a salary or actually it's a pension in retirement, plus some rental assistance, you know, in a rented house is much more challenging than owning a home and taking a, you know, a pension so that the fact is, for people in the real world I mean, the trade off between a super contribution and a deposit is real. I mean, for really wealthy people. This is often not a not effective because they'll have their house and they'll have super but for many people, it is becoming much more of a trade off there would have been 30 years ago because of the explosion in property prices
Kate Browne 7:01
Is it a negative though to have people say owning homes and then still having to draw down on a government pension? Or is that sort of traded off by the idea of keeping super a little bit more nimble?
Andrew Bragg 7:10
Well, if you only have one thing - your house or your super - you're much better off with your house, because of the way that Social Security and tax laws work. And don't forget that your primary residence is tax exempt. So you still pay tax on your super. So, you know, we don't want to say all wealth concentrated in one asset class in this country, but we really need to get a more credible policy, especially for lower income earners. And homeownership because this has been a real tradition of my party for 75 years that we have championed homeownership, and I think super is making homeownership much harder. So it's a conversation that we need to have. It's a conversation I think the super industry should really engage in properly because this is not going to go away. I mean, just like we talked about the cost of this scheme, home ownership, and you know, obviously the right of super, I mean, all these things are important and the industry should engage on them.
Kate Browne 8:02
Some people might say, Well, where do you draw the line? You know, if you're gonna let people access it for home, or we're seeing the early access scheme, is there a risk involved with that? Or do you think people should be able to make a call on that what they want to spend that money on?
Andrew Bragg 8:15
if the super scheme actually worked and got people off the pension, I think there could be considerable costs, but at the moment, it's just not working. And the fact is, until we have it on a pathway where it is likely to get half the population off the pension, it's hard to see it paying for itself. I mean, for example, in this year alone, it's going to cost the budget, actually more than 36 is going to cost more than $40 billion this year in foregone tax revenue plus is $32 billion in fees coming out. So it's a very expensive system that doesn't do much for the country. It's a very difficult conversation to have because of the enormous power, resourcing and rent seeking that goes on within the super industry that try and start with debate and close down people with a different view, so, which is very unhealthy, but thankfully, like Australia is a noisy and very noisy democracy, and which we love. And thankfully, people are now starting to have a good hard look at this. I think the early access game is going to be a real catalyst. We'll look back on that and think that was the opening up of a more sensible discussion about super. And the fact is, some people will be better off with a first home, they will be better off with more super like it's not a one size fits all.
Kate Browne 9:30
To play devil's advocate, some people might say, isn't it a good idea that Australians have savings when they're older? Aren't you putting people at risk by having different kind of caveats when they can take money out for different things,
Andrew Bragg 9:42
But at the end of the day, the number one thing you can have to avoid poverty in retirement is your home. If this game is costing people their home or prospect of having a home then it needs to change. Look. For example, at the moment, the average net balance for a male which is much higher than it is for a female is about $160,000. You know, that's four or five years of a pension. And then that's it. I mean, the current retirement age is 65 - 66. Average life expectancy for a male is, you know, 20 years plus. So that's a good example of this system isn't going to cut it. So having a home provides a whole range of different parts of security in retirement.
Kate Browne 10:21
I know. So you've called for reform in the super scheme? Do you see any similar schemes overseas that you would consider a better practice or best practice? I know in the past, you've mentioned Singapore, New Zealand has a different set up again. Can you talk about what you're seeing overseas?
Andrew Bragg 10:36
Yeah, so Singapore has this game where you can use super for a house and that is often a feature of these similar schemes. I mean, the Australian scheme is probably the only one I know that is so narrow and rigid, whereby doesn't doesn't allow for any other type of usage. It's very narrow. I mean, we do have life insurance, which again, has been seen has been a major drain on retirement savings over the last few years. And governments recently passed laws to stop insurers and saving funds from taking unnecessary premiums from especially low income, especially young workers under the age of 25, where people who are 20 years old, didn't have any dependents having to pay for all this excessive life insurance, which was draining their accounts. Just ridiculous. So we've tidy that up. And now really, the only thing that, you know, an older adult can have is life insurance. But as I say, I think there's a good case for homeownership to be part of the scheme. And beyond that, let's let's see, but this scheme is not for the Super industry. This game is for Australians so it should be flexible to reflect their different needs.
Kate Browne 11:46
And coming back to Australia and something I found really interesting and I know you've talked about and particularly interesting for the show, I think Andrew is like you've talked about how people Australians aren't particularly engaged with their super and certainly our research Just back that up our most recent research so 41% of the people we surveyed said they either understood a tiny bit about super or nothing at all. How do you think we can get Australians more engaged, enthused about this super funds? And actually, you know, being a little bit more active with them?
Andrew Bragg 12:17
Well, the industry has been one of the systems where people couldn't find it within themselves to engage. And they've fostered apathy, and disengagement because it suited them to, frankly, get filled up more and more funds on a management charge high fees. That has been the business model, right. I mean, it's very hard to work out what the funds are doing, for example, some of them are making big political donations, that donors disclose that to their members - it's very concerning. The early access game has been a good way to engage people. But beyond that, I think that we need to cut through the layers of confusion. One of the things that I am a supporter of is a simple government default fund, which could be set up very easily under Australian law, which could be the default collection agency for people who don't choose a fund. And then we could outsource investment management to the Future fund, which has been hugely successful and very high performing. And it would be cheaper and cheaper to fund. And it would have simple disclosure easy to understand, then, of course, people could choose to move into a different fund, but at least then you have a basic cheap and cheerful fund, which, you know, I think the government would have more skin in the game. I'm sorry that this isn't the way that this game was established. I mean, the Kenyan government gave it to the unions into the financial institutions for various reasons, which I can go into. but really, it's unusual that there be no government sort of backstop or no government default fund in a market structure like this, because at the end of the day, this game only exists because of the government mandate. I mean, we establish this game under Australian law. I mean, some people say I'm a socialist because I say this. I think it's so funny. I mean this game and he just because Canberra established it, we will do whatever we think is necessary to get the best deal for the members. I mean, we're not going to be run by an industry that only exists because of us.
Kate Browne 14:10
As you mentioned before it's been it's 29 years old, isn't it not quite 30 since supers been in action. How much oversight has been provided? Does it seem to you that it's well overdue for an overhaul, obviously, you know, 30 years as long time ago.
Andrew Bragg 14:26
Very significant opportunity for us to get this game on the right track. And the Treasurer, Josh Frydenberg has a retirement income review underway, which is looking at the way that contributions work, the interaction with the budget, and the Social Security system. And then more broadly, we will have a look at the market structure in the space. But the thing is, I mean, there was an article written by Peter Johnson in the Australian two weeks ago, which I thought was quite good. He basically said look, you know, if you if you're in favour of abolishing this game, you sort of deal yourself out of the debate. I mean, I'm not for abolition I'm for making it work, which will be a radical right? Because you're not gonna make it a lot more flexible. But equally, people who run the tide old lines about super also sort of deal themselves out of the debate. I mean, if you want to have a 12%, super, or 15%, super, or whatever you want to have, you've got to be able to show what it's going to do for the nation. How many more people we get off the pension, right? How much better will people's lives be in retirement? And I've decided that the industry's responses have been totally wanting. They don't seem to be able to answer these questions. Maybe because they know the answers. They don't like the answers. But at the end of the day, for example, in this year, if we're going to spend $40 billion on this scheme, through foregone tax revenue, we want to get a return at least as good as that.
Kate Browne 15:50
How would you say that panning out for some of you everyday Australian, what would be your advice to people even disengaging with the system as it is now without the reform you know, with your experience, if they're earning money that they're paying super, what what's the best way to kind of make sure that you're invested and you're getting the most out of it?
Andrew Bragg 16:07
The best way to think about this from an individual's point of view is, what is the actual amount I'm going to need in retirement to be self-funded, and work back from that, of course, people need to make their own judgments about whether or not they should be putting more money into a home deposit or mortgage or into their super. But it's very hard to calculate this by reading this after the funds give you because they say that I think they revel in opacity. They love opacity. But effectively from an individual's point of view. The service game is here to provide you with a privately funded pension of your own money. But as I say, that shouldn't happen at the expense of you being able to get a home which all the research shows is the most important way to prevent probably in retirement. That is my basic view. I mean, the policymakers in Canberra obviously we need to focus on making sure that there is a net positive output for the budget, not a net negative output, which is what we currently have, from now into 2050. According to all the Treasury research, which is staggering, right, so, yeah, we have to get a better deal for the workers and for the taxpayer.
Kate Browne 17:15
Something I've been really passionate about with cover on this show before and it's been very popular is, you know, what seems like a lot of structural inequality around superannuation and women, we know that women are retiring with 58% less than super than men. What are your thoughts on this situation and how we can we can shift that for the better?
Andrew Bragg 17:34
One of the things I recommended in the book is that we amend the Equal Opportunity arrangements which effectively prevent employers from discriminating in favour of female workers so that they can effectively put in a higher contribution rate for women if they would like to do that because that reflects the fact that combination of often low pay which is still quite ridiculous, but he's, unfortunately, a feature of the library. The market, but also taking breaks during childbirth, leads to lower retirement savings accounts for women. So that is one structure, why that can be addressed. I do think that the Equal Pay issue is an economy-wide issue. And then also there's a question of how we deal with, you know, those child-rearing years across the board. So but one particular thing we can deploy into super is allowing employers to discriminate in favour of women if they want to. And I know that some employers that have been through this process and found it very hard to get an exemption, so we shouldn't be making it harder to support women to get a higher bounce.
Kate Browne 18:41
So this is to raise a ceiling on how much you can contribute to top it up is that right
Andrew Bragg 18:47
No, this is about a legal barrier, which prevents workplaces so I'd see Sex Discrimination Act, which prevents employers from making higher contributions for women across their working life. It's a great initiative. I don't want to see where places have to be put through the burden of trying to make an application to do this, they should just be allowed to do this because it reflects good leadership. And it reflects the fact that there is, you know, an awareness that this is this is unfair and it look I'm, I'm a liberal, so I'm attracted to practical things.
Kate Browne 19:22
Certainly, one that needs to be addressed. It doesn't look like it's, it's striking for much more improvement as we go along. It's quite scary. I think I read recently, one of the fastest-growing homeless groups in Australia is women of retirement age. So it's definitely definitely one that needs to be looked at. If you could say one thing to our listeners about superannuation. From all your experience and your your thoughts, what would it be?
Andrew Bragg 19:45
It would be - take control of your own life. Don't rely upon the super funds and work out how much you need for retirement. And you should think about diversifying your investments in many cases, the best thing you can do with your additional money is to pay down your debt, secure your property because as you say, okay, there are many women, there are many people that are facing poverty in retirement and owning your own home is a really important foundation for avoiding poverty. But at the end of the day, you want something bit more than that. So what I'll say is, just be aware that there's vested interest in agendas everywhere in this space, right? So don't rely on the super funds to tell the truth. Try and get your own information, do some of your own calculations, and don't leave it to others,
Kate Browne 20:35
I guess. And remember that it's your money, even if currently, you can't touch it, it's still your money and it's out there doing stuff. So take control of it.
Andrew Bragg 20:43
That's a very good message. And I'd be scared of the funds saying that you're going to be poor in retirement if you take your super over now because the way the system works is we actually underwrite most people in retirement. And if you take this up today, they'll be of course a, in many cases, a higher pension. And so just beware of all those scary spooky people.
Kate Browne 21:03
It can look pretty grim when you say some of the proclamations but let as you said you really need to you know at the moment take matters into your own hands and also plug for Finder you know if you're not happy with your super fund, take a walk. That's the other thing you know you can shop around and is your money at some I think people don't think about that because it is you know something that's not for a long time for particularly younger people but it's still your money and you know you do have a right to move it around and do what you want with it.
Andrew Bragg 21:29
Andrew, thank you for your time. Thanks guys. Lovely to talk to you.
Kate Browne 21:34
So some pretty radical idea Sally, what do you think about it?
Sally McMullen 21:39
I mean, I'm kind of in two minds about it. Part of me does like the idea of giving people the option to access their super for stuff like buying house because I know is you know a young person in Australia right now. It's really difficult without you know, that financial support but also like, yeah, I'm kind of scared of the idea of reaching into my future fund than thinking of, you know, like 70 year old Sally retiring and being like, I would have liked to have that money now.
Kate Browne 22:08
Yeah, I think like I, you know, I definitely think it's great to always come at established systems with new ideas, but at the same time, you know, I think the world is changing and super needs to keep up. We've certainly seen that with the way women have not benefited from Super because it was established a certain way. And the world's really changed since then. So I think you know, great to keep the conversation going. Not sure if I'm going to be dipping into mine at this point, though.
Sally McMullen 22:33
So that is another episode of Pocket Money in the can. Everything that we mentioned in the show today is available at our show notes at Find a.com.au slash podcast. And not only is that a wrap for this episode, but it's also a wrap for season two. Can you believe it? Kate, what a journey we've been on.
Kate Browne 22:53
It feels like about five years because it's been such a weird year
Sally McMullen 22:57
I know right? And 2020 has given us no shortage of inspiration - That's for sure. We had the inspiring debt free community episode at the very beginning and then, you know, lots of episodes around investing in the stock market crash as well as of course the impact of coronavirus on our career and money. And yeah, there are plenty of great episodes, so make sure to go back and listen, if you haven't caught up already. We're going to be spending the next little while researching what topics on our money in our lives to cover next, so keep an eye on this space to see what's coming.
Kate Browne 23:30
And as always, you can follow us on Instagram at Pocket Money podcast and reach out if there are any topics that you'd like us to look out for next season. We're always really keen to hear what you guys are seeing and hearing out there and what we can help with. If you do like the show. Don't be shy, feel free to follow us or subscribe and give us a review wherever you listen to your favourite podcasts.
Sally McMullen 23:52
As always, today's episode was hosted by myself Sally and Kay produced by Ankita Shetty and Ben King and editing by the wonderful Brianna Ansoldo of Bamby media.
Kate Browne 24:05
Thanks again to Senator Andrew Bragg for joining us today and sharing his insights and thanks to all you guys for listening in and making what's been a crazy first half of the year into an excellent season of Pocket Money.See you next time.
Sally McMullen 24:19
Until next season.
Transcribed by https://otter.ai
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Pocket Money is hosted by Sally McMullen and Kate Browne, produced and directed by Ankita Shetty, with editing by Brianna Ansaldo of Bamby Media.
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