While Josh Frydenberg said this week political reality means economic reform must now be incremental, the Morrison government’s Your Future, Your Super package defies this branding – it is a defining reform to boost national savings significantly along with the pockets of Australian account holders.
The passage of the legislation also settles – for the current parliamentary term – the turbulent politics of superannuation. The government, following Scott Morrison’s instinct, leaves in place the law taking the superannuation guarantee in stages to 12 per cent of wages while its reform thrust has been to lower fees, improve accountability and put back in members’ pockets an estimated $17.9bn over the decade. This was the right strategy.
Whether this political settlement proves temporary or becomes permanent depends on what superannuation framing the government takes to the next election. The political fight over the recent package has only deepened the Liberal Party’s distrust of Labor and industry super funds. It is, however, easy to miss that progress was made across the political divide on improvements to the system in the interests of 15 million members.
The Treasurer told this column: “I was opposed every step of the way by Labor, on this bill and previous bills. The super reforms are extremely significant, lowering fees and boosting returns. They were delivered in the face of concerted opposition from the Labor Party, unions and industry super funds, proving that major economic reform can be achieved.”
After the June 17 approval of the package, Frydenberg and Superannuation Minister Jane Hume said: “Together, these are the most significant reforms to superannuation since the introduction of compulsory superannuation in 1992 and build on the government’s prior reforms.”
There are three features in the government’s approach. The system is not being dismantled; indeed, any chance of Liberal dismantlement was lost decades ago. The government’s aim has been to eliminate abuses, improve accountability and enhance members’ balances. And the foundation for this reform was the Productivity Commission final report of December 2018 and its documentation of underperforming funds, untenable rip-offs and unaccountability of too many trustees.
The decisive step was Frydenberg putting the reform package in the budget last October, saying: “The current system is letting too many Australians down. Australians are paying $30bn per year in superannuation fees. This is more than the $27bn households pay on their energy bills. At the same time Australians hold around three million accounts in underperforming funds managing over $100bn in retirement savings. A member in the worst-performing MySuper product could be up to $98,000 worse off in retirement.”
For analysts of Australia’s declining appetite for economic reforms, this saga validates an old maxim: begin the campaign with an independent report.
The commission deputy chairwoman at the time, Karen Chester, who headed the super report, said the legislated package “exceeded even my optimistic expectations”. She marked it a “high distinction”. Chester asked: “How best to put the super package into economic modern history context? For me, it joins the great reforms – floating the dollar and tariff reform. Why is this? The super system is inarguably the ‘gorilla’ pillar of our national savings today – the system has now topped $3 trillion – and ensuring it is efficient and delivers the best outcomes for workers in retirement matters more than any other reform still left on the table.”
There are three keystones to the reforms. First, terminating multiple accounts so that a member’s account is stapled to them whenever they change jobs rather than new accounts being created, a critical reform with workers likely to be more mobile in future. Second, requiring the Australian Prudential Regulation Authority to conduct an annual objective performance test for products, with those failing having to inform members and those persistently underperforming being prevented from taking on new members. The PC report had said it was “impossible to overstate the significance” of the harm done to the retirement balances of Australians from underperforming funds.
Third, the government has strengthened trustee obligations to ensure, by law, they act only in the best financial interests of members and this involves a contentious reversing of the evidentiary burden of proof by trustees. It reveals the government’s distrust of the way money has been diverted to campaigning and political purposes but also reflects the scathing conclusion of the PC report where trustees had put competing interests before that of members.
After the legislation was passed Frydenberg got APRA chief Wayne Byers to Canberra for a meeting where his message was the absolute need for the regulator to enforce the new laws. Chester’s PC report had found regulatory failure in relation to APRA and the Australian Securities & Investments Commission. The Treasurer has appointed Margaret Cole, a highly regarded former British regulator, to APRA, where she will lead enforcement against the super funds.
The single most contentious provision in the bill was the Treasurer’s directional power under which he could veto a fund’s investment or payments, a provision opposition superannuation spokesman Stephen Jones called a “dangerous precedent” and branded Frydenberg a “proto-Marxist”. The measure was dropped in the crossbench negotiations and will probably belong to the tactic governments now adopt of including “try-on” but sacrificial measures in bills they are happy to see lost as the price for giving crossbenchers their required victories.
Opposition to the super bill was intense at various and strange stages. Jones wrote to Coalition MPs asking them to recommit the issue to their party room. Liberal backbenchers, with Andrew Bragg and Tim Wilson conspicuous, wanted stronger government moves against industry funds while some Nationals including Barnaby Joyce were muttering revolt, saying the Treasurer’s directional power could be used by a future Labor government. ACTU president Michele O’Neil and Australian Industry Group chief Innes Willox wrote to crossbench senator Rex Patrick saying the bill “should be rejected” with an alternative drafted.
In an operation run from Frydenberg’s office with Hume’s support the package was carried with Pauline Hanson brought on board. Jones called the final bill “a lot better” than the initial bill. Indeed, Jones supported action on fund performance and estimated that being in an underperforming fund could cost a worker $300,000 over a lifetime.
The bill, like most super bills, has its flaws but its passage is a landmark. The political war over super is not finished. Industry Super Australia recently wasted a stack of funds on a useless TV campaign threatening the government over the 12 per cent guarantee when Morrison had no intention of touching it – the only impact being to harden Liberal suspicion about the industry.
Labor needs to think of super as a national interest project, not a Labor self-interested project, while the Liberals, sooner or later, must cross the super bridge as they crossed the Medicare bridge.