Sunday 13 October, 2013
Australia’s compulsory superannuation scheme has been ‘an incredibly beneficial policy’, says head of Australia’s
Financial Services Council.
John Brogden told TVNZ’s Q+A programme that since the Australian Labor party introduced the compulsory retirement
scheme, the country had amassed $1.6 trillion in superannuation and helped the country avert a recession during the
Global Financial Crisis.
Mr Brogden told host Susan Wood: “One of the reasons we didn’t have a recession in Australia during the financial crisis
is because when listed companies deleveraged, the flow of funds that came into superannuation allowed superannuation
funds to buy those shares,” he says.
The then Labor Government brokered a tripartite deal with unions and businesses in 1992. Mr Brogden says the scheme
retains 84 per cent public support but that small businesses in Australia ‘hates superannuation”.
“They see it as a tax. And it’s really a shared contribution, if you like. By law, it’s actually a complete contribution
by the employer. So the employer is required to do that. So if you go for a job in Australia, it will be $50,000+ super,
or it will be $55,000 including super, roughly speaking. So people understand that, and small businesses tend to see it
as a tax on a small business. They hate the fact that it’s going up, but there’s never a good time to make this
decision, Susan. That’s the critical thing. There’ll never be a good time for NZ or any country in the world to make
this decision. Australia had the guts to make it. A Labor Government, to their credit, made that decision 21 years ago,
and it has put Australia in an incredible position worldwide. We’ve got the fourth-largest private pension system in the
world. That’ll be the third-largest soon enough, and it will provide Australians with an affordable and a comfortable
retirement,” Mr Brogden said.
Tomorrow, the NZ Financial Services Council will offer its solutions to increase retirement savings and incomes at a one
day conference in Auckland.
Q+A, 9-10am Sundays on TV ONE and one hour later on TV ONE plus 1. Repeated Sunday evening at 11:30pm. Streamed live at www.tvnz.co.nz
Thanks to the support from NZ On Air.
Q+A is on Facebook, http://www.facebook.com/NZQandA#!/NZQandA and on Twitter, http://twitter.com/#!/NZQandA
Q+A
SUSAN WOOD INTERVIEWS JOHN BROGDEN
SUSAN WOOD
Good morning to you.
JOHN BROGDEN - CEO, Australian Financial Services Council
Good morning.
SUSAN You saw that story there. It’s not uncommon in this country, sadly. Is it lack of financial knowledge or that we earn so
much less?
JOHN Oh, look, I think it’s a combination of factors. There’s no doubt from an Australian perspective when the then-Labor
Government back in 1992 made the decision to put in place a compulsory superannuation system, starting for most people
at zero and moving to 9 per cent of their salary by 2001, that that was a brave decision, I think. It wasn’t a
bipartisan decision. The then Liberal Opposition opposed it, but when they came into government in 1996, they continued
the acceleration up to 9 per cent. It’s become a very significant part of the Australian psyche that people support
their superannuation system. The last piece of polling we did showed that 82 per cent of Australians support the
superannuation system. It’s up to 9.25 per cent now and on the way to 12 per cent, and that’s supported by 84 per cent
of the population, which is an incredible concept. You’re basically saying to people from the day they start working -
let’s say that’s 18 - that you have to put soon to be 12 per cent of every dollar you earn away. You can’t touch it till
you’re 60, probably 65 by the time young people get there, and it’s a defined contribution scheme, not a defined benefit
scheme, so there’s no guarantee what will come out the other end. Yet, it remains so popular because I think people
don’t want to be, as your story just showed, completely reliant on the pension.
SUSAN So is that what we need here? A government to make a brave decision and bring in compulsion?
JOHN My father’s a Taranaki boy, so I’m very conscious of coming to NZ-
SUSAN And telling us what to do. I’m asking you, though. I’m asking you. Because the example there would indicate it is what
we need to do.
JOHN There’s no doubt that it has been an incredibly beneficial policy. Most Australians retiring now will have only had
compulsory super for about half of their working life. Let’s say it started 20 years ago when they were in their 40s. So
they’ll end up, for most of them, having a super fund and part pension, and for many of them, it will run out at about
75. So it’s always been a long-term policy. It won’t really reach maturity for another 20 or 30 years. So people who
started working at zero per cent, got up to 9, on the way to 12. So there’s no doubt it’s provided a significant
benefit. The other thing it’s done, and this isn’t spoken about much. The amount of money in superannuation in Australia
is $1.6 trillion.
SUSAN And this is giving Australia enormous clout, isn’t it, having that war fund, if you like, to fund businesses, to invest
offshore. It’s huge for the country.
JOHN So, one of the reasons we didn’t have a recession in Australia during the financial crisis is because when listed
companies deleveraged, the flow of funds that came into superannuation allowed superannuation funds to buy those shares.
So it provides an incredible- I don’t even think the Labor Government when they brought it in 20 years ago though it
would be so significant.
SUSAN It’s a financial buffer, isn’t it, really?
JOHN It is, and the gross domestic product of Australia, so the size of the economy, is about $1.3 trillion. The stock
exchange is at about $1.3, $1.4 trillion. There’s more money in superannuation that there is deposited in banks. That’ll
be $3 trillion in 2020, seven years away.
SUSAN That’s the thing. Once it starts growing and compounding-
JOHN Oh, it’s extraordinary, and up to $7 trillion in 2030, 2035.
SUSAN There’s a tax bias in this country, also, against saving, against KiwiSaver- Well, that’s slightly different. But
there’s a tax bias towards property. Is that something-? I know you don’t want to tell NZ what to do, but is that
something we should be addressing?
JOHN Well, look, in Australia, your family home is tax-free. If you invest in investment property, then you can claim against
the tax on your depreciation. So there are tax preferences towards property. However, superannuation is tax preferred.
You pay 15 per cent on the way in. Now, if your marginal tax rate’s 48 cents in the dollar, you’ll actually get a
discount, a benefit, to putting money in super. And you can put up to $25,000, so you can put above your basic
requirement in law. It’s 15 per cent tax when it’s in and nothing when it comes out.
SUSAN That’s a real incentive to invest, isn’t it?
JOHN So what the government said 20 years ago is we have one of two choices. We can try and pay the age pension for this
incredible number of people, particularly the baby boomers, when they retire and live longer. That’s the other point, of
course. We’re all living longer. The healthier we are, the medical improvements we have, the welfare system, the medical
system all help us live longer. So what we have to consider is you’re retired for a very long time now. So the
government said, ‘Well, we can find the money in 30, 40, 50, 60, 70 years to pay the age pension for those people, or we
can take our tax benefit now, in fact, forgo government revenue now by giving a concession and forcing people to save.’
SUSAN A big part of the equation - business. Because it’s not just the employee that’s putting it in; the employer is as well.
We’re a land of very small business, and we will often hear, ‘Well, we just can’t afford it.’
JOHN Look, small business in Australia hates superannuation. They see it as a tax. And it’s really a shared contribution, if
you like. By law, it’s actually a complete contribution by the employer. So the employer is required to do that. So if
you go for a job in Australia, it will be $50,000+ super, or it will be $55,000 including super, roughly speaking. So
people understand that, and small businesses tend to see it as a tax on a small business. They hate the fact that it’s
going up, but there’s never a good time to make this decision, Susan. That’s the critical thing. There’ll never be a
good time for NZ or any country in the world to make this decision. Australia had the guts to make it. A Labor
Government, to their credit, made that decision 21 years ago, and it has put Australia in an incredible position
worldwide. We’ve got the fourth-largest private pension system in the world. That’ll be the third-largest soon enough,
and it will provide Australians with an affordable and a comfortable retirement. Not exactly champagne and caviar for
everybody. The other thing it does is, as we move to the future, Australia has five working Australians for every
retired Australian at the moment. By 2050, that will be 2.7 to one. I think NZ’s age, you get to 2.7 to one at about
2035 or 2040.
SUSAN Yes, we do.
JOHN That means there are fewer and fewer people paying tax to pay for the pension.
SUSAN Because it becomes, I think, percentage of GDP. It doubles in the very short space of time, actually, relatively.
JOHN Correct. So, really, for people in their 20s and 30s who think, ‘Why the hell am I paying 9.25 per cent of my salary
now? I should be knocking it off the mortgage or buying a car or whatever it might be.’ The reality is they are saving
for their future. And the figures are extraordinary. I mean, here we are 20 years on. It is a complicated system. If you
stopped 10 people in George Street in Sydney today, they’d tell you it’s a complicated system. But clearly they’d prefer
to have it than simply be relying on the age pension.
SUSAN Very good to talk to you.
JOHN Thank you.
SUSAN Made me quite envious. (BOTH CHUCKLE)
ENDS