Certainty required for super regime: Statewide
A clear set of principles underpinning Australia’s superannuation system would establish whether increasing the contribution rate needs to be accelerated, according to outgoing Statewide Super chief executive, John O’Flaherty.
O’Flaherty told Business Insight that the superannuation system had not yet matured and, with eight out of 10 Australians still receiving a full or part pension, the super regime was not providing the retirement income safety net intended when it was introduced more than 20 years ago.
He made his comments just before announcing he would be stepping down as chief executive on 1 May after leading Statewide Super for the past five years – a period in which the fund grew from $1.7 billion to $6 billion.
O’Flaherty said the super industry needed policy certainty “because at the moment every man and his dog are throwing hand grenades into that pot, the most recent one being allowing young people to use their super for housing – which was an absolutely loopy idea”.
“We currently have super contributions at 9.5 per cent of employee earnings. That figure has to grow to 12 per cent and beyond and we have got to have a serious number of people using super as their means of retirement income. But we don’t have that,” O’Flaherty said.
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He said the pace at which increases in employer superannuation contributions should occur would be determined by the objective for retirement incomes.
“If, for example, the objective was to have 80 per cent of people being self-funded retirees in 20-30 years, leaving only 20 per cent of people on the pension you work back from that point and you will get the answer whether contributions should be 12 per cent or 15 per cent over a lifetime,’ O’Flaherty said.
The superannuation guarantee system introduced by the Keating Government in 1992 had a goal of 15 per cent contributions – a level that would ensure someone entering the workforce at that time would have a reasonable self-funded retirement. However, the current Federal Government has stalled the contributions rate at 9.5 per cent until 2021 before increasing at 0.5 per cent increments to reach 12 per cent by 2025.
“My view is we have taken our hands off the wheel on this issue. We have been too distracted by everything else happening and we have forgotten what the purpose of superannuation was,” he said.
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He said any discussion of principles should be broader than superannuation and include such issues as the level of income required for a reasonable retirement, the age entitlement and operation of the pension, related taxation issues, health and aged care, and the position of non-income earners.
“If I’m sitting in the Federal Cabinet, I’ve got three big pots of money that I’m doling out every day of the week – the pension, health care and aged care,” O’Flaherty said.
“These issues need to be brought together and be translated into a coherent policy and not have one arm of government playing games with one bit of the system which all of a sudden impacts on other people,” he said.
Statewide chair Juliet Brown praised O’Flaherty’s leadership during a time of significant change for the company.
“John’s leadership and drive was key to Statewide’s successful merger with Local Super,” Brown said.
“John has also been responsible for instilling a strong customer focus in the organisation,” she said.
“During his time as CEO the fund has grown from $1.7 billion to $6 billion, investment returns to members are in the first quartile and comprehensive advice including financial planning is now available to members.
“The board wishes John all the best for his future.”
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