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Source: Australian Treasurer

JOSH FRYDENBERG:

Well good morning, it’s a great pleasure to be here with my friend and colleague, Senator Jane Hume, the Assistant Minister for Superannuation. Our colleague Anne Ruston was unable to be with us here today but as the Minister for Social Services she has a deep interest in this report. Today, we are releasing a review into Australia’s retirement income system. It follows a recommendation of the Productivity Commission. The review is more than 600 pages in length, it’s been prepared by an independent panel, a panel that was chaired by Mike Callaghan, a former executive Director of the International Monetary Fund, and a former distinguished Treasury official. Also on the panel was Carolyn Kay, a very well-known figure in corporate circles but also somebody who is on the board of the Future Fund, and Professor Deb Ralston who has been the head of the Alliance for a Fairer Retirement, and the independent panel was assisted by a secretariat led by Robert Preston. I would like to thank, on behalf of the government, those members of the independent panel and the Secretariat for their outstanding work in helping to put together this review. This review looked at the three pillars of our retirement income system, namely the age pension, compulsory superannuation, and voluntary savings including home ownership. Their key conclusion is that Australia’s retirement income system is sound, is sustainable, and is effective, and it is well-placed to deal with the economic volatility, as well as the ageing in our society. The report does not make any specific recommendations, but makes a number of important observations. First, in relation to the age pension, the report finds that the age pension over the last decade has increased faster than inflation and faster than wages growth, and that the age pension has continued to reflect community standards. Australia’s age pension, based on gross earnings, is in the top 25 per cent of OECD countries, and that does not even take into account the additional payments to retirees, support to retirees, whether it is through our transfer system or our health system and our ageing system. The report points out that around 71 per cent of Australians, who are over the age of 65 receive pension payments and around 60 per cent of those receive the full payment under the pension, and that the proportion of GDP that goes towards the age pension is at around 2.5 per cent today, but as the superannuation system matures, will fall to about 2.3 per cent by 2060. The report points out that the age pension helps reduce inequality, and it does so because those on lower incomes receive a higher rate of the pension. It’s also a form of longevity insurance, in that people who exhaust their retirement savings have access to the pension and it’s an important buffer against economic downturns.

The second set of observations is around our superannuation system. It points out that people’s early access to superannuation during the COVID crisis has been justified in that it sometimes is appropriate for people to access superannuation early and that this hasn’t had a significant impact on people’s retirement incomes. When it comes to our compulsory super system and the super system more generally, currently our super system has around $3 trillion worth of savings. This makes it the fourth largest such pool of funds in the world and it will only grow over time, as more people put more money into their superannuation. In terms of the superannuation guarantee, as you know, it currently is at 9.5 per cent. It is legislated to go to 12 per cent over time. The report looks at this in detail and makes the comment, and I’ll quote it, “maintaining the superannuation guarantee rate at 9.5 per cent would allow for higher living standards in working life. Working life income, for most people, would be around 2 per cent higher in the long run.” So the report goes into some detail about the trade-off between a working life income and people’s wages, and that with an increase in the superannuation guarantee, and points out that the most effective way for people to secure themselves in retirement is not necessarily an increase in the superannuation guarantee, but by more efficiently using the savings that they do have.

A third set of observations is around home ownership, and the report points out how important home ownership is to people’s security in retirement. It points out that around 76 per cent of people over the age of 65 own their own home and that as a consequence, this allows them to have more discretionary income and it also provides an opportunity for them to draw down on the equity in their home in retirement. The report is very comprehensive, and the report should give Australians confidence about the soundness and the sustainability of Australia’s retirement income system. It should also give people the confidence that government policies to boost home ownership, whether it is through the First Home Super Saver Scheme, through the Home Loan Deposit Scheme, or the HomeBuilder scheme, is helping to increase home ownership which is clearly something the report points out is a positive for people in retirement. Also the Government’s initiative to enable Australians to pay lower fees and to get better returns on their superannuation is also an important reform that is consistent with the observations in this report. So this report should give Australians confidence about the soundness and the sustainability of Australia’s retirement income system. Like any complex system it’s not beyond improvement and the report’s many observations and detailed analysis will be used by the Government in consideration of future policy decisions. Jane.

JANE HUME:

Thanks very much, Josh. I think Josh has covered an awful lot of what is a very comprehensive review. When we talk about retirement, so much of what we talk about, the focus is on superannuation and particularly around accumulating superannuation. But in fact our entire system is so much more. And the report today bears witness to that. This system is, as Josh said, it is effective, it is sound and it is sustainable. But it’s complex as well and people find it quite difficult to navigate. The report suggests a potential objective of our retirement income system and that would be to deliver adequate standards of living in retirement in an equitable, sustainable and cohesive way. And the report fleshes out those very subjective terms of adequate and equitable and sustainable and cohesive. Most importantly I think, it focuses on smoothing out standards of living between your working life and your retired life. Because a better and more efficient use of assets in retirement can lead to a much smoother transition and a better, more profound outcome on a standard of living in retirement. So things, for instance, like drawing down on your superannuation assets more efficiently and effectively at optimal rates rather than at minimal rates. Things like accessing much better products in retirement that address issues like longevity risk and the government is working on that right now with a commitment to introducing a retirement income covenant into superannuation legislation that would compel superannuation trustees to develop and present more comprehensive products to their members as they transition to retirement. There are other ways too. Accessing in very small amounts of equity in your home can allow retirees to amp up their retirement income at a time when it suits them and amp it back down when they have more available money. Also, a better understanding of related systems like aged care, like our health system and making sure that peace of mind that comes with understanding that support from government is not just limited to the age pension but also to other systems as well and how they interact with our retirement income system. So a better range and use of retirement income product are definitely on their way. We know there are funds out there superannuation funds out there now working on this alongside government. And the importance of advice is also mentioned to navigate the complexity of the system. We know that most people actually don’t seek financial advice before they enter retirement, and that’s largely because of the cost of financial advice, because people believe they are retiring with too low a balance for it to make a difference or they distrust the system. These elements are all things we are working on right now in conjunction with the industry and also in conjunction with ASIC to reduce the burden of regulatory red tape on the cost of advice and also to increase the professionalisation of the financial advice industry. Finally I just want to talk about one element of the report and that is around women, a hot topic in superannuation. We know that women retire earlier and they live longer. They retire with smaller balances in their superannuation and that is logical because superannuation is always going to be a reflection of your working life and women have career breaks during their working life to care for children or to care for elderly parents and they often work part-time and of course there is still remaining a gender pay gap that has reduced quite significantly throughout the life of this government but it still remains. We also know that the gap in balances at retirement will close over time as women’s participation rate in the workforce improves and more opportunities to contribute to super are used. But that said, while it may narrow it may not close. The use of other assets in retirement and other pillars of the retirement system, whether it be the age pension or be it assets outside of superannuation mean that while balances of superannuation at retirement have a significant gap between genders, retirement incomes are actually much narrower and that is particularly important. We also know that women make more voluntary contributions to superannuation than men, both in number and in volume. This is particularly important. This Government has given more opportunities to contribute to superannuation than ever before by instilling the concessional cap at $25,000 and allowing that cap to be rolled, carried forward from previous years so that people can, and particularly women, can contribute more to superannuation when they feel like they are capable of doing so. So I think I will probably leave it there. Finally, can I just again reiterate our congratulations to the authors of this report, Michael, Deborah and Carolyn in particular and also to the Treasurer’s and the Treasury Secretary. It is incredibly comprehensive, around 650 pages or so, so I think there will be a lot of people with a lot of reading to do this weekend. It will be a body of evidence from which Government and industry and thought leaders will be able to leverage practical and effective policy making and policy development for many years to come. Thank you very much.

JOSH FRYDENBERG:

Questions for Jane or myself?

JOURNALIST:

The opposition leaders have, this morning, [inaudible] caused the increases in superannuation contributions given that the decision to pause that is going to be delayed until next year’s budget. Are you prepared to go to the next election, sorry apologies, fighting on superannuation increases?

JOSH FRYDENBERG:

I find it pretty amusing that the Labor Party have rejected the observations in the report before they’ve even read it. The report hasn’t even been released. If anything it just confirms their ideological bias in this space and the lack of understanding or appreciation for evidence-based policy development. What we have here is an independent report. We haven’t yet released it. There have been some excerpts of quotes from the report in the papers today and Jane and I have talked at length about it this morning. The opposition, like other stakeholders with an opportunity to read through that report, I would have thought that rather than showing their hand inadvisably before they read the report they would run off at least pretending to have read it and then made their position known-

JOURNALIST:

But are you prepared to fight the next election on superannuation increases?

JOSH FRYDENBERG:

So the guarantee is legislated from 9.5 per cent to 12 per cent. What the Prime Minister and myself, Jane and other colleagues have said is that we will consider this report, we will consider other views that have been placed out there and we will make a decision about that in light of current circumstances before the scheduled increase takes place. I note that this report is one voice and there have been many others in this space including the Governor of the Reserve Bank who has pointed out clearly the trade-off between a person’s wages and the superannuation guarantee. The Grattan Institute has pointed out that trade-off as well. And we will make a decision by that time next year. The key point also to underline here is that we are living in a very different economic environment than we were this time last year. We have been subject, as a nation indeed as a global economy, to a once in a century economic shock of COVID-19. That has had a major impact on employment, on wages, on the labour market more generally, as well as the economy and so we need to make decisions based on the economic facts at the time.

JOURNALIST:

The review has identified housing as an area for retirees [inaudible] are asset reach, will the Government consider means testing the family home for the age pension?

JOSH FRYDENBERG:

No.

JOURNALIST:

Can half a billion dollars for the Australian War memorial be justified –

JOSH FRYDENBERG:

Sorry, are there any more questions on retirement?

JOURNALIST:

Yes I just have one more. Did the review look at whether superannuation had taken pressure off the aged pension?

JOSH FRYDENBERG:

I refer to that in my opening remarks about the gradual or moderate reduction in the proportion of GDP that is spent on the aged pension, out to 2060, as our superannuation system matures. So from around 2.5 per cent today in terms of public finances going towards the aged pension to about 2.3 per cent by 2060. At the same time, the proportion of GDP that is spent on superannuation tax concessions goes from 2.1 percent to 2.7 per cent so we are actually spending more on tax concessions for superannuation than we will be on the age pension over time.

JOURNALIST:

Why won’t you announce the decision now about whether you’ll delay it or scrap the compulsory increase?

JOSH FRYDENBERG:

Well as I said, we do not need to rush a decision ahead of that taking place by mid next year. This is an important report and it is now public today and obviously it will be looked through, as Jane and I said, by relevant stakeholders and decision-makers. And it goes with the other pieces of evidence that is out there and that is what is happening in the economy and we can make an informed decision next year. You had a question?

JOURNALIST:

The half a billion dollars for the redevelopment of the Australian War Memorial, can that be justified in light in of yesterday’s report?

JOSH FRYDENBERG:

I think you are talking about two different issues to be honest. Firstly in relation to the investment in the War Memorial redevelopment, this is a place where Australians come to pay their respects to those who have been lost fighting under our flag and defending our national interest as well as playing a very important educational role and we have great pride in our defence force and what they have been able to achieve for us as a nation. In terms of the issues that were covered at length yesterday by the Chief of the Defence Force, these are very serious allegations and the government has established a process to investigate and assess these allegations with a special investigator. And we will do that and the CDF, the defence minister and the Prime Minister have commented about that. That being said, these allegations should not overshadow the remarkable work by the men and women in the Australian Defence Force. Thousands have been deployed on assignment around the world defending our national interest and making Australia and the world a safer place. We have seen through recent crises, COVID-19 and the bushfires and indeed the floods as well, our defence force play an incredibly important role in supporting the local Australian community. So, I am very proud in the Defence Force of Australia. These allegations are very serious but they shouldn’t overshadow the immense good work that is being done by the defence forces in our name.

JOURNALIST:  

There are reports this morning that China is preparing to target Australia’s record on indigenous rights and aged care. As Treasurer, are you concerned by these deteriorating relations with one of our biggest trading partners?

JOSH FRYDENBERG:

Well, earlier this week, I made a speech at a forum about our strategic priorities, our strategic interests and changing strategic environment, and I made some comments about China; and in that speech I talked about our willingness to sit down with the Chinese leadership and engage in a meaningful and respectful dialogue.

Our values and our histories are different, that is very well known, but our trading relationship has been mutually beneficial. Indeed, China’s rise economically has helped lift hundreds of millions of people out of poverty and it’s also been an important market for Australia’s resources, agriculture, increasingly services, education, tourism and the like.

At the same time, Australia’s national interests are non-negotiable. Whether they are national security interests or national economic interests; and Australia will also continue to speak publicly about human rights issues, as appropriate. So we will not negotiate on our national interests, it goes to the very heart of the Australian identity, but we are willing to engage in a respectful and mutually beneficial dialogue with the Chinese leadership.

JOURNALIST:  

What do you make of China’s warning to anyone who dares on deny their [inaudible] to be careful that they don’t get their eyes poked out by [inaudible].

JOSH FRYDENBERG:

Look, I am not going to pass commentary on individual comments, other than to say that the relationship with China is an important one, it is mutually beneficial to both countries, and it has served both countries well. That being said, China is not our only economic partnership. We have been working very hard through the various free trade agreements that we have engaged in to strengthen our partnerships further afield. Our two-way trade with India, for example, has doubled between 2014 and 2019. Our economic partnership with those Indian countries is worth more than $120 billion. We have recently entered into a comprehensive economic partnership in the region, 15 nations, and just last week I signed a bilateral loan agreement with my Indonesian counterpart, Sri Mulyani, for $1.5 billion to help them get through the COVID crisis. So, we engage in many relationships, and of course the Prime Minister had a very successful visit to Japan where we strengthened the bilateral defence ties, and that’s a critically important relationship for Australia and the region.

JOURNALIST:

I was just hoping to ask about the situation in South Australia. Why does the Federal Government support what the South Australian Government is doing when it was so critical of Victoria’s lockdown?

JOSH FRYDENBERG:

Well, they’re chalk and cheese. I trust you live in Victoria and so does my family, and here in Victoria we were subject to months and months of continuous lockdown, and obviously we saw 20,000 plus cases here in Victoria. They’ve had a cluster of 20 cases in South Australia and a sharp six-day lockdown was announced by the Premier as a measure that was designed to get on top of the virus very early, so you can’t compare what we have seen in South Australia and what we have seen in Victoria. The other point I would just make is about contact tracing. We’ve heard from the former chief scientist Alan Finkel that the Victorian contact tracing, which was paper-based, was quickly overwhelmed when there was a massive spike in cases here in Victoria, whereas the contact tracing in South Australia has been applauded both by Alan Finkel as well as by Jane Halton in her review as well.

JOURNALIST:

What happened in South Australia is eerily similar to what happened in Victoria, just in terms of how the virus got out into the community – it was a casual worker, working for hotel quarantine, working multiple jobs. Is it disappointing that we are seeing this situation again?

JOSH FRYDENBERG:

Well, I think they are actually quite different situations, but there has been a review of hotel quarantine by Jane Halton, and there has been some further changes to the broader systems, but obviously, the Government stands ready to provide continued assistance and we have. We have provided ADF assistance into South Australia, as you know, that was offered here in Victoria but not taken up in the same way, so we have provided that support through various means to the South Australians and will continue to do so. But the good news, the really good news for the Australian people is that the economic recovery is underway. Is that, despite this recent cluster of cases in South Australia, we have broadly seen the suppression of the virus across the country. Whereas, the United States, for example, is seeing 150,000 plus new cases a day. At the same time, the economy is also making a comeback, and business confidence and consumer confidence have both been on the rise. Australia’s AAA credit rating has been reaffirmed, the governor of the Reserve Bank has said that the Morrison Government’s fiscal policy and economic response is on the right track, and just yesterday we saw job numbers for the last month, where 178,000 new jobs have been created with the effective unemployment rate – which takes into account those who have either lost their jobs, seen their working hours reduced to zero or have left the workforce altogether – falling from 9.3 to 7.4 per cent. And the good news for Jane, for myself and the Prime Minister and for the other members of the Government, as well as the country, is that 80 per cent of those Australians who either lost their jobs or saw their working hours reduced to zero at the start of the pandemic are now back in work, and so we have got a long, hard, bumpy road ahead, but the economic data is certainly going in the right direction.

MIL OSI News