YOUR MONEY, YOUR CHOICE
ABA says let individuals decide how to maximise their retirement income and allow superannuation choice
Sydney, 21 November, 2002: The Australian Bankers’ Association (ABA) calls on the Australian Parliament to seriously consider the fact that there is no organisation, business, government or third party that has a stronger incentive to maximise one’s retirement income than the individual concerned.
David Bell, Chief Executive of the ABA, said: “The lack of choice in superannuation is a restraint on trade – a person’s individual freedom - and those that obstruct this freedom should be held accountable for the consequences.”
“Many of the reasons advocated for restricting people’s choice should be seen in the light of protecting self-interest. Unlike many groups in this policy debate, the ABA is up-front in acknowledging that banks stand to benefit from allowing people to choose where they direct their retirement income. But, banks will only benefit to the extent to which employees choose to direct their superannuation to them.”
“With greater choice, many employees will have the incentive to improve their level of education regarding superannuation and investment generally, and in this respect, the ABA supports education initiatives. Large institutions, like banks, have substantial resources for education and awareness programs.”
The ABA bases its advocacy of a national regime for superannuation choice on two main principles:
1. Individuals should have greater autonomy over their money as a matter of sound public policy (this was explored in more detail in the ABA’s submission to the Senate Inquiry, 5 September 2002);
2. A national uniform approach to choice will significantly increase the level of competition, efficiency and simplicity of the superannuation system. Currently, three State Governments have choice in one form or another – NSW, Qld and WA. In WA, full choice has applied since July 1998.
The ABA notes that a number of arguments have been put forward to oppose the passage of the choice legislation. The ABA reviews three of these arguments below.
It is argued that a reason for disallowing the choice legislation is that small business would be subjected to fines on a strict liability basis. This type of argument could be used to oppose many Commonwealth and State Government laws, particularly Industrial Relations laws. The current legislation lightens the penalty regime from the previous legislation which provided for automatic fines.
The Senate Committee took evidence from the Federal Treasury who clarified that the Government’s intent is to ensure compliance with the legislation through conciliation. The Courts will also have the power to force conciliation.
Also, the Senate Committee raised the question of Constitutionality of the penalty regime. It may be the case that the Federal Government cannot impose this penalty regime under the existing taxation powers.
The ABA agrees with the Senate Committee recommendation for a moratorium on fines during the early stages of the new legislation. In the ABA’s submission to the Senate Inquiry, the ABA also noted the current default fund arrangements in the legislation are more cumbersome than necessary.
It has also been argued that the choice legislation will impose large compliance burdens on small businesses. The ABA agrees that some employers may face higher costs to process superannuation in the short-term and even fewer will continue to face higher costs long-term.
One of the obvious ways to minimise costs to businesses of greater choice is to have a uniform national scheme in place, rather than the disparate state-based system that currently exists.
The ABA notes there is disagreement amongst analysts as to the estimates of business compliance costs. Treasury has estimated compliance costs of $27 million in the first year and then $18 million per annum on-going. This cost, in an economy with GDP production of more than $500 billion per year, is very low and in no way could be argued as a reason to restrict an individual’s choice as to where their retirement income should be invested.
The Senate Inquiry that looked at choice reviewed the evidence of compliance costs stemming from WA’s choice regime, as it is the best proxy for the costs that would be imposed under a national scheme. WA choice compliance costs since 1998 have been modest and represent a small price to improve the individual rights of employees, increased competition and expected additional retirement income savings.
Importantly, the Senate Committee noted that in the long-term costs might decrease because of account consolidation and e-commerce.
It is argued that greater choice should be allowed only if superannuation fund fees and charges are capped or abolished. This argument is calling for a very significant government regulation of an industry, and is the antithesis of promoting greater competition. Starving consumers and the economy of the benefits of competition in such a manner would be very poor public policy.
The ABA is a strong supporter of appropriate education initiatives, product disclosure to consumers and penalties for false and misleading conduct.
For further information:
Heather Wellard
ABA PR
Phone: 02 8298 0411
Mobile: 0409 830 439
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