Senator Dean Smith
Shadow Assistant Minister for Competition, Charities and Treasury
Tuesday 8 August 2023
Old Parliament House, Canberra
I begin by acknowledging the traditional custodians of the land on which we meet today, the Ngunnawal people, and pay my respects to elders past, present and emerging.
And I extend the Coalition’s appreciation to David Bell and Colin Tate from Conexus for the opportunity to share these remarks.
I am delighted to represent Shadow Treasurer Angus Taylor.
In 2009, the Henry Review observed that “The retirement income system is facing challenges that will test it as the 21st century unfolds. These challenges include the ageing of the population, longer life expectancies and more people interacting with the system.”
Fourteen years later, with each of these challenges magnified and in the middle of a cost of living crisis, the Review’s findings are now urgently real.
It is key to the wellbeing of Australian retirees, and the national economy, that we have a secure and trusted superannuation system, reinforced by a more accessible financial services sector.
The remark by one industry participant that “the hard work in translating super into better retirement outcomes is only just beginning” is evidently very true.
Many Australians’ economic circumstances have changed dramatically since the last Federal election.
The cost of living and the cumulative effect of 11 interest rate rises mean many households are grappling with financial challenges they have never experienced before.
The latest data makes it clear.
The ABS Selected Living Cost Indexes, released last week, rose by between 0.8% and 1.5% in the June 2023 quarter.
Annually, the same Living Cost Indexes rose by up to 9.6%.
Working households experienced the highest annual rise in expenses on record.
This was based largely on blow-outs in mortgage interest charges, which grew 91.6% – and represented another record increase.
It is unsurprising that Roy Morgan research found that, in the three months to June, 1.43 million Australians were at risk of mortgage stress.
Looking again at the ABS data, most relevant here today is that insurance and financial services were a major component of these cost of living increases.
For self-funded retirees, insurance and financial services costs rose by 17.0%.
It was 25.7% for pensioner and beneficiary recipients and 51.8% for working Australians.
Meanwhile, the most recent HILDA survey found around 8.5 million adult Australians were financially illiterate.
And it’s suggested that almost 90% of Australians are prohibited from accessing financial advice due to cost.
This is the current reality.
But these circumstances also represent a rare opportunity for the financial services sector – which is something I will return to.
The Coalition and superannuation
Australia’s superannuation system succeeds when people feel it delivers stability and certainty in planning for their retirement.
It is a balancing act of recalibrating to ensure it is fit for purpose while maintaining the certainly expected of any long-term investment.
Future changes must be measured and respond to genuine requirements only.
Superannuation must not become an unwilling participant in political culture wars or be viewed as a piggy bank for Governments to dip into when the Budget needs supplementing.
It is Australians’ money, intended to provide them with a secure retirement income.
That is why the Coalition believes future priorities for superannuation should be guided by supporting retirement outcomes for Australians.
- Improving superannuation awareness among Australians;
- Balancing broader benefits without compromising the preservation principle;
- Addressing the balance gap to assist women, primary caregivers and low-income earners grow their superannuation; and
- Reducing red tape across the financial services sector and economy, driving investment and making it easier to deliver returns.
The Levy Review
Too many Australians have been cut out of access to financial advice for too long.
The Coalition commissioned the Quality of Advice Review – commonly known as the Levy Review – with a view to changing this.
Labor’s announcement in June this year that it would adopt some of the Review’s recommendations seemed an encouraging start.
But, viewed from any angle, the staggered approach being taken by the Albanese Government is disappointing considering the pressing need for reform.
So is the decision to accept just 14 of the 22 recommendations, especially given the Review’s author has stressed this will “change very little” for the accessibility and affordability of advice.
Crucially, the need for a fifth round of consultations indicates Labor still lacks a clear vision on the future of financial services in this country.
As a result, we now see media coverage of the negative impact of the Albanese Government’s inaction on older Australians – some left with expensive and unnecessary life insurance policies and others with no cover at all.
Younger Australians are also reported to be stranded without the financial advice they need.
Given the current economic climate, it is particularly concerning that Australians of all ages experience these issues while Labor attempts to find its way to reform.
This inaction is causing real life, real time hardship to consumers.
Having commissioned the Levy Review, the Coalition’s priority is to see its findings reflected in necessary and timely change.
Australian Financial Services Law Review
In four months, we will see the final report of the Australian Law Reform Commission inquiry into simplifying financial services regulations.
Also commissioned by the Coalition, the inquiry is intended to create an achievable pathway towards a regime that is more adaptable, efficient and easier to navigate.
The inquiry’s most recent interim report found the complexity and poor structure of the current legislation makes it difficult to work with and understand, increasing the time, resources and costs needed to comply with it.
Successful compliance is, unsurprisingly, less likely as a result.
Importantly, the complicated nature of the existing legislation seriously reduces its potential as a vehicle for future policy reform.
The interim report found the sooner reforms are made to existing regulations, the simpler they will be to implement and delays and expense associated with remaining with ad hoc legislative can be avoided.
While perhaps representing the driest of the dry issues in financial services regulation, this inquiry is a seminal step towards reform and the presentation of the final report will be a key event.
Retirement Income Covenant
The previous Coalition Government’s ambitions for the Retirement Income Covenant were clear.
It required trustees to have a retirement income strategy outlining their plans to assist their members in retirement.
The then Minister noted it would “give retirees the confidence to spend their superannuation savings, while enabling choice and competition in the retirement phase of superannuation.”
At the time of the passage of the legislation, it was said that trustees knew the Covenant had been coming for more than three years and it was expected the industry was well placed to deliver.
So, ASIC’s findings that efforts so far showed “lack of progress and insufficient urgency” are appropriately scathing.
Two things especially surprised me.
Firstly, just one RSE licensee had a metric assessing the suitability of the level of retirement income over the period of retirement.
Second, only a small number of RSE licensees planned to measure performance and fees of the pension products offered, despite it being a requirement of the legislated member outcomes assessment.
I agree with the reports comment that extending some measurements should be straightforward given they are commonplace in the accumulation phase.
We await APRA’s proposed enhancements, due later this year, but the ASIC report raises an important and broader question – what incentive is there currently for industry to assist retirees as they move beyond the accumulation phase?
Housing in superannuation
More and more, the welfare and wellbeing of Australians of any age is measured against their access to housing.
A national housing debate is underway and a key element of the next phase of this debate must be a discussion on access to housing through superannuation.
A cornerstone of our national success for generations has been widespread attainability of affordable housing, with higher living standards in retirement as a result.
As well as the obvious ownership opportunities, securing housing through superannuation avoids the risk posed to our retirement system by more Australians being forced to rent.
The Retirement Income Review pointed to home ownership as “an important factor influencing retirement outcomes and how people feel about retirement. Home owners have lower housing costs and an asset that can be drawn on in retirement. If the decline in home ownership among younger people is sustained into retirement, there will be an increasing number of retirees who rent.”
The Review goes on to say that around a quarter of retirees renting privately are in financial stress, a much higher level than Australians aged under 65.
Policy battle lines on this were drawn before the May 2022 Federal election.
The Coalition committed itself to the Super Home Buyer Scheme, allowing Australians to invest up to 40% of their superannuation, capped at $50,000, to buy their first house.
Labor has not embraced any similar policy, and in doing so has chosen to ignore the quality of life in retirement and other positive outcomes it would deliver.
It is the Coalition’s view that a compulsory retirement system that remains inflexible and silent to this intergenerational need, as Australia’s currently does, risks compromising its wider community acceptance.
For this reason, the policy remains a core one for the Coalition as we head towards the next Federal election.
And we welcome a conversation with the industry about this policy and the broader issue of how to protect people from the erosion of their living standards in retirement.
Let me conclude with a personal observation.
I spoke earlier about the opportunities posed by the current economic climate.
We are in a unique period, in which a combination of pressures has resulted in Australians needing accessible, reliable financial advice more than ever before.
It also coincides with the final report of the Australian Financial Services Law Review, the expose on industry’s delivery on the Retirement Incomes Covenant and a contest over the recommendations of the Levy Review.
Although it will also be accompanied by a heightened level of scrutiny, this is a chance for the sector, and those responsible for reforming it, to move on from earlier debates.
This convergence of opportunities must be viewed with clarity and renewed urgency.
Our sole focus should be to protect the best interests of financial services clients mindful of the mistrust and resentment further delays will bring – and an appreciation of the long term impact those delays could have on the sector’s ability to provide services to Australian consumers well into the future.
The Coalition’s door remains wide open to the financial services industry – and we look forward to an honest and fulsome discussion on these and other issues during the remainder of 2023.