Superannuation should provide a comfortable retirement for the several million workers who signed up to the 1983–95 “superannuation revolution” by the ACTU and Hawke-Keating Labor governments. But what should be in a super account to provide a comfortable retirement for this “pioneer” generation?
The financial advisory industry, which has grown exponentially off the back of superannuation, says a retiring couple would need their superannuation account(s) to contain between $600,000 and $1.2 million to live comfortably. A single person would need between $406,000 and $545,000 in their account.
The same experts reported that last year the estimated average account for a man was between $290,000 and $320,000 and for a woman, between $138,000 and $180,000.
But, countless thousands of workers have super accounts far below these averages. Clearly, current levels of retirement savings through industry super falls far short of what is required.
Workers betrayed
The banks and retail funds are in direct competition with the industry super funds. The Commonwealth Bank and actuarial firm Rice Warner published a Retire Ready Index, which reported that 5.1 million workers nationally — 47% of the workforce — are unlikely to have enough money in their super accounts to retire comfortably.
A further 7 million workers may be able to “retire comfortably” if they combine their personal savings and receive some of the age pension. These calculations are based on couples needing $58,000 a year and singles needing $43,000 a year to survive.
A joint News Corp and Industry Funds study, Ready to Retire, found that more than 60% of workers entering retirement predicted they will have to continue some level of work to make ends meet. Industry Super Australia CEO Davis Whitely said many will not be able to find suitable work when they do retire.
The data says it all. Millions of workers entering retirement today or in the near future will not reap the promised benefits. These are the same ones who took the wage sacrifices to establish industry super.
Paul Howes, a former national secretary of the Australian Workers Union and now wealth manager at KPMG, wrote a gloomy piece on the superannuation industry in which he admits that years of legislative interference in superannuation has been “painful”.
In the lead up to this year’s federal budget a debate erupted around using salary sacrifice super savings for a first-home deposit. In a warning against such a notion, Age commentator Harold Mitchell said most super accounts were already well shy of providing “enough money” for retirement. Mitchell emphasised that former PM Paul Keating’s original scheme required “15% of a workers’ salary as savings for old age”.
Vision Super chief Stephen Rowe said: “When you look at the changes the Abbott-Turnbull governments have made or wants to make to superannuation, it’s not immediately clear what the actual outcome might be. But when you step back and look at the whole picture, a single, purposeful objective reveals itself.
“The government has stumbled through a series of seemingly chaotic changes: freezing increases to the superannuation guarantee; super tax changes from the last budget; changes to the pension asset test that left 300,000 retirees worse off…
“There is widespread agreement that increasing the superannuation guarantee is necessary, or many Australians will reach retirement age with inadequate savings for a comfortable retirement. The superannuation guarantee rate is now not set to reach 12% until July 2025 — seven years after the timetable initially legislated by the former Labor government …
“Despite seeming chaotic and unrelated, there is a clear public policy agenda behind the government’s changes to superannuation. Simply, they want to dismantle superannuation and particularly the sector where five million Australians’ have their retirement savings.”
With successive governments targeting the age pension, more restricted access to it will only further limit the amount available to supplement an individual super account that has not enough in it in the first place.
Wage theft and non-compliance
The ATO revealed recently that 2.8 million people were owed an aggregate $5.6 billion in unpaid Superannuation Guarantee Charge (SGC) in 2013–14 — the legal requirement that employers provide a set, minimum level of superannuation each year for each employee.
This, along with the harsh anti-union regime imposed on organised labour has led to the weakening of awards. The wider application of industry agreements has also limited unions’ ability to police wages, conditions and entitlements.
The spread of part-time, casual and cash-in-hand jobs has also added to the breakdown of employment regulation. This has led to a noticeable increase in non-compliance with compulsory super.
The years of political interference in superannuation have been bad enough. But, even the reduced compulsory SGC, long halted at just over 9%, is not respected by countless employers. Despite being a legally binding component of a worker’s wage, the under-payment or non-payment of the SGC is rife.
According to one superannuation expert about one in four workers is missing out on compulsory employer super contributions. He pointed out there are “undoubtedly deficiencies” in the arrangements to ensure employers “meet their obligations” by employers hiring contractors and using the black economy to avoid their legal responsibilities.
With the ATO failing to insist on a strict pay-as-you-go requirement for superannuation, workers face lengthy delays and protracted investigations to recover unpaid super or, in many cases, no action at all is taken.
The current system places too much onus on individual workers to check whether they have received their compulsory super and to initiate action with the ATO if they discover they have not been paid.
According to Industry Super Australia, the ATO should be undertaking random audits of employers to help identify $5.6 billion worth of unpaid super owed to almost 2.8 million workers.
Out of a workforce of more than 20,000, the ATO has 150 staff who deal with reports of SGC non-compliance. Each year the ATO receives about 20,000 reports from people who believe their employers have not paid them their correct superannuation. The Australian National Audit Office has estimated unpaid SGC contributions amount to $2.6 billion a year.
National secretary of the Transport Workers’ Union Tony Sheldon has called on Labor to put executives of companies engaged in “wage theft” on trial.
“It’s not break and enter, it’s not drunken brawls … it is the plague of billions of dollars in wages and superannuation which employers take from the pay packets of their employees,” he said. “It is wage theft. And [it] needs to be treated like any other form of theft by making it an offence, with jail sentences.”
During the 2013–15 anti-union Heydon royal commission into the building industry, much was made of some well-meaning staff at Construction and Building Unions Superannuation (CBUS) who provided information to help recover many thousands of dollars owed to construction workers’ by LisCon, a major NSW building contractor. The commission focused on the release of information, rather than how an employer had illegally dodged paying the superannuation monies owed.
At the time, the CBUS board included the Master Builders Association. Instead of urging the wayward contractor to obey the law, it urged the commission to recommend harsher industrial laws to stop unions going on site to chase up lost worker entitlements, including missing superannuation.
Immediately after the release of the commission’s final report, LisCon went out of business. The workers did not receive a cent of their entitlements.
What now?
It is commendable that the ACTU promotes the union movement’s leading role in the establishment and rolling out of industry superannuation and that the funds are dedicated to members. But with just under 5 million members out of a national workforce of 13 million, the original target participation is not satisfactory.
To date, the total amount of super savings under funds management has reached $1.3 trillion and growing. But with the average individual account balance not able to provide a “comfortable retirement” for the “pioneer” generation into the near future, emphasising big dollar totals within the funds is a moot point.
The sabotage and undermining of superannuation as a hard-won part of the social wage has been systemic. There needs to be a concerted campaign to recalibrate the super industry to redress the inequities.
The ability to protect, grow and enhance industry superannuation has been swamped by the effects of globalisation and the marked shift to insecure work in all its forms. Not only has the pioneer generation been misled, but many current and future superannuants face very uncertain outcomes as the political and industrial sabotage continues unabated.
This reality needs to be fully recognised by the union movement and the industry superannuation funds. It needs to be reconciled. It is not good enough for the individual funds to acknowledge that many workers are missing out on their compulsory entitlements. Many aspects of such campaigning can cause confusion and make individuals blame themselves for their situation rather than question the maladministration of the whole system.
A pro-active, overt campaign to recoup these growing losses is just the start.
Enhancing a secure, decent retirement for the “pioneer” generation requires superannuation justice to be front and centre of national social policy. The level of the SGC needs to be increased substantially with past losses taken into account.
The union movement needs to re-own superannuation as a central industrial issue, as it was three decades ago. It needs to wage a campaign to force companies to pay up, to collect arrears and to set up a realistic SGC rate.
The level of employer obligation to regularly pay the compulsory contributions is weak and under-exposed. The ATO has fallen way behind. It must have a well-resourced, dedicated superannuation non-compliance section with enhanced recouping powers.
The government should empower superannuation boards to fully carry out their fiduciary responsibilities by pursuing employers to pay the legally required superannuation contributions, including the many millions of dollars in arrears.
In particular, employer association representatives on such boards have a duty to insist that employers comply with the SGC obligations. Proposals to tighten up the laws to crack down on phoenix companies, as part of a wider package of regulatory reforms, would also be welcome.
Essential to any success is that the union movement must mobilise workers across the country to fight and expose wage theft as a serious crime against their future security.
[Brian Boyd is a former secretary of the Victorian Trades Hall. This is the second part of a two-part series. The first can be seen here.]
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