Kelly O’Dwyer

Kelly O’Dwyer the Minister for Revenue and Financial Services and I have a chat about the Productivity Commission’s report that is set to shakeup the super industry

Kelly ODwyer


Ross Greenwood: I want to take you to the big debate that’s actually sprung out of the Productivity Commission releasing a draft report and I really do stress it’s a draft report. Now, during the week I did speak with Karen Chester, the Deputy Chair of the Productivity Commission, about what they’re doing with superannuation. This is about the default models. So in other words when you start being employed, maybe you’re working for a big company, generally what will happen is you’ll be given some choices as to which superannuation fund you want to join.

Now, the company might very well have negotiated on behalf of all of the employees and arrangement by which you will become a member of that fund. It might be one of the big banks, it might be a big insurance company, something like that, but they will have because of the size of the number of people in the fund being able to negotiate cheaper fees, better life insurance, all those types of things, or because you work under an industrial award, or because you’ve simply chosen you might end up in an industry super fund.

Now, industry super funds came out of the whole idea of compulsory superannuation in Australia, and generally its boards are comprised of unequal representation employers, and also of employee based people, many cases they are unionists. So, there’s the difference between the two styles. But is there a real choice for you? In many cases people end up with five or six superannuation funds and that’s no good for anybody in many ways.


Let’s now go to the Minister for Revenue and Financial Services, Kelly O’Dwyer in regards to this Productivity Commission release. Many thanks for your time Kelly.

Kelly O’Dwyer: Great to be with you Ross.

Ross Greenwood: You’re not far away from the family expanding, is that true?

Kelly O’Dwyer: Indeed, two under two in about two weeks’ time.

Ross Greenwood: Two under two, you need to do a bit of planning for the future for retirement in regards to this Productivity Commission. It is a draft report but it’s put forward different alternatives as to the way in which a person may join a super fund and at the very beginning or even during their working life to try make certain that there is real competition. It’s not necessarily the industry funds versus the retail funds. It’s much broader than that, isn’t it?

Kelly O’Dwyer: Well, exactly right. And I think everyone is frankly really sick of industry groups, and by that I’m talking about superannuation industry broadly, fighting one another about their own vested interests. Frankly, everybody should be interested in a member’s interest, because at the end of the day, it is their money that has been set aside for their retirement income into the future, they’re deferring their wages today and we need to get the very, very best outcome for them.

That’s why the Murray financial system inquiry, which was the inquiry that we did straight after coming in, to election in 2013. It recommended that we conduct this independent review of the superannuation system to see if it was as efficient and as effective as it could be, and whether it was delivering the right outcomes for members. So, the Productivity Commission issues have broadly pointed out as its said, there are some problems with the system as it exist today, because the default model that exists today with default funds can actually reduce the retirees balance by around about $25,000 on average.

Ross Greenwood: Where does that money come from specifically? Where is the inefficiency that creates that loss of $25,000 over the working life of this?

Kelly O’Dwyer: Well, there are lots of inefficiencies and it usually starts very, very early on when people first get into superannuation, and it could be as simple as something like, somebody who has started work for the first time, they might be a tutor for instance at university, they might be employed under a particular enterprise bargaining agreement, which means they have to go into a particular fund, with particular insurance payments that go with that particular fund. And they might at same time also work part time at one of the big major retailers.

Again, they might be covered by a very different enterprise bargaining agreement. Another fund, another set of administrative fees, another set of insurance premiums and the truth is, you can’t actually combine those funds at the moment under the existing rules, because for people who are covered by enterprise bargaining agreements or workplace determination. They have no choice of fund, and fundamentally, that means that they’re paying more fees than they ought to be paying, and they have no choice about where their money goes.

Ross Greenwood: Okay, one of my big business goes on a similar point. And that is, if a person say joins a retail fund and because their employer has chosen that particular organization to look after the soup, the problem always arises when the person leaves that employer. In many cases what happens is, that retail fund that they’re in they just simply drift along with the fund, but I don’t realize that then they come out of that employment that often their fees will triple or even quadruple without them knowing about it, they just see their returns will fall. Now, there’s issues such as this about trying to make certain that superannuation is genuinely portable and that they are in the most efficient schemes possible.

Kelly O’Dwyer: Absolutely right, Ross. And this is the thing it’s not about putting one part of the superannuation industry as against the other. It’s about making sure that people get the very best value for money and you’re absolutely right to say, this is another way that people’s balances are eroded or they’re not getting the compound interest that they otherwise ought to get as a result of having their money in a particular working fund if they’ve moved into a different set of employment arrangements. In fact the terrible news is that for a lot of people, particularly people who are maybe part of the casualized work force, they can see if they’ve gone from one job to another job. Their entire balance eroded in a really short space of time, so it’s not actually there for them to provide what they need in their retirement.

 My Super Plan

Ross Greenwood: What about the whole “my super plan”, because that was supposedly designed for people especially with low account balances from having their funds eroded. The problem for those people in many cases was, though their funds might not have been eroded as quickly by fees, they were not always earning the types of returns that the so called “default funds” were earning because they simply didn’t have enough money to get themselves into those mainstream funds.

Kelly O’Dwyer: And this is again something that we have asked the Productivity Commission to have a look at. I mean, this is another reason why the review is being conducted, which is to look at how effective that my super arrangements actually are. How competitive the arrangements are and whether it’s delivering the sort of outcomes that people need for their retirement.

We’ve also seen comments from the Productivity Commission that have talked about the fact that there are some funds with big size and scale, which can often be very efficient and very good for members. And there are others that are much, much smaller, whose administrative fees are much higher who perhaps don’t offer always as much value for money, that’s why we’re looking forward to when they get to stage three, their stage three report about how it all fit together, and the key recommendations that can be made to the government to make sure that the system works for everyone.

Ross Greenwood: Well, there’s more than two trillion dollars in the superannuation funds and growing still yet it is important that these as efficient as possible. Kelly O’Dwyer is the Minister for Revenue and Financial Services, and Kelly we appreciate your time on the program today.

Kelly O’Dwyer: Great pleasure, Ross.

Super for Home Deposits – Craig Kelly MP

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