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Category Archives: superannuation

Patrick Manning
July 7, 2009

IT’S NOT every superannuation fund chief executive who can persuade Al Gore to come to Australia to launch a plan to move the nation to clean energy.

Bob Welsh, head of the $6 billion Vicsuper fund, can – partly because he is one of the biggest local investors in Generation Investment Management, the London-based fund manager that Mr Gore chairs.

At a business breakfast in Melbourne next Monday Mr Gore will launch Safe Climate Australia, a non-profit, non-partisan organisation working on Australia’s move to a zero-carbon economy.

The organisation was inspired by Mr Gore’s “Repower America” plan to transform the US economy in 10 years.

Vicsuper, which has more than 247,000 members, is hosting the launch and has previously backed other programs set up by the Safe Climate chief executive, Brendan Condon.

Mr Welsh, who has headed the former public sector fund since it was set up in 1994, has been a “green super” pioneer. His aim is to make Vicsuper, truly sustainable, and he has been prepared to break a few rules to get there.

Vicsuper has made sustainable investment an integral part of its strategy instead of an option available to members who choose it, as most super funds do.

It now has about $1.4 billion in a range of sustainable investment strategies, including $580 million in listed domestic and international share funds, $92 million in forestry and $250 million in its Future Farming Landscapes program, which is buying up rural land and water in northern Victoria. Another $122 million is committed to sustainable private equity.

Mr Welsh has been prepared to sideline the actuaries who advised, for example, that such venture capital investments were “risky” and had “no track record”.

In late 2007 Vicsuper seeded the Cleantech Australia Fund – which invests in Australian start-ups such as the wave-energy converter Oceanlinx – with $30 million.

“That was really satisfying,” Mr Welsh said. “Because the asset consultants said, ‘Look, this is a first-time approach; we don’t know whether the investment case makes sense’.”

Vicsuper is unusual in another way: it does not provide its performance figures to independent ratings agencies such as Super Ratings, although the figures are available on its website.

“We think it’s important to get people to focus on the long term,” Mr Welsh said. “It is impossible to compare returns unless you have exactly the same weighted cash flows and asset allocation. The league tables can be misleading. We don’t think it adds value.”

Vicsuper has a total of $135 million invested with Generation Investment Management. The fund manager does not discuss its performance figures either, but Mr Welsh said it had been “shooting the lights out” – finance-speak for caning it.

http://business.theage.com.au/business/green-strategy-wins-gores-favour-20090706-dah2.html

14 May 2009 8:07am

Many employers will be faced with a new battle to retain their best workers after the Federal Government announced plans to invest $22 billion of its 2009/10 budget in the nation’s infrastructure, says Hewitt’s Australia and New Zealand managing director, David Brown.

“We will see some talent migration due to opportunities that will open up in the infrastructure sector,” Brown told HR Daily.

“Organisations that win tenders will take advantage of the tight talent market.”

Engineers, scientists and others with specialist skills will be in particular demand, he says, and will be difficult to retain as new projects get off the ground.

In the budget papers released on Tuesday night, the Government says that the $22 billion will be invested in roads, rail and ports; education and research projects; hospitals and other treatment facilities; and a clean energy initiative.

It will also contribute $4.7 billion towards the development of a superfast broadband network.

The Government has also committed to:
establishing a paid parental leave scheme (see related article), in which eligible parents will receive 18 weeks’ paid leave at the minimum wage (currently at $543.78) after the birth or adoption of a child;

investing nearly $150 million over four years in the implementation of Fair Work Australia, plus $14.3 million to inform and educate employers and employees on the new workplace relations legislation;

ditching the alternative dispute resolution assistance scheme, in favour of the “less legalistic” approach to dispute resolution allowed for in the above legislation;

investing $1.5 million in training initiatives;

increasing the small and general business tax break to 50 per cent for eligible assets;

increasing the retirement age from 65 to 67 by 2023; and

cutting concessional superannuation contribution caps.
Baby boomers left short with superannuation instability
A reduction in the concessional contribution tax limit – from $50,000 to $25,000 – could leave workers closer to retirement with less opportunity to top up their super and make up for recent significant investment losses, according to Mercer’s chief executive, Peter Promnitz.

Long-term changes to pension-age policy are necessary, Promnitz says, but the concessional cuts appear to have been made in isolation from a clear retirement-income framework.

“Tinkering with the system and making piecemeal changes will potentially damage Australians’ confidence in the stability of superannuation rules,” he says.

“Halving the cap on concessional contributions may provide short-term budgetary relief but lacks a long-term plan or foresight.

“Anyone playing catch-up for their retirement income – baby boomers nearing retirement or women out of the workforce for extended periods – will be hit by these changes.”

HR must “recalibrate” retirement planning
Brown says that HR personnel will now need to “recalibrate and think a little harder about retirement planning”, with changes to the superannuation platform and the increase of the retirement age likely to be the areas where the budget has its biggest impact.

The new super rules will affect organisations at all employment levels, he says, leaving employers with the difficult task of determining how to factor in contributions and how to “fit” super into job offers or frame it as a perk.

He says the budget papers also hint at the restriction or removal of executive share options, in line with the general tightening of executive remuneration, although the language used in the budget does not make the nature of the new restrictions particularly clear.

Brown notes that the increased retirement age will be a boon to baby boomers who haven’t yet prepared for their exit from the workplace, but that it could create a “squeeze” as Gen X employees, working their way through the ranks, are blocked from opportunities they would have otherwise expected.

Mixed feelings from business advocate
ACCI chief executive Peter Anderson says that while a boost in infrastructure spending is a “big plus” for employers, the budget doesn’t go far enough to take the pressure off the cost of doing business at a time when the private sector is “doing it very tough”.

Cuts to the skilled migration program could damage labour-market efficiency, he says, and the paid parental leave scheme will expose employers to indirect labour and administrative costs.

“It’s a budget aimed at these tougher times,” he says, “but the mix of big spending and moderated saving is a risky high-wire act.”

Employee advocates are a little more enthused.

“This is a budget for jobs, jobs and jobs, with a bit of tough love on the side,” says ACTU president, Sharan Burrow.

“The achievement of a national paid maternity leave scheme is an historic win for working women.”

Adele Horin
May 14, 2009

“I’m jack of it “…sewer repairer Richard Bishop wants to retire but the later eligibility for the age pension will affect his plans. Photo: James Brickwood

RICHARD BISHOP began working at 14 and after decades of hard manual labour he is keen to retire as soon as possible.

“I’m jack of it,” said the 57-year old who repairs sewers for a living. “I’ve just had a knee reconstruction and by the time I’m 60 I don’t think I’m going to be getting any better. I want to enjoy what I’ve got left.”

Mr Bishop’s plans to put his feet up have been derailed by the Federal Government’s plan progressively to raise the pension eligibility age to 67 from 2017.

He admits the plan will hurt him and he is not alone – most Australian workers will not applaud the initiative, according to social researcher Julia Perry.

“Employers don’t want older workers, and a lot of mature-age workers want out, too,” said Ms Perry, who produced the Too Young To Go report on older workers for the NSW Government.

To prefer to work beyond 60 has always been a minority taste. At most, 25 per cent of mature-age workers enjoy their jobs so much they want to keep going beyond the usual retirement age, research consistently shows. “Only a minority of workers have the kind of job that is exciting or fulfilling,” said Sol Encel, emeritus professor at the University of NSW who is an expert on the ageing population. “Work is a chore for most people, especially as they age.”

Yet most experts agree the decision to lift the pension age is a necessity in the absence of higher tax rates to fund burgeoning health and aged care services, as well as pensions and superannuation concessions for a greying population. Australia is following a trend set by the US, Germany, Iceland, Norway and Denmark. In Britain 68 is the age for pension eligibility.

Australia’s plan will affect workers now aged 57 or younger. Those aged 55.5 to 57 will not be eligible for a pension until they are 65.5 and those aged 52.5 or younger not until 67.

Australians appeared to be resigned to their fate, Professor Encel said.

In the past decade, workers have reversed the trend to early retirement. Since 1998, the proportion of men aged 60-64 in the workforce has risen from 43 per cent to 52 per cent, and the proportion aged 65-69 has jumped from 19 per cent to 27 per cent, with most working part-time. For women the proportion of those aged 60-64 in work has almost doubled to 36 per cent.

But most, Professor Encel said, were economic conscripts. “The boomers have come to realise they don’t have the money to retire at 60. They’ve got responsibilities upscale and downscale – ageing parents and dependent children,” he said. “And they know if they have to rely on the pension, they’ll suffer a dramatic drop in lifestyle.”

Ms Perry said it was regrettable to compel low-skilled and low-paid workers, many with health problems, to work longer for the pension if highly skilled workers continued to be able to retire early by accessing superannuation at 55 or getting it tax free at 60.

The Henry review of the tax system recommended the preservation age for super be aligned with the age pension age.

If employees are expected to work longer, employer attitudes will need to change, experts say. “It’s a good idea to encourage people to work longer but you have to encourage employers to employ them longer,” Ms Perry said.

David Murray, 57, a company director, said though he was unlikely to be affected by the change in the eligibility age, he had lost retirement savings in the downturn. “Most people have lost 25 to 30 per cent of their retirement funds, so it’s going to take them another four to eight years before they can start to recoup some of that. Most retirements have been pushed out anyway.”

with Jonathan Dart

http://www.smh.com.au/national/too-young-to-retire-and-too-old-to-work-20090513-b3dt.html?page=-1

Misha Schubert, Daniella Miletic and Peter Martin
May 14, 2009

AUSTRALIANS could be forced to wait until they are 67 to get access to their superannuation savings under a radical proposal to be considered later this year by the Rudd Government.

A day after flagging a rise in the pension age to 67, the Government has confirmed it will look at introducing the same age limit for super access – in effect making 67 a universal minimum retirement age.

Bringing the superannuation age into line with a higher pension age was recommended by Treasury secretary Ken Henry in a review published with the federal budget papers on Tuesday.

Dr Henry’s plan, for a phased lifting of the super age from 60 to 67 from 2024, is part of a broad push to keep Australians at work longer to help the nation cope financially with its ageing population.

A spokesman for Treasurer Wayne Swan said the Government would “thoroughly assess the findings of the Henry review when they are delivered at the end of the year”. But he stressed that the super issue would not be considered before then.

The plan could be even more controversial than the budget decision to lift the pension age.

Jane Chisholm, 53, was unhappy enough at the idea of having to stay in the workforce beyond 65 before she could even think about applying for the age pension.

“They are finally getting us baby boomers back, I guess,” said Ms Chisholm, marketing manager of Gasworks Arts Park in Albert Park.

But she expressed stronger misgivings at the proposal to lift the super access age. While she understood the need to prepare the nation for people living and working longer, she said the super proposal was cruel.

“People like to think they could have control of the money that is there for their retirement,” Ms Chisholm said. “If you want to go travelling and do some of the things you want to do, it’s just putting it closer to the 70 mark, when you can’t count on your health.”

The move to raise the pension age sparked fierce debate, with critics saying it would entrench inequality and force more old people into poverty.

Mr Swan said the decision was needed to keep pensions sustainable. “Currently we have five workers in Australia for every person aged 65 and over and by 2050, that will be 2½,” he said in a post-budget interview.

“Life expectancy has increased by 23 years since the age pension came in,” he said. “Twice as many people are going on it for twice as long.”

Opposition Leader Malcolm Turnbull supported the pension age increase, saying his only concern was that it would not come in soon enough.

National Seniors also backed the move, noting that it would not come in until 2023.

But critics highlighted the contrast between the rich getting access to super at 60 (at least under existing rules), while the poor were being forced to work or stay on the dole until 67.

The Combined Pensioners and Superannuants Association warned the move would add to poverty among over-65s and force some to toil longer at hard physical labour. “People in their 50s and 60s are often unable to find adequate employment,” said the association’s policy officer, Charmaine Crowe.

But she backed the idea of aligning the pension and superannuation ages, saying it would ensure more equality between richer and poor retirees, keep skilled people in the workforce longer and boost super savings.

Sydney University workplace relations centre analyst Michael Rafferty said increasing the pension age would entrench inequality and force some of the hardest working people in the world to work even longer.

He also pointed to what he said was a disparity between the pension decision and the mild cuts in the budget to tax breaks on superannuation. “The rich have been hit with a feather duster and the poor have been told you are going to work longer and harder,” he said.

Australian Council of Social Service chief Clare Martin said lifting the pension age to 67 might disadvantage “lower-income, mature-age people with limited job prospects, who will have to remain on lower income support payments for longer”.

UNSW Centre for Pensions and Superannuation deputy director John Evans said the pension age rise was a “knee-jerk” decision that could damage the vulnerable.

But Brotherhood of St Laurence chief executive Tony Nicholson said raising the pension age was inevitable to ensure the long-term sustainability of the system.

David Knox, a partner at Mercer Consulting who proposed the 67 pension age in a paper prepared for the Committee for the Economic Development of Australia, also welcomed the decision.

But he expressed dismay at the proposal to lift the super preservation age to 67.

“The superannuation access age should generally be about five years younger than the pension age in order to provide flexibility. You cannot assume that everyone will retire at the same age, in fact today most people retire before 65.”

Superannuation access is at present available at 55, with the age set to climb to 60 by 2024. The Henry Review recommends a further staged increased to 67, after which it would remain aligned with the pension age in order to stop Australians spending their super payout quickly and then getting access to the part-pension.

http://www.theage.com.au/national/push-to-lock-up-superannuation-savings-until-age-67-20090513-b39y.html?page=-1

Michelle Grattan and Tim Colebatch
May 12, 2009

The second Rudd Government budget will predict a huge $58 billion deficit.

TONIGHT’S second Rudd Government budget will predict a huge $58 billion deficit in the new financial year — a record 4.9 per cent of GDP, higher than in any post-war recession.

It will also estimate almost a million people will be unemployed, with the unemployment rate rising from 5.4 per cent to 8.5 per cent.

Costello: Swan ‘desperate’
Peter Costello accuses Wayne Swan of desperation over the looming budget deficit but fails to answer whether he would run a deficit himself.

The budget will cut into so-called middle-class welfare, and slice spending in other areas, but the collapse of revenue and the cost of the earlier stimulus packages will bring a string of red numbers.

The deficit is an $80 billion turnaround since the forecasts in last year’s budget.

The leak of the figure last night prompted the Opposition to declare that “the Australian Labor Party has lost control of the nation’s finances”.

The Government will today seek to rush through a bill to allow it to keep $365 million in revenue collected from its defeated alcopop tax. It has also signalled that it will try again to get the tax hike through the Senate.

Its fate will depend on a change of heart by Family First senator Steve Fielding, who voted against it last time. There is agreement to validate the $365 million already collected.

Treasury now forecasts that the economy’s collapse will lift unemployment to record levels. While the unemployment rate is expected to peak at 8.5 per cent, well below its 10.9 per cent peak in the last recession, the total numbers out of work would rise even above the 933,000 unemployed in December 1992.

Prime Minister Kevin Rudd, preparing to justify the unprecedented deficit, said Treasury advice to be published in the budget was that if the Government had not brought in its earlier stimulus measures, unemployment would have reached 10 per cent.

The budget would “support the jobs of today by investing in the infrastructure we need for tomorrow”, Mr Rudd said yesterday.

Treasury’s advice was “the final nail in the coffin for those who argue that governments should do nothing to support jobs during a global recession”.

“We are in the worst recession, the worst global recession since the Great Depression,” Mr Rudd said.

Meanwhile former NSW Labor treasurer Michael Costa launched a sharp attack on the Government, saying he had always taken the view “the Prime Minister and his Treasurer don’t know what they are doing”. The stimulus had been a “disaster”, Mr Costa said.

“The issue comes down to how many jobs did you actually save for that level of spending and the cost-benefit of the stimulus becomes an issue.”

A pension rise of about $30 a week, a go-ahead for major infrastructure programs and the promised parental leave scheme will be among the budget’s good news, but many people will be hit in the hip pocket by losing their private health insurance rebate and superannuation concessions.

Shadow treasurer Joe Hockey said the Rudd Government was “a reckless spender”. “Every man, every woman and every child will have a burden of $2600 just for next year’s budget.”

But he refused to say what would be an appropriate level of debt. Mr Hockey said it was “inconceivable that we could have such a deterioration of unemployment in such a short time. We left the Labor Party with unemployment levels at 4 per cent, with a $22 billion surplus, with no debt.”

Mr Rudd said every government worldwide was “engaged in temporary borrowing”.

The Government has the added problem of a hostile Senate, which puts at risk some of its savings measures.

The Opposition is reserving its positions on measures such as the means test on the private health insurance rebate, which has been criticised by Senator Fielding and independent senator Nick Xenophon.

Opposition Leader Malcolm Turnbull said this was “unquestionably a broken election promise. “There was no election promise that was made more repeatedly or more emphatically by Mr Rudd than that there would be no change to the private health insurance rebate.”

Attempting to apply heat to the Coalition, Treasurer Wayne Swan said: “The Opposition on the one hand can’t be out there saying they’ll support a pension increase, then knock back the savings that make that pension increase sustainable for the long term. They can’t have it both ways.”

Mr Swan said the budget was complex. “We have to stimulate the economy now to support employment. We have to make room for vital investments and also for pensions.

“But also, we’ve got to make those longer-term savings that bring the budget back to sustainability over time given the new global circumstances.”

Business confidence has picked up — the NAB confidence index held on to most of its gains in April to come in at a near six-month high of minus 14 points, well above the minus 32 points recorded in January.

With BRENDAN NICHOLSON, SARAH-JANE COLLINS and PETER MARTIN

http://www.theage.com.au/national/get-ready-for-58bn-deficit-and-million-jobless-20090511-b0mb.html?page=-1

Eric Johnston
April 14, 2009

COMPANIES could be forced to pour hundreds of millions of dollars into their defined benefit superannuation funds over the next year after sliding investment returns have caused deficits on corporate funds to blow out to $25 billion.

The Australian Prudential Regulation Authority is believed to have recently stepped up monitoring of corporate superannuation plans operated by a raft of listed companies, including BHP Billion, Telstra and Qantas.

APRA has warned super trustees to ensure defined benefit plans were well funded with assets crunched by the financial crisis.

It has also advised funds to prepare for increased demands on payments, with more employees being made redundant as the economy slows.

Qantas was recently forced to pump $66 million into its $5 billion superannuation scheme to cover a shortfall caused by the global economic crisis.

A new study by the investment consultant Watson Wyatt has found a $2 billion deficit across corporate defined benefit super funds last June is likely to have ballooned to about $25 billion by the end of December as the global financial crisis deepened.

“What happened in that second six months was unprecedented,” said David McNeice, a principal at Watson Wyatt.

“Liabilities are going up because of the reduction in interest rates. At the same times the value of assets in the funds are falling given collapses in stockmarkets and property markets,” Mr McNeice said.

Defined benefit schemes, which are mostly closed to new members, guarantee a fixed retirement payout regardless of investment performance.

Payouts are usually calculated on a combination of years of employment and salary at retirement.

According to Watson Wyatt, about 54-listed companies continue to operate a defined benefit scheme.

Since the introduction of compulsory superannuation, more than 90 per cent of Australian superannuation funds under management are now accumulation style, where payouts are influenced by investment returns.

Last year super funds suffered some of their worst performances on record, with investment returns down nearly 20 per cent in the year to February.

The mining giant Rio Tinto operates one of the biggest defined benefit programs with $US13.1 billion ($18.1 billion) worth of liabilities at the end of December. According to Rio

Tinto’s latest accounts, it is sitting on a total pension fund shortfall of $US2.65 billion.

Rio Tinto expects to pump about $US765 million into its pension plan this year, on top of the $US615 million it poured into the plan last year.

Elsewhere, Telstra has said it could be forced to add a further $282 million into its defined benefit scheme this financial year after plunging investment returns saw the plan swing from a $182 million surplus to a $1.17 billion deficit in the six months to the end of December.

The Commonwealth Bank of Australia added $18 million into its defined superannuation plan during the six months to the end of December, although the banking giant’s $7.3 billion fund is currently sitting on a $620 million surplus.

Still, the shortfall of corporate funds is dwarfed by the more than $156 billion deficit of public sector superannuation funds across state and federal governments. The bulk of this is made up of Commonwealth liabilities, although the establishment of the Future Fund is expected to be fully funded by 2020 when it is scheduled to start making payouts.

Even with the bulk of super assets classed as long term liabilities, Watson Wyatt’s Mr McNeice said pressure remains on superannuation trustees to ensure funds have enough assets.

Mr McNeice said more companies were likely to pump funds into their defined superannuation plans during the next year.

“All companies with a defined benefit plan have seen the funds’ financial strength weakened – in some cases they’re pretty big dollars that are involved,” he said.

http://business.smh.com.au/business/companies-pour-money-into-25b-super-hole-20090413-a4r8.html