As the Federal Election looms, many financial planners are considering how their vote will impact their business. We speak to Shadow Minister for Financial Services and Superannuation Mathias Cormann about what the Coalition's policies will mean for financial advisers.
Video transcript below:
Interviewer: Senator Mathias Cormann, thanks for joining me. The government plans to cut tax concessions on superannuation for high income earners. Does the coalition support that policy?
Senator Mathias Cormann, Shadow Minister, Financial Services & Superannuation
Senator Mathias Cormann: No, we don’t. I mean what Labour has been doing over the last 5 years is dramatically increased taxes on superannuation. So far they have increased taxes on retirement savings by more than $8 billion and of course we know that Labour is in a fiscal mess. They are desperate for more cash. They have been casting around for areas where they can increase taxes and we do know that superannuation is yet again one of their targets. What Labour has been doing in recent months is run a class warfare attack on those Australians who are saving to achieve a self funded retirement. Concessional contributions caps are $25,000 a year already too low for people who realistically want to achieve a self fund retirement. This is all about Labour trying to build a political case for increased taxes on superannuation by somehow attacking a group of Australians who are doing the right thing by saving for their retirement, as if they are taking advantage of some inappropriate tax perks. These are not inappropriate tax perks. The tax rate at 15% upto a certain level for income directed into superannuation is a deliberate incentive to encourage as many Australians as possible to save to achieve a self funded retirement, so they don’t have to rely on the age pension and the Coalition’s view is that there should be no more fiddling with superannuation, there should be no more unexpected detrimental changes to superannuation. People saving for their retirement deserve certainty and stability in taxation and general policy settings in superannuation so they can plan their future retirement needs with confidence.
Interviewer: You have claimed that the Fair Work Amendment Bill is anti competitive, conflicted and inappropriately favours industry funds when it comes to the selection of default funds. Why do you think that’s the case?
Senator Mathias Cormann: Well default superannuation funds are there for those Australians who don’t make active choices in terms of their superannuation. And what Labour has done over the last 4 or 5 years is essentially changed laws and changed regulations such that the default superannuation market has become a closed shop for union dominated industry funds, by giving Fair Work Australia a pretty discredited secretive role in selecting default funds under [modern awards] . What they really have done is make sure that the overwhelming majority, nearly all of the default superannuation market moving forward is in the hands of industry funds. Our view is that all Australians should have the benefit of genuine choice and competition. All Australians including those who find themselves in the default super should be able to draw the benefits that come with genuine competition. Industry funds tell me that the reason they are selected by Fair Work Australia is because they perform better. Well if they genuinely perform better they have nothing to worry about genuine competition and the benefit of genuine competition is that it will continue to keep everyone on their toes to ensure they provide best possible value in terms of lowest possible fees and best possible service and best possible returns that they will continue to provide best possible value across all components of the value propositions to people in superannuation.
Interviewer: What are the key changes the Coalition would make to FOFA if it’s elected in September?
Senator Mathias Cormann: What we have said is that FOFA in the way it was legislated by the government, inappropriately and unnecessarily increases red tape which of course increases costs for both business and for consumers and it has also already led to what we think is an inappropriate concentration in the provision of financial advice services. What we have said is we have actually on the public record released about 16 recommendations that we would implement in government on how FOFA could be improved. Principally we would abolish the opt in provisions. We think that to force people to re-sign contracts with their advisors on a regular basis is an unnecessary and costly additional bit of red tape. There is no precedent for it anywhere around the world. We think that there is scope to improve the definition of the best interest duty which is a duty that we support. We also believe that there is the need to provide certainty around the provision of scaled advice. The way the legislation is currently crafted, we think it leaves too much risk for unnecessary litigation down the track based on lack of certainty around the capacity to provide scaled advice. There is a range of other changes that we think ought to be made, streamlining the requirements around additional fee disclosure. We think that the process that the government has put in place is unnecessarily cumbersome. There is also some adjustments to be made in terms of the treatment of risk insurance inside superannuation. So there is about 16 different areas that we have identified. The ones that I have just mentioned are the main ones. We have already drafted about 50 odd amendments to the legislation, so should we be successful on 14th September at the election, we will be able to hit the ground running.
Interviewer: Insurance commissions have become a contentious issue, with the FSC making call back extension proposals and the ISN calling for insurance commissions to be banned altogether. What’s the Coalition’s position on that?
Senator Mathias Cormann: Well we don’t support the proposal to ban commissions on risk insurance. At the end of the day, commissions are one payment method and the key here really is that commissions are transparent and that the person paying the commission knows what they paying, what they are paying it for and can make some informed decisions. At the end of the day, if a service is provided, it’s got to be paid for and the commissions based structure is one way of paying for service that’s received. I mean in other jurisdictions, in the United Kingdom for example they have gone down the path of wanting to ban commissions on risk insurance and they backtracked very quickly because it had very counter productive negative unintended consequences. In Australia we already have an underinsurance problem. Insurance generally is a bit of a grudge purchase unless you actually have like an incentive, an inbuilt incentive in the way the insurance is put to potential clients, for the person who is actually selling the insurance then you know I think that that problem is going to become worse and that’s certainly been the evidence overseas. I mean even the current government has backed away from the initial proposals to ban commissions on insurance and we don’t think it’s something that we should pursue. Minister of Financial Services and Superannuation Bill Shorten was invited to be interviewed, but declined the offer.