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ASU Bargaining Resource We need more Superannuation Discussion paper & bargaining support resource Prepared by the ASU National Office Public Services Team for ASU Branches with members employed in the
ASU Bargaining Resource We need more Superannuation Discussion paper & bargaining support resource Prepared by the ASU National Office Public Services Team for ASU Branches with members employed in the Public Services Local Government, Water, Electricity/ Energy, Railways & Public Services State and Federal Govt. Services Divisions March 2007 Glossary: what we mean when we say A Defined benefits fund - We mean a superannuation plan which calculates retirement benefits using a formula based on: Years of membership of the fund, and Average salary level over the last few years prior to retirement, and Your personal contribution rates, and Reason for termination of employment [e.g. redundancy or normal retirement] These funds are some times also called promised benefits funds. In these funds, the investment risk is borne by the employer [which has promised to pay the retirement benefit according to the formula above]. An Accumulation fund - We mean a superannuation plan in which your superannuation savings accumulate depending on the: Contributions that are made into your account [e.g. 9% employer contribution] Investment returns [interest, etc.] that are applied to your account Fees, taxes and insurance premiums (where applicable) that are deducted from your account. These funds are sometimes called defined contribution funds to distinguish them from defined benefit funds; since the employer promises to pay a certain amount into the fund on your behalf [you can usually also make personal contributions yourself]. In these funds, the investment risk is borne by the fund member. Industry super funds are typically defined contribution or accumulation accounts. Important note: The information contained in this publication should not be relied upon for financial or commercial advice. The ASU is not a licensed financial advisor nor are the Officials of the Union who prepared this publication. The purpose of the publication is to encourage Branches, ASU representatives and members to realise that they need to bargain and campaign for increased Superannuation to at least the levels advised by the Australian Council of Trade Unions (ACTU): Branches, Union Officials and Members are always advised to seek independent financial advice from a licensed provider based on their individual circumstances before making any major financial planning decisions, including those related to superannuation and retirement planning. ASU National Office Public Sector Divisions superannuation 1. ASU Bargaining Resource Index Introduction Greg McLean, ASU Assistant National Secretary...3. Part 1 : The Discussion Paper We need more super...4. The most significant change in 20 years How much is enough?...7. How much have we got now?...7. Local Government...7. Water...8. Energy...8. Rail...9. State and Federal Government...9. An ASU super plan for Part 2 : Bargaining Support Resource It s a fact! We need more super How much retirement income do I need? Retirement living standards What super contribution do we need? How much super do I have now? Super calculators ASU National Office Public Sector Divisions superannuation 2. Introduction This ASU superannuation publication has been prepared by ASU National Office staff in the Public Services team to assist ASU members and representatives in the Public Services Divisions who find themselves in direct negotiations with employers, to consider, and, where practicable, include increased superannuation contributions as part of their claims on employers. The Public Services Divisions of the ASU have long been the leaders in establishing improved superannuation for workers in electricity/energy (utilities), local government, railways and public transport, and in state and federal government jurisdictions to assist members and their families in their years of retirement. In past years, this was often achieved by way of defined benefits schemes, with contributions made by both employer and employee to obtain a specific remuneration package at the time of retirement. In recent years the movement away from defined benefits schemes has been followed by an advance in superannuation payments by way of Federal legislation implemented by the Hawke and Keating Governments. The movement to universal superannuation now sees many public sector workers receiving a 9% defined contribution by their employers, with some exceptions. In the past, superannuation scheme contributions were significantly higher than this amount and it is now time to improve the level beyond 9% for all public sector workers. Already Federal public sector workers have in the last three years secured a defined contribution from their employer of just over 15%. ASU members in the electricity industry in NSW, now enjoy a superannuation defined contribution from their employer of between 11% and 13%. Similar levels are enjoyed by local government workers in Tasmania with superannuation employer contributions being over 12%. The ASU Public Services Divisions have, at a number of industry division meetings, discussed the need to improve superannuation contributions beyond the standard 9% to a level of 15% in order to allow public sector workers to maintain standards of living in their retirement. The ASU National Public Services team has considered the issue in consultation with a range of industry players including the Industry super funds, the ACTU and ASU Branches, and has prepared this booklet to encourage Officials, Senior Delegates, Branch representatives, National Conference delegates, and those that have the responsibility of negotiating agreements with members to secure improved terms and conditions of employment to seek to increase superannuation contributions as part of this bargaining. Some ASU branches and industries have already been successful. This publication is a document that will continue to be reviewed and improved with the contributions provided by ASU Branches and members as we work together to achieve positive outcomes for our members. It is important to acknowledge the role played by the ASU Branch Secretaries and their key leaders in Public Services Divisions in the Branches as well as Keith Harvey and Barry O Brien from the National Office Public Services Division who have worked with me on this important project. I commend the booklet as a first step towards improved superannuation for ASU members and other Unions that work alongside the ASU in our Public Services Divisions. Greg McLean Assistant National Secretary Australian Services Union ASU National Office Public Sector Divisions superannuation 3. Part 1 The Discussion Paper We need more super Superannuation is unfinished business for the ASU and the trade union movement generally. ASU National Conference in November 2006 unanimously resolved: National Conference calls on the ASU to continue the campaign to eliminate the 15% contribution tax on superannuation. National Conference notes that the 9% superannuation contribution (in lieu of wages and productivity increases) after the Federal Government creams off the 15% contribution tax, leaves only 7.65% contribution going into a superannuation account. National Conference calls upon the ASU to continue the campaign that super contributions tax should be eliminated which would assist improving member s superannuation payout when they retire This followed a 2004 conference resolution: National Conference requests that the National Office and Branches continue the campaigns for improved superannuation benefits for our members. Further this meeting requests that information be prepared by the Union which will encourage members to bargain for improved superannuation along with wage increases. be able to inform members of the triple taxation on superannuation and campaign for the elimination of the 15% contribution tax. encourage participation by members in the co-contribution opportunity As far back as 2003, the ACTU Congress declared that a 15% super contributions was the appropriate target and set a short term goal of an additional one per cent of super to be achieved through bargaining by Since 2005, ASU Public Services divisions have also targeted super as a key issue in their industry work plans and have asked the National Office to prepare this discussion paper as an initial step to re-invigorate the campaign for additional superannuation. This paper considers progress made since 2004 in implementing ASU and ACTU policy on superannuation and the steps that need to be taken to ensure decent retirement incomes for all members in the long term. It considers the progress and the opportunities particularly in respect of members working in public services divisions, viz: Local government Energy electricity and gas Water Rail and public transport generally State and Federal government services The Howard Government s extreme workplace relations law changes mean that improved superannuation cannot be achieved through awards collective bargaining is the only opportunity to improve super contributions. Branches of the union have made some progress in implementing these objectives but much more needs to be done, as will be seen from this paper. First, the paper looks at the background to the current levels of superannuation contributions for employees with particular emphasis on the role of the labour movement in winning the current entitlements. ASU National Office Public Sector Divisions superannuation 4. The most significant change in 20 years In the mid 1980s, when unions began their push to extend super coverage to all workers, initial gains were significant but modest. The first super clauses in many awards provided only for a 3% employer contribution to employee super an important first step but a tiny amount which would in no way provide any meaningful retirement income for workers. Nevertheless, the introduction of employer contributions for all workers was a significant step forward. Industry super funds were formed and run jointly by representatives of employees and employers and in this way took super out of the control of individual employers or retail funds based on commission earning agents. The new industry super funds were low cost, well run and all profits were returned to members, not shareholders or commission agents. Over time, these funds have morphed into giant financial institutions and have entered other forms of financial services, such as home loans, [provided by Members Equity bank], other banking services and financial advice. In the early 1990s, the Federal Labor government increasingly began to recognise the implications of Australia s aging population and, building on the pioneering work of the union movement, introduced the Superannuation Guarantee Charge [SGC] which required employers, over a period of time, to increase their level of super contribution to 9%, where it stands today. Most industrial awards now reflect this standard of superannuation contribution. Superannuation remains a preserved/allowable award matter, but only until June 30 th 2008 when the relationship between awards and superannuation will be severed. Agreements will still be able to include super clauses. The success of industry superannuation funds has led to an attack on workers super from the Howard Government. The Keating Government set aside some $4 billion in Budget estimates to fund a cocontributions scheme pitched at low to high-middle income earners. The plan would have required workers to contribute 1% towards their super over three successive enterprise bargains [3% in total] which was to be matched by the Federal Government. This would have meant that most workers would now be receiving contributions equal to 15% of their ordinary time earnings. However, the Keating Government lost office and the Howard Government failed to honour the Labour Government commitment even though the co-contribution scheme was funded. In addition, the Howard Government legislated for so-called Super Choice of fund in an effort to weaken industry super funds and favour retail master trusts and other super products offered by the for profit financial sector, including banks and life insurance companies. So far, this attack appears to have little real impact on industry super funds as employees well understand that the financial benefits of remaining in a not for profit fund are very significant over a working lifetime. At the same time, there have been other changes to superannuation in particular with regard to the taxation of super and related restrictions (some of which are now being removed) but also with regard to the types of super fund on offer, that is, either a defined benefits or an accumulation [defined contribution] fund. In the past, many super funds available to white collar employees in particular and especially to public sector employees were defined or promised benefit schemes. ASU National Office Public Sector Divisions superannuation 5. These super plans offered employees on retirement a particular or defined multiple of final earnings as their lump sum super payout. These varied in generosity but were very attractive in some areas and in long term career based employment such as in the public service and in local government were often seen as compensation for lesser paying jobs. Many such defined benefit super schemes offered reasonably attractive retirement benefits at a relatively young age [around 55 years of age]. The employer bore the risk in these super arrangements if the fund earned less than what was required to meet the promise on retirement, the employer had to top up the fund to meet the payments. On the other hand, as frequently occurred, when fund earnings outstripped the growth in liabilities, employers could enjoy a contribution holiday, that is they did not need to make any contributions to the fund for a certain period of time. Occasionally fund surpluses would even be distributed back to the company. Some public service defined benefit funds were and remain unfunded and superannuation payments to retired employees are simply made from taxation revenue. However, recognising their increasing liability in this area, Governments have moved to close off most defined benefit schemes and offer only accumulation funds to new employers. This occurred, for example, in NSW public sector employment in 1992 when the former defined benefit super funds were closed at all new State government employees required to join First State Super an accumulation fund. Accumulation funds whereby the contributions paid plus interest earned [less costs] equals the retirement payout are virtually the norm in Different types of funds deliver best for various types of employees depending on length of service, but this issue is virtually now closed. Most new employees will only have access to accumulation funds. Under accumulation type funds the employer s contribution is defined rather than the benefit. Employees can make additional contributions of their own [either by salary sacrificing or in after tax dollars] and the final payout reflects the earnings of the fund over the employee s working lifetime. These funds are good for most employees, but it is worth noting that individual employees bear the risk not the employer. When financial markets perform badly, so do the funds and they can produce short term negative results. This has occurred recently. For some employees, particularly in the public sector, the new accumulation funds represent a reduced employer contribution to super. This occurred, for example in NSW public sector employment when in 1992 the last defined benefit scheme the State Authorities Superannuation Scheme [SAS] was closed and new State government employees became members of First State Super an SGC accumulation fund. Public sector employees in NSW now, for example, get only a 9% contribution from their employer as compared to up to 18% from the closed SASS as the NSW Government in most cases caps its contribution level at the SGC amount. As the attached Bargaining Support Fact Sheet shows, this is not enough super for workers. A 9% super contribution over most working lifetime s will simply not produce sufficient retirement income to meet the income needs or expectations of retiring workers. We need more super ASU National Office Public Sector Divisions superannuation 6. How much is enough? As the attached Bargaining Resource shows, most independent superannuation experts believe that a super contribution of around 15% of earnings over the average worker s lifetime is needed to ensure a decent retirement income for most workers. This issue is canvassed in detail in the Bargaining Resource, but clearly depends on a number of factors, some of which are beyond the control of employees, such as the level of earnings rates of superannuation funds which are determined partly by the skill of fund managers but also by national and international economic conditions and the performance of share markets and other financial instruments, including interest rates. Personal preferences and circumstances also play a part. For example, how much retirement income does an employee want? What is the work experience of the employee, i.e. a long term employee of a single employer or an employee who, like many women, who has had an interrupted working life or who has spent many years as a part-time or casual employee. Taxation of superannuation also plays a key role in determining final retirement incomes. For example, a 9% super contribution is not 9% in the hands of the employee s super fund account since the federal government taxes this at the rate of 15% - leaving the employee with a net amount of around 7.65% in the fund. Also fund earnings are subject to tax (up to 15%) which reduces the interest rate credited to fund member accounts. Although the Federal Government has announced changes to super taxation, i.e. eliminating tax on super payouts on retirement, the 15% tax remains a significant penalty on the ability of employees to provide for themselves a decent retirement income. The ASU has not achieved its 2004 policy of the removal of this tax. Overall, the Government s 2006 tax changes have tended to benefit the well off who can now take big super payouts without paying tax while ordinary employees will still struggle to get a decent retirement income from their super. As a fair indicator however, the ASU strongly supports and is working towards the target of 15% super set by the ASU National Conferences and ACTU Congress in 2003 and again in How much have we got now? Local Government Superannuation contributions and schemes vary from State to State in Local Government. NSW: A number of super schemes now exist in NSW Local Government. New employees can only join the Accumulation Fund, to which an employer contribution of 9% only is made on behalf of each employee. Sydney City Council is making an additional super contribution of $500 per employee as a result of their last EBA. Victoria: Prior to 1 January 1994, Local Government [and City of Melbourne] employees became members of the Vision Super Defined Benefit Plan, to which employers made contributions of 9.25% of salary. Post January 1994, employees must join an accumulation plan, to which employers contribute the SG amount 9%. Queensland: The old defined benefit fund has been closed in Queensland as well. Employers contribute 12% for each employee as determined by the Queensland Local Government Act 1993 and permanent members of the local government must also contribute 6%. Employees of Aboriginal and Islander Community Councils get only 9% in line with the SGC. South Australia: The Municipal Officers Award in SA provides the SGC 9% only. ASU National Office Public Sector Divisions superannuation 7. Tasmania: Former super scheme was a defined benefits scheme, now closed to new employees with the effective contribution worth around 12%. When 3% award super entitlement w
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