Andrew Leigh

I spoke in parliament this week about the MySuper reforms, using the insights of behavioural economics to make defaults better.

Superannuation Legislation Amendment (MySuper Core Provisions) Bill, 22 August 2012

Retiring with dignity after a lifetime's effort and contribution should not be a luxury for a few. Thanks to successive Labor governments and their vision for the future to introduce, enhance and defend the Superannuation Guarantee for all Australian workers, retiring with dignity is a right for Australians. Addressing the Australian Graduate School of Management in 1991, Paul Keating said of the Superannuation Guarantee:

‘It will make Australia a more equal place, a more egalitarian place and hence a more cohesive and happier place.’

Prime Minister Keating said it was the safety net most Australians would need when they retire.

The Labor tradition of looking after Australians’ retirement savings continued at the 2010 election. At that election our government made a commitment to introduce a simple cost-effective superannuation product to replace existing default superannuation products. That flowed out of the Cooper Review and the choice architecture framework in the Cooper Review. The Cooper Review was commissioned by Senator Nick Sherry, one of the greatest champions of superannuation that the parliament has ever known, on 29 May 2009 when he was then the Minister for Superannuation and Corporate Law. The review, chaired by Jeremy Cooper, noted that all members want to make choices about their superannuation. It noted that the current assumptions that underpin the superannuation system are that all members want make choices about their superannuation and all members are interested in receiving a variety of superannuation services.

But the report noted that that was not always the case. It recommended that the government introduce a new, simple low-cost default superannuation product called MySuper for those who have chosen not to have direct engagement in their superannuation decision making. The philosophy in the early 1990s was that everyone would choose the best fund and choose the best plan within that fund. But behavioural economics has taught us that that is not always the way that people approach decision making. Most people take the default fund and the default plan.

So the focus of MySuper needed to be to make sure that defaults were good plans. By having lower fees and more efficiency, we maximise members' savings. On one estimate, the movement to MySuper products with lower fees can be the equivalent of an extra one per cent of earnings going into superannuation—that is, the philosophy of MySuper underpinned by behavioural economics. Behavioural economics has come strongly into the public policy world thanks in part to the terrific book Nudge: Improving decisions about health, wealth, and happiness by Richard Thaler and Cass Sunstein. They came up with a concept they called 'libertarian paternalism' which is based on the notion that, as Milton Friedman said, people should be free to choose. Thaler and Sunstein like to say that libertarian paternalists want to make it easy for people to go their own way.

MySuper takes away no-one's freedom. What it does is recognise that in busy lives people are often attracted to default. As the Cooper Review noted, libertarian paternalism is: ‘the idea that the outcomes experienced by inert or disengaged consumers should have inbuilt settings that most closely suit those consumers' objective needs, as assessed by the expert providers of the product or service in question’. It went on to say, importantly:

‘This does not amount to a centrally determined boilerplate option for everyone, as it must at all times have regard to the collective characteristics of the particular consumers affected, any of whom can at any time opt out if they want to take more control for themselves.’

That is the philosophy: high quality defaults but choice if you want to exercise it.

A report by the Industry Super Network called Supernomics also focused on some of the new insights flowing out of behavioural economics. That report noted that only around three per cent of members switch fund every year. It noted that the majority of superannuation consumers are passive consumers, and indeed that most members who were either not aware that they had a choice or did not exercise a choice could end up being at a disadvantage. It noted the reasons for this passivity. There is myopia—a sense of focusing on the present, not on the benefits of retirement savings that will be felt in decades to come. The problem with this is that if young workers are myopic then they are making the wrong choices at the time it matters the most. Making a bad investment choice when you are at the beginning of your career means that you miss out on benefits that will continue to accumulate later.

The Supernomics report also referred to risk aversion, a shying away by young workers from investment choices, such as shares, that have a high risk but a higher long-term return. Research indicates that people place greater weight on avoiding losses than on achieving equivalents gains. We saw that, sadly, during the global financial crisis when — at the bottom of the market — a substantial number of superannuation switchers moved from shares into cash. That meant, of course, that they locked in their losses. There is a reluctance to switch funds, even when fund switching could benefit workers in the long term.

The Cooper review noted that members who got the default superannuation option in their fund did not have adequate protection from underperformance. They could be paying for services they did not need, did not request or did not receive. The Cooper review also noted that trustees of superannuation funds were not always focused on maximising members' retirement incomes in an efficient and cost-effective way. I commend those who worked on the super review, including Treasury executive director David Gruen—who, as it turns out, is the brother of Nicholas Gruen, possibly Australia's most passionate behavioural economist.

The solution that came out of the MySuper report is a single diversified investment strategy. It can be a life-cycle approach. Life-cycle investing is the notion that investment products should be riskier at the early stage and then move towards less volatile products as the person approaches retirement. MySuper emphasises that defaults ought to be simple and that consumers ought to be able to compare on the basis of the fees that a fund charges.

For employees who have not made a choice of fund, superannuation accumulation will be paid into MySuper. But we are not taking away choice. All members will have access to the same options, benefits and facilities. For a super fund to be named in an award, it must offer a MySuper product that is reviewed by Fair Work Australia. Funds can tailor MySuper products to employers with over 500 employees to meet the needs of their particular workplace. MySuper trustees must articulate the targeted rate of return over a rolling 10-year period, with the level of risk determined appropriate for its MySuper members. Fees are limited to the following: an administration fee; an investment fee, including a performance based fee; another exit fee, which must be limited to cost recovery; buy and sell spreads, again limited to cost recovery; and a switching fee, also limited to cost recovery. All the fees charged for a MySuper product must be able to be included under those standard descriptions. That will help members, employers and market analysts make direct comparisons—apples with apples—of MySuper products based on the actual fees paid.

The bill requires that in any performance based fee arrangement with a fund manager in respect to assets of the MySuper product, trustees have to include measurement of performance on an after-tax basis, a reduced base fee that reflects the potential gains the investment manager receives from performance based fees, and provisions for the adjustment of the performance based fee to recoup underperformance.

Trustees wanting to offer a MySuper product will be required to hold a specific licence issued by APRA. All APRA regulated funds will be required to offer life and total and permanent disability cover on an opt-out basis, and would consult on implementation. Trustees must at a minimum allow members to opt-out of life and total and permanent disability insurance within 90 days of the member joining a fund, or on each anniversary of the member joining the fund. That is important because we do know of instances in which members are being both under-insured and on occasion over-insured, by being defaulted into insurance options that they would not choose if they were not the default products. Members must be able to increase or decrease their insurance cover without having to leave MySuper product. In this sense we have unbundled the insurance and retirement adequacy components of superannuation, ensuring that individuals can make a choice of the right investment strategies and the right insurance options for them.

Those opposite, as has traditionally been the case, have taken a raft of different positions on superannuation. When Labor introduced universal superannuation in the early 1990, the opposition said it would be a bust to business. It said that businesses would never be able to sustain the cost of superannuation. That was wrong then and the coalition's opposition to superannuation is again wrong now.

The history of superannuation is that Labor universalises it and the coalition are unwilling to extend those increases. In 1996 we saw the Howard government block the planned increase of the superannuation contributions. On 23 March 2012 we saw the Leader of the Opposition say, 'Well, we strongly oppose the superannuation increase. We have always as a coalition been against compulsory superannuation increases.' The Leader of the Opposition now appears to be saying that if the coalition were to come to office they would continue the increases in superannuation. It is quite unclear what those opposite think about superannuation. But they ought to think first and foremost about the interests of retirement adequacy for Australians. Those opposite, as is the case for all members of this place elected after 2004, receive 15 per cent superannuation contributions. So, 15 per cent is appropriate for them, but somehow they believe that for their constituents nine per cent will do. We do not believe that. We believe that 12 per cent of earnings ought to be the bare minimum that Australians put into superannuation, because that is appropriate to maintain retirement adequacy.

In his opposition to compulsory superannuation, the Leader of the Opposition faces the challenge that he intends to repeal the mining tax, which funds the increase in compulsory superannuation. Yes, superannuation comes from earnings, but because it is taxed concessionally each additional percentage point of universal superannuation costs the government about a billion dollars. So, increasing compulsory superannuation does have a budgetary impact through forgone taxation, and those opposite are going to have to identify where the money is coming from if they support the increase from nine to 12 per cent, as they should.

We on this side of the House are proud to be the party of superannuation. We are proud to be the party that will see the superannuation system grow to $6 trillion by 2035. And in these reforms we are recognising the new insights in behavioural economics, which demonstrate that defaults must be great because most Australians do not spend a great deal of time focusing on their choice of fund and their choice of investment strategy.

We need higher superannuation contribution rates, from nine to 12 per cent, but, complementing that, we need a MySuper product, flowing from the work of the Cooper review, that ensures Australians get the best deal, have the lowest fees and the highest returns, because that is how we will ensure a dignified retirement.

Today, Gai Brodtmann and I held an NDIS forum at the Griffin Centre with Parliamentary Secretary Jan McLucas. Jan had three 'asks' of attendees: sign up at www.everyaustraliancounts.com.au, join the conversation at www.ndis.gov.au, and talk with your friends about the NDIS.

On ABC 666 Pollie Panel, I spoke with presenter Ross Solly and Liberal Senator Gary Humphries about muckraking in politics and the half-billion of planned investment in the resource sector. Podcast here.

I recently did a survey on increasing Australia's humanitarian intake. The response was overwhelmingly in favour of Australia lifting the number of refugees we take, with 82% supporting an increase.

For responses from my electorate of Fraser (taken from postcodes supplied), this was even more encouraging with 86% in favour.

Canberrans might be interested to know the geographic breakdown of the responses. 90% of respondents from the Inner North were in favour of an increase, with 88% in Gungahlin and 80% in Belconnen / West Belconnen. There were 327 total respondents with 211 providing postcodes in the Fraser electorate.

For responses either from outside my electorate or not supplying a postcode, 76% supported an increase.

I was pleased to see today that the Prime Minister and Minister for Immigration and Citizenship announced that Australia will accept 20 000 refugees each year and that we’re accepting 400 refugees from Indonesia immediately.

I am now a Welcome to Australia ambassador and look forward to welcoming more refugees to my electorate and to Australia each year.

My colleague, Member for Canberra Gai Brodtmann, and I are hosting Senator the Hon Jan McLucas, Parliamentary Secretary for Disability and Carers, tomorrow afternoon to talk about a National Disability Insurance Scheme.

The forum is at the Griffin Centre in Canberra City between 2pm and 4pm. Tea and coffee will be provided.

The forum is open to the general public, so if you wanted to find out more about what a National Disability Insurance Scheme might look like, I encourage you to come along.

Please RSVP to me by 12 noon tomorrow on Andrew.Leigh.MP {at} aph.gov.au

I spoke today about Indigenous jobs in the public service.

Indigenous Public Service Jobs, 22 August 2012

As a member representing an electorate with a large number of public servants, I rise to speak about the employment of Indigenous Australians in the Australian Public Service. The government has set a target to increase Aboriginal and Torres Strait Islander employment in the APS from 2.2 per cent in 2010 to 2.7 per cent by 2015. We are working through COAG to make sure similar goals are met in the states and territories. Disturbingly, the State of the Service Report 2010-11 noted a decrease in Indigenous employees from 3,383 to 3,236 in that financial year—a four per cent drop. That was the first fall in the number of Indigenous public servants since 2008.

I commend the Attorney-General's Department, the Department of Immigration and Citizenship, the Department of Health and Ageing, the Bureau of Meteorology and Screen Australia for their specific commitments to the COAG target of 2.7 per cent for Indigenous employment. The Department of Human Services also commits to a target for attracting and retaining employees who identify as a member of a diverse group.

This issue received some attention at the recent ACT Labor Party conference, where delegates called on the government to provide details on progress towards the COAG targets, to ensure greater opportunities for training and development and to ensure career pathways are provided for new and existing Indigenous employees. It is also vital that pay issues be addressed and that opportunities be provided in mainstream agencies and in nonmetropolitan and remote areas.

I have written to all ministers seeking their advice on how we might together work to meet the 2015 target. I would like to thank the Community and Public Sector Union and particularly Elizabeth Hay for their work in supporting Indigenous employment in the Australian Public Service. The National Aboriginal and Torres Strait Islander Cabinet gives Aboriginal and Torres Strait Islander members, delegates and activists a strong voice in the CPSU. NATSIC is about making sure that Indigenous people have a real say in the union's agenda. In the ACT, I particularly acknowledge the work of Duncan Smith, who is a tireless advocate for the needs of Indigenous Australians. We need more Duncan Smiths in the ACT.

Indigenous Australians have made an extraordinary contribution Australia, and I hope that they will form an even larger proportion of the public service in coming years.

I spoke in parliament today about Homeless Connect Day.

Homeless Connect Day, 9 August 2012

On 9 August it was my pleasure to attend Homeless Connect Day at Pilgrim House on Northbourne Avenue. Homeless Connect Day is a one-day event for homeless people, or those at risk of homelessness, to access services, support and essentials. On the day there was a range of services available to people who were homeless or at risk of homelessness: free food, clothing, haircuts, massage, personal care packs, health advice and even entertainment. I was grateful to see the folks from Canberra FM there as well, drawing public attention to one of the real challenges that Australia faces.

In Australia it is estimated that over 100,000 people are homeless on any given night. In Canberra alone that is estimated to be around 1,300 people. Homeless Connect allowed those people who were homeless to recognise that they were not alone in their plight. The theme of Homeless Persons Week is 'Homing in on the real issues of homelessness', and I pay tribute to those who were there—social workers, community sector workers, people providing entertainment and health care services—assisting on one of Australia's challenges. I pay tribute to Minister Macklin who is here in the chamber for her hard work along with the team in reducing the rate of homelessness in Australia.

It was disappointing yet unsurprising to see the Liberals talking about job cuts in Canberra again today. My Federal Labor colleagues and I put out the below media statement about this.

MEDIA STATEMENT
22 August 2012

Gai Brodtmann MP
Federal Member for Canberra

Andrew Leigh MP
Federal Member for Fraser

Senator Kate Lundy
Senator for the Australian Capital Territory

PUBLIC SECTOR JOBS


In an article in today’s Australian Financial Review, Shadow Finance Minister Andrew Robb revealed Coalition plans to “outsource” key programs to state bureaucracies.

The Coalition announced 12,000 local job cuts at the last election. Since then, we’ve seen that number rise to 20,000 job cuts.

This is nothing new for the Coalition. Before the 1996 election, the Coalition said they would cut 2500 jobs. After winning office, more than 30,000 public servants lost their jobs.

The Opposition’s new policy, revealed in the AFR, will see the Commonwealth vacating the field in important areas such as health and education.

Commonwealth public servants provide important advice on big issues affecting our whole nation. Outsourcing this advice will see an increase in confusion for businesses and families with different systems in different states.

Slashing public service jobs in Canberra will affect the entire Canberra economy. In 1996-97, the impact of the Howard Government’s job cuts was to:

• Slash $25,000 from the price of the average Canberra home (in an era when house prices were much lower than they are today);
• Increase the ACT unemployment rate by 1 percentage point; and
• Increase personal bankruptcies in the ACT by around 100 bankruptcies per year.

Unlike the Liberals, we believe that a strong public service is essential to support the community and deliver critical government programs.

Sometimes you get to do something in parliament that puts a lump in your throat. Seeing the smile on the face of 91 year-old Thelma Norman after parliament debated my motion about her late son was one of those moments. The other speakers were Melissa Parke, John Alexander, Graham Perrett, Dan Tehan, Rob Oakeshott and Steve Irons. All spoke poignantly about different aspects of Peter Norman's extraordinary life (click on their names to read their speeches). Here's mine.

Peter Norman, 20 August 2012

Iconic images emerge from every Olympic Games.

‘Golden girl’ Betty Cuthbert taking home three gold medals in Melbourne.

Kieren Perkins’ stunning performance from lane 8 in Atlanta.

Cathy Freeman carrying Australian and Aboriginal flags after winning the 400m in Sydney.

But perhaps the most powerful image of the modern Olympics is this one.

Life magazine and Le Monde have declared it one of the most influential images of the 20^th century.

An image of three brave athletes at the 1968 Mexico City Games making a statement on racial equality.

One of them was Australia’s Peter Norman.

It is Peter Norman’s role in that moment and taking a stand against racial injustice that I want to talk about tonight.

At the 1968 Mexico City Games, Peter Norman ran a time of 20.06 seconds in the men’s 200m final.

Winning the silver medal and in the process setting the Australian record that still stands today.

As recently as the 2000 Olympics, Norman’s time would have won him the gold medal.

But in 1968, it was when the Star Spangled Banner began to play after the medals presentation that Peter Norman became a part of history.

The two Americans Tommie Smith and John Carlos stand, heads bowed with one arm raised.

A black glove on the right hand of Smith, Carlos his left.

Their posture and shoelessness symbolising black poverty and racial inequality in the United States.

Sending a powerful message to the world for racial equality.

Prior to the presentation Smith and Carlos told Norman of their plans.

‘I’ll stand with you”, he told them.

Carlos recalled he expected to see fear in Norman’s eyes.

But he didn’t.

“I only saw love”, Carlos said.

On the way to the dais Norman borrowed an Olympic Project for Human Rights badge from white US Rower, Paul Hoffman.

After Carlos forgot his gloves, Norman came up with the idea that the two Americans should share the one pair of gloves.

A protest like this, on a global stage, had never been done before.

At the time, it was electrifying.

Racist slurs were hurled at Smith and Carlos. IOC President Avery Brundage – a man who’d had no difficulty with the Nazi salute being used in the 1936 Olympics – insisted the two be expelled.

In that moment Norman advanced international awareness for racial equality.

He was proud to stand with Smith and Carlos and the three remained lifelong friends.

At his funeral in 2006, Smith and Carlos gave eulogies and were pallbearers.

As for Norman himself, he competed at the 1970 Commonwealth Games, but was not sent to the 1972 Olympics.

Some have said that this was because of his action in 1968. Others say that financial pressures prevented the AOC from sending a full complement of athletes.

What is clear is that in 1972, Norman consistently ran qualifying times for the 100 and 200 metres, but was not sent.

It is also clear that he never complained about his treatment.

Yet he never stopped thinking of himself as a runner. His trainer Ray Weinberg said: ‘he always called me coach’.

32 years later it took an invitation from the United States Olympic team for him to be a part of the 2000 Sydney Games.

The United States Olympic team.

The apparent treatment of Peter Norman is symbolic of the attitude of the late-1960s and early-1970s. The view that sport and politics should not mix.

In the early-1970s, a group of brave protestors took a stand against apartheid in South Africa, interrupting games played by white-only sporting teams.

One of them was my friend, Meredith Burgman, who was sentenced to 2 months in jail for interrupting a rugby game.

History has vindicated those anti-apartheid protestors.

And history has vindicated Peter Norman.

I am grateful that his 91 year-old mother Thelma, his sister Elaine Ambler and her husband Michael can be here today.

***

Every Olympic Games produces moments of heroism, humanity and humility.

Its motto is Citius, Altius, Fortius – “Swifter, Higher, Stronger"

In 1968, Peter Norman exemplified this.

Swifter because of his record that still stands.

Higher because he stood tall that day.

Stronger because of the guts it took to take a stand.

In the simple act of wearing that badge, Peter Norman showed the world he stood for racial equality.

He showed us that the action of one person can make a difference.

It’s a message that echoes down to us today.

Whether refusing to tolerate a racist joke or befriending a new migrant, each of us can – and all of us should – be a Peter Norman in our own lives.