CANBERRA - Australia's new government is expected to tinker with, but not dismantle, the country's compulsory private retirement system, causing the rate of growth to slow slightly.
Australia on March 2 elected a new conservative federal government headed by John Howard, ending 13 years of rule by successive Labour Party governments headed by Bob Hawke and Paul Keating.
During the election campaign, Mr. Howard defused superannuation as a topic by promising to continue most of the compulsory Superannuation Guarantee Charge system, Australia's mandatory retirement program. Under the SGC system, all employers must contribute to a pension plan for every employee. The contribution amount, now 6% for large employers and 5% for small employers, will rise to 9% by mid-1997.
Employees do not yet contribute to the SGC system, but will have to put in 1% of their earnings into the defined contribution plans by 1996-1997, rising to 3% by 1998-1999. On top of that, the government announced it would make a contribution of as much as 3% of pay for lower-paid employees. Together, the moves boost annual contributions into the national superannuation system to as much as 15% of salaries by 2002.
But Mr. Howard, the new prime minister, will allow low-income wage earners to opt out of the compulsory system, there might be variations in delivering the government co-contribution, and individual plan participants will be offered a wider choice of SGC fund investment options.
The opt-out arrangements, which will lift the salary threshold for compulsory membership to A$900 a month from A$450, appear to involve only about 540,000 workers, according to official statistics.
At worst, this would cut by perhaps A$25 million a year the contributions flowing into the SGC, about 1% of the total superannuation contributions, and perhaps 2.5% of SGC current contributions. Any actual loss of contribution inflow, however, might be some time off and will depend on complex legislative factors and whether those workers choose to remain in the SGC system.
Whether they will remain will depend on how sure workers can be, under a less centralized industrial relations system, of getting an increase in take-home pay if they do opt out. A lot of legislative details have to be completed before the opt-out provisions become effective.
The greatest complaint from fund administrators, who claim they have coped so far with 2,000 changes in the system since 1983, is that the opt-out provisions, plus the new government's promise to give plan participants more choice of funds, will lead to further administrative headaches.
The final reality will depend on industry-government talks and on the passage of subsequent legislation. Despite the likely 42-seat majority of the new government in the 148-seat House of Representatives, it will not control the Senate.
The government's contribution to the compulsory system, involving perhaps A$4.5 billion, is due between 1998-1999 and 2000-2001.
The new government has promised to meet this commitment, but it reserves the right "to vary the delivery mechanism to provide the most effective and equitable payment system." It also has promised to introduce retirement savings accounts as a superannuation/retirement product to be offered by banks and most other financial institutions.
In general, the new government has signaled that it intends to encourage more national savings, although not necessarily through the superannuation system, so the flow of total savings into investment might rise, rather than fall.