The first public airing of the government’s proposed objective for superannuation has highlighted a divergence with proposals from both the Financial System Inquiry (FSI) and the Australian Institute of Superannuation Trustees (AIST).

Addressing the superannuation industry at the Association of Superannuation Funds of Australia annual conference, the Federal Treasurer, Scott Morrison said the government’s preferred objective for superannuation was to enable Australians to achieve a better standard of living and independence in their retirement.

This subtly and powerfully differs from the FSI’s suggestion that the primary objective of the superannuation system should be “to provide income in retirement to substitute or supplement the age pension”.

The proposal also varies from AIST’s suggestions.

In a recent column, Tom Garcia, chief executive of the AIST, said the key themes should include fairness, adequacy, gender equality and sustainability.

“Any meaningful objective and performance measurement of Australia’s retirement system must recognise that super is only part of the story. The age pension has an equally important, taxpayer-funded role to provide part or all of most Australians’ retirement income. This is how the system was designed and we need to get this message out,” Garcia said.

In his speech, Morrison said next year the government would “shift a little” towards enshrining an agreed objective for superannuation, but for the time being it would keep its focus on governance reforms, transparency and choice of fund.

“As indicated in our response to the Murray Inquiry [FSI], that [suggestion] is an excellent starting point for enshrining an objective in legislation,” Morrison said. “But let me go broader than that. We must also consider superannuation in the context of the broader economy.”

“Could the costs of providing a superannuation tax concession, for example, be directed elsewhere in the economy to make it work more efficiently? Could they, for instance, be directed to tax cuts elsewhere, to encourage participation, productivity and growth?”

Morrison’s view is that a super system for the future needs to deliver greater choice, stronger governance, better information and more targeted incentives (meaning tax incentives).

“These are the Turnbull government’s core superannuation principles that will shape delivery of real outcomes for Australians who are saving for their retirement,” Morrison said.

He added he wanted as many Australians as possible to actively plan and save for their retirement, to harness the benefits that the superannuation system offers, and to work towards a self-funded retirement.

The government plans to implement these reforms in a staged approach.

Superannuation reform package
Click to enlarge. Source: Treasury

Other important points made in the speech were:

  • The government will soon release exposure draft legislation for public consultation, outlining a revised portfolio holdings disclosure model and choice product dashboard regime.
  • The government is continuing its commitment to reduce fees and improve after-fee returns for members.
  • Commissioning the Productivity Commission to develop metrics that can assess the efficiency and competitiveness of the superannuation system, and to develop alterative models for allocating default fund members to products.
  • Following the full implementation of the MySuper reforms, the government will then ask the Productivity Commission to review the superannuation system using the efficiency metrics.
  • The government will continue to remove impediments to retirement income product development.

 

Morrison’s speech did not impress Jim Chalmers who holds the shadow portfolio for financial services and superannuation.

“In super, deeds are more important than words, and the government’s deeds have weakened superannuation not strengthened it,” Chalmers said.

“Super should be about a decent retirement for fund members, which is why it is so disappointing that the government has frozen the Super Guarantee, is abolishing the Low Income Super Contribution, and is weakening penalties for employers who don’t meet their obligations.”

However, he was still keen for all sides to come together to agree the purpose of superannuation.