Deborah Ralston co-authored the Retirement Income Review.

Clearly defining the objectives of the superannuation system should be a relatively straightforward task and is an essential first step in informing the debate about how tax concessions for the sector could be determined and targeted, the SMSF Association National Conference has heard.

A panel session moderated by Vanguard Investments’ head of market strategy and communication, Robin Bowerman, concluded that the politics should be removed from setting and monitoring superannuation policy.

But as a starting point, and in agreement with the Financial System Inquiry (FSI) chaired by David Murray, the panel agreed that the objectives of superannuation should be enshrined in legislation.

“It’s not a hard exercise. It would be quite easy to write,” said Craig Emerson, managing director of Craig Emerson Economics and a former Labor minister.

“There is an historic debate on which I may be able to shed some light because it is relevant to the present and the future,” he said.

“There’s a view around that when compulsory superannuation was introduced by Paul Keating, really, that it was to supplement the age pension. That has never been the case. That is an urban – and rural – myth.

“I used to work for [former Finance Minister] Peter Walsh and I can assure you Peter Walsh would never have said what a great idea, we’ll have tax concessions for super and we’ll keep the age pension as it is.

“Everyone was concerned, even then, about the ageing of the population and the rising bill for the age pension. This was meant to create more self-reliance and less reliance on the age pension.

“Setting out the objectives, I would do that [and say] you want a secure income in retirement; you could say – I don’t know if you say it in one paragraph – that associated with that is to reduce reliance on the age pension. I would also add that it is not and was never designed as an estate-planning mechanism. If it works that way it wasn’t the purpose of the architecture.

The SMSF Association’s head of policy, Jordan George, said that a focus on creating a system to generate retirement income is the key.

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“It should be income in retirement that supplements or substitutes the age pension, and will reduce reliance on the age pension for the population,” George said.

“The reality of enshrining the objectives in legislation is an admirable goal and we’ve got bipartisan support and we had the Treasurer yesterday saying he was committed to doing it and we had the Labor Party with Jim Chalmers here on the first day of the conference they were keen to do it.

“But I wonder what is the practicality of having some very high-level statement in law stopping governments from raiding super to fill holes in the budget. The more important thing in setting the objective is trying to remove superannuation policy decision making from the budget cycle.

“That’s why we’ve recommended [that] a more appropriate way to make superannuation policy decision may be to link it to something like the intergenerational review, which is published every five years. Every five years you can have a stocktake; stop, have a look and say how has this been performing in the last five years? Do we need to tweak it, adjust it? Yes? OK, we’ll do that now – and it’s not used for revenue and it’s not used to fill holes in the budget.

“People can have a lot more certainty in their retirement planning.”

Emerson said he believes it is possible to “get agreement across the table from the political parties on that”.

“It mightn’t seem so, but politicians are acutely aware of the dangers of fiddling with superannuation every budget,” he said.

“You’ve still got to look at the alternatives and they can be pretty ugly too, and sometimes they do fiddle, but I reckon if this government sought an agreement to lock it into the intergenerational reports, you check the sustainability of the system every five years, but in the meantime you leave it alone.”

Defining the objectives well would make it easier to know if the system was actually meeting those objectives and tax and other concessions could be better targeted, said Deborah Ralston, Professor of Finance at Monash University.

“You know what you’re targeting and your ability to have a good impact is greatly enhanced, and then the population understands what you’re going for, and you can rebuild trust because it’s more transparent,” Ralston said.

“The FSI was right, that we should be really focused on building retirement savings and assisting people to either replace or supplement their pension. That’s an admirable objective. In the background you never know whether to say whether it was explicit or not, but building a pool of national savings was always an objective.

“And I think that’s been well demonstrated, certainly through the GFC we saw a very good outcome by having more domestic capital to support business when international funds dried up.

“And we’ve just had some researchers do some work to show that pool of savings, when you build a major model of the economy and link the real economy and the financial system, is actually having an impact on reducing the cost of capital, which is fantastic.

“But I don’t think we need to be explicit about that any more.”

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