Following comments by Assistant Treasurer Kelly O’Dwyer in Melbourne this week that the government wants the purpose of superannuation to be enshrined in law, the general reaction from industry is positive.
However, while there is broad-ranging support for the consultation leading to a legislative objective for super, there have been nuanced variations in the responses across the industry.
David Bell, chief investment officer of Mine Wealth + Wellbeing, suggested an improvement to the government-backed Financial System Inquiry (FSI) definition would be:
“To provide household income in retirement to substitute or supplement the age pension.”
He says this simple modification puts the focus on the household (couple or single) rather than just the individual. His rationale for the amendments are that:
- System-wide efficiency gains can be derived from focusing on the outcomes of couples (where a couple makes up the household) rather than two singles individually
- Policy around the complex interaction of tax, superannuation and the age pension can be better integrated through the lens of the household rather than treating all as individuals
- Better projections of household outcomes can occur if there is a focus on the household projection rather than the aggregated projections of two individuals.
Jeremy Cooper, chair of retirement income at Challenger, who headed up the review that preceded the FSI, says it is now a question of digging in to some of the subsidiary objectives.
“Is it about national savings or private savings, and should there be more restriction?” Cooper says.
“I see the Assistant Treasurer coming out saying it wasn’t about estate planning and wealth creation, but what does that exactly mean? That was certainly something the FSI panel said, but what’s the detail, what’s the consequence of saying it’s not about those things?”
He added the discussion paper was very anodyne, with the government not giving away much about what it thinks of the FSI recommendation.
“There are some interesting policy questions ahead. The general sense is it should be about retirement income that lasts for life; that’s a strong theme.
“But what will the final policy settings look like? Will that be part of the equation? If so, what part of the equation? How will they give effect to the sentiment that it’s not about wealth creation and estate planning? Is that a tax measure? Is that to do with the various ideas that have been put out about lifetime concessional caps?”
Debby Blakey, chief executive of HESTA, welcomed the proposed definition adding that too often the conversation around super is focused on issues that impact a small number of wealthier individuals with relatively large account balances.
“The reality for many Australians is that their super will help them to move from a modest retirement lifestyle to one that is slightly more comfortable. Policy changes to super should focus on issues impacting the majority of Australians, including women and the lower paid.”
She also advocated for increasing the superannuation guarantee to 12 per cent and ensuring a fairer super system for all by maintaining the low-income superannuation contribution and closing the gender super gap.
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Tom Garcia, chief executive of the Australian Institute of Superannuation Trustees, said he hoped the government would resist making ad-hoc changes to super in the upcoming federal budget, now that the process of setting an objective had begun.
“Any budget changes to super would be putting the cart before the horse,” Garcia said. “A key purpose of the objective will be to road-test proposed policies to ensure they deliver on agreed outcomes.”
The Association of Superannuation Funds of Australia believes that the following principles should underpin any retirement income policy decisions:
- Adequacy: as many people as reasonably possible should have an adequate income in retirement
- Universality: the retirement income system must be comprehensive in its coverage and inclusive of people in different types of employment structures, stages in the employment lifecycle and levels of income
- Equity: outcomes must have both intragenerational and intergenerational equity and taxation must reflect the principles of a progressive tax system
- Simplicity: it must be easy to understand and implement
- Sustainability: it must deliver on its intended objectives within the fiscal constraints of the government and taking into account demographic factors that contribute to fiscal outcomes
- Three-pillar: it should retain the three existing pillars of the retirement system: the safety net of the age pension; mandatory Superannuation Guarantee contributions; and voluntary savings, both inside and outside superannuation
- Sole purpose: the system is about replacement income in retirement, and opportunities for accumulating excessive superannuation balances in a concessionally taxed environment (for example, with a view to generational transfer) should be minimised
- Prudentially regulated: given the mandatory nature of superannuation, systemic risks within the superannuation industry, as well as individual entities that manage other peoples’ money, must be supervised by a prudential regulator.
Sally Loane, chief executive of the Financial Services Council, said it was also very positive to see that the opposition has indicated bipartisan support for enshrining the definition of superannuation in legislation.
Shadow Treasurer, Chris Bowen, has proposed that superannuation should have the objective of providing “… a dignified retirement without recourse to the full age pension”.
The Self Managed Super Fund Association’s chief executive and managing director, Andrea Slattery, says it has been the association’s strongly held position that having a universally agreed primary objective is essential to bringing stability to superannuation policy, and to help take it out of the budgetary cycle where it is at the mercy of the government of the day’s fiscal demands.
“By setting the primary objective, all stakeholders in the superannuation system will have an agreed starting point to develop long-term, sustainable retirement income policy, which should reduce the impetus for ad-hoc policy changes that undermine the system’s stability,” Slattery says.