OPINION | Our superannuation system has changed dramatically since its earliest incarnation, in the 1800s, when employer-based super was a perk for some wellheeled workers in the finance and public sectors.

Today, it is a more than $2 trillion industry that, as one of three crucial pillars of our retirement income system, has a direct bearing on the lives of millions of Australians. And it works well. Right now, Australia is among the world’s best when it comes to retirement savings systems.

That does not mean we can be complacent.

It is now 25 years since the superannuation guarantee was legislated. As the nation’s super pool has grown, so too has the need to make sure the system remains strong and sustainable, especially for members. That is what the Turnbull Government has been working towards with our reforms.

A clear objective

One of those reforms is enshrining into law an objective for superannuation.

The objective, which is “to provide income in retirement to substitute [for] or supplement the age pension”, makes it clear that superannuation is about providing all Australians higher income in retirement than they would have on the age pension alone. Clearly, it is not about tax minimisation, estate planning or unlimited wealth accumulation. It is to promote income in retirement.

Some stakeholders would like the legislated objective to go further, by including concepts such as adequacy or comfort in retirement.

But as noted recently by David Murray, who chaired the Financial System Inquiry, to include such subjective words would “open the way to constant political interference”.

The lack of any consensus about what such concepts might mean, let alone how they might be measured, could lead to endless arguments, and this would distract from the core task of ensuring that superannuation policies are directed at delivering retirement incomes.

Modernise governance

Another important area of reform is governance arrangements.

The superannuation system deals with large sums of money. It is compulsory, complex, and boasts characteristics that are not typically found in standard markets. This means it is imperative that the regulatory arrangements for the system are modernised, with strong standards of trustee oversight as the foundation. It is important both for members – the people whose money is at stake – and for our economy more broadly.

Many experts have concluded that high-quality governance is essential to organisational performance. Yet, as it stands, the standards for governance of super funds remain lower than for banks, insurers and other listed companies.

It is accepted wisdom that independent directors are an essential part of modernising the system and keeping it fit for purpose.

Independent directors will enable superannuation funds to broaden the mix of skills at their board tables. They will improve the industry’s capacity for innovative new products and investments, both of which are essential as the focus of the system shifts from accumulation to decumulation.

All of that explains why we will continue to progress legislation that requires all superannuation fund trustee boards to have a minimum of one-third independent directors, including an independent chair.

Extending choice

The government has been pleased to see the growth of the self-managed super fund industry, particularly given our belief in the values of individual choice and self-determination.

It was why, in 2005, the Howard government introduced these key principles into superannuation by requiring that employers provide employees with a choice of super fund for compulsory super contributions.

But there is more to be done in this important area. Twelve years on from the landmark introduction of choice in super, there are still about 1 million people who are covered by federal enterprise bargaining agreements that restrict their right to choose their own super fund.

It is my firm intention to reintroduce legislation this year to make it possible for more people to choose where their compulsory superannuation is directed.

Kelly O’Dwyer MP is federal member for Higgins and the Minister for Revenue and Financial Services. This article first appeared in the May print edition of Investment Magazine. To subscribe and have the magazine delivered CLICK HERE. To sign-up for our free regular email newsletters CLICK HERE.