Financial services minister Stephen Jones’ plans to legislate an objective for superannuation this year will give successive governments clear guidelines to test future policies and the legal rationale for tax reform.
According to former ASIC deputy chair and current chair of The Conexus Institute advisory board Jeremy Cooper, legislating the purpose of super in important to ensure successive governments approach Australia’s $3.4 trillion retirement industry consistently.
“Policy changes to super really have to be done on a consensual and bipartisan basis because if you push too hard in one direction, when the next government gets in, they will water it all down and reverse it and that doesn’t help anybody,” Cooper tells Investment Magazine.
Cooper headed the 2010 Labor government review of the super system, colloquially known as the Cooper Review.
In 2013, he led a group established by the government to develop a charter for the super industry which laid down three objectives of the superannuation system: to provide an adequate level of retirement income, relieve pressure of the age pension and increase national savings by creating a pool of patient capital for investment.
Cooper says it is also important to state clearly what the system is not for such as housing and political handouts.
“The other thing you might articulate that it’s not for is housing. The other basket of issues that you’re trying to stop are effectively what I call political handouts and these are measures that are often announced leading up to elections and clearly, they’ve clearly got electoral politics in mind,” he says.
He describes then Treasurer Peter Costello’s announcements ahead of the 2007 elections to allow Australians to transfer a million dollars into super and making the retirement phase tax free as “electoral carrots”.
Cooper says it would be useful for any discussion around the purpose of super to start with the 10 guiding principles stated in the 2010 review such as the system must be for members’ benefit, be well regulated, transparent and have disclosure and supported high quality research and data.
While these principles were not considered in subsequent reviews, “the question remains whether principles like these have any useful role to play in articulating the purpose of super in 2023,” he says.
Tax reform on the agenda
Minister Jones has publicly said enshrining the objectives of the super system will provide justification for tax reform particularly around high super balances. More than 11,000 Australians have over $5 million in their super account balances, enjoying generous concessional tax rates.
“For people with exceptionally large amounts of wealth in super, there are legitimate questions right now about whether they need as big a leg up as they are currently getting from tax incentives. Setting a sensible purpose of super, based on people’s need, will help policymakers decide where support is most needed,” Xavier O’Halloran, director at consumer industry body Super Consumers Australia says.
Mercer has recently proposed cutting the salary threshold for concessional contributions for high income earners from $250,000 to $225,00 and capping super accounts to $3.4 million from the $5 million.
“The system is there to support delivering retirement income for the vast majority of Australians and if you’ve got that as objective, that gives you a rationale for the tax reform. The minister has indicated that the objectives will help frame the tax reform,” Mercer senior partner David Knox says.
Purpose of retirement system
There are others in the industry who believe the objective should encompass the entire retirement system, not just limited to super.
“We would prefer the objective not to be restricted to superannuation but to say what is the objective of the retirement income system?” Knox says.
“Superannuation is only part of the system. It’s one of the pillars and to define the objective of one pillar, without taking into account the other pillars, seems to be somewhat restrictive.”
He says retirement income for many Australians will come from both super and the age pension. “Unless we look at the big system, it’s very hard to say what’s the purpose of superannuation if we don’t allow for the age pension,” he says.
Super Consumers Australia also takes the view any discussion around purpose should take into account the entire retirement system as “super is part of a broader system and there is a lot of inter-dependency of super with other aspects of the system”, says O’Halloran.
But super is for retirement expenditure and not for “wealth accumulation beyond what is needed to maintain a standard of living from working lives into retirement”, he says.