The Association of Superannuation Funds of Australia (ASFA) congratulates the Panel and its Secretariat on the release of the Financial System Inquiry (FSI) final report. The report’s recommendations are sound, comprehensive and informed and have the potential to provide a blueprint to increase the resilience, efficiency and fairness of the financial system for the next 15 years and beyond.
"Of the 44 recommendations in the report, 28 of them have the potential to impact on the superannuation and retirement incomes system. This is a reflection of how important the role of superannuation is in the broader financial system, as both an institutional investor and a consumer product provider," says ASFA CEO Ms Pauline Vamos.
"We support the majority of the specific recommendations relating directly to superannuation but we are particularly pleased to see those relating to innovation and consumer outcomes, including raising the standards on both the product issuer and distribution side. We also support increasing the accountability and transparency of our regulators, as well as reviewing their powers and funding.
"We also support a number of the recommendations that are listed under significant matters, including those around impact investment, the retail bond market, cyber security, technology neutrality and legacy products."
There are five key areas of the report that ASFA comments on in this media release:
- Goals and objectives for the superannuation system
- System efficiencies and fees
- Aligning tax rates across accumulation and retirement phases.
1. Goals and objectives for the superannuation system
ASFA supports the recommendation that the clear goal of the superannuation system be to provide income in retirement or to substitute or supplement the Age Pension.
In its submission to the Inquiry, ASFA recommended that the measures that the system should achieve by 2050 are to:
- Limit the Age Pension expenditure and tax expenditure on super (properly measured) to six per cent of GDP
- Reduce the number of retired Australians relying solely or almost exclusively on the Age Pension to 20 per cent
- Provide retiring Australians with an income replacement rate in retirement in excess of 65 per cent (on average)
- Allow 50 per cent of Australians to achieve a ‘comfortable’ lifestyle in retirement, as described in the ASFA Retirement Standard.
“These goals must be set with regard to delivering income streams through retirement and fiscal sustainability. We look forward to working with the government on developing these measures,” says Ms Vamos.
ASFA notes the FSI recommendations to open up the post-retirement income stream product market. This will involve the removal of regulatory impediments. The recommendations to require superannuation trustees to pre-select a comprehensive income product for a member’s retirement requires the development of a suite of products that offer choices ranging from a safe default to a more comprehensive product.
“As the report recognises, there is no ‘one-size-fits-all’ approach when it comes to providing income stream choices for retirees. We have previously identified six types of income streams, classified into tiers to reflect the level of flexibility, longevity protection and risk taken by the member. Each tier fits differently into the pension and social security system, and will provide retirees with greater choice when it comes to ensuring their financial security in retirement,” Ms Vamos says.
ASFA notes recommendations relating to the governance of the system including the introduction of majority of independent directors and stronger penalties for directors.
"ASFA's long-held position has been that superannuation trustee boards for funds in any part of the system must have the flexibility to appoint the right people, with the right skills, knowledge and experience to deliver the best outcomes for fund
members, and without conflicts of interest.
"The key part of this discussion going forward will be the definition of independence. We have previously put forward a definition that reflects both the ASX and current SIS definitions and we have recommended appropriate transition periods. If we are to move towards a majority of independent directors, then these two factors should be a key part of any decision making in this area,” says Ms Vamos.
4. System efficiencies and fees
ASFA agrees that time must be given to assess the impact of recent reforms to increase system efficiencies, such as MySuper and SuperStream.
"We consider that the recommendation around increasing the time available for the industry to implement complex regulatory changes will go some way to reducing costs and the delivery of the system.
“The reduction of fees and increasing the efficiency of the system will also be driven by pulling a number of levers, including the continuation of the government’s deregulation agenda, tackling the issues around legacy products, improving even further the process of account consolidation, finalising product dashboards and ensuring regulatory efficiency.
"If by 2020 these reforms have not delivered efficiencies in the form of lower fees to members, then it is entirely appropriate that consideration be given to other solutions. However, we believe that, over time, funds will achieve operational efficiencies in their insurance and advice services, and will benefit from initiatives like SuperStream that will streamline fund processes,” says Ms Vamos.
5. Aligning tax rates across accumulation and retirement phases
ASFA agrees that there needs to be consideration given to the tax concessions applied to superannuation, and whether or not they are equitable, particularly when it comes to people on very high balances.
"The application of taxation, whether pre or post retirement, needs to take into account access to the Age Pension and other social security payments and the level of financial benefits needed to support a comfortable retirement. We believe further work needs to be done to ensure that people on lower balances achieve comfort and dignity in retirement,” says Ms Vamos.
We note that the report states these will be examined further in the Tax White Paper, and we intend to provide further details once this consultation period commences.
For further information, please contact:
Lisa Chikarovski: Manager – Consumer Strategy, Media and Public Affairs, 0451 949 300.
ASFA is the peak policy, research and advocacy body for Australia's superannuation industry. It is a not-for-profit, sector-neutral, and non-party political national organisation, which aims to advance effective retirement outcomes for members of funds through research, advocacy and the development of policy and industry best practice.