Government to enshrine the objectives of superannuation

The Association of Superannuation Funds of Australia (ASFA) has today welcomed the release by the government of a discussion paper and consultation process to enshrine the objectives of the superannuation system in legislation.

“The government’s commitment to defining the objectives of superannuation and enshrining this in legislation will provide an enduring reference point to guide future decision making by all policy makers,” said ASFA CEO, Pauline Vamos.

“Agreeing and adhering to objectives will increase confidence, lead to greater levels of equity, and improve retirement outcomes for all Australians by reducing the politics in policy making.

“The purpose of the system as outlined by the government in today’s discussion paper—to provide income in retirement to substitute or supplement the Age Pension—is a worthy objective, and the good news is that the system is already well on its way to meeting this purpose as well as many of the supporting principles. The current tax concessions supporting the system are sustainable, and superannuation takes substantial pressure off the Age Pension. ASFA estimates that government expenditure on the Age Pension will remain under 3 per cent of the gross domestic product for the foreseeable future.

“ASFA also believes that the superannuation system has an extended purpose: to enable all Australians to be financially confident in retirement, with the measure of success being that the majority of retirees are not reliant on any pension, and that their superannuation balance provides them with enough to have a comfortable standard of living.

“Once the purpose and principles of the system are enshrined, we can have a conversation about the tax concessions that support the system. We must account for the fact that, the superannuation system is still maturing, that broken work patterns still put many members of the community at a disadvantage in retirement and that the system comprises both self-managed and pooled vehicles, which means that a one size fits all approach does not always work,” concluded Ms Vamos.

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ASFA commentary on supporting principles

In response to the supporting principles outlined in the government’s discussion paper on the objective of superannuation, Ms Vamos comments:

“We agree that the super system should not promote estate planning and we can achieve this by reviewing how much individuals are able to accumulate in the system. ASFA supports the establishment of a measure of adequacy and proposes that the ASFA comfortable retirement standard be adopted as the standard which the community aspires to in retirement.

“ASFA also welcomes the Productivity Commission review into the efficiency of the system and look forward to the release of a draft framework to enable the development of greater choice in products providing income streams throughout retirement. Combined with a clearly defined purpose, these initiatives will sharpen the focus on delivering the best possible retirement outcomes for superannuation fund members.

“ASFA strongly supports the development of bipartisan legislation that will de-politicise the debate. It is critical that we re-focus discussion and frame policy decisions toward the delivery of dignified retirement outcomes for all Australians. We look forward to working with the government as they develop these proposals.”

More detail on ASFA’s proposal for principles and quantifiable goals of the system are below.

Detailed principles and quantified goals of superannuation

ASFA believes that the following principles should underpin any retirement incomes policy decisions:

1. Adequacy: as many people as reasonably possible should have an adequate income in retirement
2. 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
3. Equity: outcomes must have both intra-generational and inter-generational equity and taxation must reflect the principles of a progressive tax system
4. Simplicity: it must be easy to understand and implement
5. Sustainability: delivers on its intended objectives within the fiscal constraints of the government and taking into account demographic factors that contribute to fiscal outcomes
6. Three-pillar: retains 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
7. 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
8. 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.