Establishing objectives for the superannuation system and setting long-term, measurable goals against which its progress can be assessed, is crucial to ensuring it delivers the best policy outcomes for governments and the community, according to the Association of Superannuation Funds of Australia (ASFA) in its submission to the Financial System Inquiry Interim Report.
ASFA CEO Ms Pauline Vamos says the superannuation system has been subjected to a degree of policy instability and inconsistency, which has undermined community confidence for people in planning for their retirement.
“Establishing a common purpose, goals and objectives for the system will help guide policymakers towards decisions that deliver the best outcomes for the community. This will give people the confidence they need to plan for their retirement, as there will be stability and certainty in policy settings.”
ASFA says there are two key objectives that should guide superannuation policy.
“Firstly, the social objective of delivering enough income for all Australians to have a dignified retirement and, secondly, the fiscal objective of ensuring that government spending on retirement, whether it be through tax incentives or via the Age Pension, is sustainable and equitable over the long term.”
“With these objectives in mind, setting clear and measurable goals that the system can be measured against will give governments, the industry and the community confidence that it is delivering its aims. This will become even more important as our population ages and people continue to live longer in retirement than ever before.”
As a starting point, the goals of our superannuation system should be, by 2050 to:
- limit Age Pension expenditures and tax expenditures on superannuation (properly measured) to less than 6 per cent of GDP
- reduce the number of retired Australians relying solely or almost exclusively on the Age Pension by half to 20 per cent
- achieve an income replacement rate in retirement in terms of household disposable income in excess of 65 per cent (on average)
- ensure that at least 50 per cent of Australians in retirement meet the ‘comfortable’ level of the ASFA Retirement Standard.
Ms Vamos says the next step is to ensure the regulatory framework is aligned with these goals, as well as designed to be flexible and principles-based.
“This will enable it to adjust to the changing environment, including the increase in people seeking to exercise greater control over their superannuation, for example via self-managed super funds (SMSFs), the growth of service providers and other structures that lie outside the current regulatory perimeters, as well as the growing number of superannuants that are seeking secure income streams throughout their retirement.”
In its detailed submission, ASFA says the biggest gap in the current system is the design of retirement income streams and the lack of a suitable range of products flexible enough to meet the varying and growing needs of Australia's retirees.
“As an industry, we should view this as an opportunity to build on the lessons that have been learnt as the system has grown. For example, we know that when consumers choose an income stream product, they must be able to compare the costs benefits and risks relevant to their own individual circumstances. Ultimately, they must be able assess different choices, get the benefit of innovation and reap the rewards of competition,” says Ms Vamos.
Advice is also seen as a key element in helping Australians to achieve their retirement income objectives.
“ASFA supports initiatives such as higher educational standards, the change from general to product advice and the continuation of services such as intra-fund advice.”
Much of the commentary surrounding the Interim Report focused on system fees and costs, however ASFA says a holistic and long-term view is needed in order to assess the true competitive nature of the superannuation and retirement industry.
“While it's arguable that there are certain structural factors that work against creating 'perfect competition' in the superannuation market, there are also a number of continual improvements that are being made when it comes to industry competitiveness. The introduction of MySuper means consumers are now offered a larger array of products including low-fee, low-frills accounts. The implementation of minimum data standards, easier account consolidation and electronic transactions for contributions and rollovers will also result in cost savings that will ultimately be passed on to fund members. In addition, policies that promote greater comparability of products, such as the product dashboard, will boost the competitive pressures on funds.”
From an international perspective, ASFA has provided the Inquiry with global comparisons that demonstrate that the average Australian member contributing to their superannuation is not paying more than members of similar funds in developed economies around the world.
“There is evidence to suggest that, on a like-for-like basis, our superannuation system is providing equal, if not better, long-term net returns for members against international comparisons. These benefits are enhanced through the uniquely-Australian provision of broad insurance cover and limited personal advice, which are included in the fees paid by fund members,” Ms Vamos concluded.
For a copy of ASFA's full submission, click here.
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.