Objective of super submissions reveals the issue is far from simple

The provision by the government of three draft amendments has led to a diverse range of views from two of the financial industry’s major associations, the Australian Institute of Superannuation Trustees (AIST) and the Certified Public Accountants (CPA) Australia.

In its release of the consultation paper in February, the government stated that the proposed objective was “to preserve savings to deliver income for a dignified retirement, alongside government support, in an equitable and sustainable way”.

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Two other alternative wordings were also proposed:

• The objective of superannuation is to deliver income for a dignified retirement, alongside government support, in an equitable and sustainable way.
• The objective of superannuation is to support savings to deliver income for a dignified retirement, in an equitable and sustainable way.

The AIST said in its submission that it strongly supports a legislated objective for the superannuation system, including its relationship to the overall retirement income system.

It stated that a lack of a co-ordinated approach in meeting an objective for superannuation could result in ad hoc and inefficient policy, and it supported the wording of the primary definition. 

“In our view, expressed in many previous submissions over the history of this issue, the objective should capture the principles of preservation, compulsion, universality, adequacy, integrity, equity and cohesion as vital elements of the system,” the AIST stated in its submission.

“The proposed wording recognises many of these principles explicitly (preservation, adequacy – ‘dignified retirement’, equity) or implicitly (cohesion – government support).   

“The two alternative wordings provided in the discussion paper remove the principle of preservation, which would ultimately undermine the principle of adequacy. Without preservation, the compulsion to keep super specifically to support retirement spending is weakened. This increases future reliance on the age pension.”

The AIST stated it believed the second of the two alternatives removes the role of other government supports in delivering retirement income, choosing instead to emphasise “support[ing] savings”.

“This undermines the principle of cohesion with the other pillars of the retirement income system, further weakens compulsion and places the onus of delivering income to support a dignified retirement on the individual rather than being a feature of a well-designed default system with strong consumer protections,” the statement said. 

“Both of these alternatives point to a superannuation system that only serves those who have the resources and discipline to voluntarily save for retirement within the system, undermining the stated principle of equity.”

However, the CPA said in its submission that before an objective of superannuation can be set, a long-term vision for Australia’s retirement savings system must first be clearly articulated.

“It should provide a clear purpose and goals encompassing not only superannuation but also the age pension, non-superannuation income, savings and assets, care and residency arrangements in retirement and how these goals can be achieved,” the submission stated.

CPA Australia believes the primary objectives of Australia’s retirement savings system should be threefold:

1. To aid individuals to save sufficiently and effectively in order to maintain a reasonable standard of living throughout their whole life cycle
2. To provide adequate support to alleviate poverty in retirement, where individuals have not had the means to save sufficiently
3. To protect retirees and dependants from key risks, such as mortality, morbidity, longevity, investment, inflation and system failure.

“Unfortunately, we believe the preferred objective for superannuation proposed in the consultation paper, with a prime focus on the interaction between the superannuation system and government support, is inconsistent with this principle and the three-pillar framework as it does not acknowledge the third pillar — voluntary savings,” the submission stated.

The CPA believed the second alternative wording of the proposal was more suited to the objective, stating that “superannuation is a complex policy area that must be navigated carefully”.

In concluding its submission, the CPA gave a number of recommendations to the government about the proposal, including that the government does not proceed with implementing this measure until after an objective of superannuation is defined and legislated and that any changes to superannuation thresholds do not proceed in isolation.

“These changes must be considered as part of a broader discussion regarding superannuation tax, concessions provided and the complexities created by the myriad caps, thresholds and limits currently in place,” it stated. “Any discussions regarding superannuation reform must also consider the interaction with the tax and transfer system,” it said.