Superannuation objective no policy panacea

Spelling out the underlying objective of superannuation may provide policy guidance but a roundtable conducted during the recent Conference of Major Superannuation Funds has concluded it is no panacea. This is part one of a roundtable.

Mike Taylor, editor, Super Review: So the issue that we’re all very conscious of at the moment is the Government’s somewhat speculative approach to super policy, and I note Tom that in your opening address you suggested, and quite properly, that a lot of uncertainty has been created. How much damage is being done, because I note that also the Mercer data yesterday was suggesting that voluntary contributions were off the usual level, which might be another indicator of it. So Tom starting with you, how has this speculation hurt super, if it’s hurt it at all? 

Tom Garca, CEO, AIST: So whether it’s hurting...maybe we will be seeing it in contribution numbers and things like that, perhaps funds that have got financial planning will be seeing that quicker than we will. We certainly see it in terms of the high level speculation that now seems to be part of the Budget process. It seems the Budget has now been transformed into a policy platform statement, and that for the first two to three months of the year, leaks come out, and basically they’re full of problems. 

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My sense of it is [the leaks] are very deliberate because they are working out where the weakness might be. And so if there is no response from industry, they figure, ‘oh that’s okay we can keep pushing’. And so that’s where you waste so much time, I guess, in our position, having to respond to what seem to be crazy ideas. 

Maybe we’ll come to it with the objectives [objectives of superannuation] and say we’re happy to do this but we’re happy to re-do it every five years – other than that we are not going to look at the changes of tax. So that’s what we would like to see. 

MT: Alex, what’s your view? 

Alex Hutchison, CEO, EIS Super: I think that’s exactly right, whether it’s thought bubbles or whether it’s commentators seeking to put what I would say [are] unrealistically low contribution caps they are getting a lot of airplay, as opposed to the [views of] the industry. 

The only positive I can see is that, for once, every single representative body in the superannuation sphere, is agreeing. So we get a line-up between all industry bodies, which is probably the only good thing which has come out of this. 

But in all seriousness, at the end of the day tinkering with tax is not going to fix a broken tax system. It’s pretty much that simple. So everything, all the other tax options get knocked off, but we’re still kicking around super. And the truth is most Australians very much value superannuation, and you know when I go out and talk to my members, and I do talk to them a fair bit, and that’s really from Sydney out to Broken Hill and back, you know, the first question they ask is about how everyone’s going, and the second question is, well what’s going on with super. And you know what, they didn’t ask that a couple of years ago. 

TG: The reputation now is that it’s going to change, which is a bad reputation. And that is a position that a number of funds are taking at the moment. 

It’s been wonderful the work that AIST [Australian Institute of Superannuation Trustees], ASFA [Association of Superannuation Funds of Australia], FSC [Financial Services Council] have been trying to do to say let’s try and make super more equitable. So the intention has been correct, but the strategy perhaps hasn’t worked, because everything else has been taken off the table. We’re the last one with our chin out, and now we’re trying to defend it. 

At the beginning of this [tax] white paper discussion it was ‘we are going to have a holistic look at tax reform, and this will be part of a much bigger picture’. But it’s hard when you are the only person that’s standing, and you have got the biggest...one of the biggest pieces of pie. 

Nick Callil, head of retirement income solutions, Willis Towers Watson: Yeah the tax debate is really disappointing. If you think back there was, you know, a suggestion it would be a very structured, almost in today’s terms old fashioned process discussion paper, green paper, white paper. That’s all been compressed into ‘you will hear an announcement on Budget night’, which is really the old, you know, bad way of doing things isn’t it? 

We’re going to get announcements which presumably are going to be geared towards fixing the new term’s budget. We’ll have some objectives presumably, announced or alluded to before then, and I think, my fear is that they’ll sort of say, well now [here are the] objectives and these budget announcements are in line with that. Well I think high level objectives don’t really pin you down on what sort of...they can do whatever they want with tax arrangements in the Budget, and probably point to the fact that they are still consistent with these very high level objectives. 

MT: If you look at their preamble to the objectives legislation, they are quite clear on the objectives having no legislative standing. So you can have objectives and do anything you like around the objectives is what we’re saying. 

Peter Brook, CEO, Pillar Administration: Except that it’s nice and useful if the objectives happen to support the budgetary direction they want to take. So whether or not they put any further force upon it, which will depend on the outcome. 

TG: Mike, did you read somewhere that you don’t think they are going to put it in legislation? 

MT: It’s in the legislation, but they’ve pre-ambled the legislation quite specifically saying that this is the purpose of superannuation but it doesn’t alter the underlying legislation. So in other words this is the purpose, but we will determine how the purpose is met. So it’s quite clever, not to say deceitful actually. 

NC: Well I think what it also means is that [super is a] substitute or supplement [to] the Age Pension. Now if both of those go in there then that’s really a very, very high level statement, it doesn’t dictate anything about what the level of tax concessions are, whether it’s an $11,000 cap or where they are now, what you do at the other end. 

Despite the rhetoric, I don’t think a very high level objective like that really says anything about what tax or other things they will or won’t put in place in the future. It’s a statement of sort of [the] bleeding obvious, which I don’t think anyone would disagree with. But it doesn’t really guide us in the way they’re suggesting. 

Paul Kessell, CEO, Kinetic Super: And I think at the coalface for members, every piece of news is adverse. It’s not providing any kind of comfort that superannuation is either going to supplement or substitute the Age Pension, because they’ve got issues around insurance and fees. 

Every piece of legislation is an imposition on the fund in terms of cost. And for many members who have got very low balances, that’s a significant impost on them. And really it’s not actually going to be anywhere near substituting the Age Pension, let alone supplementing it in any kind of real way. And that’s what we have to start dealing with. 

PB: The trouble is they’re bringing this three-year lens, this three-year Budgetary lens to a 40-year problem. Because frankly, I’m going to be grandfathered into whatever, and I’ll be okay. So it’s not me that it’s affecting, it’s everybody that is about to start work. 

That’s the problem, trying to fix a budgetary problem, or cater to any particular interest group with this three-year lens. It is destroying the 40-year view, of the new person coming into the fund. That’s to me the real problem. So it’s an election issue, so that’s why it becomes so short-term. They don’t have a long-term focus.  

TG: My sense of it is, is that I don’t know if any of you have read the Harvard Business Review, 30-word strategic statement, which sort of puts in what’s the objective, what’s the scope, what’s the competitive advantage, those sorts of things, and it should distil, what we are we going to do. And my sense of it is that that is what the objective should be. 

If it’s going to go into legislation, yes it can’t override the SIS Act, but by defining the scope it’ll say what it’s not there for as well. If we get to a situation where they’re actually trying to define what the concession level is, and you try and put that into legislation, it will never, ever, ever happen, ever. Because how do you do it? And the problem if you put numbers into legislation, if you want to change it, it’s got to go back through the Parliament. It’s the last thing you want.  

MT: So a political focus again. 

TG: Yeah you want an objective, but what you want is something that drops out and says, by the way there’s a regulation or there’s a new body created, or is that the Productivity Commission, whatever it might be that says here are the numbers, the dash-four that we are going to run against. And once we have got those numbers then we can say, now I understand why you are changing tax because we’ll never get there if you don’t change that. But if you get lost in the numbers at the top end, it will never make it.  

NC: There’s a sort of catch-22. People are wanting this to dictate what will happen to the tax policy. But a high level statement can’t do that, it can be a start towards that. If you try and pin it down more in the objectives, then as I said it will never get up. So I think it’s worthwhile as far as it goes. My concern is that some of the rhetoric is making it this statement will then give us the answer on tax.  

TG: No it won’t, they’re different principles, but we’ll be able to potentially measure tax policy against it, and say this doesn’t achieve any of that, this is being done for money, not for solving super!

Part two

Part three

Part four