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 three of the financial industry’s major associations, the Australian Institute of Superannuation Trustees,  Certified Public Accountants Australia and the SMSF Association.

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".

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; and
• 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 supported a legislated objective for the super system, including its relationship to the overall retirement income system.

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It stated that a lack of a co-ordinated approach in meeting an objective for super 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.”

However, the CPA said in its submission that before an objective of super could be set, a long-term vision for Australia’s retirement savings system first needed to 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 believed 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; and 
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 super was defined and legislated, and that any changes to super thresholds did 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.”

For the SMSF Association, chief executive, Peter Burgess, said: "It is essential that the objective provides appropriate and necessary guiderails and a fit-for-purpose anchor for Government policy. Tinkering and ad hoc changes should be actively discouraged. The objective should not operate to justify any Government’s short-term policies without proper consideration of the medium and long-term effects and consequences.

"Objective alone is insufficient and risks poor policy design and outcomes. It needs to be underpinned by clearly legislated definitions, legislative design and operative provisions and guidelines."

He also took issue with the use of the word 'preserve' in the proposed objective as he felt it was more restrictive than the sole purpose test, a key function of the existing super system. 

"We agree that certain limitations should be applied to the purpose and use of superannuation and the concept of preservation. However, a more restrictive definition of preservation could lead to policies that fundamentally change superannuation policy in a manner that is incongruent with the sole purpose test.”

This article previously appeared in Super Review's sister publication SMSF Adviser.