The Grattan Institute agrees with the Government that the legislative objective for superannuation shouldn’t include adequacy or the need for a ‘comfortable’ retirement.
The Government is close to setting an objective for superannuation in legislation, following from a recommendation of the Financial System Inquiry. The Bill before Parliament, the Superannuation (Objective) Bill 2016, is currently the subject of a Senate inquiry.
Representatives of the superannuation industry have called the proposed objective fatally flawed, in part due to issues of adequacy, but this is rejected by the Grattan Institute.
“The superannuation system should not aim to fulfil every objective of the broader retirement incomes system,” says the Institute.
“So the Committee should reject the view that superannuation’s objective is to provide an adequate, or ‘comfortable’ retirement income for all Australians.”
“This view could lead policymakers to force people to save under the Super Guarantee so that their incomes while working are less than their incomes in retirement. This view misleads, because the Age Pension and Rent Assistance are better tools than super to provide an adequate retirement for those on low incomes. And this view would support maintaining generous tax breaks, at substantial budgetary cost, for those whose retirement will be comfortable without them.”
Instead the Grattan Institute supports the Government’s proposed objective, which says that superannuation is to substitute or supplement the age pension.
“This rightly implies that the system should limit support for those with enough means that they are unlikely to receive even a part Age Pension. It also implies that superannuation should not support savings at a high cost to the budget if Age Pension liabilities are only reduced a little.”
The submission notes that superannuation is only one part of the Australian retirement income system, along with the Age Pension, voluntary savings and the family home. The Institute says it would be “worthwhile to set objectives for the retirement incomes system as a whole,” instead of just for superannuation.