The Government’s chosen objective of superannuation has been criticised as not going far enough, particularly in terms of adequacy.
Draft legislation was recently released which includes:
The primary objective of the superannuation system is to provide income in retirement to substitute or supplement the age pension.
The Financial Planning Association of Australia (FPA) says this primary objective “sets a very low bar”.
“The FPA agrees that provision of income is an important objective of the superannuation system. However, we believe the bar set in the draft legislation – providing income to substitute or supplement the age pension – is too low.”
The FPA says that the primary objective should include a reference to a “comfortable standard of living”.
The Australian Institute of Superannuation Trustees (AIST) also raises the issue of adequacy. “In our view, the core purpose of the superannuation system is to deliver income which affords a comfortable standard of living in retirement, over and above what the Age Pension delivers,” says the AIST submission in response to the draft legislation.
Setting an objective for superannuation was a recommendation of the Financial System Inquiry (FSI). The objective has changed little from that proposed in the FSI final report.
The Government is also being criticised for the limited consultation on the objective. The AIST submission also says: “The critical importance of the objective requires careful consideration. Consultation in response to the Government’s discussion paper of 9 March 2016 on the Objective of superannuation was limited and left important issues unresolved. Given the importance of superannuation to the Australian economy and society, and in meeting the retirement income goals of Australians, AIST calls on the Government to undertake further consultation on the primary objective prior to the introduction of this Bill to Parliament.”
As drafted, the primary objective of superannuation is set out in the Superannuation (Objective) Bill 2016, with five subsidiary objectives set out in the Explanatory Materials:
- facilitate consumption smoothing over the course of an individual’s life;
- manage risks in retirement;
- be invested in the best interests of superannuation fund members;
- alleviate fiscal pressures on Government from the retirement income system; and
- be simple, efficient and provide safeguards.
These subsidiary objectives are either identical or very similar to those set out in the FSI final report. Though, as noted in the Institute of Public Affairs submission, the FSI suggested a sixth subsidiary objective for superannuation, which the Government has not adopted: “Be fully funded from savings.”
The FSI said this objective was important because: “A fully funded system, as opposed to an unfunded system, is important for sustainability and stability. The system is designed to be predominantly funded by savings from working life income and investment earnings, where superannuation fund members in general have claims on all assets in the fund.”
The Tax Institute also raises issues with the subsidiary objectives only being included in the Explanatory Materials (EM) and not the Bill itself.
“In our view, the subsidiary objectives are significant elements of the overall objective of the superannuation system and therefore it is inappropriate to allocate them to the EM, where they have doubtful force,” says the Tax Institute submission on the draft Bill.
“There is uncertainty created by the statement in the EM that it is ‘best practice’ to make reference to the subsidiary objectives in the ‘Statement of Compatibility’ when this is not required by the principal legislation. The EM does not of itself have any legal force.”
“In The Tax Institute’s view, the subsidiary objectives should be set out in the principal legislation and should, where relevant, form part of the Statement of Compatibility.”