Objective of superannuation
In October 2015, the Federal Government announced that it would develop legislation to enshrine the objective of superannuation, as part of its response to the Financial System Inquiry (FSI). The government has accepted the recommendation of the FSI that the objective of the superannuation system is to provide income in retirement to substitute or supplement the age pension. In March, it released a discussion paper, which provides background and questions for consultation on the proposed definition for superannuation.
While there is agreement that having an objective for superannuation is critical to securing trust and confidence in the superannuation system as a whole, there is no such consensus as yet on the precise wording of the objective. Consensus is vital, because as the discussion paper The objective of superannuation notes, ‘Superannuation is the second largest savings vehicle, making up around 22 per cent of all assets held by Australian households. Only owner-occupied housing is larger, constituting 38 per cent of all assets held by Australian households’.
A number of stakeholders made their views public immediately after the release of the discussion paper. The Association of Superannuation Funds of Australia (ASFA) commented that superannuation should not be used as a vehicle to pass wealth to younger generations, but should help Australians to feel financially confident in retirement, with the measure of success being that the majority of retirees are not reliant on any pension, and that their superannuation balance provides them with enough to have a comfortable standard of living.
The Financial Services Council (FSC) commended Shadow Treasurer, Chris Bowen’s proposal that superannuation should have the objective of providing ‘…a dignified retirement without recourse to the full age pension.’
Yet the Australian Institute of Superannuation Trustees (AIST) noted that it is vital that the objective enshrined in legislation should recognise the role of the age pension in supplementing many people’s retirement incomes. It also noted it will recommend that the objective also establish that super was for retirement purposes only and not a wealth creation tool for estate planning purposes.
ACOSS also was of the view that the purpose of super should be adequate retirement incomes, not wealth accumulation, and that the system should ensure that every worker has an adequate income in retirement above pension levels.
Industry Super Australia (ISA) also saw the purpose of super as not replacing the pension, but supplementing it, but noted that members’ best interests must be enshrined in the legislation for the legal definition to be meaningful.
And the Council of the Ageing (COTA) said that superannuation should provide a retirement income stream for people and not be used for wealth accumulation but was of the view that the government should commission a holistic review of the entire system.
Governance Institute lodged a submission noting that governance is inextricably linked to the purpose of an organisation. As such, each entity holding funds on behalf of beneficiaries, or making decisions in relation to those funds, needs clarity as to its purpose. For this reason, it supports strongly the inclusion of the objective of superannuation in the legislation.
Governance Institute recommends that the objective clarify that superannuation should be to improve retirement incomes, but stated that a negative objective should not be included, that is, it should not state what the objective of superannuation is not.