With the 2016 budget looming and plenty of speculation over what changes might be included regarding superannuation, one item that has received a lot of discussion in the past few weeks is the importance of enshrining the purpose of superannuation in law.
To this end, Assistant Treasurer Kelly O’Dwyer released a discussion paper to garner views from all sections of the public to arrive at the most appropriate definition of the goal of the country’s compulsory retirement savings scheme.
According to O’Dwyer, the process of enshrining the purpose of superannuation in law is to make sure policymakers and regulators have guidance as to what people’s retirement savings are there for before any changes are made to the system.
If this move can manage to encourage our politicians to exercise a greater level of self-discipline, leading them to stop and think about what the pool of superannuation money is there for before contemplating touching it, it would be a win for everyone.
Treasurer Scott Morrison’s message was all about what the superannuation system was not designed to do.
His presentation stressed superannuation was not to be used as a vehicle to transfer wealth between generations, that is, the system’s intention is not for individuals to have a significant sum of unused retirement savings upon their death.
While this might be a valid statement, it may not be entirely practical. The recent volatility in equity markets around the world has heightened awareness of sequencing risk, whereby investors in later life have no time available to compensate for market downturns in future years. And one form of protection is to accumulate a larger retirement savings asset pool.
Further, modern medicines are resulting in people living longer, increasing the risk of running out of money in retirement. Again the safeguard against longevity risk is to save more for one’s retirement.
If a person builds a big enough safety net, in the form of a large superannuation balance, to combat these two issues, it stands to reason there will be some assets left over that could be passed on to the next of kin.
While I know the Treasurer was probably trying to deter people from having intergenerational wealth transfer as their primary purpose for their superannuation, it still shows me Canberra is sending mixed messages on the subject.
On the one hand, enshrining the purpose of superannuation in law is aimed at building confidence in the system so people will save more for retirement, while on the other we are being told not to save too much so large amounts are not inherited by others once a superannuant dies.
The more cynical among us might even see the Treasurer’s message as a forewarning for the reintroduction of specific death duties – a move a lot of people would consider regressive. But with the budget still currently in massive deficit, nothing can be ruled out.
One thing is for sure: the narrative around superannuation needs to be more consistent and certain in order to build real confidence in the system.
