The SMSF Owners’ Alliance (SMSFOA) has voiced its dissatisfaction with the Financial System Inquiry’s (FSI) proposed objective of superannuation and believes an aspirational approach should be used in defining its purpose.
In its Treasury submission, the SMSFOA proposed: “The primary objective of the superannuation system is to give every working Australian the opportunity and encouragement to save enough so that they can fund an income in retirement that allows them to maintain to a reasonable degree their living standard after retirement.”
The alliance agreed with the FSI recommendation for the government to seek broad political agreement for, and enshrine in legislation, the objectives of the super system and report publicly on how policy proposals were consistent with achieving those objectives over the long term.
However, the FSI proposed objective “to provide income in retirement to substitute or supplement the age pension” was a limited and vague definition, SMSFOA executive director Duncan Fairweather said.
“It implies the age pension should be the primary pension, with the role of superannuation just to replace or supplement it, which is contrary to the concept of the three pillar architecture of the retirement incomes system,” Fairweather explained.
“Under this concept, superannuation should become the main way of funding retirement incomes with the age pension acting as a safety net for those who need it.
“This should be the long-term goal of superannuation.”
Further, the linkage to the age pension also implied a “levelling of aspirations”, he said.
“In a developed society, everyone should aspire to and, via tax incentives, be provided with the means and encouragement to save enough to allow them to retire on a pension that bears a fair relationship to their income before retirement,” he said.
“There is no reference to saving in the FSI definition, nor a reference to any benchmark for judging the adequacy and success of the system.
“The objective we propose does not seek to place constraints on superannuation savings but sets a goal for retirement income for all Australians relative to their working income.
“This is generally recognised as the ‘reasonable replacement rate’, which sets an income target in retirement of 60 per cent to 70 per cent of pre-retirement income.”
The replacement rate concept is an international standard upheld by many comparable countries.
In Australia, it is reflected in publicly funded superannuation for politicians, public servants and the judiciary.
“We believe it is a standard to which all Australians should be able to aspire, with the help of tax incentives to enable and encourage savings,” Fairweather said.