The bigger picture behind the super objective

While the past couple of years have been relatively quiet when it comes to changes to superannuation, 2016 has had a busy start with new guidelines on the limited recourse borrowing arrangements (LRBA) held by SMSFs and the government’s release of a discussion paper on the objective of superannuation.

The Self-managed Independent Superannuation Funds Association (SISFA) has welcomed the opportunity to join the significant debate on the purpose of superannuation. The discourse, however, around the purpose of super seems to have taken a rather narrow view in isolation to the wider implications for retirement the average Australian faces.

As part of its process for seeking feedback, Treasury recently sought meetings with industry and interested parties in Sydney and Melbourne. SISFA representatives participated in both of these sessions before the submission deadline of 6 April. Asked if we agreed with the recommendation for the objective of superannuation made by the Financial System Inquiry (FSI), SISFA said it does not totally agree with the government’s acceptance of the FSI recommendation. This is on the basis that super, being only one of the retirement income policy pillars, should not be dealt with in isolation.

Our position on the proposed primary objective is that its wording and intent are too narrow due to its reference to the age pension. This necessarily introduces a cause to debate the objective/purpose of the age pension, and the interaction of it with superannuation and taxation, which is desirable, but acknowledged to be beyond the scope of the nature of the current consultation sought by Canberra.

The proposed primary objective is misdirected in that it presumes the age pension would come first in any retiree’s pending retirement considerations, with superannuation a replacement or top-up measure. The age pension is a safety net framework, not a primary income source, and so our preference for the objective of super is self-reliance in retirement through the compulsory regime and voluntary savings. The age pension should be the fallback position and not the starting point.

It seems we are in good company with this thinking. A number of other industry bodies have also highlighted the desire to consider the true objective of super in isolation to the wider income issues is incomplete. The Actuaries Institute, in its submission, called on the government to provide objectives for the whole retirement system, including the age pension and superannuation guarantee, with complementary objectives for each component.

Another aspect that garners wide agreement is a far more flexible approach to contributions. Our work habits have changed dramatically in the past 10 to 20 years, yet the framework around contributions has not kept up with the changes in work patterns. Career breaks, contracts that may vary income levels considerably in different years, forced gaps in employment through redundancy and the consequent desire to catch up once re-employed are the reality of the employment landscape in 2016, yet current superannuation contribution regulations don’t readily accommodate many of these real-life situations. Many Australians who have adopted SMSFs in large part did so to have control of their own superannuation, including flexibility of contributions. It’s good to see Treasurer Scott Morrison acknowledge this issue in a number of public forums recently.

There has been some commentary recently about a very small number of adolescents under the age of 18, who, through inheritance, have super account balances of six or seven figures. There have been calls from various quarters that this be addressed in the current round of super changes.

While it’s never good governance to decide policy around 1 per cent of the electorate, let’s be clear, this is apparently a handful of people in an unusual situation, but it is likely this will become a more common occurrence as Australians more adequately fund their retirement. The current baby boomers are the best prepared for retirement in Australia’s history through both the wider availability of a retirement funding vehicle and a long period of financial prosperity to make contributions. If they have built significant retirement funds, who is to say that it is too much or shouldn’t be passed as a tax-benefited legacy to the next generation? Surely this helps lessen the dependency on the age pension for the next generation.

The super system is far more than just an accumulation vehicle during our working life. It is the single most important structure enabling both pre and post-retirement phases. Let’s make sure we don’t lose the opportunity in the current round of decisions to make lasting beneficial changes for all working Australians.

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