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Treasury consultation paper: Legislating the objective of superannuation

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Treasury is seeking feedback on its consultation paper ‘Legislating the objective of superannuation’, which was released on the 20 February 2023 (the Paper). The Paper proposes to codify an objective or purpose of superannuation in either standalone legislation or within the existing Superannuation Industry (Supervision) Act 1993 (SIS Act). Feedback can be submitted up to 31 March 2023.

The background

31 years ago, compulsory superannuation as we know it in Australia was born, becoming one of the three pillars of its retirement system, along with private savings and government support.  Today, superannuation assets total over $3.3 trillion. [1] The value of superannuation as one of the three pillars rests, however, on the succession of governments playing the long game and resisting the urge see it as a pool of assets available to address shortfalls in social or economic policy or to use it as a political bargaining chip – an urge unresisted in recent times.

The Paper proposed to legislatively enshrine the long view, noting that ’[h]aphazard or inconsistent changes in superannuation system policy undermine the community’s trust in the system and increase costs to trustees, regulator, and ultimately members [2]’.

The purpose of the proposed objective

According to the Paper, the proposed objective would be forward-looking and could be used to provide a yardstick against which prospective policy changes could be measured, including:

  • the objective’s inclusion in policy advice to Government;
  • public consultation on whether policy proposals and draft legislation are consistent with the proposed objective; and
  • as a guide for parliamentary scrutiny and discussion where legislation is being debated by Parliament.

The proposed objective is not intended to impact regulatory supervision activities, will not guide superannuation trustee conduct and nor will it affect the interpretation or application of trustees’ existing duties, including best financial interests [3] and the sole purpose test. [4] In effect, it would be an assessment criterion for Parliament rather than an obligation for trustees.

The proposed objective

The proposed objective for which feedback is invited is:

The objective of superannuation is to preserve savings to deliver income for a dignified retirement, alongside government support, in an equitable and sustainable way.

In an acknowledgement that there will be a range of views on the concepts included, there are two inclusive alternative constructions of the objective proposed which either omit or replace the word ‘preserve’ and omits reference to government support.

Previous formulations of the objectives of superannuation focussed on the provision of income as a substitute or supplement to the Aged Pension [5].  Each formulation had its detractors and presumably the government has taken this feedback into account when developing the new formulation.

The ‘what’, ‘how’ and ‘where’

The proposed objective is drafted to address three key concepts:

  • what – the purpose superannuation: to provide clarity on the role of superannuation to anchor future policy changes to the purpose of preserving savings and delivering income in retirement.
  • how – how superannuation delivers on its purpose: that superannuation should deliver to Australians a dignified retirement in an equitable and sustainable way which provides consistency of the underlying values of the superannuation system.
  • where – the place of superannuation in the broader retirement income system: recognition of the interaction of superannuation with the other two pillars of Australia’s retirement income system, government support and private savings, and its need to be fiscally sustainable.

Key words in the objective

In drafting the proposed objective, the Paper seeks to explain the reasoning behind its use of particular words, including:

  • preserve savings: the idea of preservation speaks to the concept that superannuation is not a pool of savings to meet lifetime costs more generally and that contributions to superannuation should only be accessed for income in retirement, apart from exceptional circumstances. This would presumably prevent the development of policy objectives that would permit the early release of super, such as for housing, education expenses or early release schemes in a pandemic.
  • deliver income: captures the notion that superannuation primarily exists to provide income in retirement which supports retirees’ standards of living and that it is not a vehicle for minimising tax on wealth accumulation or tax-effective intergenerational wealth transfers.
  • dignified: this adjective is intended to insert a measure which recognises that individuals deserve a high-quality standard of living in retirement, as served by both the superannuation system and government support. The Paper proposes no definition for this term and so interpretation of the term is expected, giving it the flexibility to change to reflect society’s standards.
  • equitable: seeks to appreciate the importance of the delivery of similar outcomes to people in similar situations and targets support to those in need. This could impact policy proposals that disproportionately advantage one group of members, such as high net wealth individuals. This appears to be the basis on which the Government will subsequently look at capping the amount of concessionally tax superannuation that people can accumulate.
  • sustainable: imparts the principles that the system should be ‘robust to demographic, economic and social change’ and ‘cost-effective for taxpayers’.[6] Tax concessions are specifically not necessary or appropriate as part of that sustainability. It is unclear whether the intention is that the word should encompass more contemporary nuances eg. relating to ESG – whilst social change is referenced, environmental factors are not.
  • government support: includes the broad range of support available to retirees, including the Age Pension, Commonwealth Rent Assistance and the Home Equity Access Scheme.

The consultation questions

The Paper poses four questions for feedback:

  • what do you see as the practical benefits or risks associated with legislating an objective of Australia’s superannuation system?
  • does the proposed objective meet your understanding of the objective of the superannuation system in Australia?
  • is the proposed approach to enshrining the objective in legislation appropriate? Are there any alternative ways the objective could be enshrined?
  • what are the practical costs and benefits of any alternative accountability mechanisms to the one proposed?

Some initial thoughts and questions

Whilst taking a long-term, apolitical view of superannuation is a welcome initiative, there are some aspects of the Paper to consider:

  • care will be required to ensure that the proposed objective as legislated, will not inadvertently interfere or add layers of complexity and costs to regulators and superannuation trustees’ existing obligations as these costs will ultimately be borne by superannuation members;
  • will the objective, as legislated, achieve its purpose or itself be equally vulnerable to erosion as the political and social winds of Australia change?;
  • worked case studies should be considered to examine how would the objective, once legislated, function to prevent or hamper haphazard or reactive policy or legislation? For example, would the early release of superannuation legislation passed during the Covid pandemic[7] or the First Home Super Saver Scheme have passed if the proposed objective had been in place and if so, would additional considerations, time or measures have been required in order to pass?
  • will the ‘equitable way’ indicated in the proposed objective focus more on equality of outcome or equality of process, especially as it ‘targets support to those most in need’[8] and will this support the overall spirit of the objective and the purpose of superannuation? The Paper does mention ‘similar outcomes’ but qualifies that outcome by reference to ‘people in similar situations’.
  • should the proposed objective include a subjective element, if so, what should that subjective value be and how does the qualitative ‘dignity’ aspired to in the proposed objective and the high-quality standard of living which every Australian deserves[9] interact with the current Aged Pension and its ability to align with that adjective (ie ‘dignified’) today?
  • in order to achieve the dignity referenced in the proposed object, are the two pillars (superannuation and government support), mutually exclusive but interactive or interdependent and cumulative? This may require interrogation of the preposition ‘alongside’ in the proposed objective to settle the nature of that relationship.
  • Is a ‘yardstick’ most effective in terms of providing motivation for consistency and longevity of approach to policy making in superannuation or do we need a ‘big stick’ to deter short-sighted and reactive modes? The Paper does not provide a mechanism for accountability for consistently with the proposed objective nor are there consequences proposed where policy or legislation does not satisfy the objective. Ideally, new legislation or changes to legislation should be accompanied by a regulation impact statement which describes how and why that legislation is consistent with the proposed objective. However, as Parliament cannot bind a subsequent Parliament, the ‘yardstick’ may only ever be that.
  • ‘sustainable’ is a word with a variety of meanings depending on the perspective of different groups and will require robust and specific commentary in explanatory material to clearly set its parameters. Despite the intended breadth the word, it will not narrow the ability of successive governments to continue tinkering with the taxation of superannuation, especially in light of the concessional tax treatment superannuation enjoys.
  • the Paper envisages the use of the proposed objective as a tool of accountability against which both policy development and legislation can be measured for consistency. Further detail regarding at what stages these measures can be taken and how they would be assessed would be explicative.
  • there may scope for elements of the proposed objective to contradict each other. If there is no explicit priority given to the elements, it may be open to the Government of the day to determine the priority (which risks diluting the overall effectiveness of the objective).

Australian Prudential Regulation Authority, Quarterly super performance statistics, September Quarter 2022.

The Paper, page 4.

Sections 52(2)(c) and 52B(2)(c) of the SIS Act.

Section 62 of the SIS Act.

See the lapsed Superannuation (Objective) Bill 2016.

The Paper, p.11.

See the Coronavirus Economic Response Package Omnibus Act 2020 (Cth).

The Paper, page 11.

The Paper, pages 10-11.

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Reference

  • [1]

    Australian Prudential Regulation Authority, Quarterly super performance statistics, September Quarter 2022.

  • [2]

    The Paper, page 4.

  • [3]

    Sections 52(2)(c) and 52B(2)(c) of the SIS Act.

  • [4]

    Section 62 of the SIS Act.

  • [5]

    See the lapsed Superannuation (Objective) Bill 2016.

  • [6]

    The Paper, p.11.

  • [7]

    See the Coronavirus Economic Response Package Omnibus Act 2020 (Cth).

  • [8]

    The Paper, page 11.

  • [9]

    The Paper, pages 10-11.

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