Super deserves a more aspirational objective

The Minister for Revenue and Financial Services, Kelly O’Dwyer is quite wrong about the objective of superannuation – it needs to be aimed much higher than simply acting as a supplement to the Age Pension. 

It does not require any great economic sophistication to understand the messages contained in successive Intergenerational Reports pointing to Australia’s ageing population, its consequent rising health bill, and the reality that 9.5 per cent superannuation is not nearly enough. 

Future Governments and, in particular, future Federal Treasurers will not thank the Turnbull Government for having gone for the entirely non-aspirational objective of superannuation as defined in the legislation – “to provide income in retirement that substitutes or supplements the Age Pension”. 

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The bottom line is that it is an objective that does not seriously look beyond the next 10 years and which leaves the Age Pension front and centre in the retirement incomes equation even though all the available analysis clearly suggests Australia’s future taxpayers will struggle to pay the bill. 

It is precisely because of the findings of successive Intergenerational Reports that the former chairman of the Association of Superannuation Funds of Australia and former chief executive of TAL, Jim Minto, was right to call for a more aspirational objective – one which looked to retirement incomes adequacy and comfort. 

It is also worth reflecting upon the fact that the original authors of Australia’s superannuation guarantee regime were wholly cognisant of the need alleviate pressure on the Age Pension in the knowledge that its cost to the Budget was likely to accelerate as Baby Boomers began to exit the workforce. 

A part of the Government’s problem in accepting a more aspirational objective for superannuation is that the 2016 Federal Budget did so little in terms of encouraging people to contribute more to superannuation and therefore more to their retirement incomes adequacy. 

While the Government’s changes around lifetime caps had some positive elements, they were nonetheless undermined by the reality that the Budget lowered the concessional contribution cap to $25,000 – a comparatively paltry sum for those looking to play catch-up. 

If the Government doubts the need for people to be given more incentive to contribute more to their superannuation, it should examine the Australian Prudential Regulation Authority (APRA) and the Australian Taxation Office (ATO) data pointing to how few people are now making contributions over and above the superannuation guarantee. 

Up to and including the Budget there was much talk about the cost of the tax concessions directed towards superannuation but, in reality, the impact of removing or reducing those concessions will prove to be the greater future burden to the Australian economy. 

As the Parliamentary year drew to a close, a number of the legislative measures resulting from the 2016 Budget were still yet to pass the Parliament and it may well be early 2017 before those initiatives are finally passed into law. 

One of the Government’s underlying promises around the objective of superannuation and some of its Budget measures is that they would inject certainty into superannuation and reduce the scope for Government tinkering. 

With the Productivity Commission (PC) still examining superannuation efficiency and competitiveness alongside alternative dispute models, that policy certainty still seems a long way off.

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