It may be time to amend the Sole Purpose Test within the Superannuation Industry (Supervision) Act because it has become a relic of the past, according to new analysis from Deloitte.
The analysis, conducted by Deloitte Superannuation partner, Russell Mason and director, David Johnson argues that the Sole Purpose Test is “a relic of the old corporate superannuation system where there were significant tax incentives to place large amounts of savings into superannuation funds which could not have coped with the administrative burden of a financial offering that extended beyond super”.
“Deloitte works with many of Australia’s superannuation funds, be they industry, corporate, public sector or retail funds. These funds have a common theme of being passionate about the positive impact they can have on the future financial prosperity of working Australians. However, in doing this work we’ve noticed a common, frustrating theme. And it’s a theme that we believe, if rectified, could make a positive impact on savings and investments habits in Australia,” the Deloitte analysis said.
“We have lost count of the number of times funds think of great ways to help members achieve their financial goals, but are prevented from doing so for fear of breaching the Sole Purpose Test.”
The Deloitte analysis said that with the development and maturity of the superannuation system the industry had witnessed the creation of a number of large super funds which had become financial institutions in their own right.
“The biggest problem they face, is that they are structurally forced to ignore the near-term focus of their members who generally, at least until their early to mid-fifties, are more focussed on shorter term objectives than they are on superannuation,” it said.
“So, while Australia, through our superannuation legislation, has developed a retirement savings programme and financial institutions that are admired worldwide, the system still has short-comings which need to be addressed.”
“For example, if funds could offer non-superannuation savings, individuals could better integrate a holistic savings strategy. For those who wish to save more for either long-term or short-term purposes, it seems logical to us that their superannuation provider should be able to support them,” the Deloitte analysis said.
“Industry funds, in particular, have demonstrated a high degree of trust by their members. They have the resources and the membership to offer a broader range of services than are currently being offered,” it said. “So, our question is why, when Australians are required to participate in the superannuation system as a result of the compulsory Superannuation Guarantee, are the institutions providing them prohibited from also helping their members think about saving and investing for the other life outcomes the member is trying to achieve?”