Bills Digest no. 69,
2016–17
PDF version [823KB]
Kai Swoboda
Economics Section
2
March 2017
Contents
Purpose of the Bill
Background
Relationship to other recent
superannuation Bills
The superannuation system
Figure 1: Accumulated superannuation
savings, June 1988 to June 2016
Figure 2: Household mean wealth by
asset class, by household income decile, 2013–14 ($’000)
Interaction between the
superannuation system and Age Pension
Figure 3: 2012 estimates of the
projected proportion of eligible persons receiving an Age Pension
Policy development
Financial system inquiry
Figure 4: Subsidiary objectives for
the superannuation system suggested by the Financial System Inquiry
Further consultation
Committee consideration
Senate Standing Committee on
Economics
Senate Standing Committee for the
Scrutiny of Bills
Parliamentary Joint Committee on
Human Rights
Policy position of non-government
parties/independents
Australian Labor Party
Other parties/independents
Position of major interest groups
Table 1 Major interest group view
on the objective included in the Bill as put to the Senate Economics Committee
inquiry
Financial implications
Statement of Compatibility with Human
Rights
Key issues and provisions
Why have a legislated objective for
superannuation?
What should the primary objective be?
Figure 5: Typology of the ambition
and specificity of selected proposed objectives for the superannuation system
Subsidiary objectives
Objective does not override other
laws
Preparation of statements of
compatibility
Concluding comments
Date introduced: 9
November 2016
House: House of Representatives
Portfolio: Treasury
Commencement: The
first 1 January, 1 April, 1 July or 1 October to occur after Royal
Assent.
Links: The links to the Bill,
its Explanatory Memorandum and second reading speech can be found on the
Bill’s home page, or through the Australian
Parliament website.
When Bills have been passed and have received Royal Assent,
they become Acts, which can be found at the Federal Register of Legislation
website.
All hyperlinks in this Bills Digest are correct as
at March 2017.
Purpose of
the Bill
The purpose of the Superannuation (Objective) Bill 2016
(the Bill) is to establish the primary objective of the superannuation system,
and to provide that subsidiary objectives can be prescribed by regulation. The
Bill will also require the preparation of a ‘statement of compatibility’ for
future Bills or regulations relating to changes in superannuation.
Background
Relationship
to other recent superannuation Bills
The Bill was debated in the House of Representatives in
cognate with the Treasury Laws Amendment (Fair and Sustainable Superannuation)
Bill 2016 and the Superannuation (Excess Transfer Balance Tax) Imposition Bill
2016 in November 2016.[1]
These three Bills are covered by a single Explanatory Memorandum.
When these three Bills were introduced in the Senate on 23 November
2016 the Superannuation (Objective) Bill 2016 was separated from the other two
Bills, both of which passed the Senate on this date.[2]
The
superannuation system
The superannuation system is one part of Australia’s
‘three pillar’ retirement income system. The first pillar is the social
security Age Pension. Compulsory superannuation contributions made under the
superannuation guarantee regime is the second pillar. The third pillar is
additional private savings, often made through additional voluntary
superannuation contributions.[3]
There are a number of key laws that regulate the
superannuation system in Australia. These include:
With the introduction of compulsory superannuation in
1992, many Australians have an interest in superannuation, having contributions
paid on their behalf, making their own contributions, deciding how or where to
invest their superannuation savings or, once eligible to access their
accumulated superannuation, deciding how and when to spend it.
As at 30 June 2014, the Australian Bureau of Statistics
estimated that almost 13 million persons aged 15 and over were covered by
superannuation arrangements, either receiving superannuation contributions or
drawing down a superannuation benefit.[4]
The average superannuation account balance in 2013–14 was $109,000, up from $68,300 a
decade earlier.[5]
The average superannuation balance at the age at which many people are
considering retirement (55–64) in 2013–14 was around $254,700, with a clear
difference between males ($322,000) and females ($180,000).[6]
There have been a large number of changes to the
superannuation system over the last decade or so. A 2013 report commissioned by
the Gillard Government noted that there had been 30 policy changes to the
system since 2005–06 that had impacts of more than $50 million over the
forward estimates and that a large proportion related to contributions, tax and
other concessions.[7]
A review of superannuation policy change by the Parliamentary Library to March 2014
covers these and other changes that were made over this period.[8]
Since the election of the Abbott Government in September 2013, the Parliament
has introduced at least 22 Bills that made or proposed significant changes to
the superannuation system.[9]
As at 30 June 2016, the total value of accumulated superannuation savings in
Australia was around $2.1 trillion.[10]
There has been significant growth in total superannuation savings both in terms
of the value of savings and as a share of GDP since the late 1980s (Figure 1).
Figure 1: accumulated superannuation savings, June 1988 to
June 2016
Source: Parliamentary Library estimates based on Treasury
methodology using data from the Australian
Prudential Regulation Authority (Quarterly superannuation performance, various issues) and Australian Bureau of Statistics
(5206.0—Australian national accounts: national income,
expenditure and product, Sep 2016,
various issues).
The value of superannuation savings is likely to continue
to increase over the medium to long term, with various estimates putting the
value of assets managed by superannuation funds in the order of $6–9 trillion
in the mid‑2030s.[11]
Superannuation assets form an important and growing part
of household wealth. The Australian Bureau of Statistics estimates that
superannuation savings account for around 17 per cent of average household
assets, with property assets (including the value of occupied housing)
accounting for around 56 per cent of household assets.[12]
That said, analysis by the Grattan Institute shows that superannuation assets
held by households are largely held by wealthier households, which also tend to
hold significant wealth outside of the home and superannuation (Figure 2).
Figure 2: household mean wealth by asset class, by
household income decile, 2013–14 ($’000)
Source: J Daley, B Coates and H Parsonage, How
households save for retirement, Background paper, Grattan Institute,
Melbourne, October 2016, p. 5.
Interaction
between the superannuation system and Age Pension
The means testing arrangements that apply to the Age
Pension (which incorporate an income test and an assets test)
provide for an interaction with the superannuation system whereby a person’s
eligibility for the Age Pension, or level of Age Pension payment, are
influenced by the value of a person’s superannuation savings and other assets.
Despite the maturing superannuation system, the proportion
of retirees who will remain eligible for the full Age Pension or a
part-pension, will remain fairly stable over future decades. Estimates prepared
in 2012 included in the 2014 National Commission of Audit report noted that the
share of the eligible population receiving no Age Pension would remain around
20 per cent to 2050, but that there would be a change in the mix between
those eligible for a full and part pension (Figure 3).
Figure 3: 2012 estimates of the projected proportion of eligible persons
receiving an Age Pension
Source: National Commission of Audit (NCOA), Towards
responsible government: the report of the National Commission of Audit: phase one,
NCOA, Canberra, February 2014, p. 81.
Policy
development
Financial
system inquiry
Policy momentum to articulate an objective for the
superannuation system emerged from a recommendation of the Abbott
Government-commissioned Financial System Inquiry (FSI), chaired by David Murray
(December 2013 to December 2014). The Inquiry’s interim report, released on
15 July 2014, noted that there was ‘no legislative or formal
statement of the guiding objectives for the retirement income system’.[13]
In its final report, released on 7 December 2014,
the FSI recommended that the objectives of the superannuation system be
enshrined in legislation and that reporting be required on how policy proposals
are consistent with achieving these objectives over the long term
(recommendation 9).[14]
The rationale for making this recommendation was based on providing a framework
for evaluating the efficiency and effectiveness of the superannuation system
and contributing greater long-term confidence and policy stability through
agreed objectives, against which superannuation policy proposals can be
assessed.[15]
The FSI’s final report also suggested a primary objective
for the superannuation system—‘to provide income in retirement to substitute or
supplement the age pension’.[16]
The final report also included a number of subsidiary objectives, nominating
reasons why the objective was important (Figure 3).
Figure 4: subsidiary objectives for the superannuation system suggested by the
Financial System Inquiry
Source: Financial System Inquiry, Financial
System Inquiry: final report, (Murray report), Treasury, Canberra, November 2014,
p. 95.
In its response to the recommendations of the FSI on 20
October 2015, the Turnbull Government accepted the recommendation to enshrine
the objective of superannuation in legislation, noting that this would ‘help
align policy settings, industry initiative and community expectations’.[17]
The Government response also provided further information about the action to
be taken:
The Government will develop legislation to enshrine the
objective within the superannuation law, where it will serve as a guide to
policy-makers, regulators, industry and the community about superannuation’s
fundamental purpose. The objective will be a valuable yardstick against which
to measure competing superannuation proposals, providing certainty that
measures that do not accord with the objective will be held up to scrutiny. And
it will provide a framework for important discussions Australia needs to have
about fairness, adequacy and dignity in the superannuation system.[18]
Further
consultation
On 9 March 2016, the Government released a discussion
paper, Objective
of superannuation, to provide the basis for further consultation on
establishing an objective for the superannuation system.[19]
In releasing the discussion paper, the Assistant Treasurer, Kelly O’Dwyer
noted:
Having an agreed objective for superannuation is critical to
securing trust and integrity. It is also a means for increasing confidence in
the superannuation system as a whole. ... We want to have a conversation about
the precise wording of the objective—to help frame the broader conversation we
need to have about superannuation.[20]
The Government’s preferred objective, identical to the FSI
recommendation—‘to provide income in retirement to substitute or supplement the
Age Pension’—was re-stated in the consultation paper.[21]
Some of the issues that were to be examined in the consultation process
included:
- views
on the Government’s preferred objective and the implication of any different
preferred objective and
- whether
the objective should be legislated in existing laws (such as the Superannuation
Industry (Supervision) Act 1993) or in a stand-alone Act.[22]
Draft legislation was then released on 7 September
2016 as one part of the Government’s broader superannuation changes.[23]
The draft legislation, which proposed a stand-alone Act in which to express the
objective, included no change to the Government’s preferred objective—‘to
provide income in retirement to substitute or supplement the age pension’.[24]
Committee
consideration
Senate
Standing Committee on Economics
The Bill was referred to the Senate Standing Committee on
Economics for inquiry and report by 14 February 2017.[25]
The Committee’s report, tabled in the Senate on 14 February 2017, included
a majority recommendation that the Bill be passed, with the compliance of
future superannuation reforms with the legislated objective to be periodically
assessed and reported on as part of the Intergenerational Report.[26]
A dissenting report by ALP Senators concluded that the Government should
withdraw the Bill and undertake further consultation.[27]
Senate
Standing Committee for the Scrutiny of Bills
The Senate Standing Committee for the Scrutiny of Bills
had no comments on the Bill.[28]
Parliamentary
Joint Committee on Human Rights
The Parliamentary Joint Committee on Human Rights noted
that the Bill did not raise human rights concerns.[29]
Policy
position of non-government parties/independents
Australian
Labor Party
In April 2013, the Gillard Government, as part of further announcements
for changes to superannuation, responded to concerns about the lack of policy
certainty for superannuation by proposing a ‘Charter of Superannuation Adequacy
and Sustainability’ be developed, which would be overseen by a ‘Council of
Superannuation Custodians’.[30]
This proposal was further developed in a discussion paper
released by the Gillard Government on 9 May 2013.[31]
Issues for consultation included in the discussion paper included the relevant
core principles that could be included in a charter (such as community
confidence, sufficient savings to retire comfortably) and the role of the
custodians.[32]
A policy for legislating a charter of superannuation
remained part of ALP policy prior to the 2013 election under the Rudd
Government, but the policy had not been implemented by the time of the change
of Government in September 2013.[33]
The Australian Labor Party’s (ALP) most recent position on
the Bill, as expressed in the House of Representatives in November 2016, was to
broadly support the intent of legislating an objective, but to not support the
objective in its current form. The shadow treasurer, Chris Bowen, noted:
The Labor Party responded positively to the recommendation in
the Murray review that superannuation should have an agreed, legislated
objective. I have said publicly that it is an idea arresting in its simplicity.
Many people would think that we already had one, but we do not. Superannuation
means different things to different people, in terms of what it is designed to
achieve.
... The objective that the government announced is not
bipartisan and has not been agreed with us and will not meet with our support.
If the government wants to continue those discussions which the minister and I
had before the election, I am very open to that idea. I think we could reach a
bipartisan objective for superannuation. That would be better. But we are not
simply going to sign up to an objective which the government decides and which
we think could be improved and which many in the sector think could be improved.
If you look at the comments on the objective by various groups, ranging from
the Institute of Public Affairs to industry funds, they all have complaints
about the government's proposed objective. We do not think it is fit for
purpose, so we are not just going to blindly vote for something which has not
been the subject of proper consultation and discussion with us and which could
be done so much better.
... I had already outlined previously a proposed objective for
superannuation, but I was not wedded to those particular words. We were not
being obstructionist about it. We could have changed those words, and that is
what the minister and I were discussing; we were getting very close, but, alas,
the Treasurer decided to come in over the top, to intervene and stop those
discussions, in effect, by announcing his own legislation. Well, that is not
legislation that we would support in this House or the other, and I dare say
that that will be the subject of some debate in the other house.[34]
In June 2015, the ALP put forward a specific proposal for
the objective as a ‘starting point’ to see if a bipartisan objective for
superannuation could be agreed to:
Our superannuation system should ensure that as many
Australians as possible have access to the resources for a dignified retirement
without recourse to the full age pension.[35]
At the time of the release of the FSI final report in
December 2014, the ALP broadly supported the recommendation to legislate an
objective of the superannuation system. The shadow treasurer, Chris Bowen,
noted during a doorstop interview at the time:
I will give you some brief comments in response to the
release of the Murray report. Obviously we welcome the release of this report.
It's a substantial and considered report.
... It is important that as far as possible, key matters of
financial regulation be bipartisan.
... I know that the Treasurer has said he will be consulting
widely between now and March with the industry and with consumers. I welcome
that. The Opposition is also obviously planning to consult about the
recommendations of the Murray Inquiry. I particularly welcome the Murray
Inquiry's recommendation in relation to a bipartisan consensus on the
objectives of the superannuation system. Labor established superannuation,
universal superannuation to maximise the retirement incomes of Australians.
That is the objective of Australia's superannuation system and obviously if
that is to be formalised we will participate in that process.[36]
Other
parties/independents
It does not appear that any other non-government parties
or independents have expressed views about the proposals included in the Bill.
Position of
major interest groups
The position of most interest groups has been expressed on
numerous occasions over the past two years in response to the development of
the policy, including:
- submissions
on the FSI interim report[37]
- comments
on the FSI final report[38]
- submissions
on the March 2016 consultation paper[39]
- submissions
on draft legislation released in September 2016[40]
and
- submissions
to the Senate Standing Committee on Economics as part of the Committee’s review
of the Bill.[41]
In general, most major interest groups support the idea
that there should be a legislated objective for the superannuation system. That
said, there are some differences between major interest groups on how this
should be expressed.
The positions of various interest groups in relation to
the objective as specified in the Bill—‘to provide income in retirement to
substitute or supplement the Age Pension’—is outlined in Table 1.
Table 1: major interest group
view on the objective included in the Bill as put to the Senate Economics
Committee inquiry
|
Interest group
|
Supports defining an objective in legislation?
|
Alternative proposal quoted from submission
|
Selected quote from interest group
|
|
Association
of Superannuation Funds of Australia
|
Yes
|
‘The primary objective of the superannuation system is to
provide an adequate income to ensure all Australians achieve a comfortable
standard of living in retirement, supplementing or substituting the Age
Pension.’
(Submission 29, p. 4)
|
‘A concept of adequacy must be incorporated in the
objective. The core purpose of the superannuation system is to deliver income
which affords a dignified and comfortable standard of living in retirement,
over and above what the Age Pension delivers.’
(Submission 29, p. 2)
|
|
Australian
Chamber of Commerce and Industry
|
Yes
|
—
|
‘The Bill is simple and short. ... [The proposed objective]
puts a policy focus on people’s income streams rather than their accumulation
of the supporting assets themselves. The proposed primary objective is
supported.’
(Submission 33, p. 6)
|
|
Australian
Council of Social Services
|
Yes
|
‘The purpose of superannuation is to ensure that as many
people as possible can attain an adequate income in retirement, higher than
the Age Pension, through an acceptable level of compulsory saving, and fair
and sustainable taxation support.’
(Submission 35, p. 2)
|
‘Regrettably, the goal of superannuation has become
confused, with some viewing it (and associated tax subsidies) as a means to
accumulate wealth or pass it on to adult children. Others view superannuation
as an alternative to public funding of essential health and aged care
services. We do not support these views: superannuation, along with the Age
Pension, should ensure that everyone has a minimum adequate income in
retirement.’
(Submission 35, p. 1)
|
|
Australian
Council of Trade Unions
|
Yes
|
‘Superannuation, together with an adequate Aged Pension,
should provide for an Australian worker to maintain his or her standard of
living when he or she retires from the paid workforce or reaches the national
retirement age.’
(Submission 12, Attachment 1, p. 1)
|
‘[The nominated objective] at first instance is not
specific enough in that it deals only with the issue of interaction of
superannuation with the Aged Pension system in a superficial manner and
secondly, sets no aspiration or criteria by which the system might be able to
be judged.’
(Submission 12, Attachment 1, p. 10)
|
|
Australian
Institute of Superannuation Trustees (AIST)
|
Yes
|
‘To provide an adequate income to ensure all Australians
achieve a comfortable standard of living in retirement, supplementing or
substituting the age pension.’
(Submission 31, p. 2)
|
‘AIST strongly supports a legislated Objective of
superannuation (the “Objective”) but in a form and structure that will
genuinely guide the development of future superannuation and retirement
incomes policy: The version proposed in the Bill does not do this.’
(Submission 31, p. 1)
|
|
Chartered
Accountants Australia New Zealand
|
No comment
|
‘To create a national culture of saving and self
sufficiency in retirement.’
(Submission 19, p. 1)
|
‘Chartered Accountants ANZ does not agree that the primary
purpose of superannuation [as proposed in the Bill].’
‘We believe that the purpose of superannuation should
focus on the individual and their family’s needs before the Federal
Government’s financial situation.’
(Submission 19, p. 1)
|
|
Council
on the Ageing (Australia) (COTA)
|
Yes
|
—
|
‘COTA’s own view has developed since April 2016 following
discussion with a wide range of stakeholders and consideration of the debate.
COTA is now prepared to support the objective proposed by the FSI and adopted
by the Government.’
(Submission 42, p. 4)
|
|
Financial
Services Council (FSC)
|
Yes
|
‘To deliver dignity and independence for all Australians
in retirement by providing replacement income that is adequate to provide a
comfortable standard of living.’
(Submission 28, p. 2)
|
‘The FSC supports enacting a clear and concise statement
of the objective of superannuation.’
‘The FSC does not support the proposed objective in the
Bill as it emphasises whether or not a superannuation consumer is reliant on
the age pension.’
(Submission 28, p. 1)
|
|
Grattan
Institute
|
Yes
|
—
|
‘The superannuation system should not aim to fulfil every
objective of the broader retirement incomes system.’
‘[T]he view that superannuation’s objective is to provide
an adequate, or ‘comfortable’ retirement income for all Australians ... could
lead policymakers to force people to save under the Super Guarantee so that
their incomes while working are less than their incomes in retirement.’
(Submission 34, p. 1)
|
|
Industry
Super Australia
|
Yes
|
‘The objective of the superannuation system is to deliver
financial security and dignity in retirement to all Australians by providing
regular income that is, when combined with any public pension and other
sources of income, sufficient to secure a comfortable standard of living by
reasonable community standards.’
(Submission 13, p. 2)
|
‘Seeking to enshrine the objective of superannuation in
law as a means to evaluate the merits of competing proposals affecting our
retirement income system is sound, but the primary objective for
superannuation proposed in the Bill is fatally flawed.’
‘Among other reasons, the primary objective is flawed
because it would not provide a basis for comparing and evaluating future
superannuation policy proposals.’
((Submission 13, p. 1)
|
|
Institute
of Public Affairs
|
No comment
|
‘The objective of the superannuation system is to ensure
that as many Australians as possible take personal responsibility for funding
their own retirement. The Age Pension provides a safety net for those who are
unable to provide for themselves in retirement’.
(Submission 21, p. 9)
|
‘It is of the gravest concern that maximising personal
income in retirement is not deemed to be the primary, or even a subsidiary,
objective of the system.’
‘Given that a bad objective is worse than no objective at
all, the second-best option would be to make no change.’
(Submission 21, p. 9)
|
|
Law
Council of Australia (LCA)
|
No comment
|
Be amended to include ‘providing disablement benefits for
sick or injured members or death benefits to the dependants of deceased
members’ (although the LCA noted this could be ‘addressed in the subsidiary
objectives’).
(Submission 23, pp. 1–2)
|
‘...we note that the subsidiary objectives that are proposed
in the Explanatory Memorandum are not necessarily compatible with the primary
objective. For example, smoothing consumption over the course of a person's
lifetime is not obviously compatible with the provision of income in
retirement to substitute or supplement the age pension. Further, if the
subsidiary objectives include providing death benefits and disability
benefits, among other things, these might also be incompatible with the
primary objective.’ (Submission 23, p. 2)
|
|
SMSF
Association
|
Yes
|
‘To provide income in retirement for a self-sufficient
retirement or to supplement the age pension.’
(Submission 26, p. 3)
|
‘The Association has been a vocal supporter of the
Financial System Inquiry’s recommendation to enshrine the objective of
superannuation in legislation and we are pleased that the Government has
proceeded with this important step that will help provide stability for the
superannuation system.’
(Submission 26, p. 1)
|
|
SMSF
Owners’ Alliance
|
Yes
|
‘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.’
(Submission 7, p. 2)
|
‘The stated objective ... is inadequate and lacks ambition.’
‘It is meaningless to set an objective for superannuation
that does not include even a very general performance goal.’
(Submission 7, p. 1)
|
|
Tax
Institute
|
Yes
|
‘[T]o provide income in retirement and that the primary
objective should endorse all three long-held pillars of income in retirement
- the Age Pension, compulsory superannuation savings, and voluntary
superannuation savings.’
(Submission 10, p. 1)
|
‘Should the primary objective remain as it currently
stands linked solely to the Age Pension, the Bill should not pass.’
(Submission 10, p. 1)
|
|
Women
in Super
|
Yes
|
—
|
‘Women in Super does not support the proposed Primary
Objective of Superannuation. Women in Super believes the objective should
specifically mention men and women and include an aspiration regarding
improving income in retirement.’
(Submission 41, p. 2)
|
Source: Senate Standing Committees on Economics, ‘Superannuation
(Objective) Bill 2016: submissions: submissions received by the Committee’,
Senate Standing Committee on Economics website.
Financial
implications
The Explanatory Memorandum notes that the measure proposed
by the Bill does not have a financial impact.[42]
Statement of Compatibility with Human Rights
As required under Part 3 of the Human Rights (Parliamentary
Scrutiny) Act 2011 (Cth), the Government has assessed the Bill’s
compatibility with the human rights and freedoms recognised or declared in the
international instruments listed in section 3 of that Act. The Government
considers that the Bill is compatible.[43]
Key issues
and provisions
The Explanatory Memorandum contains a summary of each of
the items included in the Bill and readers are referred to pages 25–32 for an
explanation of each provision. Some of the issues related to these provisions are
examined below.
Why have a
legislated objective for superannuation?
The FSI recommendation to legislate a clear objective for
the superannuation system was largely based around concerns of instability in
superannuation policy settings undermining confidence in the system as well as
issues relating to the sustainability of measures that supported the system
(such as tax concessions). The FSI final report noted:
The absence of agreed objectives contributes to short-term ad
hoc policy making. It adds complexity, imposes unnecessary costs on
superannuation funds and their members, and undermines long-term confidence in
the system.
... The lack of an agreed policy framework also increases the
cost of the superannuation system to Government because tax concessions are not
being efficiently targeted at meeting the system’s objectives.[44]
The ALP’s 2013 policy announcements for a ‘Charter of
Superannuation Adequacy and Sustainability’ overseen by a ‘Council of
Superannuation Guardians’ were largely driven by similar concerns.
As noted previously, most superannuation industry groups
support the Government’s broad objective of legislating an objective for the
superannuation system. The reasons given by groups are numerous, but include
issues such as:
- providing
for policy stability
- providing
a basis to assess the need and extent of policy change and
- contributing
to long-term confidence in the system.[45]
What should
the primary objective be?
Clauses 4 and 5 define the term ‘primary
objective of the superannuation system’ as:
To provide income in retirement to substitute or supplement
the age pension.
There are a number of different views as to how the
objective for the superannuation system should be worded. These differences
largely relate to the level of ambition of the system and the degree of
specificity in outlining the objective.
A typology of alternate formulations of the objective preferred
by major interest groups, as assessed by the Parliamentary Library, is set out
in Figure 4 below.
Figure 5: typology of the ambition and specificity of
selected proposed objectives for the superannuation system
Note: The Institute of Public Affairs’ and the Chartered
Accountants Australia and New Zealand’s alternative proposals for the objective
have been excluded from this figure. Each proposes a relatively ambitious
objective that is framed around self-sufficiency and personal responsibility.
Source: Parliamentary Library analysis.
In broad terms, the Government’s proposed objective has a
lower level of ambition and a low degree of specificity relative to other
formulations of the objective.
Some groups, such as the SMSF Owners’ Alliance, consider
the proposed objective as ‘meaningless’, noting:
Defining superannuation as merely to “substitute or
supplement” the age pension sets no benchmark for the performance of
superannuation. It is meaningless to set an objective for superannuation that
does not include even a very general performance goal.[46]
Those major interest groups supporting the Government’s
proposed objective, including the Grattan Institute, and the Council on the
Ageing (Australia), largely do so because they consider that the more ambitious
and specific formulations of the objective may lead to higher levels of tax
concessions or other forms of support than may be required. In its submission
to the Senate Economics Committee inquiry into the Bill, the Grattan Institute
note:
The Committee should reject the view that superannuation’s
objective is to provide an adequate, or ‘comfortable’ retirement income for all
Australians. This view could lead policymakers to force people to save under
the Super Guarantee so that their incomes while working are less than their
incomes in retirement.
This view misleads, because the Age Pension and Rent
Assistance are better tools than super to provide an adequate retirement for
those on low incomes. And this view would support maintaining generous tax
breaks, at substantial budgetary cost, for those whose retirement will be
comfortable without them.[47]
Subsidiary
objectives
One difference between the Bill and the draft legislation
is that the draft legislation was silent on any provisions relating to
subsidiary objectives.[48]
Clause 5 of the Bill includes a provision that will
allow the ‘subsidiary objectives of the superannuation system’ to be prescribed
in regulations. The Explanatory Memorandum notes that the proposed subsidiary
objectives are to:
- facilitate
consumption smoothing over the course of an individual’s life
- manage
risks in retirement
- be
invested in the best interests of superannuation fund members
- alleviate
fiscal pressures on Government from the retirement income system and
- be
simple, efficient and provide safeguards.[49]
These proposed subsidiary objectives largely replicate
those proposed in the FSI final report, with the exception that the FSI
proposal for a subsidiary objective ‘be fully funded from savings’ (which would
align with the Institute of Public Affairs’ proposed primary objective) is not
included (see Table 1).
There are a broad range of views about the appropriateness
of these nominated subsidiary objectives and many groups have proposed others.
These include areas such as:
- adequacy
of savings for women[50]
- best
interests of members, investment, national savings and financial stability[51]
- provision
of insurance.[52]
Objective
does not override other laws
The Bill does not have any effect on the interpretation of
any other laws. This is made clear in subclause 5(3), which has the
effect that the primary and secondary objectives do not impact on the meaning
of other laws.
Preparation
of statements of compatibility
Clause 6 of the Bill introduces requirements for a
‘statement of compatibility’ to be prepared by a Member of Parliament who
introduces a Bill into the Parliament relating to superannuation. Such a
statement must include an assessment of whether the Bill is compatible with the
primary and subsidiary objectives of the superannuation system, as set out in
the Bill and accompanying regulations.
The idea of a requirement for a ‘statement of compatibility’
to be prepared alongside legislation to the Parliament about the impacts of a
proposed law on a specific policy area was first introduced in 2011. At this
time, the Human
Rights (Parliamentary Scrutiny) Act 2011 required statement of
compatibility must include an assessment of whether the Bill is compatible with
human rights. Clauses 6 and 7 of the Bill are largely modelled on these
requirements.[53]
As part of the broader package of measures that were legislated
in November 2016, the Government included in the Explanatory Memorandum for the
Bills an example of what such a statement of compatibility would cover, based
on the proposed primary objective and subsidiary objectives.[54]
The statement is similar in form to a typical statement of compatibility with
human rights. The conclusion made by the Government in this statement is
reproduced below:
The measures in the [Treasury Laws Amendment (Fair and
Sustainable Superannuation) Bill 2016] improve the sustainability, flexibility
and integrity of the superannuation system. The measures better target
superannuation tax concessions to those who need them most, enhance flexibility
and choice in saving for retirement and managing income in retirement, and
improve the integrity of the superannuation system ... This is consistent with
the primary objective of the superannuation system, which is to provide income
in retirement to substitute or supplement the age pension.
The measures are also compatible with the subsidiary
objectives of the superannuation system. The measures increase the ability of
many people to facilitate consumption smoothing over their lifetime and improve
their superannuation savings. The measures as a whole also alleviate fiscal
pressures on government from the retirement income system by better targeting
the tax concessions and increasing superannuation savings which ultimately
reduce reliance on the age pension, though a number of the flexibility measures
do have a fiscal cost. Removing barriers to innovative new products will also
increase the ability of members to manage risks in retirement. While a number
of the measures do involve complexity, this arises from the need to target
assistance and tax concessions, to manage fiscal costs. The measures also do
not raise concerns in relation to being inconsistent with the best interest of
members.[55]
The wording adopted for the primary and subsidiary
objectives will form the basis of an assessment of compatibility and provide another
opportunity for the Government to argue about the merits of a superannuation
policy change. However, it could be that increasing or decreasing a key
parameter impacting on the system, such as a tax concession or mandatory
contribution percentage, could both be found to be compatible with the
objective. For example, Industry Super Australia noted in its submission to the
Senate Economics Committee’s inquiry into the Bill:
Among other reasons, the primary objective is flawed because
it would not provide a basis for comparing and evaluating future superannuation
policy proposals. For example, the proposed objective would provide no guidance
in relation to competing proposals to increase—or to decrease—the
Superannuation Guarantee: both proposals would be consistent with the proposed
objective, because superannuation would continue to provide income in
retirement to supplement or substitute the Age Pension. Eliminating all tax
concessions, or increasing the tax concessions in superannuation, would both be
consistent with the objective.[56]
Concluding comments
The proposed objective for the superannuation system—to provide
income in retirement to substitute or supplement the age pension—is supported
by some groups but is generally seen by others to lack ambition or not be
sufficiently specific to provide guidance or assessment about future policy
decisions.
[1]. C
Bowen, ‘Second
reading speech: Superannuation (Objective) Bill 2016, Treasury Laws Amendment
(Fair and Sustainable Superannuation) Bill 2016, Superannuation (Excess
Transfer Balance Tax) Imposition Bill 2016’, House of Representatives, Debates,
22 November 2016, p. 3875.
[2]. Australia,
Senate, Journals,
18, 2016, 23 November 2016, pp. 572–575, 585.
[3]. Australia’s
Future Tax System Review, Australia’s
future tax system: the retirement income system: report on strategic issues,
(Henry Tax Review), Commonwealth of Australia, May 2009, p. 8.
[4]. Australian Bureau of Statistics
(ABS), Household
income and wealth, Australia, 2013–14, Superannuation of persons:
superannuation coverage, age and sex of persons, 2003–04 to 2013–14, data
cube 24: table 24.1, cat. no. 6523.0, ABS, Canberra, 2 August 2016.
[5]. Ibid.,
Superannuation account balances, persons with superannuation accounts, age
and sex, 2003–04 to 2013–14, table 24.3.
[6]. Ibid.
[7]. Treasury,
A
super charter: fewer changes, better outcomes: a report to the Treasurer and
Minister Assisting for Financial Services and Superannuation, Treasury,
Canberra, 2013, pp. 16–18.
[8]. K
Swoboda, Major
superannuation and retirement income changes in Australia: a chronology,
Research paper, 2013–14, Parliamentary Library, Canberra,
11 March 2014.
[9]. This
is based on the author’s assessment of measures included in the 55 Bills
introduced in the Parliament since November 2013 that included the subject
‘superannuation’.
[10]. Australian
Prudential Regulation Authority (APRA), Statistics:
quarterly superannuation performance, June 2016, APRA, Sydney, 23 August 2016,
p. 7.
[11]. R
Maddock, Superannuation
asset allocations and growth projections, Financial Services Council,
Monash University and Victoria University, 17 February 2014,
p. 6.
[12]. Australian
Bureau of Statistics (ABS), Household
income and wealth, Australia, 2013–14, Income, wealth and debt: low
economic resource households, household assets and liabilities, data cube
3, table 3.7, cat. no. 6523.0, ABS, Canberra,
4 September 2015.
[13]. Financial
System Inquiry (FSI), Financial
System Inquiry: interim report, Treasury, Canberra, July 2014,
p. 2–97.
[14]. FSI,
Financial
System Inquiry: final report, (Murray Report), Treasury, Canberra,
November 2014, p. 95.
[15]. Ibid.,
p. 96.
[16]. Ibid.,
p. 95.
[17]. Australian
Government, Improving
Australia’s financial system: Government response to the Financial System
Inquiry, Treasury, Canberra, 20 October 2015, p. 5.
[18]. Ibid.,
p. 12.
[19]. Treasury,
Objective
of superannuation: discussion paper, Treasury, Canberra,
9 March 2016.
[20]. K
O’Dwyer (Assistant Treasurer), Consultation
on the objective of superannuation, media release, 9 March 2016.
[21]. Ibid.,
p. 2.
[22]. Ibid.,
p. 3
[23]. Treasury,
‘Superannuation
reform package’, Treasury website, September 2016.
[24]. Superannuation
(Objective) Bill 2016: exposure draft, clause 5.
[25]. Senate
Standing Committee on Economics, ‘Superannuation
(Objective) Bill 2016: about this inquiry’, Senate Standing Committee on
Economics website, [November 2016].
[26]. Senate
Standing Committee on Economics, Superannuation
(Objective) Bill 2016 [Provisions], The Senate, 14 February 2017,
p. 19.
[27]. Ibid.,
p. 23.
[28]. Senate
Standing Committee for the Scrutiny of Bills, Alert
digest, 9, 2016, The Senate, 23 November 2016, p. 12.
[29]. Parliamentary
Joint Committee on Human Rights, Human
rights scrutiny report, Report, 9, 2016, 22 November 2016, p. 39.
[30]. W
Swan (Treasurer) and B Shorten (Minister for Financial Services and
Superannuation), Reforms
to make the superannuation system fairer, joint media release,
5 April 2013.
[31]. Treasury,
Charter
of Superannuation Adequacy and Sustainability and Council of Superannuation
Custodians, Discussion paper, 9 May 2013.
[32]. Ibid.
[33]. C
Bowen (Treasurer), Transcript
of speech to the Financial Services Council: Sydney, 23 August
2013, pp. 6–7.
[34]. C
Bowen, ‘Second
reading speech: Superannuation (Objective) Bill 2016, Treasury Laws Amendment
(Fair and Sustainable Superannuation) Bill 2016, Superannuation (Excess
Transfer Balance Tax) Imposition Bill 2016’, House of Representatives, Debates,
22 November 2016, p. 3875.
[35]. C
Bowen, Address
to the Committee for Sustainable Retirement Incomes: speech, Canberra,
3 June 2016.
[36]. C
Bowen, Transcript
of doorstop interview: Sydney Commonwealth Parliamentary Offices: 7 December
2014: Financial Systems Inquiry; Government implosion over PM’s PPL signature
policy; MySuper, 7 December 2014.
[37]. Submissions
on the FSI interim report: FSI, ‘Consultation
and submissions: second round submissions’, FSI website, [2014].
[38]. Comments
and statements by major interest groups are not consolidated and were generally
made via media release or as statements in media reports at the time. See for
example, Association of Superannuation Funds of Australia, Government
response to FSI: considered approach required, media release,
20 October 2015 and J Mather, ‘Super
is not for “excessive wealth”’, Australian Financial Review,
22 October 2015, p. 10.
[39]. Treasury,
‘Objective
of superannuation: submissions’, Treasury website, 2016.
[40]. Treasury,
‘Superannuation
reform package: published responses’, Treasury website.
[41]. Senate
Standing Committees on Economics, ‘Superannuation
(Objective) Bill 2016: submissions: submissions received by the Committee’,
Senate Standing Committee on Economics website.
[42]. Explanatory
Memorandum, Superannuation (Objective) Bill 2016, p. 11.
[43]. The
Statement of Compatibility with Human Rights can be found at pages 33–34 of the
Explanatory Memorandum to the Bill.
[44]. FSI,
Financial
System Inquiry: final report, November 2014, pp. 96–97.
[45]. R
Chomik and J Piggott, ‘Superannuation
and retirement incomes’, Jassa, no. 1, 2015, pp. 43–49.
[46]. SMSF
Owners’ Alliance, Submission
to the Senate Standing Committees on Economics, Inquiry into the Superannuation
(Objective) Bill 2016, submission no. 7, 6 December 2016,
p. 1.
[47]. Grattan
Institute, Submission
to the Senate Standing Committees on Economics, Inquiry into the
Superannuation (Objective) Bill 2016, submission no. 34,
23 December 2016, p. 1.
[48]. Superannuation
(Objective) Bill 2016: exposure draft, clause 5.
[49]. Explanatory
Memorandum, op. cit., p. 27.
[50]. Women
in Super, Submission
to the Senate Standing Committees on Economics, Inquiry into the
Superannuation (Objective) Bill 2016, submission no. 41,
31 December 2016, p. 8.
[51]. Industry
Super Australia, Submission to the Senate Standing Committees on Economics, Inquiry
into the Superannuation (Objective) Bill 2016, submission no. 13,
4 April 2016, Attachment 1,
p. 17.
[52]. Mercer,
Submission
to the Senate Standing Committees on Economics, Inquiry into the Superannuation
(Objective) Bill 2016, submission no. 20, 21 December 2016,
p. 8.
[53]. Part
3, Human Rights
(Parliamentary Scrutiny) Act 2011.
[54]. Explanatory
Memorandum, op. cit., pp. 263–269.
[55]. Ibid.,
pp. 267–268.
[56]. Industry
Super Australia, Submission
to the Senate Standing Committees on Economics, Inquiry into the Superannuation
(Objective) Bill 2016, submission no. 13, 16 December 2016,
p. 1.
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