Chapter 2Views on the bill
2.1This chapter examines the views held by stakeholders on the provisions of the Superannuation (Objective) Bill 2023. It provides an account of the key issues identified by stakeholders and concludes with the committee’s views and recommendation.
Views of stakeholders
2.2More than half of the submitters to the inquiry supported the intent behind the bill and supported the legislation passing as a priority.
2.3Supporters of the bill argued legislating an objective of superannuation would provide stability and confidence to policy-makers, regulators, industry, and the community; and ensure that any changes to superannuation legislation will be aligned with the purpose of the superannuation system.
2.4Many stakeholders strongly supported the bill and the idea of legislating an objective for superannuation. For example, Super Members Council submitted that:
A legislated objective of super is in the best interests of super members because if implemented effectively it will guide policy decisions that improve their retirement outcomes, while avoiding detrimental policies that undermine retirement incomes and increase reliance on the taxpayer-funded support payments.
2.5Aware Super stated in its submission that ‘… Passage of the Superannuation (Objective) Bill 2023 will support the long-term effectiveness and stability of the system and contribute to public trust and confidence.’[2] Similarly, the United Workers Union (UWU) commented:
Superannuation is critically important to millions of people, and to the Australian economy. Its role in ensuring that workers can retire from the workforce and live with dignity as they age is indisputable and will grow. It is undesirable that a system so critical to the health and wellbeing of Australians and Australia, can continue to operate without a stated objective. This oversight was first recognised a decade ago, and it must be remedied.
2.6AustralianSuper noted:
Superannuation will significantly contribute towards intergenerational fairness, ensuring younger people do not experience higher tax obligations to fund the Age Pension.
2.7The UWU commented on the proposed objective, stating:
The Proposed Objective encapsulates the key elements to the superannuation system’s success and its desired characteristics and accordingly, will help dictate future legislation in a manner that can only be of benefit to the millions of workers who depend upon it. The UWU urges the passing of the Proposed Act, which will position the superannuation system well for future generations.
2.8The Australian Council of Trade Unions (ACTU) commended the development of an objective for superannuation, stating:
The union movement believes an objective of superannuation is critical to ensure that the fundamental principles of the system are protected and advanced, and thereby, that the system delivers for working people.
Additions and Amendments to the bill
2.9While most stakeholders supported the bill, some considered that amendments should be made to the bill or the explanatory memorandum. Stakeholders expressed views in four key areas, explored below:
the purpose and scope of the bill;
definitions and terminology used in the bill;
the impacts of superannuation legislation on marginal and vulnerable populations; and
the lack of enforceability of the bill’s statement of compatibility.
Purpose and scope
2.10Several stakeholders submitted that an objective for the broader retirement savings system should be developed before an objective solely for superannuation because aspects of the retirement system should be reviewed and organised together rather than individually.
2.11Several submitters suggested that an objective adds little value in protecting superannuation from future legislative changes. For example, the Grattan Institute considered that the bill overstates the importance of super in the retirement system when Australians draw on several other income options such as the Age Pension, Rent Assistance, social housing, and health and pharmaceutical subsidies.
2.12The Institute of Financial Professionals Australia considered that legislating an objective of superannuation could add to the complexity of superannuation legislation, decreasing consumer understanding and confidence in the scheme.
2.13In contrast, MrJosephMitchell of the ACTU noted during the public hearing that:
The objective of superannuation ensures that there will be a legislated role and a clear understanding of what Australians expect their superannuation to do when it comes to supplementing their income in retirement…People understand that we should have an equal retirement, that the retirement income should be supporting in a suitable way and the objective as written by the government will address each of these common cultural understandings of superannuation and ensure that there aren’t fights on the edges which would undermine our retirement income system.
2.14During the public hearing, Mr Luke Spear, Assistant Secretary for Member Outcomes and Governance at the Department of the Treasury (Treasury), addressed the purpose and scope of the proposed bill, stating:
The first point to make is that the election commitment was around the objective of the superannuation system – not the whole retirement system… The other point is that this bill doesn’t preclude the government or any government setting up or submitting additional legislation to set up a broader objective for the entire retirement income system, so nothing in this bill precludes that from occurring in the future.
Definitions and terminology
2.15Clause 5 of the bill proposes that the objective of superannuation should be ‘to preserve savings to deliver income for a dignified retirement, alongside government support, in an equitable and sustainable way’. Several stakeholders expressed views about particular terms used in the objective.
Preserve
2.16The proposed superannuation objective bill aims to ensure that superannuation must be preserved and used as a source of income during retirement. Some stakeholders expressed a view that use of the phrase ‘preserve savings’ when describing the saving of income for superannuation was not accurate. For instance, Mr Richard Webb from CPA Australia described ‘preserve savings’ as ‘static wording that really only suggests that the bare minimum should be going into superannuation’. National Seniors Australia submitted that the phrase does not recognise ‘accumulation as a fundamental part of superannuation’.
2.17The Explanatory Memorandum (EM) states that ‘“preserve savings” means superannuation savings should not be accessed for purposes outside of retirement income, apart from in exceptional circumstances’. The EM clarifies this statement further by explaining that:
This recognises that superannuation funds exists first and foremost as a savings vehicle to provide income in retirement and is not a pool of individuals’ savings to meet other lifetime costs prior to retirement. When savings are preserved, the compound returns on superannuation helps individuals’ savings to grow over a long period of time and enhance financial security in retirement.
2.18Some submitters were of the view that individuals should be able to access their superannuation as a lump sum when necessary, for instance, to access goods and services, pay medical bills, reduce HECS/HELP debt or pay down a mortgage as needed.
2.19The committee also heard of the detrimental effects of early release of superannuation during the COVID-19 pandemic where eligible Australians were permitted to withdraw up to $20,000 from their superannuation accounts, resulting in a total withdrawal of $38 billion. Super Members Council financial models have shown that:
‘An individual aged 30 (the median age of withdrawers) who withdrew the full $20,000 (as around half of people did) could be expected to retire with around $92,000 less in superannuation’.
‘Approximately 724,700 Australians effectively depleted their superannuation accounts’.
‘Of these, 45 percent were aged 25 and under, and 70 per cent were aged 30 and under’.
2.20Several submitters were of the view that use of the term ‘preserve’ in the definition was good, because early superannuation release schemes (including during the COVID-19 pandemic) should be discouraged as they disproportionately impact future super balances – particularly for women, low-income earners and First Nations people. This will mean such people will have to rely more on the Age Pension to fund their retirement.
2.21In the EM further information was provided about how existing early release arrangements would continue alongside the use of the term ‘preserve’ in the bill:
In exceptional and unforeseen circumstances, there is an existing legal framework for the early release of superannuation which allows preserved superannuation savings to be released as a last resort for reasons acute and rare incidents, such as permanent and temporary incapacity (including insurance payments), terminal medical conditions, compassionate grounds for specific expenses, and severe financial hardship. This principle is not changed by legislating the objective of superannuation – members will maintain recourse for early access for genuine and exceptional hardship.
Equitable
2.22Some submitters proposed the replacement or removal of the term ‘equitable’ due to the potential lack of clarity behind the meaning of the word in the context of superannuation. For example, Super Consumers Australia stated that ‘referring to equity in the objective of super is just window-dressing if it is not underpinned by accompanying reforms that drastically improve the equity of the super system’.
2.23Several witnesses suggested that the word equitable in the objective was inconsistent with the reality of who benefitted the most from superannuation tax concessions – despite the efforts of successive governments to use superannuation changes to increase the retirement incomes of vulnerable Australians. Super Consumers Australia asserted that people on low income, involuntary retirees, women, First Nations people and people with disability are offered little Government support via superannuation tax concessions.
2.24The Synod of Victoria and Tasmania in the Uniting Church stated in their submission that they support the inclusion of the word ‘equitable’ in the Superannuation (Objective) Bill as a report from the Department of the Treasury stated that ‘30% of the benefit (approximately $6 billion) went to people in the top-income decile’.,
2.25In contrast, proponents of the bill explained that inclusion of the term ‘equitable’ will bring focus to the issue of inequity in the current superannuation system, ensuring any changes to the system would need to consider the impacts on gender equality, First Nations people, low-income earners, early retirees and young people.
2.26The EM explained that:
‘Equitable’ does not mean that all individuals will receive the same benefit from the system, nor can superannuation address every perceived inequity. Differences in demographic factors and structural inequities can flow through to outcomes in the superannuation system.
Sustainable
2.27Some submitters queried the meaning of the word sustainable. For example, the Institute of Financial Professionals Australia suggested that the term, read alongside the EM, might be used by governments as a justification for changes to superannuation tax concession legislation, instead of for the benefit of super fund members.
2.28In contrast, Council of Australian Life Insurers submitted that the objective’s inclusion of ‘sustainability’ is important as most Australians only have life insurance through their superannuation and it is therefore a ‘critical financial safety net’.
2.29The EM explains the meaning of sustainable in the context of the superannuation objective:
The inclusion of “sustainable” in the objective does not change how superannuation funds invest, or what they can invest in. Trustees must continue to comply with existing legal obligations when formulating investment strategies, particularly acting in the best financial interests of members’.
Dignified
2.30Several stakeholders expressed the view that a ‘dignified retirement' means different things to different people depending on the lifestyle to which they are accustomed. Some submitters suggested removing the term ‘dignified’ or to replace it with something more appropriate, such as:
‘a retirement income that is adequate to ensure a life of dignity’;
‘a high-quality standard of living in retirement’, reflecting the ‘aspirational nature’ of Australia's retirement system; or
'in later life' should be used instead of the term 'retirement' as people over the preservation age of 60 may still be working or caring for others.
2.31The Grattan Institute argued that superannuation, as a contributory system, could not guarantee a dignified retirement because ‘for most low-income earners, if we’re trying to support a minimum standard of living, it’s really going to be done via the age pension, rent assistance and other supports’. Further, the word ‘dignified’ would be defined differently depending on who was in the government.
2.32Officials from the Treasury explained that ‘dignified’ was identified as a suitable adjective to describe retirement because:
‘Dignified’ is a very subjective construct, and it can potentially evolve over time. There were concerns about how if you put too much black-letter law and specificity around ‘dignified’, that would cause concerns or potentially unnecessarily bind future parliaments…We wanted it to be something that was easily understood by individuals and flexible over time.
Lack of enforceability of the bill’s statement of compatibility
2.33Stakeholders questioned the utility of a statement of compatibility when there are no penalties for failing to comply and that any statements of compatibility will not be binding on the government.
2.34Treasury representatives addressed this concern, acknowledging that future governments would not be bound by the legislation. Officials explained that:
What this bill is trying to do is to set a clear process for making ministers accountable for the new proposals that they put into the superannuation space…That is what is being required. There are no sticks – there are no fines and no-one’s going to jail over this bill. It’s actually just trying to improve the accountability of new decisions in the sector.
Other stakeholder views
Home ownership in retirement
2.35Several witnesses underscored that home ownership is an important factor in reducing financial stress during retirement and contended that the objective consider housing more directly.
2.36Super Consumers Australia submitted that:
Super Consumers’ Retirement Savings targets found that a single person on a low income aged 65-69 who rents during retirement will need to save 110% more than homeowners, in order to maintain a similar standard of living.
2.37However, ACTU posed concerns about including the inclusion of housing in the objective of superannuation, stating:
Placing an objective for housing within the objective of the retirement income system would be a misplaced objective. People deserve affordable housing in their 20s and 30s and should be able to access their own home then… If it’s couched within retirement, then you’re saying the only time you should be able to afford a house is when you retire or that that’s the only time it’s relevant.
2.38The Association of Superannuation Funds of Australia Ltd (AFSA) shared concerns about including housing in the objective of superannuation, noting:
Our members have been very strongly supportive of the aspiration of people to have a safe and secure place to live but are also very strongly of the view that the superannuation system and early access is not a method to provide that. The parliament has other methods to affect housing affordability.
Interaction of the superannuation objective with other legislation
2.39The Inspector-General of Taxation and Taxation Ombudsman (IGTO) commented on the practical challenges that can arise when administrators are required to apply multiple pieces of legislation with separate objectives. The IGTO recognised that objectives can be useful but can create difficulties when these objectives appear to conflict. The submission examined 3 case studies relating to early release of superannuation, COVID-19 early funds release and the First Home Super Save Scheme. At the public hearing, Ms Payne explained that:
Most of the case study examples in our submission are around recognised exceptions to the objective but which parliament nonetheless endorsed. The key point that I would make is that they highlight the need to consider that an individual’s circumstances may be exceptional and this fact should not be ignored by those administering the objective.
2.40At the public hearing, representatives from the Treasury were asked to consider the evidence provided by the IGTO, particularly in relation to the intended interaction between the proposed superannuation objective and existing legislation. Mr Luke Spear explained that:
The bill as structured at the moment has no direct impact on any of the statute, legislation or regulations that are currently in force, on the obligations of our regulators or on how the trustees operate. There’s no change in some of the core concepts in superannuation at the moment. There’s no change to how BFID – or best financial interest duty – works. There’s no change to the sole-purpose test. All those structures are really unchanged. This bill is not about changing the current set of laws in force. It's actually about seeking to change or improve the decision-making process for policymakers.
2.41Mr Brian Healy, Director of the Superannuation Insurance and Governance Unit of the Treasury, explained that there is no explicit statement that the objective does not impact other legislation in the bill because it is not needed. The objective is an ‘overarching statement for government to consider when it is considering future changes to the superannuation system’ and the bill, if passed, would become a ‘standalone act’.
Committee View
2.42The committee notes the growing importance of the superannuation system in delivering security in retirement not enjoyed by previous generations, and notes work underway to further support the superannuation system.
2.43The committee is encouraged by the overwhelming amount of support for this bill and agrees with calls from inquiry participants for the parliament to pass the bill as a priority.
2.44The committee notes the multiple reviews and calls from the broad superannuation sector for many years for the parliament to legislate an Objective of Superannuation to address a gap in the common understanding of superannuation to deliver income in retirement.
2.45This gap is widely understood to have contributed to policy uncertainty including proposals and legislation for the use of superannuation for needs other than retirement income which have reduced Australia’s retirement savings and increased burdens on taxpayers.
2.46The Objective of Superannuation will importantly benefit and support superannuation members, and support policymakers to make decisions that deliver good outcomes for super members.
2.47The committee is strongly of the view that a legislated Objective of Superannuation will guide policymakers, the public and parliament about the importance of the superannuation system as a tool to preserve, grow and deliver income for retirement.
2.48The committee notes the high level of support for the Objective of Superannuation as defined in the bill, supported by the EM, to be ‘to preserve savings to deliver income for a dignified retirement, alongside government support in an equitable and sustainable way’.
2.49The committee agrees a legislated Objective of Superannuation will serve as an important accountability tool and ensure that short-sighted and detrimental policies are judged and considered by the parliament accordingly.
2.50The committee considers that the bill as drafted will create a clear framework for assessing future superannuation policy initiatives and support a superannuation system aimed at improving Australians’ retirement incomes.
2.51The committee recommends that the bill be passed.
Senator Jess Walsh
Chair
Labor Senator for Victoria