BILLS DIGEST NO. 69, 2016–17              2 March 2017

Superannuation (Objective) Bill 2016

Kai Swoboda
Economics Section

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:

•       Superannuation Industry (Supervision) Act 1993—establishes the broad framework for the regulation of superannuation funds and for payments into the system, investments and the requirements for eligibility for tax concessions

•       Superannuation Guarantee (Administration) Act 1992—establishes the framework for the superannuation guarantee system that provides for compulsory employer contributions in certain circumstances and

•       Income Tax Assessment Act 1997—includes many of the tax rules and rates relating to superannuation contributions, investments and benefits.

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.

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[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.