Chapter 1Introduction
Referral of the inquiry
1.1The Superannuation (Objective) Bill 2023 (the bill) was introduced in the House of Representatives and read a first and second time on 16 November 2023.
1.2On 30 November 2023, the Senate referred the bill’s provisions to the Senate Economics Legislation Committee (the committee) for inquiry and report by 28 March 2024.
Purpose of the bill
1.3The bill proposes a new Act relating to the objective of superannuation, and for related purposes, titled the Superannuation (Objective) Act 2023 (the Act).
1.4The Act would define the objective of superannuation in the following terms: ‘to preserve savings to deliver income for a dignified retirement, alongside government support, in an equitable and sustainable way’.
1.5The Act would require Members of Parliament who introduce a bill which proposes changes to the superannuation system to provide a statement of compatibility to the House of Parliament that explains how the bill is compatible with the legislated objective of superannuation. The Act would also require makers of regulations related to superannuation to publish a statement of compatibility which explains how the regulations are compatible with the legislated objective of superannuation.
1.6A statement of compatibility with the objective of superannuation would not be required if the bill or regulation does not deal with matters relating to superannuation, or if an exemption applies under current legislation. Where a statement of compatibility is not required because an exception applies under the Act, the explanatory statement should contain a reference to the applicable exemption or exemptions.
1.7If passed, the bill would fully implement the Government’s commitment to legislate the objective of superannuation, announced on 20 February 2023.
Provisions of the bill
1.8The bill contains nine clauses. In particular:
Clause 2 noted the measures proposed in the bill would come into effect 28 days after Royal Assent to the Act;
Clause 4 details the definitions of the words ‘excepted matter’ in terms of legislation regarding superannuation and specific superannuation schemes; and the ‘objective of superannuation’, ‘rule-maker’ and ‘statement of compatibility’, as they relate to later clauses;
Clause 5 defines the objective of superannuation and the laws it does not affect;
Clause 6 lists the requirements and contents for ‘Statements of compatibility’ in bills relating to superannuation, exceptions and applications;
Clause 7 details the requirements and contents for regulations relating to superannuation, exceptions and applications;
Clause 8 acknowledges that the Act would not create enforceable rights or duties, and statements of compatibility prepared under the Act are not binding on any court or tribunal; and
Clause 9 outlines the Governor-General’s role in prescribing matters to give effect to the Act.
Background
1.9Australia’s retirement income system is often described as consisting of three pillars that together support Australian retirements: superannuation, the Age Pension and private savings.
1.10More than 15 million Australians have a superannuation account and the system manages more than $3.5 trillion in Australians’ retirement savings. Currently, there are over five million Australians at or approaching retirement age.
1.11Despite the growing importance of the superannuation system, both for the economy and for individuals’ retirements, there has not been a broadly agreed purpose or objective for the system set in legislation.
1.12The bill’s Explanatory Memorandum provides the following rationale for the bill:
Legislating an objective of superannuation will provide stability and confidence to policy-makers, regulators, industry, and the community, that changes to superannuation policy will be aligned with the purpose of the superannuation system. It will also ensure members and funds have more certainty over future changes to the superannuation system throughout both the accumulation and retirement phases.
1.13In the second reading speech of the bill, the Hon. Dr Jim Chalmers MP stated:
Policymakers will be held to account when considering changes that affect Australians' retirement savings… with more Australians approaching retirement age than at any time in our history, delivering better retirement incomes has never been more important.
1.14The objective also includes the key principles which policy-makers should consider in delivering on this purpose, in that the system should operate in an equitable and sustainable way and recognise the interaction of superannuation with forms of government support, particularly the Age Pension.
1.15The key concepts within the objective are not intended to be considered in isolation. Policy makers will need to consider and make informed decisions on the trade-offs that may be required between the different concepts to ensure that superannuation policy delivers on the broader objective in a cohesive way.
Recent consideration of the objective of superannuation
1.16Three key documents have informed this bill, explored further below: the Department of the Treasury’s 2014 Financial System Inquiry (FSI) and the 2020 Retirement Income Review (RIR); and the Turnbull Government’s proposed Superannuation (Objective) Bill 2016 (2016 bill).
1.17The wording of the objective in the current bill builds on the recommendations of the FSI and the RIR by integrating concepts of income in retirement, providing a minimum standard of living in retirement; and the interaction with government support, equity and sustainability.
1.18The Morrison Government’s policy of allowing individuals to make withdrawals from their superannuation during the COVID-19 pandemic also contributed to new calls for the legislation of an objective for superannuation.
2014 Financial System Inquiry
1.19The FSI recommended that the government legislate an objective for superannuation, partly in response to concerns over several changes that previous governments had made to superannuation legislation.
1.20Australia’s ageing population places increased financial pressure on the government in continuing to fund the Age Pension. The FSI report emphasised that ‘a well-functioning superannuation system will be important in alleviating these pressures and ensuring good outcomes for retirees’.
1.21The FSI also commented on the inconsistencies inherent in the superannuation system:
The superannuation system does not have a consistent set of policies that work towards common objectives… 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.
1.22Through legislating the objective of superannuation, the FSI recommended that the Government:
… seek broad political agreement for, and enshrine in legislation, the objectives of the superannuation system and report publicly on how policy proposals are consistent with achieving these objectives over the long term.
2016 bill
1.23Following Recommendation 9 of the FSI, the Turnbull government introduced the 2016 bill. It proposed to:
define the ‘primary objective’ of the superannuation system as ‘to provide income in retirement to substitute or supplement the age pension’;
allow ‘subsidiary objectives of the superannuation system’ to be prescribed in regulations; and
impose requirements to prepare a statement of compatibility that assessed whether a Bill or regulations were compatible with the primary and subsidiary objectives of the superannuation system.
1.24The 2016 bill was part of the Turnbull government's superannuation reform package announced in the May 2016–17 Budget. It was referred to the Senate Economics Legislation Committee for review and received 43 public submissions.
1.25Stakeholders were generally in favour of legislating an objective for superannuation. Concerns included the wording of the objective, definitions of key terms and it being ‘too vague’; the short timeframe provided for consideration of the draft legislation, particularly related to tax measures; the lack of penalties for non-compliance; a lack of monitoring and review instruments; and questioning the utility of legislating an objective for superannuation.
1.26Further disagreement concerned leaving the subsidiary objectives to regulation as stakeholders believed this could open the way to frequent changes which could undermine the purpose of legislating an objective for superannuation.
1.27In their dissenting report, Australian Labor Party Senators highlighted the lack of bipartisanship support for the 2016 bill and the need for more stakeholder consultation to secure consensus support, as recommended by the FSI.
1.28The 2016 bill lapsed in 2019 at the end of the 45th Parliament.
The 2020 Retirement Income Review
1.29The RIR was commissioned by the then Treasurer in September 2019, and the independent panel reported its findings in 2020. The RIR broadly agreed with the FSI’s findings that a clear objective for the retirement income system was required to:
anchor the policy direction of the system;
ensure community understanding of the role and purpose of the system; and
provide a framework for assessing the system’s performance.
1.30The RIR proposed a broader objective for the whole retirement income system (encompassing superannuation, the age pension and private savings), arguing that all parts of the retirement income system ‘should deliver adequate standards of living in retirement in an equitable, sustainable and cohesive way.’
1.31The RIR expanded on this objective with nine sub-elements, including that the retirement income system as a whole should ensure a minimum standard of living for retirees with limited financial means that is consistent with prevailing community standards; facilitate people to reasonably maintain their standard of living in retirement; and should target Government support to those in need.
Consultation
1.32The Department of the Treasury released a consultation paper on 20 February 2023 and consultation closed on 31 March 2023. The 153 public submissions were published online. Subsequently, consultation on the draft legislation and explanatory memorandum was conducted in September 2023, and the 42 public submissions were published online.
Statement of Compatibility with Human Rights
1.33The Parliamentary Joint Committee on Human Rights assessed the bill’s compatibility with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 (Cth) and recorded ‘No comment’.
Financial impact
1.34There are no financial implications in relation to this bill.
Regulatory impact
1.35The explanatory memorandum offered no discussion on the regulatory impact of the bill, and there is no Regulatory Impact Statement.
Conduct of the inquiry
1.36The committee advertised the inquiry on its website and wrote to relevant stakeholders and interested parties, inviting written submissions by 9 February 2024. The committee received 28 submissions (listed at Appendix 1), the majority from superannuation and finance companies, NGOs and peak bodies.
1.37The committee held a public hearing for the inquiry on Friday 1 March 2024 at Parliament House. During the hearing, the attending committee members heard from 23 witnesses from superannuation and finance organisations, unions, academia and government. The names of witnesses who appeared at the hearing can be found at Appendix 2.
Acknowledgements
1.38The committee thanks all individuals and organisations who assisted with the inquiry, especially those who made written submissions and participated in the public hearing.
Notes on references
1.39In this report, references to the Committee Hansard are to the Proof Hansard and page numbers may vary between Proof and Official Hansard transcripts.