Introduction and overview of the bill
1.1
On 10 November 2016, the Senate referred the provisions of the
Superannuation (Objective) Bill 2016 (the bill) to the Senate Economics
Legislation Committee for inquiry and report by 14 February 2017.
1.2
The bill forms part of the government's superannuation reform package announced in the 2016–17 Budget
on 3 May 2016. The Senate also referred two other related bills to the
committee for separate inquiry and report, the Treasury
Laws Amendment (Fair and Sustainable Superannuation) Bill 2016 and the
Superannuation (Excess Transfer Balance Tax) Imposition Bill 2016. The report
on these bills was tabled in the Senate on 23 November 2016.[1]
1.3
The purpose of the Superannuation
(Objective) Bill 2016 is to 'legislate the primary objective and subsidiary
objectives of the superannuation system'.[2]
The Explanatory Memorandum (EM) states that the bill will provide a legislative
framework to guide the development of future superannuation policy by
protecting the primary objective of the superannuation system in legislation
and the subsidiary objectives of the superannuation system in regulation.[3]
1.4
The EM explains the
rationale behind legislating the objective of the superannuation system:
Together with the age pension and private savings, savings
from compulsory and voluntary contributions to superannuation are important
elements of the three‑pillars that underpin Australia’s retirement income
system. Superannuation is the second largest savings vehicle of the Australian
financial sector.
Given its importance, it is essential that future
superannuation policy is guided by clear objectives. To achieve this, the
Government will legislate the objective of the superannuation system in the
Objective Bill. Subsidiary objectives will be prescribed by regulation.
All future changes to superannuation policy will be assessed
for compatibility with the primary objective and subsidiary objectives of the
superannuation system.[4]
1.5
In his second
reading speech, the Treasurer, the Hon Scott Morrison MP, explained that the
Superannuation (Objective) Bill 2016 'enshrines in law that the objective of
the superannuation system is to provide income in retirement to substitute or
supplement the age pension'.[5]
Further, the Treasurer stated that the package of superannuation tax reforms 'implements
the government's election commitment to improve the fairness, sustainability, flexibility
and integrity of [the] superannuation system'.[6]
Conduct of the inquiry
1.6
The committee
advertised the inquiry on its website and wrote to relevant stakeholders and
interested parties inviting submissions by 31 December 2016. The committee
received 43 submissions, which are listed at Appendix 1.
1.7
The committee
held a public hearing on 6 February 2017 in Canberra. The names of the
witnesses who appeared at the hearing are listed at Appendix 2.
Background and
consultation
1.8
The November
2014, Financial System Inquiry (FSI) report, led by
Mr David Murray AO, noted that the Australian population is
ageing and this phenomenon is placing increased fiscal pressure on government
in terms of the provision of the age pension. The report emphasised that 'a
well-functioning superannuation system will be important in alleviating these
pressures and ensuring good outcomes for retirees'.[7]
1.9
However, the FSI report noted that currently:
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.[8]
1.10
The stated rationale for setting objectives included:
Clearly defining the objectives of the superannuation system
is a prerequisite to achieving the objectives efficiently. Consistent policy
settings across the accumulation and retirement phases would meet the
retirement income needs of Australians more efficiently and effectively. It
would also assist Government in implementing policy settings that are well
targeted and sustainable over the long term...
Objectives that guide policy making and frame community and
industry debate would help build confidence in the system by providing a
framework for considered and cohesive change.[9]
1.11
Accordingly, the report recommended enshrining an objective for the
superannuation system in legislation. The recommended action in this area was
to:
Set clear objectives for the superannuation system. A
clear statement of the system’s objectives is necessary to target policy
settings better and make them more stable. Clearly articulated objectives that
have broad community support would help to align policy settings, industry
initiatives and community expectations.[10]
[emphasis in original]
1.12
Specifically,
the FSI report recommended that the government should seek broad political agreement
on the primary objective of the superannuation system:
To provide income in retirement to substitute or supplement
the Age Pension.[11]
1.13
In addition
to the primary objective, the report stated that the government should seek
broad agreement on the subsidiary objectives of the superannuation system, as
set out in table 1.
1.14
According to
the report, the adoption of a single primary objective:
...prioritises the provision of retirement incomes and
precludes the pursuit of other objectives at the expense of retirement incomes.
It will help reorient the community mindset around superannuation, away from
account balances and towards the provision of retirement incomes.[12]
1.15
In addition to enshrining the objectives in legislation, more government
reporting was recommended:
Increased transparency around the objectives of policy
proposals would help frame parliamentary and public debate. This could be done
in regulatory impact statements at little cost. In addition, Government could
periodically assess the extent to which the superannuation system is meeting
its objectives.[13]
1.16
The
Government's response to the FSI report indicated that, by the end of 2016, it
would:
Develop and introduce legislation to enshrine the objective
of the superannuation system.[14]
Table 1: Subsidiary objectives of the superannuation
system[15]
| Subsidiary
objective |
Why the objective
is important |
|
Facilitate
consumption smoothing over the course of an individual’s life
|
Superannuation
is a vehicle for individuals to fund consumption in retirement largely from
working life income. The system should facilitate consumption smoothing while
providing choice and flexibility to meet individual needs and preferences.
|
|
Help people
manage financial risks in retirement
|
Risk
management is important as retirees generally have limited opportunities to
replenish losses. The retirement income system should help individuals manage
longevity risk, investment risk and inflation risk. Products with risk
pooling would help people to manage longevity risk efficiently.
|
|
Be fully
funded from savings
|
A fully funded
system, as opposed to an unfunded system, is important for sustainability and
stability. The system is designed to be predominantly funded by savings from
working life income and investment earnings, where superannuation fund
members in general have claims on all assets in the fund.
|
|
Be invested in
the best interests of superannuation fund members
|
Superannuation
funds are managed for the sole benefit of members, which means the investment
focus should be on maximising risk-adjusted returns, net of fees and taxes,
over the lifetime of a member. This results in auxiliary benefits to the
economy by creating a pool of savings to fund long-term investment.
|
|
Alleviate
fiscal pressures on Government from the retirement income system
|
Government’s
total contribution to the retirement income system, through both the Age
Pension and superannuation tax concessions, needs to be sustainable and
targeted. Higher private provisioning for retirement should reduce the burden
on public finances.
|
|
Be simple and
efficient, and provide safeguards
|
The system should
achieve its objectives at the minimum cost to individuals and taxpayers.
Complexity is less appropriate for a compulsory system, as it tends to add to
costs and to favour sophisticated and well-informed investors. Given the
compulsory nature of SG contributions, the system needs prudential oversight
and should provide good outcomes in both the accumulation and retirement
phases for disengaged fund members
|
1.17
Subsequently,
the Government announced the Superannuation Reform Package in the 2016–17
Budget. This package included
legislating an objective for the superannuation system.[16]
1.18
While adopting the FSI's primary objective in the bill, the EM notes that the Government
intends that the subsidiary objectives will be prescribed by regulation. The EM
states that the subsidiary objectives of the superannuation system are
to:
- facilitate
consumption smoothing[17]
over the course of an individual's life;
- mange
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.[18]
1.19
The bill also requires that a statement of compatibility with the
primary and subsidiary objectives of the superannuation system must be prepared
for a bill or regulation that relates to superannuation. However, if a statement
is not prepared for a bill or regulation relating to superannuation, this will
not affect its validity, operation or enforcement of the Act or regulation or
any other law of the Commonwealth.[19]
Consultation
1.20
Between 7
September and 23 October 2016, Treasury conducted a three-tranche consultation
process in relation to the draft legislation that constitutes the superannuation
reform package. Treasury received 156 submissions (60, 69 and 27 for tranches
1, 2, and 3 respectively). Three consultation roundtables were also held during
this period in Melbourne (5 October 2016), Sydney (6 October 2016) and Canberra
(18 October 2016).[20]
1.21
A number of stakeholders raised concerns about the short
timeframe provided for consideration of the draft legislation. These concerns
related to tax measures, rather than legislating the purpose of superannuation.
Treasury has also noted that:
Early passage of the legislation will provide individuals and
industry with certainty and the maximum amount of time to implement the changes
ahead of 1 July 2017.[21]
1.22
Legislation to implement other elements of the superannuation reform
package passed Parliament on 23 November 2016.[22]
Additionally, the Government acknowledged the importance of splitting the measures
to enable further consultation.
Financial impact
1.23
While the measure set out in the bill does not have a financial impact,
the Superannuation Reform Package as a whole is estimated to increase the
underlying cash balance by $2 793.6 million over the forward estimates.[23]
Statement of compatibility with
human rights
1.24
The bill does not raise any human rights issues.[24]
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