Views on the bill
This chapter summarises the views held by stakeholders on the provisions
of the bill. General support for an objective for the superannuation system is
evaluated initially before consideration is given to specific views on the
primary objective as drafted. Support and concerns relating to the subsidiary
objectives are then explored as are other considerations raised by stakeholders.
General support for an objective for the superannuation system
The notion of defining an objective for the superannuation system in
legislation received universal in-principle support from stakeholders.
We [ACOSS] support
the idea of a 'purpose for superannuation' to guide the Parliament and the
Government as it develops legislation in this important area. More consensus
over the purpose of superannuation would also help inform public discussion on
the adequacy of retirement incomes and the role of compulsory saving and tax
concessions to ensure this.
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...
Women in Super
supports the articulation of a Primary Objective of Superannuation within
legislation and the requirement that legislative and regulatory proposals are
tested against the objective.
Mercer endorsed the policy decision to enshrine the objective of
superannuation, noting that 'defining clear objectives is important in both the
short and longer-term if the overall system is going to provide an adequate and
secure retirement income for all Australians'.
CHOICE also supported the creation of a superannuation objective,
stating that a 'clear objective has the potential to better align policy
settings, industry initiatives and community expectations'. CHOICE further
pointed out that constant changes to superannuation have the effect of undermining
trust in the system, highlighting that:
Setting a clear
objective in legislation will require future decision makers to articulate how
a policy meets that purpose has the potential to allay this uncertainty when
future reform is inevitably introduced.
The support for a formal legislated objective was underlined by stakeholders
expressing that the absence of such an objective had facilitated some
undesirable outcomes. For example, Anglicare Australia noted:
The lack of a formal
objective has allowed superannuation to be used as vehicle for various
objectives, including tax avoidance, wealth accumulated and estate planning.
The Grattan Institute succinctly outlined what it saw to be the problem
that the objective seeks to address:
Despite managing more
than $2 trillion in assets, the system has never had legislated aims.
Without moorings, the system has provided excessively generous tax breaks that
cost the budget $25 billion each year in lost revenue, while doing relatively
little to support the retirement incomes of those in need... Ad hoc changes,
without clear aims have delivered a tangle of rules, limits and exceptions.
The Association of Superannuation Funds of Australia (ASFA) believed
that formalising the objective of superannuation may guard against 'constant
If policy makers act
consistently with an appropriate objective for superannuation many more
Australians will have an adequate income that meets their needs, both expected
and unexpected, throughout retirement.
Similarly, BT Financial Group emphasised the importance of stability and
certainty in superannuation policy:
...we believe a clear
objective of the system will ensure superannuation policy settings are
stabilised and subject to fewer changes, irrespective of the government of the
day. Greater stability will in turn improve long‑term confidence in, and
the growth of, the superannuation system for the benefit of all Australians.
Stakeholders were also supportive of enshrining the objective in a stand‑alone
Act, rather than incorporating it as a provision in an existing Act relating to
The Australian Chamber of Commerce and Industry considered that having separate
legislation will help to maintain the distinction between the objective itself
and the policy decisions that contribute to the system achieving the objective.
Importantly, the Financial Services Council noted that stand‑alone
legislation provides a reference point for all future changes to
superannuation, tax or social security policy.
Views on the primary objective as drafted
While support was strong for the principle of defining an objective for
the superannuation system, a number of stakeholders expressed concern about the
wording of the primary objective proposed in the bill. For example, the
Association of Independent Retirees contended that:
It is meaningless to
have an objective for Australia's superannuation system that is not qualified
and does not even include a very general measured performance goal.
Indeed, a number of submissions considered the primary objective to be
'inadequate and lacking in ambition'. Notwithstanding,
stakeholder views on an alternative objective are not aligned, and there is no
consensus on what it should be, or on what meaning should be attached to words
of a subjective nature— for example, adequacy and dignity.
Mercer believed that the proposed definition was 'too vague' and that
more clarity was required around when income from superannuation should move
from supplementing the Age Pension to becoming a substitute.
Some stakeholders considered that the primary objective should include
all three pillars of income in retirement—superannuation, voluntary savings and
the Age Pension.
enshrine the purpose of superannuation, the proposed reforms should delineate
the intended interaction between the other pillars of the retirement income
system – the age pension and voluntary private savings.
The Grattan Institute agreed that, while it may also be desirable to set
an objective for the retirement income system as a whole, the focus of this bill
was on the superannuation system. As such, they considered the primary
objective of the superannuation system as drafted was appropriate given that
superannuation essentially contributes to retirement incomes by supplementing
or substituting for the Age Pension:
By saying it should substitute or supplement for the age
pension, it is firstly implying, 'Don't go too far.' The second thing it is
implying is essentially a limit to the superannuation tax concessions. It is
saying that, at a point that you are no longer even substituting for the age
pension—in other words, your income in retirement is likely to be so high that
you will not qualify for even a part pension—the superannuation system should
stop providing support or at least should stop providing more support than it
provides to everybody else.
Stakeholders also questioned whether the bill, as currently drafted,
would be able to meet the goal of assisting policy makers. Industry Super
Australia provided a number of recent examples of where the primary objective
as drafted would have contributed to the consideration of superannuation policy
For example, there
has been considerable debate about whether or not the rate of compulsory
superannuation should be increased to 12 per cent and, if so, by when. Not
increasing the SG [superannuation guarantee] rate, or increasing it over a
shorter or longer time periods, are all consistent with the Government's
preferred objective: to provide income in retirement to substitute or
supplement the Age Pension.
By contrast, a small number of submissions supported the primary
objective in the bill.
The Grattan Institute supported the proposed wording in that it was appropriate
to promote retirement savings so that people can enjoy a higher standard of
living in retirement, while reducing future Age Pension liabilities, subject to
the budgetary costs of doing so.
CPA Australia also agreed with the recommended primary objective as
drafted and further noted their support for the inclusion of a compatibility
statement in any future superannuation legislation.
The committee notes that Ms Patricia Pascuzzo, Executive Director of the
Committee for Sustainable Incomes, has previously said that:
...the government is right to resist locking itself into
mandating higher contributions by including reference to the comfortable
retirement income standard in the objective for super. Instead, an appropriate
benchmark for adequacy should be determined after consultation with industry,
community and consumer groups before being prescribed in regulation.
Further, Ms Pascuzzo also said that:
...an objective for super is not the place for audacious goals
that lock governments into putting retirement income provision ahead of other
important policy goals.
While the proposed primary objective seeks to provide income in
retirement, it does not specify what level of income is desirable. Stakeholders
held mixed views as to whether it was necessary to include the concept of
adequacy in some form.
BT Financial Group considered that a reference to adequacy was
It is therefore
critical that the primary objective of superannuation be expanded to include a
reference to 'adequacy' and providing a dignified retirement to as many
Australians as possible, to ensure that future reforms of the system do not
unreasonably impact on the ability of future generations to achieve a
comfortable lifestyle in retirement.
Similarly, the ACTU supported an approach to define an appropriate level
of adequacy, and the development and adoption of adequacy targets.
Mercer considered that the objective of the overall retirement income
system should include a desired level of income in order to provide meaningful
guidance to policymakers.
Indeed, the Institute of Public Affairs contended that:
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.
Like many submitters, Drew, Walk and Co emphasised that retirement
adequacy is more important than just wealth at retirement:
We have argued for
some time that there has been too much emphasis on measure of retirement
adequacy that are based on terminal wealth (the metaphorical 'pot-of-gold' at
retirement) and not about the sustainability (or otherwise) of retirement
In an interview discussing the superannuation objective recommendation,
Mr David Murry, Chair of the Financial System Inquiry, is reported to have
The legislated objective of the $2 trillion superannuation
system should not include references to achieving 'comfort' or 'adequacy'
because it would open the way to constant political interference...
The objective can’t contain a specific promise...
A debate about adequacy becomes a debate about social equity.
However, COTA did not support the use of subjective terms, such as
adequacy, in setting the objective of superannuation because ultimately
government would be involved in defining these terms. Responding to a question
about benchmarking adequacy to the Association of Superannuation Funds
Australia's (ASFA's) 'comfortable standard', Mr Ian Yates, Chief Executive
'Adequacy' in terms of what government will support has to be
defined by the government in its measures. I just do not see government of
either side deciding that they will put that in the hands of some other body.
The Grattan Institute also contended that the concept of 'adequacy'
should not be included in the primary objective because superannuation is only
one part of the retirement income system. Any proposed objective for
superannuation (not the retirement income system more broadly) should be
focused on targeting concessional taxation for superannuation to provide the
most value for government, while maintaining safety nets through the Age
Pension and Rent Assistance.
It is clear from submissions and witnesses at the public hearing
that terms like 'adequacy' mean different things to different people, and that
no broad consensus exists among stakeholders.
Financial security for dependants
Some stakeholders highlighted the important role that life insurance
plays in helping families recover from unforeseeable events and offers valuable
support for dependents in the event of death or total and permanent disablement
of the primary breadwinner.
For example, Mr Phillip Sweeney argued that the financial security offered by
superannuation should extend beyond the individual member to include their
family in the event of unforeseen serious life events.
Similarly, the Corporate Superannuation Association highlighted the
important role that insurance plays in protecting Australians and their dependants
from the consequences of early death and disablement. At the public
hearing, The Tax Institute and the Financial Planning Association both agreed
that the superannuation system is an appropriate place to hold these types of
To ensure that insurance through superannuation continues to offer a
safeguard for unexpected events for individuals and their families, some
stakeholders considered that this concept should be explicitly referred to in
the primary or subsidiary objectives.
That said, the Australian Institute of Superannuation Trustees (AIST) noted
that insurance coverage constitutes part of the sole purpose test through
section 62 of the Superannuation Industry (Supervision) Act 1993. While
this is consistent with the proposed subsidiary objective to 'be invested in
the best interests of superannuation fund members', AIST considers that more
can be done to explicitly align the objective of superannuation with the sole
Reference to 'Age Pension'
A number of stakeholders took exception to the inclusion of the Age
Pension in the proposed primary objective:
...the adoption of a
primary objective centred on the Age Pension is not long term thinking, it is a
narrow objective aimed at avoiding controversy rather than assisting with
...linking the primary
objective solely to the Age Pension is undesirable because it allows for future
policy development that could significantly diminish the Australian
That said, the National Foundation for Australian Women (NFAW) took an
alternative view to many submitters and supported having a reference to the Age
Pension in the primary objective:
Women are more likely
than men to be reliant on the Age Pension as their main source of income in
retirement; and they are less likely to have retirement savings in
superannuation or other investments...Accordingly, the role of the Age Pension in
the retirement income system should be entrenched in the objectives.
Anglicare Australia highlighted that the recent Senate Economics
References Committee inquiry on women's economic security in retirement
recommended that the legislated objective of superannuation should 'acknowledge
its interdependency with other pillars, including the Age Pension'.
Use of the word 'substitute'
The CPA raised concerns that the primary objective could be interpreted
narrowly by future governments and used to justify winding back access to the
The concern hinges on
a literal interpretation of the word 'substitute'...Were future policies to be
developed within this narrow framework, Australians may be disincentivised to
save for their own retirement, in that there may be less incentive to save
beyond replacing the age pension.
The NFAW considered that the proposed form of words reduces the policy
commitment to maintain the Age Pension at a level that will address poverty
among the aged. The NFAW notes that, for various reasons, very few people can
be expected to be self-sufficient in retirement and that many retirees will
need the Age Pension to supplement superannuation income.
That said, COTA was of a contrary opinion that the proposed objective
enshrines the Age Pension as a cornerstone of retirement income
We think that what the objective does do is cement, as was the
original intention, that the aged pension remains—and will continue to remain
for significant proportions of Australians—as the core building block of their
retirement incomes. And then it adds to that, and it does so or needs to do so
in a way that is fair and sustainable.
Views on the subsidiary objectives
Views on the subsidiary objectives were broad ranging and, in many
respects, diametrically opposed.
The Financial Services Council (FSC) did not believe the subsidiary
objectives would be useful:
The FSC is of the view that a clear statement should not
require the support of subsidiary objectives. Subsidiary objectives are likely
to be subjective and open to interpretation, and this is inconsistent with the
purpose of a clear overarching objective.
By contrast, a number of stakeholders considered the subsidiary
objectives to be useful but, in order to be effective, they should be included
in the legislation rather than sitting outside as regulations:
recommend...that the subsidiary objectives are included in this Bill rather
than being just a general reference in the accompanying Explanatory Memorandum.
We agree it is
preferable to express the objectives of the superannuation system in
SMSF Owners' Alliance further noted that legislating the subsidiary
objectives would ensure the integrity of the objectives, protecting them from
any potential changes by future governments.
The Law Council of Australia voiced concerns that the subsidiary
objectives are not necessarily compatible with the primary objective:
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...these might be incompatible
with the primary objective.
Similarly, Save Our Super notes that the bill offers 'no guide on how to
resolve conflicts or trade-offs between objectives':
apparently to be subject to unspecified, case-by-case 'balancing'. This
destroys any coherent guidance for policy.
As mentioned previously, some submissions noted the role superannuation
insurance plays in providing financial security and safeguards. As a result, it
was proposed that this should be an explicit feature of the subsidiary
objectives. For example, Mercer proposed that the provision of insurance be
included in the subsidiary objectives as a way to efficiently provide valuable
protection and help reduce Australia's chronic underinsurance problem.
The Institute of Public Affairs (IPA) noted that although the proposed
subsidiary objectives are near identical to those proposed in the Final Report
of the FSI, the Objective Bill lists only 5 subsidiary objectives, not 6,
leaving out the objective that the system be 'fully funded from savings'. IPA
further notes that in the Final Report of the FSI, it is written that a 'fully
funded system...is important for sustainability and stability'.
Other considerations raised by stakeholders
Statements of compatibility
Many stakeholders were critical of the proposal to require statements of
compatibility and that there were no penalties associated with non-compliance.
For example, the SMSF Owners' Alliance contended that:
to be justified by Ministers in terms of the primary and subsidiary objectives
is a good and necessary approach; however, the primary objective is defined so
broadly that virtually any legislation changing the terms of superannuation can
Similarly, the Financial Planning Association considered that the
proposed provisions 'set too low a bar', particularly given that there is no
requirement for any future legislated policy change to be compatible with the
Women in Super highlighted the deficiencies in the production of
statements of compatibility:
It should also be noted that failure to produce a statement
of compatibility would not prevent legislation or regulations being passes and
would in no way impact the validity of such legislation.
The Financial Planning Association advocated for enhanced compatibility
What we would rather is that there be some added
discipline—for example, that reasons are given as to why a particular policy or
why particular legislation has been put forward and how the legislation aligns
with the objective.
However, the Financial Services Council supported the statement of
compatibility concept as proposed:
It is appropriate that the Bill does not prescribe what
information is necessary for a statement of compatibility, but leave this for
the Minister to determine. This places the onus on external stakeholders to
assess the robustness of a statement of compatibility and publicly hold the
Government to account for unpersuasive statements.
Independent monitoring and review
Submitters also sought reassurance that any objective for the
superannuation system would be subject to monitoring and review:
ASFA agrees that
periodically assessing how the system is tracking will provide regular
benchmarks to measure performance against, facilitating informed policy
decision making... such an approach will provide a higher degree of stability,
integrity and accountability in relation to superannuation policy.
Chartered Accountants Australia and New Zealand believes that the
Government should review, and publish the findings, every five years on how
well the super system is tracking on meeting the agreed objectives.
To this end, the Financial Planning Association proposed that a body
like the Productivity Commission would be well placed to look at how the
objectives are flowing through into economic reality.
Indeed, the final report of the Financial System Inquiry highlighted the
importance of monitoring compliance of superannuation reforms with the objective:
Increased transparency around the objectives of policy
proposals would help frame parliamentary and public debate...Government could
periodically assess the extent to which the superannuation system is meeting its
objectives. This could be done in a stand‑alone report or as part of the
Intergenerational Report, which is prepared every five years.
There was broad support for using the Intergenerational Report (IGR) as
the mechanism for monitoring and reporting policy changes against the
objectives. For example, the Financial Services Council espoused the IGR
process as the vehicle for undertaking a periodic review:
It is a five-year cycle; that is a nice gap. It enables the
government of the day to build up a policy evidence base for any future
Similarly, Industry Super Australia agreed that the idea of having a
review every five years aligned to the Intergenerational Report would be
very sound for assessing if the system is on track.
At the public hearing, support for aligning a review of the
superannuation objective with the IGR process was also provided by the
Association of Superannuation Funds of Australia.
While the overwhelming view of stakeholders supported the notion of
enshrining a legislated objective for superannuation, the committee notes that
stakeholders had different views on the proposed wording and the meaning of
those words. There was no consensus position for the introduction of subjective
descriptors. The committee therefore considers that the objective as drafted
will enhance the stability of the superannuation system by creating a clear
framework for assessing superannuation policy.
The committee does not consider that either a relative or absolute level
of retirement income should be included in the primary or subsidiary
objectives. Indeed, the subjective nature of terms such as 'adequacy',
'comfort' and 'dignity' have the potential to undermine the successful
implementation of an objective for the superannuation system by focusing on
retirement incomes as a whole. While there may be merit in striving to set an
objective for the entire retirement income system, this is the not the purpose
of the bill under consideration by the committee.
Prescribing the subsidiary objectives through regulation is an
appropriate way of ensuring that these objectives remain subsidiary to the primary
objective while still contributing to a comprehensive framework for assessing
changes to superannuation policy.
The committee is confident that the measures requiring future policy
changes to be supported by statements of compatibility will provide a robust
mechanism by which these proposals can be evaluated and will be a valuable tool
in contributing to the public debate.
That said, the committee appreciates the important role that independent
monitoring and review can play in keeping governments to account. To this end,
the committee considers it appropriate that the compliance of future
superannuation reforms with the legislated objective be periodically assessed
and reported on as part of the Intergenerational Report, which is required
to be prepared at least every five years under the Charter of Budget Honesty
The committee recommends that the compliance of future superannuation
reforms with the legislated objective be periodically assessed and reported on
as part of the Intergenerational Report.
The committee recommends that the Senate should pass the bill.
Senator Jane Hume
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