The goal of super should still be to ensure people have enough stashed away for retirement. Photo: Jessica Shapiro
With compulsory superannuation now approaching its 25th birthday, the federal government is revisiting what the point of superannuation is.
Before debating the point of superannuation, it is worth reflecting on what the point of debating the point is.
The goal is to have a clear statement confirming the point of superannuation, which can then be used as a basis for assessing the merits of future reforms to superannuation on an objective basis.
Once documented, the newly-minted statement of objectives could be viewed by future governments as a mandate to drive legislative reforms which bear some connection with the objectives.
In years to come, relatively simple statements of purpose could potentially be invoked in any manner of contexts.
Taxation is the most obvious context where they will be invoked.
Make no mistake, much will turn on whether the point of superannuation is to 'substitute' the age pension in its entirety, or just to 'supplement' it; or whether the point is to provide an 'average', 'adequate' or 'comfortable' standard of living in retirement.
At one extreme, if the point of superannuation is to provide people with the best retirement they can afford, this would be conducive to the existing suite of tax concessions being retained.
Targeting a 'comfortable' retirement would partially open the door for higher taxes on superannuation; and targeting only an 'adequate' retirement would probably mean more taxes still.
At the other extreme, targeting an 'average' retirement, or merely a partial supplement to the age pension, would potentially pave the way to the greatest reduction of current tax concessions.
Given how central taxation is to the debate, perhaps it would be better to ask what the point of the existing tax concessions are.
On one view, the existing tax concessions are partly there as quid pro quo for not being able to access your savings until you reach age 65 or satisfy other eligibility criteria.
Taking away the quid pro quo for money that has already been contributed and locked-up to age 65 raises issues of retrospectivity and fairness that will also need to be considered.
Personally, I would like a comfortable retirement and aspire to a lifestyle which is above average rather than one which is only just adequate.
Even those who risk facing a below average retirement would rather be comfortable than average, even if average might be an improvement.
This seems logical given where we stand today, where sadly, average is too often not enough.
The Holy Grail is a future where the average retirement – having regard to all sources of assets – is more than comfortable.
Sure, this requires a superannuation system which is sustainable and workable for industry. This may in turn require tax concessions to be revisited.
That said, if money is going to be inaccessible until we turn 65, to my mind there needs to be a fair quid pro quo.
If there is insufficient reward through tax concessions for locking assets away until age 65, we may as well just invest the money through a managed fund and have the peace of mind of knowing we can have immediate access to those funds if needed.
Once the point of superannuation has been worked out, the statement of objectives will need to be documented somewhere.
The obvious approach would be to write them into the main superannuation legislation, perhaps as a preamble to the existing body of superannuation law.
Time will tell whether this is an effective way to curb and shape the direction of future reforms. With discipline, it could be entirely effective; but it could potentially have very little effect at all.
Legislative reform is only ever possible if there is majority support in Parliament for the change.
If a particular change were to have majority support but was inconsistent with the stated purposes of superannuation, the same majority could simply change the stated purposes of superannuation and remove any impediment. If this happens, one would be right to wonder what the point was.
It is not possible to impose binding constraints on Parliament's power to enact future reforms, unless those constraints are included in the Commonwealth Constitution.
That said, nobody is seriously suggesting that there should be a pension plebiscite or a retirement referendum.
It will also be interesting to see how the newly confirmed purposes of superannuation affect existing duties under superannuation law.
For example, how does a duty to act in the best financial interests of members reconcile with an aim of only achieving an average retirement for them?
The coach is telling players to go out and win the game, but to hold back on kicking too many goals. This is an over-simplification, but something of which to be mindful.
The government is alive to the issue but seems optimistic that existing duties will not be affected.
There is certainly point in working out the point of superannuation, but the limitations and ripple-effects of doing so need to be pointed out as well.
Luke Barrett is Head of Risk & Legal Services – Investments at UniSuper. The views expressed are those of the author and not necessarily those of the organisation.
