Super’s purpose still ill-defined

The superannuation industry will breathe a sigh of relief after avoiding any major or structural reforms from Tuesday night’s Federal Budget, but experts have acknowledged the debate about the purpose of superannuation lingers.

Super industry groups and commentators generally lauded improvements to flexibility and equity within the superannuation system, particularly the removal of the $450 per month threshold for employer payment of the Superannuation Guarantee and the increases in the First Home Super Saver to $50,000.

Further, lowering of the eligibility age from 65 to 60 for members to make downsizer contributions to their superannuation fund, measures aimed at phasing out some legacy retirement income products, repealing the Work Test in relation to contributions for members aged between 67 and 74 years of age and the abandonment of previously announced plans to allow for early release to victims of family and domestic violence, were also generally well received.

But it’s what was missing from Treasurer Josh Frydenberg’s resounding speech and subsequent commentary relating to superannuation and the retirement savings system that has industry guessing at the government’s next moves.

Specifically, the purpose of superannuation was not broached during the budget speech and papers, Actuaries Institute president Jefferson Gibbs has pointed out.

Gibbs highlighted that the government has not used the budget release to leverage the Retirement Income Review to make more impactful changes to the retirement incomes system.

“The system also still lacks an overall objective for superannuation and its role in supporting retirement incomes,” Gibbs said following the budget release.

“The Institute urges the Government to provide clarity on the purpose of superannuation, to enable more substantive reforms to be sensibly made to improve the system,” he said.

Further clarity on the purpose of super will likely be deferred until the introduction of the retirement covenant mid next year, reckoned Deb Ralston, the chair of the Household Capital Advisory Board and a member of the independent panel on the Retirement Income Review.

“I think the industry is still busy coming to terms with the new performance issues [so it’s] one thing at a time I guess,” Ralston told Investment Magazine on Wednesday.

“I was not really surprised that there was not much direct reference to the RIR [Retirement Income Review]. It has always been seen as a longer-term fact base for future planning with no recommendations,” she said.

Ralston highlighted that paid parental leave and the $450 per month threshold were canvased in the RIR and subsequently featured in the budget.

But it’s the purpose of superannuation that government is still yet to address, the Actuaries Institute and others have pointed out.

“Without a purpose, individual changes to superannuation could end up diverting the system from its overall design and intent,” David Bell, executive director at the Conexus Institute commented.

At its last budget announcement the government circulated the idea of freezing the superannuation guarantee as part of its Your Super, Your Future reforms, Shadow Treasurer Stephen Jones told Investment Magazine late last year.

The Retirement Income Review described the objective as being to balance living standards across a person’s working life and retirement. Further, the RIR highlighted the importance of considering the trade-off between consumption in working years and voluntary saving in defining the purpose of super.

“When there is compulsory superannuation, the rate should be set at a level that balances pre- and post-retirement living standards for middle-income earners. It is challenging to set a single SG rate that suits all Australians given the variety of people’s circumstances and experiences,” it stated.

“I think a lot more will be said about this next year when the covenant will take centre stage,” Ralston said.

Original article on Investment Magazine