Defining the objective of superannuation

By Michelle Levy, Michael Mathieson
Banking Financial Services Superannuation

In brief

The Government released a discussion paper on the Objective of Superannuation today. The paper says that the Government will 'enshrine in legislation' the primary objective recommended by the Financial System Inquiry being: 'To provide income in retirement to substitute or supplement the Age Pension.' Partner Michelle Levy, Senior Regulatory Counsel Michael Mathieson and Senior Associate Georgia Cleeve look at the discussion paper.

Key points

The Government is looking for help with two things:

  • first, what 'subsidiary objectives' are needed; and
  • second, where should the objective be put.

The Assistant Treasurer, Kelly O'Dwyer, released the discussion paper at an ASFA lunch today in Melbourne. When she did so, she also said the Government is looking to improve the quality of MySuper products and ensure that only funds offering 'quality' MySuper products should be allowed to offer them. She also mentioned that the Government wants to expand APRA's powers to achieve these outcomes. Better late than never.

What subsidiary objectives are needed?

Subsidiary objectives are needed to support 'the' objective because 'a single primary objective cannot possibly encompass all aspects of the purposes and attributes of the superannuation system'. That is undoubtedly true, but it leaves unanswered the question why the primary objective needs to encompass these things. 

One suggestion provided in the paper is that subsidiary objectives are needed to make sure that the primary objective isn't misused from improper purposes. The paper says: 'the purpose of superannuation is not to allow for unlimited wealth accumulation and estate planning – a notion that is not explicit in the primary objective.' Maybe that is true, but again does everything need to be said? 

The subsidiary objectives suggested by the FSI were to: 'facilitate consumption smoothing over the course of an individual’s life', 'help people manage financial risks in retirement', 'be fully funded from savings', 'be invested in the best interests of superannuation fund members', 'alleviate fiscal pressures on Government from the retirement income system', and 'be simple and efficient, and provide safeguards'. 

If to 'facilitate consumption smoothing' is to be included in legislation as an objective of the superannuation system, we suggest it be put more plainly. 

Where should the objective be put?  

The next question is where to put the primary objective and the subsidiary objectives. The Government suggests two spots: the SIS Act or a stand-alone Act. We don't think the location will make any difference. The better question is what difference will including an objective in an Act make? 

The supposition is that if we knew what the objective of the system was, Governments couldn't make changes that muck it up. 
But we are not convinced and it appears the Government may not be either. The paper says the objective will be a 'guide to the policy making process'. It then goes on to make this rather startling statement: 'It will not affect the interpretation or application of superannuation legislation by the courts.' To which we say, if it doesn't it is unlikely to act as any kind of protection to the integrity of the system. 

Submissions due by 6 April

If you would like to respond to the discussion paper, you have until 6 April to lodge your submission.