Devil in the detail

objective superannuation draft legislation

Draft legislation to create an objective for superannuation has been released and while it terms seem harmless the proposed application raises questions if the government will direct where and how superannuation is invested.

Shortly after the Albanese government won the last federal election, it declared its commitment to enshrining the objective of superannuation into law. Further, it confirmed once this had been achieved, no super policy proposed in the future could be formulated without taking this objective into account.

Ironically, and I’ve mentioned this previously, after making this announcement Canberra then unveiled several measures regarding superannuation before anything happened on the legislated objective front, for example, the new 15 per cent tax on member super balances over $3 million. You could say our politicians have been putting the cart before the horse.

Well the horse finally made an appearance this week with the government releasing the Superannuation (Objective) Bill 2023 and Superannuation (Objective) (Consequential and Transitional Provisions) Bill 2023 to execute its first commitment to the retirement savings system.

And the objective it originally proposed has not changed – “to preserve savings to deliver income for a dignified retirement, alongside government support, in an equitable and sustainable way”. But with the proposed legislation having been introduced to parliament, we finally have some idea of what some of the more contentious notions of ‘dignified retirement’, ‘equitable’ and ‘sustainable’ potentially mean.

On the score of ‘dignified retirement’, the question has been around who defines what that is. According to the proposed legislation, it “denotes a standard of financial security and wellbeing in retirement which allows the person to participate economically and socially in their community”. Further, it has been stipulated the ‘dignified’ notion will not be the same for all people and individuals will determine what this means for themselves.

So no government dictates here and that is a positive element.

With regard to the term ‘equitable’, the proposed legislation states “in this context it captures the importance of a system that delivers similar outcomes to people in similar situations and targets support in the superannuation system to those most in need”. Again, on the surface a fairly innocuous concept.

Finally, ‘sustainable’ is said to mean “ensuring superannuation policy meets community needs and expectations, and responds appropriately to external factors that impact retirement incomes”, while also reflecting “the Australian economy’s capacity to support the system and the need for it to be fiscally sustainable for the commonwealth government from a budgetary cost from both tax expenditures and government contributions”. I’d say this is pretty reasonable.

However, before we start thinking any negative outcomes may have been avoided as a result of this proposed objective, there is some devil in the detail. As I have said in the past, concerns have always been focused on having Capital Hill dictate how the pool of our retirement savings, now over $3.5 trillion, can be used.

To this end, we have seen suggestions it can be used to help fund affordable housing, infrastructure projects, foreign aid and, more recently, aged care.

So the worrying part of the proposed legislation comes under the heading of “Context on the broader benefits of the superannuation system”. Here it states: “Superannuation is an increasingly important source of capital in the economy and the significant scale of the superannuation system contributes to the strength of Australia’s financial markets through capital deepening. This can support significant investment in areas where there is alignment between the best financial interests of members and national economic priorities, particularly given the long-term investment horizon of superannuation funds.”

Call me cynical, but that’s the part potentially enabling the government to channel retirement savings into the areas it has prioritised as we don’t know what the ‘best financial interests’ of members might be. For instance, is that a top-dollar return or an acceptable one and how would any opportunity cost be factored in?

So a large part here still has to be played out and there is a consultation period that concludes on 29 September. Rest assured I’ll be keeping a close watch on how the industry responds over the coming month.


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