Government says this is what your super is for. What do you think?

The federal government is seeking to legislate the objective of superannuation. In other words, it wants to better define the Australian superannuation system, its purpose and what it seeks to achieve for Australians.  

Responding to the government’s call for consultation on the matter, National Seniors Australia has made a submission, based on the importance with which you hold super as an integral part of the broader retirement income system. 

Our submission to the government is based on what you have told us over recent years, through surveys and other feedback. Your contribution helped us to tell the government its proposed objective has deficiencies and can be improved. 

The Albanese government’s draft objective is just one that has been put forward by governments over the past decade. 

The latest objective to be put forward for consideration focuses on super as income for retirement and places some caveats around this being both equitable and sustainable.  

According to the Treasury consultation paper: 

“The objective of superannuation is to preserve savings to deliver income for a dignified retirement, alongside government support, in an equitable and sustainable way.” 

As well intentioned as this is, we believe it risks undermining superannuation in these areas: 

• It is insufficiently aspirational, because it neglects accumulation of savings as a critical part of the superannuation system. 

• It focuses narrowly on income, neglecting the role of capital in consumption in later life. 

• It includes references to government support, when superannuation and government support are part of a wider retirement income system. 

• By including language aimed at restricting early access to superannuation, it could potentially undermine access to superannuation for people with life-limiting illness. 

There is a risk the government’s objective too narrowly focuses superannuation on income when most people view capital as important.  

Unlike other countries, Australia’s superannuation system does not impose rigid pension plans with set incomes. 

European pension schemes, for example, provide beneficiaries with a defined income stream, but do not give access to capital via lump sum payments as is the case in Australia. 

Our super is more flexible and must remain so.  

People have greater control and responsibility to manage the use of capital to support later life consumption.  

Government should not enact an objective that removes the ability to retain control of the capital that generates superannuation income. 

It is better to have a flexible system that offers opportunities to manage market and longevity risks and gives people the flexibility to meet irregular cost associated with ageing. 

In this regard, we argue in our submission that people want control over their capital for the following reasons: 

• Capital generates retirement income and its preservation helps to maintain that income.  

• Consumption in later life is not smooth. Irregular costs must be paid for, including medical and health costs, which can be large. 

• While government has consistently signalled that super should not be regarded as part of a person’s estate and gifted to future generations, evidence suggests there is still a view among older people that it is a legitimate use for super. 

We support the idea of legislating an objective for superannuation but believe the government’s proposed objective can be improved.  

As such, National Seniors has put forward the following alternative wording for the objective in our submission that is more aspirational and flexible: 

“The objective of superannuation is to encourage people to accumulate adequate savings, which helps them achieve a comfortable standard of living in later life.” 

In our submission we say this objective should replace the government’s draft proposal, but we are interested in hearing what you think.