The View | Don’t mess with super – Fix retirement policy

In November 2018, I was asked by the Australian Financial Review to discuss the ALP Opposition’s proposed changes to franking credits to be put to the 2019 electorate. The policy was clearly designed to limit the cash rebates flowing from franking credits for SMSFs generally and pension funds (zero tax) in particular.

Given the recent proposed changes to superannuation by the ALP Government, via adjustments to the tax rates for $3 million+ superannuation accounts, I believe my article (re-published below) is worth revisiting.

In the 2018 article, I suggested the following should occur with regards to superannuation and retirement policy:

  1. The objective of retirement income or superannuation policy should be agreed and documented;
  2. That a National Retirement Commission be formed to recommend to the Parliament (therefore the people of Australia) the appropriate structure for the best national retirement scheme; and
  3. Having outlined the objective, proposed changes could be assessed against that objective.

Today, four years after my opinion piece and thirty years after the establishment of mandatory superannuation contributions, the Australian Government has belatedly suggested a “purpose for superannuation”.

That purpose is proposed as follows:

It is to preserve savings to deliver income for a dignified retirement, alongside government support in an equitable and sustainable way”.

Whilst the settlement of a “purpose of superannuation” for Australia is vital, we should acknowledge that superannuation is just one part of Retirement Policy.

Therefore, as suggested 4 years ago, Australia should review its Retirement Policy to determine if its componentry are fit for purpose and the best we can design.

We should also question why our Retirement Policy has not been copied by overseas peers.

What is Retirement Policy and why is it different from Superannuation Policy?

The structure of a comprehensive Retirement Policy is multi-faceted and built for the many possible eventualities that people encounter in their pre-retirement life. These include home ownership, HECs or personal debt, child care, education of dependents, ill health or misfortune, and forced absenteeism from the workplace.

The list of considerations for a Retirement policy is extensive. The construction of Retirement Policy needs to sit under a broad “social purpose” which is far more extensive than a “purpose for superannuation”.

It is broadly agreed that Retirement Policy has three essential components, namely:

  1. Home ownership;
  2. Well funded retirement savings accounts created over a working life; and
  3. A Commonwealth Pension safety net.

A well designed Retirement Policy, reviewed by an Independent Commission, would look at each component and assess whether Australia’s account-based retirement system is best of breed. In particular, a Commission would examine whether Australia’s retirement system is excessively focused on individual outcomes rather than desirable national outcomes.

A non-political and Independent Commission of Enquiry into Retirement Policy is urgently needed to settle its purpose and structure. A National Retirement Policy should be recommended to Parliament for adoption and settlement in a bi-partisan fashion. This would help Australians gain confidence that Retirement Policy has been well-set and will not be altered in piecemeal adjustments by future governments.

What should a Commission consider?

An Independent Commission should consider the following:

  1. Is it time for the creation of a national contributory pension scheme for all Australians? The payment of pensions from this national scheme to be neither means nor asset tested;
  2. Should Retirement Policy actively support home ownership? But with a taxation framework that discourages excessive leverage and speculation to focus on affordability; and
  3. Should a retirement savings regime define what is a fair and reasonable retirement balance for an individual?

Since 2018, Australia’s superannuation system has grown to $3.3 trillion, with Commonwealth pension payments continuing to grow as more Australians retire with insufficient super account balances.

Meanwhile, some in our community retire with extraordinary super balances that are neither reasonable nor fair given the taxation concessions accessed. There are others who are beneficiaries of Commonwealth and State Government defined benefit schemes that will be funded by taxpayers for the next 40 years.

The Australian superannuation and retirement system exhibits a lack of consistency and fairness. It is time to fix it, with an honest and independent review undertaken. We urgently require a policy structure that meets the retirement needs of all Australians.

To view the 2018 article written by John Abernethy in the Australian Financial Review, please click the link below:

Australian Financial Review – Franking changes should wait for full review of super – John Abernethy