This submission summarises recent work by Grattan Institute relevant to the Government’s proposed objective for the superannuation system as set out in the Superannuation (Objective) Bill 2016.
Despite managing more than $2 trillion in assets, the superannuation system has never had legislated aims. Without moorings, the system has provided excessively generous tax breaks that cost the budget $25 billion each year in lost revenue, while doing relatively little to support the retirement incomes of those in need. Ad hoc changes, without clear aims, have delivered a tangle of rules, limits and exceptions.
We support the Government’s proposal that the primary objective for the superannuation system is to ‘provide income in retirement to substitute or supplement the age pension.’ This rightly implies that the system should limit support for those with enough means that they are unlikely to receive even a part Age Pension. It also implies that superannuation should not support savings at a high cost to the budget if Age Pension liabilities are only reduced a little.
Yet superannuation is just one part of Australia’s retirement incomes system, alongside the Age Pension and other voluntary savings, including the family home. Even without counting the family home, most households of any particular age and level of income or wealth hold as much wealth outside super than inside super. The superannuation system should not aim to fulfil every objective of the broader retirement incomes system.
So the Committee should reject the view that superannuation’s objective is to provide an adequate, or ‘comfortable’ retirement income for all Australians. This view could lead policymakers to force people to save under the Super Guarantee so that their incomes while working are less than their incomes in retirement. This view misleads, because the Age Pension and Rent Assistance are better tools than super to provide an adequate retirement for those on low incomes. And this view would support maintaining generous tax breaks, at substantial budgetary cost, for those whose retirement will be comfortable without them.
Although not the focus of the legislation under inquiry, it would be worthwhile to set objectives for the retirement incomes system as a whole. These objectives should guarantee some minimum ‘adequate’ standard of living to those at the bottom. They should help people to maintain a more consistent standard of living across their lives. And they should allow policymakers flexibility to use the right combination of policy tools – superannuation, the Age Pension, and others – to achieve these ends.