Now that the Federal Government has formally backed the Financial System Inquiry (FSI) recommendation that an “objective” be established for superannuation, defining that “objective” should become a focal point for the superannuation industry.
Why? Because the “objective” which is ultimately defined and agreed will form the foundation for superannuation policy development over at least the next two decades.
In the more than two decades of the existing superannuation regime, the original vision of its proponents, such as former Treasurer and Prime Minister, Paul Keating and Australian Council of Trade Unions secretary, Bill Kelty, has become increasingly obscured. Is our compulsory superannuation guarantee regime intended to become a replacement for the Age Pension? Alternatively, is our compulsory superannuation guarantee regime simply an adjunct to the Age Pension?
Back in the early 1990s, there were many who envisaged that the superannuation guarantee represented a means of allowing Australians to substantially fund their own retirements and therefore, relieve pressure on the Age Pension. More than two decades and four governments later, no one is quite so sure.
The new Assistant Treasurer, Kelly O’Dwyer, certainly recognises that some clarity is needed on the ultimate purpose of superannuation - something which she indicated in a radio interview a few days after the release of the Government’s response to the FSI.
In fact, O’Dwyer quite correctly pointed out that she believed defining an objective for superannuation represented a threshold issue for broader discussion around the tax treatment of superannuation and, indeed, the future architecture of the Age Pension.
Discussing why defining an objective was necessary, the Assistant Treasurer said:
“It is necessary because it means slightly different things to different people and so much of our tax system, broader changes to the superannuation system, really hinges on what superannuation is all about, what it is there to do, and so we need to have everybody on the same page when it comes to that. We are happy to work with people. We think David Murray made a very sensible suggestion that it really should be about having an alternative to the Age Pension or even the Part Pension that your superannuation should be able to pay for your retirement. We think that is a good start.”
So the message is clear for the superannuation industry - take the opportunity and engage with Government processes around defining the objective of superannuation and do so in the knowledge that you are likely setting the policy boundaries for the next 20 years.
Once the objective for superannuation is set, it follows that some sensible decisions can be made around how superannuation tax concessions work and how they should be applied together with broader issues, such as the application of lifetime contribution caps.
It might also be hoped that, with the policy boundaries having been well defined, Federal Governments will be less inclined to fiddle with superannuation at every budget to meet short-term revenue objectives.