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Economics Legislation Committee
06/02/2017
Superannuation (Objective) Bill 2016

HAYNES, Mr David, Executive Manager, Policy and Research, Australian Institute of Superannuation Trustees

McCREA, Mr Glen, Chief Policy Officer, Association of Superannuation Funds of Australia

VOLPATO, Ms Karen, Senior Policy Adviser, Australian Institute of Superannuation Trustees

CHAIR: I welcome representatives of the Association of Superannuation Funds of Australia, ASFA, and the Australian Institute of Superannuation Trustees, AIST. Thank you all for appearing before the committee today. I invite you to make a brief opening statement, should you wish to do so, and then the committee will ask you some questions. Does ASFA wish to make an opening statement?

Mr McCrea : Yes, I will start. ASFA is a non-profit, non-political national organisation whose mission is to improve the superannuation system so people can live in retirement with increased prosperity. We focus on issues that affect the entire superannuation system and our membership includes corporate, public sector, industry and retail super funds and service providers, representing over 90 per cent of the 14.8 million Australians with superannuation.

We welcome the opportunity to present at the hearing today and the government's decision to legislate an objective for superannuation. It is important to set a benchmark that will aid policy development and help to assess the success of policy going forward. We need an objective that is appropriate now and into the future.

In this context, ASFA considers that the proposed objective in the legislation—that being to provide income in retirement to substitute or supplement the age pension—should be broader. The purpose of super needs to be about dignity. It needs to be about adequacy and it needs to set an appropriate benchmark. In this regard, we think that the ASFA comfortable retirement standard is appropriate. We consider that the primary objective of the superannuation system is to provide an adequate income to ensure all Australians achieve a comfortable standard of living in retirement, supplementing or substituting the age pension.

Our superannuation system is delivering. It is the key component in the retirement of millions of Australians right now. In addition, superannuation will play a key role in future generations' retirement. In the context of an ageing population and increased costs of aged care and health care, we need to ensure that we have the capacity to meet these costs into the future. An adequate income in retirement will be crucial to ensure that governments and Australians alike can meet these challenges going forward. I welcome questions on our submission.

CHAIR: Thank you. Does AIST have an opening statement?

Mr Haynes : AIST is the industry association that represents the interests of industry, public sector and corporate superannuation funds—that is, those funds that have a members first philosophy, which is about one-third of the assets of the superannuation industry and about 80 per cent of the members. Like Mr McCrea, AIST supports there being a legislated objective of superannuation. Indeed, we support the alternative definition of the objective that is proposed by ASFA and other industry associations.

However, we do wish to make four points from our submission. First of all, like Industry Super Australia, we believe that the process that has got us to this point is flawed and that the government should go back to the drawing board in terms of the definition. Secondly, we have an alternative view in relation to what we think should be the proposed definition and the associated processes. We have some comments to make in relation to the statement of capabilities, and we think that there are some deficiencies associated with that. Finally, we believe that the role of superannuation in contributing to national savings should be recognised as a subsidiary objective.

Just going over these very quickly, and I will keep to the total of five minutes; the government has said that it is using the financial system inquiry recommendation as the basis for this legislation, but that is not the whole story. FSI recommendation No. 9 had an important precondition to it about the steps that needed to be followed prior to it going to legislation, and that was to seek broad political agreement. It was also the view of the then Assistant Treasurer Josh Frydenberg MP, and in February last year he said—and this is quoted in our submission—that the way forward was a carefully drafted objective that had bipartisan support. In our view, having one workshop before the election and the opportunity to submit on the public consultation draft of this legislation and then on this legislation itself is not sufficient for that purpose. But despite that, the superannuation industry has reached agreement on the importance of including adequacy in the objective. Indeed, four superannuation associations, being ASFA, ISA, SMSF Association and AIST, actually wrote to the minister in August last year indicating their support for a common definition—the one proposed in our submissions—and seeking discussions. But the government did not agree to these discussions and proceeded to this legislative stage.

Our position is that we need a process to properly quantify the performance against the objective, and the debate that this legislation has engendered, we believe, confirms the need for appropriate measurement talks. There are plenty of examples of what is happening elsewhere in the industry with the Productivity Commission and the government response to the financial system inquiry which, I think, confirms that approach.

In relation to the statement of capabilities, we think that the statement should cover all legislative instruments, not just bills coming to the parliament, and it should be subject to parliamentary review as is the case with the human rights statements. I will leave my comments at that because I think I have run out of my five minutes.

CHAIR: Thank you very much, Mr Haynes. Now I should declare at the outset that Mr Haynes and I have had a professional association in a previous life, and also that Mr Garcia—who is the signatory on the AIST submission—and I served, albeit very briefly, on the industry advisory committee of the Australian Centre for Financial Studies together. So with that out of the way, we can move on.

The AIST and ASFA obviously have very similar interpretations of what the objective of superannuation should be, and they do seem to be—I do not want to say 'happy medium'—a compromise between the FSI's definition and the ISA's definition of the objective of superannuation. My hesitation is, again, in that they include a lot of subjective language. They include words like 'adequate', which, although a number of our submitters and witnesses have mentioned it, there is scant agreement on what 'adequate' is. They include words like 'dignity'—a highly subjective word. They include 'comfortable standard of living in retirement', which is interpreted differently, depending on whom you speak to. Do either ASFA or AIST have any comments in that regard?

Mr Haynes : Indeed, Senator, we do not accept that characterisation of our definition as being the result of a compromise or lacking sufficient science. The question for us is: what is an adequate level of superannuation beyond the age pension? It is that which is sufficient to provide a comfortable and dignified retirement—that of itself is not sufficient to answer your question—but it needs to have a target which it can be measured against. After long and difficult consideration, because in some senses we are a competitor organisation to ASFA we decided to use the ASFA 'comfortable standard' in the metric that AIST has developed. AIST has worked with Dr David Knox of Mercer to produce the AIST-Mercer super tracker. We use the achievement of the ASFA 'comfortable standard' as the basis for achieving an adequate retirement. The tracker as a whole includes measures of adequacy and sustainability, with an overlay of fairness. There are quantitative measures behind a large number of indicators, which provide a score about how Australia is tracking in relation to adequacy and sustainability. So it actually has very significant science behind it. All of the information is publicly available. The scores change according to changes in the policy settings of the government of the day and can be used to assess policy proposals. We are not necessarily saying that the AIST-Mercer tracker will be the tool which is used in the future, but we are saying that here is an example of a tool that can be used to actually answer your question: 'How do you assess what is comfortable?'

We recognise in saying that that there is an open debate about: 'Do you look at replacement rate?' 'Do you look at a fixed amount of money that you need to actually service a retirement?' or 'What level do you have over and above the level of the age pension?' These are all questions that in our respectful submission should be considered in the consultations that we did not have and that are still sorely needed. I will finish off in a moment, Glen, so that you can get in your two bob's worth.

Given that we have the Productivity Commission considering the competitiveness and the efficiency of the superannuation system, given that you have the government saying that they are going to look at the impact of vertical integration on the competitiveness of the system and given that this committee has been asking many questions about what is the purpose of the retirement income framework, if we just leave all of those questions hanging then that is a very unsatisfactory policy outcome and one that can be remedied by the government taking a step back and saying: 'We can address these issues in the context of an appropriate legislative definition of the objective of super.'

Mr McCrea : Thank you, David. We think it is really important that you are very clear about what the objective is, and the benchmark for us is a comfortable standard. So, for a couple, we are looking at $49,000 and for a single, $43,000. The reality is that only 20 per cent of Australians achieve that at the moment. We think we can do better. What we think needs to be part of the consideration is saying by 2050—and in 2050 we are expecting a doubling of health and aged-care costs—we need to set that comfortable level and get at least 50 per cent of Australians there to meet some of those costs that they will encounter. So we think there is a hard number, and we think it is dependent on the comfortable standard. The comfortable standard assumes you own your own home—obviously, we know housing affordability is a significant issue at the moment—and it assumes you have the same health expenditure pattern you have at the moment. Going forward, that will change. We think, by setting it at the comfortable level, it sets a real, clear purpose that we can measure the success of the industry against.

CHAIR: Do you think, as previous witnesses have, that things like adequacy and dignity should be implicit in the age pension, as opposed to superannuation?

Mr Haynes : The purpose of the age pension is poverty alleviation and to provide a basic standard of living to ensure that people do not exist in poverty, and that is an issue in all developed countries including Australia. Clearly, there should be some consideration of the value of the pension. I guess dignity is appropriate. But the purpose of superannuation is over and above that of the age pension and tax concessions. Since the time that the government introduced the superannuation guarantee in 1992, it has recognised that a large number of people will continue to receive the age pension. There will be an element of substitution, but there is also a significant element of people receiving both the pension and superannuation.

Mr McCrea : Forty-four per cent of retired Australians are on the full age pension. I think there is a responsibility for super to bring that number down. Getting back to the purpose of the system and setting some clear objectives, certainly we would like to see by 2050 that number be 20 per cent. Ultimately, the age pension is a safety net. It is at a very basic level to provide people with day-to-day support, but superannuation has a really important role in lifting those people to get that dignity, to get that quality of life. Even a little bit of superannuation in addition to the age pension can make a big difference. Certainly, that is why we think the comfortable standard is the benchmark to aim for and to try and get as many people to there as possible.

CHAIR: Because you have a modest standard too?

Mr McCrea : That is right. The modest standard is not much more than the age pension really, but it is trying to demonstrate that having a little bit more can improve that quality of life just that much. It can mean that maybe you can go to the club and have that extra meal occasionally. The comfortable standard is about being able to have a holiday once in a while and being able to afford clothes. It is really about being comfortable and knowing in retirement that you do not need to worry about each penny. That is what we want the system to deliver on, and that is, ultimately, what we think the purpose of super is: really lifting that quality of life for people beyond that safety net. We need the safety net, but we can do better.

CHAIR: Both the ASFA modest and comfortable standards assume that you own your own home. I think you have two, don't you?

Mr McCrea : That is right. At the moment, our assumption is you own your own home, but we do know that is becoming increasingly challenging for people as housing affordability is a big issue. At the moment, I think about 67 per cent of Australians are in owner-occupied homes. That number is potentially, at the moment, going down. In 20 or 30 years time, we may not have a situation where every older Australian necessarily owns their own home, so I think it is important that super has to provide a bit more support to cover some of the cost of rent. That is why we think the comfortable standard is a good benchmark. It is a benchmark for now, but it is a benchmark for 10 or 20 years time when we are facing some of these challenges in terms of housing affordability and health and aged care.

CHAIR: So how do you counter the criticism that a comfortable retirement with a hard dollar number, the way ASFA has prescribed, differs dramatically for someone who lives in a country town or a remote community compared with somebody who lives in inner-city Sydney?

Mr McCrea : I think they face different costs. With any benchmark you have at a national level you have to make some assumptions. For example, someone in a country town will have to face costs to travel to receive medical and other services that someone in the city may not, because they will have access to public transport. But you have to set a benchmark, and the benchmark is a bottom-up benchmark and does look at the expenditure patterns and basically builds up. And some of the assumptions, just to help get a picture of what it means—an annual holiday, eating out at restaurants on the odd occasion, having a reasonable car, having the odd bit of wine, some clothes, having haircuts, leisure activities, being able to get electrical equipment, replacing kitchen and bathroom over 20 years. So, it is comfortable—and it really is comfortable. It is not outrageous, and some commentators have referred to it as 'affluent'. It is far from that. Anyone who is an older Australian who was on, as part of a couple, $59,000 I do not think of as having an extravagant life. And, as I said, you have only 20 per cent of people there at the moment, and we would really like the objective to drive it up to 50.

Mr Haynes : And Senator your question is a very valid one, but it is a public policy question that has to be faced in relation to unemployment benefits and the age pension and the minimum wage. And one of the benefits of the Australian income tax system I guess is the fact that with vertical fiscal equalisation there is some spreading of benefits in a fairly equal way across the whole of the country. Indeed, if anything, I think that helps to even out, to level, standards of living across different parts of the country, because while it may be the case that $40,000 goes further in a country town, the value of your other assets—your home, for example—is likely to be much less than is the case if you live in inner-suburban Melbourne.

CHAIR: I am changing topics here, but I want to ask the AIST about the subsidiary objective to increase national savings. Was increasing national savings one of the original objectives of the superannuation system?

Mr Haynes : It was identified by Treasurer Dawkins as being a core purpose to the superannuation system. With your indulgence, I could go on. The fact that the system is now $2.1 trillion, as everybody knows, means that the superannuation system is the channel through which a very large part of Australia's savings is channelled. And I think it would be negligent of policy makers to not consider the significance of the size of that investment and its importance on the Australian economy as being central to the superannuation system. There have been many studies—and I can provide references to these if the committee would find that of value—but superannuation assets will grow faster than the economy as a whole, and decisions that are made in the superannuation system will actually help shape the economy. So, these are not subsidiary matters; this is how the economy will be changed.

Just to give you an example of that, it will reduce our dependence on net foreign capital inflow and hence increase the level of domestic ownership. This cannot be considered as, 'Oh, yes, that's something that happens with superannuation but it's not part of the overall assessment of the purpose of the system.'

CHAIR: I am just interested: you have suggested that increasing national savings should be included as a subsidiary objective. Is that correct?

Mr Haynes : That is correct.

CHAIR: But, at the same time, you have also suggested that superannuation must always be invested in the best interests of superannuation fund members. I just wonder whether occasionally those two objectives would conflict. I am just trying to remember where the line is that you used: that superannuation should somehow be compelled to invest in infrastructure investments.

Mr Haynes : No, we do not submit that superannuation should be compelled. Our position is that operating in the best interests of members to maximise their retirement income is a primary purpose of superannuation; whereas improving national savings is a subsidiary objective. So, in the event of a conflict, acting in the best interests of members should prevail.

CHAIR: I just wonder now whether increasing national savings is essentially a happy by-product as opposed to an objective. Perhaps originally when the superannuation system was in its nascent years that may have been the case, but does it need to be even a subsidiary objective now?

Mr Haynes : Using hay to line your budgie cage is a happy outcome of harvesting wheat. I just do not think that superannuation should be put in the same category. A $2.1 trillion investment that shapes the nature of the Australian economy that is going to become more important and that is changing the flow funds within the economy and diversifying interest, raising returns and lowering risk—not just to investments but to the whole of the economy—is front and centre in terms of economic planning for Australia.

Ms Volpato : David has mentioned that Super Tracker gives five indicators of that. One of the sustainability indicators is super as a percent of GDP. It is just really showing the volume of money to protect members' retirement savings as well. We do score quite well in that respect. Out of 10, that score is 8.2, because we are currently 123 per cent of GDP.

CHAIR: So what is an ideal proportion of GDP to get 10 out of 10?

Ms Volpato : For each of the scores, as David has said, we have used publicly available data and we have set the target at 150 per cent of GDP. Obviously that is something that we have developed through the tracker. That is the sort of issue that could be taken into account in assessing the sustainability of the system.

CHAIR: In your research in both organisations—and I know it is very difficult comparing the Australian system to those overseas—is there an international comparison of the legislative purpose of their superannuation system? I know a lot of the overseas examples use defined benefit as oppose to having a defined contribution system.

Ms Volpato : Yes.

CHAIR: So this is an area of fraught with danger. However, I would be interested to know what your research has turned up.

Ms Volpato : The AIST-Mercer Super Tracker was developed as a result of research we had conducted prior to establishing the tracker. We turned to the EU. The EU has actually got an objective of their system which each member state reports against. That comprises four very key elements to that stated objective. One is adequacy, one is sustainability, one is fairness and one is meeting the demographic needs of men and women. Those are the four fundamental pillars of the EU stated objective. Whilst they have reports against key performance indicators that the EU has set, what AIST through Mercer wanted to achieve was not only an assessment of where the system is at now against the key performance indicators that we develop through Mercer based on publicly available data but also to road test policies through the tracker so that we could see if that policy was implemented how might the 10 scores actually shift. That is the sort of work that we have been undertaking through Dr David Knox.

CHAIR: Are those objectives though more applicable to the retirement income system than to the superannuation system? The superannuation system is a subset of the retirement income system, and I feel that those objectives that you are talking about, particularly in an international context, talk about a retirement income system.

Ms Volpato : It takes both into account so they are obviously looking at a component of meeting an adequate benefit and what are the private savings and the public savings?

Mr Haynes : We definitely recognise the fact that the outcome of the pension system and the outcome of superannuation is deeply entwined, which is why we were very concerned about the impact of the changes in the age pension taper rate that came in on 1 January, because we actually ran those figures through the tracker and it showed that there was a very significant reduction in the fairness of the whole system as a result of that.

CHAIR: There was a criticism levelled earlier. One of the things the FSI recommended was that there was a consensus about the objective of superannuation. You mentioned earlier, Mr Haynes, that Minister Frydenberg, some time ago, mentioned that he wanted bipartisan support. I do think that bipartisan support and consensus are two different things and probably should not be used interchangeably. The criticism levelled earlier was that all of the submitters did not agree with the FSI's objective of superannuation, which is reflected in the current bill. Those submitters are all either superannuation funds themselves or represent superannuation funds so therefore they have a vested interest, that they are essentially representing a part of the industry, not necessarily all Australians who partake in the superannuation system or are participants in the superannuation system. How do you respond to that?

Mr Haynes : Not long before the election was called, there was a roundtable of all stakeholders, not just the superannuation industry but organisations that advocated for elder Australians and less well-off Australians and other relevant parts of the economy. In my belief—I participated in that roundtable—there were the makings of an approach that could have resulted in consensus about the objective of superannuation. A discussion paper was issued after that roundtable. We responded to it but then there was the election and that was overtaken by the government's decision to proceed to legislation not because of any failure in the discussion. There are different points of view. COTA has a different point of view, ACOSS has a different point of view, National Seniors has different point of view but that different point of view, I think, is really about saying: how do we actually identify a quantitative level of superannuation in retirement that actually provides the best benefit to all Australians? So if those organisations have a view that the ASFA comfortable standard is too high and we do not share that view—we support the ASFA comfortable standard—will then let's have the debate. Let's actually talk about, let's put in place the metrics that actually say: at what level do you provide tax concessions up to? Indeed, the government has to follow that approach itself. When you have a look at the—not proposal now—actuality of the $1.6 million pension transfer cap, it is actually referenced against the ASFA comfortable standard. So when the government goes around and looks for reference points to justify its policy positions, in that particular case it referenced them by the age pension and then by a multipler to the ASFA comfortable standard and then to the $1.6 million, being the maximum amount that can be entitled to be tax-free in retirement after age 60. Nature abhors a vacuum, and there can and should be a discussion rather than letting these things happen by default.

Mr McCrea : I would add to that that it is a matter that industry is united on, and that is a sign that the industry is passionate about getting good outcomes for superannuation. Ask the average Australian what super should deliver—should it deliver a very strict definition of the objective, which is the age pension of $23,000 for a single person or 32 for a couple? Should it get to a single of $43,000 or 59 for a couple? I reckon between those two options, you would unanimously get the average Australian perspective of what they think super should deliver.

CHAIR: As a number of us has admitted today, everybody wants to be rich in retirement and so, of course, they are going to think that.

Mr McCrea : We are arguing that we do not think that is rich. We think that for a $2 trillion system it is quite reasonable to expect it to be delivering $59,000 for a couple and $43,000 for a single person. We do not think it is rich. We have heard some commentators talk about that as well the role of super. With the indulgence of the Senate, I do have a piece of paper which I would not mind passing around. Is that all right?

CHAIR: Can you tell me what it is?

Mr McCrea : It is basically an ABS series showing the role superannuation can play.

CHAIR: Would you like to table the document?

Mr McCrea : Yes, and I have copies for senators. There should be enough copies for everyone. Please let me know if there are not. With your indulgence, I might explain the table and I am obviously happy to take questions later on, if that is useful as people digest it.

One of the key points raised by some commentators is that they have downplayed the role that super currently plays in household balance sheets. First of all, I would ask you to look at Table 2, which shows the mean, and often the mean refers to the average across assets for householders. Misusing the mean for superannuation, as some have done, can lead to the incorrect conclusion that superannuation is not as important as household savings in retirement compared to other assets. You need to be careful when you look at a mean, particularly when looking at wealth and assets because a relatively small number of households with high-value assets can skew results.

This occurs with the data on average wealth holdings of various types. To illustrate this point, I would ask you to look at the column in the table that is called 'Other Property', which is property outside of the family home and then there are private trusts. If you look at the dollar value of that, it shows 686,000 and 639,000. They are pretty big numbers. I would then ask you to flip over the page and this particular table shows—it is almost like distribution—householders with a particular component. If you look at that chart and you look at the one for private trusts and then the one for other property, you will see that 80 per cent of householders do not have property outside the family home, and the flipside is that 20 per cent do; 96 per cent of householders do not have private trust and only four per cent do.

Some commentators have looked at the figures in Table 2, and I apologise for jumping between the tables, the typical Australian householder has $954,800 in assets with nearly 600,000 in owner-occupied housing. The other proportionate is some of those other assets like private trusts and other property. If you used their logic of the mean, it would mean that $137,000 would be attributable to the value of assets held by just 20 per cent of householders—and that is the other property—$25,000 attributable to private trusts, which are held by only four per cent of householders.

Accordingly, relying on mean or average figures, as some have done, misrepresents the importance of superannuation for typical Australians. Apart from assets which tend to depreciate and not provide income—that is, private motor vehicles and the contents of dwellings—superannuation is the most commonly held asset outside of bank accounts. The key conclusion, despite what some commentators are saying, is that superannuation matters for people's retirement.

CHAIR: Thank you, Mr McCrea, that is very useful. I am going to turn it other to the other senators to ask some questions now, but can I please conclude by clarifying: if this bill were to not be amended, would you support it? That is, do you support an objective of superannuation being legislated, even if the objective of superannuation that will be legislated is not the ideal definition for you?

Mr McCrea : ASFA would not support the bill in its current form.

Mr Haynes : AIST supports a legislated objective of super, but does not support this bill going forward.

CHAIR: Thank you both.

Senator KETTER: Thank you, Mr McCrea, for these figures. If I am reading them correctly, of non-home wealth, superannuation constitutes just under two-thirds of the value of all households' mean wealth.

Mr McCrea : What those tables are showing, when you look at them together, is that super does play a significant part in people's budgets. I can come back and give you the exact numbers. What I was demonstrating is that by using just the mean you can draw an incorrect assumption that it is not as important as it is. The reality is that a lot of people have superannuation, but not many people have private trusts and have property outside of their family home.

Senator KETTER: I am probably making the same mistake.

Mr McCrea : That is right. It is not a—

Senator KETTER: It says $200,000 is the superannuation, roughly.

Mr McCrea : That is the mean, so the average across all super. Yes.

Senator KETTER: And the owner-occupied dwelling is just under $600,000?

Mr McCrea : Correct. That is the average, or mean, across owner-occupied houses.

Senator KETTER: But it would be wrong to take the $600,000 out of the $954,000—

Mr McCrea : Correct, because the $954,000 you basically have to—and I am getting quite technical here—apportion those numbers there together; what proportion they are of $954,000. That is the point we are trying to make.

Senator KETTER: Mr Haynes, you have been fairly direct in your language this afternoon; you have talked about a flawed process in the lead-up to this bill. I am wondering how concerned you are about the lack of critical consensus that we have at the moment in relation to the objective. What are the dangers associated with that?

Mr Haynes : Unlike a number of initiatives, we were of the view that the ground was, and is, fertile for both political and wider community consensus. This is an absolute lost opportunity for the government and the community, and one which is capable of remedy, even at this late stage.

Senator KETTER: You have talked about the target retirement income being a fundamental defect of the bill.

Mr Haynes : Target?

Senator KETTER: Well, I guess, the absence of a target retirement income being a fundamental defect.

Mr Haynes : That relates to our support for the identification of adequacy in the objective and our support for a measure that reflects comfortable and retirement. As I said before to Senator Hume, we think that if you follow the threads that I identified, that will lead you to what is a desirable retirement outcome which, in this case, is the ASFA comfortable standard.

Senator KETTER: In relation to ASFA, I was interested in your analysis that in terms of the dangers associated with not having a better objective in the bill. You identified that in the objective that we currently have before us:

The word "supplement" is preceded by the word "or", implying that superannuation policy settings do not necessarily have to be cast in such a way that superannuation savings will support a total retirement income in excess of the full Age Pension.

That highlights the danger that we have—the potential for future governments to go down tracks that are perhaps unintended at this stage and do not meet community expectations.

Mr McCrea : That is right. I think one definition or one interpretation of the proposed objective is that you can get $23,000 in super and you do not need any money in age pension. That is, of course, not what the system is all about; it is about building upon the safety net, where appropriate, to ensure that people have, basically, dignity in retirement.

Senator KETTER: In terms of the subsidiary objectives in the ASFA submission, could you just take us through—

Mr McCrea : Absolutely. Basically, we think being equitable in its outcomes is an important subsidiary objective, and we would like to have that included, particularly the concept of intergenerational equity. I touched upon that in my opening address. We have some significant challenges for federal budgets in terms of health and aged-care costs doubling between now and 2054-55. Inevitably, more of that pressure will fall on individuals, and we just need to make sure we have a system that can meet those challenges and also insurance as well. We think it is an important part of the system, and we certainly think that there needs to be an objective that recognises the role that insurance plays.

Senator KETTER: Many of my questions we have already covered. Perhaps I will come back to you, Mr Haynes. Should the subsidiary objectives mention the gender gap?

Mr Haynes : Yes, we believe that, either explicitly or in their proper operation, they should consider the gender gap. As the committee is well aware, retirement outcomes for women are approximately half those of men, and that requires structural measures to redress which are appropriately supported by the objective.

Senator KETTER: Your decision to use the term 'all Australians' in your proposed objective raises the issue of the scope of coverage of superannuation. Do you think there should be debate about that?

Ms Volpato : If I may, the tracker also includes coverage of the superannuation system, as well as tracking the gender gap. So, in terms of coverage of our system, the tracker notes that there is about 68 per cent coverage of the working population and sets a target of greater than 80 per cent. The tracker also notes that, compared with other mandated super systems, our coverage, whilst globally quite high, compared to mandated systems is a little low. That is why we need something like the tracker as a methodology to assess those issues.

Mr Haynes : Our support for the words 'all Australians' is, absolutely consciously, an effort to encompass gender issues in the consideration of policy proposals against the objective.

Senator KETTER: What do you say to the criticism that your advocacy of an outcome such as adequacy in the objective is a reflection of a vested interest in superannuation? I would just ask you to comment on other groups that also support the position that you have adopted that may not necessarily have a vested interest.

Ms Volpato : I have worked in five superannuation funds in my time, and I have undertaken a lot of member or consumer research into members' attitudes towards superannuation. Of course, one always includes open-ended questions in surveys to see how members are truly thinking, rather than just answering set questions, and the consistent response to, 'What is your biggest concern about superannuation?' is always in those open-ended questions in every survey I have ever been involved with: 'What is adequate?' I think without such a benchmark of what is adequate it is hard to give consumers that sense of stability within the system. That is why the tracker has proposed the definition which we have based on the ASFA comfortable standard, and that is why members need to know what the answer to that question is. Even though it is hotly debated, we need an answer for them.

Senator KETTER: I guess my question related to your knowledge of other groups that have come forward that support more language in the objective in relation to the outcome. I am aware of Choice, for example. I am aware of the Association of Independent Retirees and the IPA also. Not just are there industry players coming forward; there seems to be a broader consensus in this area.

Mr McCrea : Obviously, you are going to be hearing and reading a lot of submissions from those. I think if you asked any older Australian what would enable them to have an adequate retirement, the benchmarks that we put forward would ring a chord with them, so I am really heartened. You have reflected that, in some of the submissions you have read, there is a strong voice out there and the current definition needs to be broader than it currently is. I am aware that some commentators have made claims that 'comfortable' is too high but, again, I challenge that perception that the age pension is enough. It is a safety net, and superannuation is about more than that.

Mr Haynes : The question was raised before about the ASFA 'modest' standard. The point that I would make is that a superannuation benefit of $100,000 might not be much to senators, but for a lot of Australians that actually provides a very significant supplement to what would otherwise be a very basic standard of living. That is very well appreciated by everyone who is in receipt of what might seem to be a very small amount of money, but $20 or $30 a week can make an enormous difference to the lifestyle of an ordinary retiree.

Mr McCrea : On that, I would draw senators' attention to a really good cameo on page 5 of our submission that really demonstrates the benefit that even modest amounts, for people on $40,000, in superannuation can provide.

Senator KETTER: Thank you.

Senator McALLISTER: Thanks for your evidence. I wanted to ask—perhaps Ms Volpato, but either of you gentlemen should also feel free to chip in—about how objectives function and work in different systems, because I am conscious you are across the way the Europeans manage it and others. Just to explain, we have been having a discussion about how precise this objective ought to be. There seems to be general agreement that having a standalone piece of legislation is sensible, rather than having it embedded in the core act. It would be helpful to get your understanding as industry participants about how you see the objective and what role and purpose it actually plays in the system, because this goes to whether it expresses a broad policy aspiration or a detailed metric against which its success or otherwise would be assessed.

Ms Volpato : AIST's advocacy has long been that an objective can be very broadly stated, in the ways that we have all discussed today and within our submissions, and, indeed, as the EU have done themselves. But without being backed up by methodology for assessing whether the objective is being met—like, with closing the gender gap, asking 'Will this policy help close the gender gap?'—then the objective on its own is not enough. This is why we looked at the EU system. It has that very broad philosophy about what we are trying to achieve—adequacy, sustainability, meeting the needs of men and women and being fair—but it needs to be backed up by a set of methods for assessing whether those objectives are actually being met. This is why we based the tracker on the EU example.

In terms of what we are trying to achieve with the objective, we are trying to give greater accountability and stability to members' retirement savings in a pool of pension money that is the fourth largest globally. We are also trying to answer those member queries: how is our super system delivering to us? Also, in terms of AIST advocacy, the Productivity Commission, as David referred to earlier, is looking at: is the system delivering as efficiently and competitively as it might? There are a range of key performance indicators being given. But we need to be able to answer that top line question: is the system meeting its objectives? Because the next layer down is the Productivity Commission. Yes, it might be meeting its objectives. We know it, because there is an objective and key performance indicators. But what the Productivity Commission is looking at is: could it do it even better, because of efficiency and competitiveness? This is another reason that we need a method for assessing whether the objectives are being met. I hope that answers your question.

Senator McALLISTER: Yes, it certainly does. I think one thing that you have to establish in any process of policy design is: how much of that is captured in the legislation? How much of it is captured in regulation? And how much lives in the domain of government policy? This can be quite enduring; it need not be partisan. The ASFA submission suggests that the measures ought to be part of the bill. Is that a correct understanding? Or is it simply that, more generally, the bill ought to anticipate a set of quantitative measures that are utilised in implementing the legislation?

Mr McCrea : I will respond to that. Obviously, we have the objective and we think we can build upon that. Whether it is there or it is in another piece of regulation, we certainly think having some of those potential measures are important. I refer the Senate to page 7 of our submission where we set four key indicators that could sit underneath the objective, which go into the number of Australians on the age pension, age pension expenditure as a proportion of GDP, along with superannuation, replacement rate and achieving a comfortable standard. We think there is also an opportunity when you get the objective right to measure it in the IGR and see how we are going and tracking. I think that is a real opportunity. The IGR is a document that is done every five years. It is a forward looking document that looks over the next 40 years, and that is a very appropriate document to measure the success of the objective and how the policy that sits underneath that is developed.

Senator McALLISTER: With the policy approach that you advocate, the objective itself can be high level; it can be qualitative in nature. When we are using words like 'adequate', 'comfortable' and 'dignity' in that context, it is these qualitative guidelines on which you then build a quantitative measurement approach.

Mr McCrea : Correct.

Mr Haynes : Senator, all of the artefacts need to hang together; you need to be able to reference it up to the next level. One of the other things we talked about, for example, was in relation to the statements of capabilities. There is no provision in the bill for them to address subsidiary objectives. That is one of the hooks where there needs to be a connection between the primary objective and the subsidiary objectives.

Senator McALLISTER: We have had evidence, much of which has been along a similar line. I note that the ISA draft objective is very similar to yours, although it does make reference to community standards in a way that your recommended objective does not. I am not asking you to critique the ISA proposition, but I am interested in your thinking about the role that community standards and expectations play in establishing this idea of 'comfortable', because it is a subjective measure.

Mr Haynes : We certainly toyed with the notion of incorporating community standards, and at different times and in different forums we have tested different objectives. We think the ISA definition is entirely fit for purpose. We settled on this particular definition because of our support for the ASFA comfortable standard and how this links to it and the desire for simplicity and straightforwardness.

Mr McCrea : I suppose from an ASFA point of view that is a valid argument, and I will not criticise ISA's view. You can cut the words in many different ways, but the key concept for us is setting that benchmark, and that benchmark of the comfortable standard is something the system should be delivering.

Senator McALLISTER: And, critically, higher than the safety net?

Mr McCrea : Correct.

Senator KETTER: When I compare the consensus definition that emerged in your letter of 2 August to the FSC's proposed objective, I see both referring to all Australians; I see in both the use of the comfortable standard; I see that in both the word 'adequate' appears, although in different places in the objective. How far apart are you from the FSC? What do you see as the significant difference between your two objectives?

Mr Haynes : In summary, I do not see any significant difference between our position and that of the FSC. The FSC was involved in many of the discussions that resulted in the other association sending the letter of August last year and there appeared to be a high degree of consensus. I hope I am not talking too much out of school in relation to that, but, given where the FSC landed, I do not think I am.

Senator KETTER: We seem painfully close to reaching a consensus with all of the major players in the superannuation industry, if I could call it that.

Mr Haynes : Yes, and hence my earlier comment about this being a wasted opportunity if that consensus was not used as the stepping stone for the next level of consensus—that is, in discussions with government and other stakeholders.

CHAIR: Thank you very much for appearing before the committee today.