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Wednesday, 9 November 2016
Page: 3378

Mr MORRISON (CookTreasurer) (16:20): I move:

That this bill be now read a second time.

This bill enshrines in law that the objective of the superannuation system is to provide income in retirement to substitute or supplement the age pension.

This is the first time we have had such definite recourse to what the purpose of the superannuation system is.

The Financial System Inquiry, led by David Murray, recommended that objective. And, after consulting widely, the government has agreed to the objective.

The objective for superannuation will enhance stability in the superannuation system by creating a clear framework for assessing superannuation policy.

The importance of superannuation

Australia's retirement income system comprises the age pension, compulsory superannuation and other private savings, including voluntary contributions to superannuation and the family home.

Among these, superannuation is Australia's second-largest savings vehicle.

More than 80 per cent of working-age Australians have superannuation savings, and superannuation makes up around 22 per cent of all assets held by Australian households.

Since the introduction of compulsory superannuation in 1992, the superannuation system has grown, both in size and importance. Assets in superannuation are now worth more than $2 trillion.

Over time there have been various statements about the role of superannuation.

But given its solid history and remarkable growth, it is really quite extraordinary to think that, until now, no legislation has existed to clearly define the objective of superannuation. Financial System Inquiry

The Financial System Inquiry (FSI) found that while Australia's superannuation system has considerable strengths, it lacks efficiency in a number of areas. In particular, the FSI said that the lack of clarity around the ultimate objective of superannuation led to short-term ad hoc policymaking, added complexity, imposed unnecessary cost and undermined long-term confidence in the superannuation system.

The FSI therefore recommended the government seek broad agreement on the following primary objective for the superannuation system: 'to provide income in retirement to substitute or supplement the age pension'.

The government agreed, as part of its response to the FSI, to enshrine the objective of the superannuation system in the law.

As the FSI noted, a legislated objective will serve as a guide to policymakers, regulators, industry and the community about superannuation's fundamental purpose.

It will promote confidence in the superannuation system—that it is being used for its core purpose of providing income in retirement and not for tax minimisation or estate planning purposes or any further such initiatives.

And it will provide a way in which competing superannuation proposals can be measured and a framework for evaluating future changes and the fairness, adequacy and sustainability of the superannuation system overall.

There has been strong support for legislating an objective of superannuation from across the sector, including the Australian Council of Social Service, the Australian Institute of Superannuation Trustees, the Association of Superannuation Funds of Australia (ASFA), Industry Super Australia, the Self-Managed Superannuation Fund Association, National Seniors Australia and the Financial Services Council.

As ASFA noted:

The government's commitment to defining the objectives of superannuation and enshrining this in legislation will provide an enduring reference point to guide future decision making by all policy makers.

The government has consulted widely on the proposed objective of superannuation, releasing both a discussion paper and draft legislation.

During consultation, while stakeholders continued to support legislating an objective of superannuation, there were different views on the wording of the objective.

There was a general agreement that the objective of super is to provide for retirement income, rather than unlimited wealth accumulation or bequests. There was also broad agreement that the primary objective should be concise and supported by subsidiary objectives.

However, some stakeholders wanted the objective to go further, to include concepts like 'adequacy' or 'comfort' in retirement. While stakeholders recommended changes to the proposed objective, there was no consensus on what the revised wording should be.

After giving careful consideration to the different views put forward in consultation, the government is legislating the objective recommended by the Financial System Inquiry. Schedule 5 of this bill enshrines that the objective of superannuation is to 'provide income in retirement to substitute or supplement the age pension'.

David Murray, the head of the FSI, supports a simple objective, recently stating:

The legislated objective of the $2 trillion superannuation system should not include references to achieving "comfort" or "adequacy" because it would open the way to constant political interference.

Subsidiary objectives

A single primary objective cannot possibly encompass all aspects of the purpose and attributes of the superannuation system. The FSI recommended the government also seek agreement to a range of subsidiary objectives, which would support the primary objective of the superannuation system.

The government will prescribe in regulation five subsidiary objectives.

These are:

facilitate consumption smoothing over the course of an individual's life;

manage risks in retirement;

be invested in the interests of superannuation fund members;

alleviate fiscal pressures on government from the retirement income system; and

be simple, efficient and provide safeguards.

The subsidiary objectives, with the primary objective, provide a comprehensive framework for assessing changes to superannuation policy.

Statement of c ompatibility

To ensure the objective of superannuation is clearly considered when changes to superannuation are proposed, sections 6 and 7 of this bill introduce a requirement that a statement of compatibility must be prepared for any bill or regulation relating to superannuation. The statement must set out how the proposed legislation or regulation is consistent with the primary and subsidiary objectives of superannuation.

This will ensure that all proposed changes to superannuation are evaluated and measured against the objective of superannuation and inform public debate on any proposed changes.

As the purpose of the objective is to guide the policymaking process and public debate, the objective of superannuation will not affect the interpretation or application of superannuation legislation.

Budget 2016-17 superannuation package

The objective has been an anchor for development of the superannuation package announced in the 2016-17 budget.

The package will better target superannuation tax concessions to those who need them most. It also enhances flexibility and choice in terms of saving for retirement and the retirement income products on offer, as well as improving the integrity of the superannuation system more broadly.

Accordingly, the government's superannuation package is entirely consistent with the objective of superannuation to provide income in retirement to substitute or supplement the age pension, by affording many Australians more opportunities to save for a self-sufficient retirement while alleviating fiscal pressures on government from the retirement income system.

As a sign of the government's commitment to the objective of superannuation, while not technically required, a statement of compatibility has been provided for the Treasury Laws Amendment (Fair and Sustainable Superannuation) Bill 2016.

Final remarks

I would like to reiterate that the government has taken the initiative to ensure that the Australian superannuation system continues to benefit all Australians through the delivery of this legislation.

The objective will help provide greater long-term confidence, policy stability and a means of measuring competing superannuation proposals. It already has been important for the development of the superannuation package that was announced in the 2016-17 budget.

As such, I encourage passage of the legislation so that it can be used to assess future amendments to superannuation by governments of any persuasion.

Full details about this bill are contained in the explanatory memorandum.

Debate adjourned.