The objective of superannuation is to preserve savings to deliver income for a dignified retirement, alongside government support, in an equitable and sustainable way.
– the proposed “objective of superannuation”, released by the government
Like most mission statements cooked up at a whiteboard offsites, the palaver and preamble leading up to this is irrelevant – what matters are the words themselves.
And in this case, what matters most is not some government-decreed objective in legislation, but what the super funds themselves think about their purpose, and how they put it into practice.
That’s because, while the money that the funds get might be compelled by statute, and enticed by tax breaks, what happens to it from there is privatised – it’s controlled by private funds, some owned by unions and employer bodies, some by banks and other institutions.
They’re the ones who determine the objective of super – the government can only guide, with APRA holding a prudential stick.
Nevertheless, since the government is driving the tax concession gravy train, its words carry weight.
Two key words
So let’s look at those words in the government’s draft guide, at the top of today’s column, and there are two that matter the most: “Preserve” and “equitable”.
There have been three questions to be resolved in the process of developing an objective for super:
- Is the money to stay locked up tight until retirement, apart from existing hardship access clauses, or can it be accessed before then?
- Can the money be directed by governments for “nation building” purposes, as opposed to entirely directed to the maximum return for members?
- Should there be a cap on the super tax deductions available to rich people?
According to what has issued from the Treasurer’s whiteboard, the answers are: Yes, no and yes.
That is, “preserve” means no more access to super before retirement, either for the deposit on a house or to help in a pandemic.
There is already access to super on hardship or compassionate grounds, which can be rorted with a compliant doctor or dentist, but on the whole preserve means just that – it’s locked.
It’s a bit less clear that “preserve” means making sure governments keep their sticky fingers off the super pool for building national infrastructure, but it probably does mean that, or at least it should.
That might need to be tested in court at some stage, but industry funds are powerful now and are very unwilling to be told what to do with their members’ money. Any nation building will need to provide a proper return.
Tax concessions
Perhaps most important of all, the word “equitable” allows superannuation tax deductions to be limited, probably through a cap on the size of the individual fund that gets tax concessions.
In fact, adding the word “sustainable” to “equitable” probably makes that inevitable and imminent, and the question of whether the Coalition would support it is irrelevant – the Greens and David Pocock certainly will.
The only other potential change is not explicitly in the consultant paper released with the new mission statement: It’s the result of Michelle Levy’s review of financial advice, which will change the duty of advisers to act in the “best interests” of clients, to providing “good advice”.
Although this is aimed at the financial advice sector, rather than the super industry, it will give super funds much more scope to provide advice without having to produce a 50-page statement of advice, which holds them back at the moment.
In some ways, this could be the biggest change of all to superannuation and financial services generally.
Most investment advice is sought, and given, at the point of retirement, but if super funds are freed to provide it instead of financial planners, and that’s combined with the idea that the objective of super is to “deliver income for a dignified retirement”, the result could be a revolution.
More focus on retirement
Which brings us to the real issue with the objective of super – super funds have never paid enough attention to their role in providing for retirement.
That might seem an odd thing to say, since that’s what they’re supposed to be all about, but the truth is that the funds have always seen themselves, and marketed themselves, as savings vehicles, not retirement income vehicles.
The difference is subtle, but important. The marketing of industry funds has usually been focused on how much you’ll end up with, such as this one comparing the balances of Tom and Josh (Tom switched to an industry fund; Josh didn’t).
It’s powerful, for sure, but encourages members to think about how much cash they’re going to make at retirement, like a lottery win, rather than whether they will have a “dignified retirement”.
So while the government’s new mission statement for super will be an important guide for the industry, it’s up to the super funds themselves to ‘walk the walk’ in delivering a dignified retirement, and not just a whopping 60th birthday present.
Alan Kohler is founder of Eureka Report and finance presenter on ABC news. He writes twice a week for The New Daily
The New Daily is owned by Industry Super Holdings
