Does the current proposal to enshrine super's purpose go far enough?
It seems that the financial services industry is in furious agreement that the purpose of superannuation needs to be enshrined in law, however, does the current proposal go far enough?
In accordance with the recommendation from the Financial Services Inquiry, the objective of superannuation, ‘to provide an income to substitute or supplement the Age Pension’, will be enshrined in legislation but the Government is being urged to go one step further by NAB-owned MLC.
In the third part of its Australia Today white paper, which is a study of 2000 people conducted by IPSOS, MLC argues that the over-arching aim of superannuation should be to enable and encourage people to save enough for an adequate income in retirement.
When interviewed, Paul Carter, MLC’s Executive General Manager of Superannuation and Investment Proposals, said; “We applaud the major political parties for their commitment to legislate the objectives of super.”
“However, those objectives must be clear, measurable and robust to ensure they target an adequate replacement income in retirement to mitigate generational inequity and gaps in living standards as well as costly and destabilising interventions into the future,” he said.
“Superannuation has been the subject of political whims for too long. The end result has been constant tinkering, or significant unanticipated change, which has left Australians feeling uncertain about their retirement.”
The research also shows that 66 per cent of Australians feel ‘slightly or not at all’ prepared for retirement, with only 15 per cent claiming to be ‘very well or fairly well’ prepared. Women, who retire with 40 per cent less super than men, were more likely than their male counterparts to feel unprepared – 74 per cent compared with 57 per cent of men.
Knowledge, it appears, is also power, with 35 per cent of those who used financial planners reporting feeling ‘very well/fairly well’ prepared for retirement, compared with nine per cent who sought no professional advice at all.
And the goal of living in retirement without government support is still some way off, with self-funded retirement considered achievable by only 54 per cent of respondents.
What is perhaps of most concern is the fact that retirement doesn't feature very highly when a windfall comes into play. When asked what they would do with a hypothetical gift of $50,000, most respondents would put it towards their mortgage, add it to savings or take a holiday.
Read more at MLC.com.au
Some 24 years after our superannuation system was first introduced, a system that is now worth $1 trillion, we’re still debating its intended purpose.
How, then, if we don't fully understand the purpose of the main vehicle for saving for our retirement, can we be expected to put our faith in the system?
Surely if the original purpose – to supplement the Age Pension – was honoured in a simpler system, along with the intention of providing a 15 per cent superannuation guarantee to workers, then superannuation would not only deliver a retirement income to those who need it, it would also not need the constant tinkering and legislative changes that we are forced to endure.
In the haste to address seemingly ineffective aspects of superannuation policy, we now have an unwieldy system that is open to abuse by those wealthy enough to do so. Superannuation has become a cash cow or tax haven for those unlikely to ever need to claim an Age Pension. And of course, the nation has been forced to forgo the much-needed associated tax revenue; money that could well be used to increase the meagre Age Pension for those who do rely on such an income.
Now, more than three months on from Budget 2016/17, when promises were made to address the unfair inconsistencies in superannuation, it appears we have a government that is willing to tinker further with the system.
What appears to have been overlooked from the Financial Services Inquiry – in the interest of sound bites – is that the value of the superannuation system to individuals and their retirement incomes needs to be lifted. This can only be achieved if the Government starts with the end in mind – not jumping in and out, changing policy and legislation as it pleases.
What do you think? Is super too complicated? If guarantee contributions had been increased to the original 15 per cent, would it have made a difference to your retirement savings? Do you have any confidence in superannuation as a retirement savings vehicle?
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