Superannuation Discussion Paper

On Monday, the Federal Treasurer Jim Chalmers released a superannuation discussion paper with the exciting name of “legislating the objective of superannuation.” The paper suggested that superannuation’s objective “is to preserve savings to deliver income for a dignified retirement, alongside government support, in an equitable and sustainable way”.

To achieve this goal means that the federal government must stop or limit Australians from accessing their superannuation prior to retirement, such as through ‘hardship provisions,’ which places the Labor party at odds with the Coalition and even independent members such as Senator Lambie. Indeed, given the probability of Australia entering a recession in 2023, these hardship provisions will probably be needed by ordinary Australians.

The former Coalition government led by Scott Morrison allowed Australians to withdraw up to $20,000 from their superannuation funds during the COVID 19 pandemic to help with their living costs. A policy that allowed $36 billion to be removed from the total superannuation fund pool over two years.

Apparently, this focus on superannuation also includes tightening the uses for superannuation, potentially winding back the tax breaks in place and, identifying opportunities for the $3.3 trillion pool of funds to be directed into national projects.

The paper seeks feedback on the wording, and the government will in time make its decision. If this wording were legislated as it stands, a future Coalition government that wanted super to be used for housing would have to alter the definition making it that much more difficult. Despite the inflationary impact of allowing first home buyers to access superannuation funds to purchase housing, it apparently still remains a popular policy within the Coalition championed by Liberal senator Andrew Bragg.  

The Retirement Income Review, released in 2020, noted that while tax concessions were designed to support retirement savings, “most retirees leave the bulk of the wealth they had at retirement as a bequest”. Indeed, Treasury estimates that by 2060 one third of all superannuation withdrawals will be paid out as bequests. The superannuation tax concessions with their increasing cost to government revenue, could be trimmed for cost and equity reasons.

Currently, the Minister for the National Disability Insurance Scheme (“NDIS”), Bill Shorten, is seeking to find savings in the NDIS to make it more sustainable in the long term. If that’s reasonable for the NDIS, it is more than reasonable that the superannuation tax breaks are also reviewed.

The other area that is being considered is how the federal government could collaborate with super funds to facilitate investment into priority areas such as affordable housing. This might be a tall order as super funds should invest in their members’ best interests, something that might not be the case with compulsory government investments. While such collaboration would be on a voluntary basis, further clarification around how this could work would be helpful.

These are all important policy questions to be addressed and, ideally there would be bipartisan consensus on the outcomes. However, attempting to alter superannuation is particularly difficult for a government that is dealing with sustained inflation, rising interest rates, a complicated global environment and gloomy consumer sentiment.

As the famous public servant Sir Humphrey Appleby from the tv show Yes Minister would say choosing this battle is a “brave decision.” Although the Treasurer included a very large limitation on the paper by stating that “Australians shouldn’t expect major changes to superannuation.”

Perhaps an easier place to improve Australian’s superannuation balance at retirement would be to curb the annual fees paid by Australians to their funds each year. These fees were estimated at totaling $30 billion in 2018 by the Productivity Commission and in the same report they identified that a 0.5 % increase in fees led to a 12 % reduction in superannuation balance at retirement.

While the previous Government’s ‘Your Future, Your Super’ reform have assisted to reduce fees through greater transparency, continuing this focus on fees and under performance might be more politically astute and more likely to improve the superannuation balances of most Australians.