If Australia’s superannuation system is to be sustainable in the long run, fund members need to be able to participate in it confidently. Confidence is essential because superannuation contributions are preserved for the member’s retirement, perhaps many decades in the future. There is widespread concern within the superannuation industry that frequent changes to the superannuation system, while improving its adequacy and sustainability, cause people to lose confidence.
In reaching its recommendations, the Charter Group has been guided by the axiom that, in order to promote confidence in the long-term benefits of superannuation, no change to superannuation should be regarded as urgent.
The Charter Group recommends the establishment of an independent Super Council to ensure that any future changes to superannuation are consistent with an agreed Super Charter that would operate along the lines of the Charter of Budget Honesty. The Charter at Appendix A would outline the core objectives and principles of the Australian superannuation system. The Charter Group concludes that, at a high level, the objectives of the Australian superannuation system are to:
- provide an adequate level of retirement income;
- relieve pressure on the Age Pension; and
- increase national savings, creating a pool of patient capital to be invested as decided by fiduciary trustees.
In this report, the Charter Group explores the principles of the Australian superannuation system: adequacy, sustainability, certainty and fairness. The Charter Group believes that these four principles cover the issues satisfactorily and that additional stand-alone principles are not warranted. However, it considers that the relative importance of the principles will depend on the particular issue the Council is examining.
The Charter Group considers that the Charter and Council should be enshrined in legislation. The Charter Group favours the Council being established as a separate and independent body with the ability to obtain information and services relevant to its work from other parts of government. However, the Charter Group is open to the Council sharing back office and research resources and other infrastructure with another agency, perhaps the Productivity Commission.
The report identifies criteria by which Council members should be appointed, on the basis of personal merit, skills, capacity and diversity. The Charter Group regards it as critical to the success of the Council that its members be appointed in a personal, rather than a representative, capacity.
Further, the Charter Group has been guided by its view that it is changes to tax concessions and entitlements to access super that are most likely to affect member confidence and which therefore require the additional processes and protections proposed by the Charter. A core function that the Charter Group sees for the Council is that it should certify, in the case of each change to superannuation that it considers, whether it believes the change is compatible with the Charter principles.
In assessing particular proposals, the Council will consult publicly or selectively where appropriate (for example, to avoid signalling a possible rule change with associated behavioural consequences). Consultation could be either on a formal or an informal basis.
When it comes to assessing future policy proposals, it will be important for the Council to be able to weigh the notional cost of proposed policies against expected future offsetting reductions in the Age Pension and other measurable benefits. This will require the development of a comprehensive framework of analysis which is able to combine these elements. This will allow over time the proper alignment of tax concessions to the objectives of superannuation.
The Council would report to the Minister on specific proposals within a time frame which would depend on the complexity of the proposal. The Council’s reports would usually be required to be tabled in Parliament within a specified period of being provided to government. In addition to undertaking assessments of particular policy proposals, the Council would provide an annual report to Parliament on the state of the super system against the principles set out in the Charter. The annual report could include details of the Council’s research and publications as well as recommendations on policy matters.
The Charter Group considers that the Council should be funded from the Australian Prudential Regulation Authority (APRA) levy and the supervisory levy imposed on self-managed superannuation funds (SMSFs). Where possible, the component of those levies attributable to the cost of running the Council should be transparent and shared as equally as possible across the sectors.
The report refers to a number of existing bodies that could make policy recommendations to government that could impinge on the Charter principles. It would be open to the Council and these other bodies to develop memoranda of understanding to establish communication channels and other mechanisms to deal with areas of potential overlap in their activities. Further, the Council may wish to develop an agreement with the Department of the Treasury in relation to material relevant to its research and publication of statistics and reports, and with APRA in relation to the types of research each body will be likely to conduct.
Australia’s superannuation system will continue to change as it matures, as innovations occur and as it becomes proportionately larger than other parts of the economy. The Charter will see such changes being subject to a best practice consultation process fully spelt out in legislation, rather than by way of binding announcement. Nor does the Charter Group see the Charter as being set in stone: it is a living document that will change along with the super system.
The Charter Group recognises that super is one aspect of a broader retirement income system, which is in turn part of a bigger picture. Super’s sustainability depends on policies implemented elsewhere, including those concerning health, aged care and immigration. The ultimate goal of the Council could be to advise government on how to link super, health care and aged care together in a seamless savings- and retirement-related policy.