Defining clear objectives for superannuation is important in both the short and longer-term if the system is going to provide a secure retirement for all Australians, according to superannuation experts, Mercer.
Mercer welcomes the government’s invitation for industry consultation to define the objectives, but also hopes the objectives are defined with a total retirement income perspective and a long-term view.
Mercer Senior Partner, Dr David Knox, said, “To do this properly we have to define the objectives of both superannuation and the Age Pension simultaneously.”
“Super should provide an income throughout your entire retirement, it is not intended for wealth accumulation and estate planning. We need to lock this into the overall objectives now to ensure an adequate and sustainable retirement income for Australians and to protect against ongoing tinkering,” Dr Knox said.
Alleviating fiscal pressures on the government also needs to be addressed in the objectives. Mercer believes to do this the costs of the Age Pension and the superannuation tax concessions need to be considered in combination over the longer-term.
“The cost of super tax concessions to the government is only part of our retirement savings and should not be considered in isolation. Concentrating on only one component will adversely affect the development of a sound and sustainable retirement income system,” said Dr Knox.
Adding to the debate, Dr Knox said, “It is not enough to state that superannuation should substitute or supplement the Age Pension. We need a clear and sensible line in the sand as to when it should move from supplementing to becoming a substitute and some rationale and clarity around the rate of substitution.”
Mercer’s submission as part of the consultation process will propose a rationale for the long-term relationship between the Age Pension and superannuation.
“We firmly believe the objectives of superannuation must include a whole-of-life approach, including reference to how longevity risk may be managed. Longevity risk is one of the biggest risks facing retired Australians as the length of their retirement is unknown and therefore ensuring their savings last as long as they do is challenging.
“There are potential short-term gains for the government to have objectives enshrined in legislation – but it is important we don’t lose sight of the long-term opportunity here. It’s a good idea, let’s just make sure we do it properly,” concluded Dr Knox.
Mercer is a global consulting leader in talent, health, retirement and investments. Mercer helps clients around the world advance the health, wealth and performance of their most vital asset – their people. Mercer’s more than 20,000 employees are based in more than 40 countries and the firm operates in over 130 countries. Mercer is a wholly owned subsidiary of Marsh & McLennan Companies (NYSE: MMC), a global professional services firm offering clients advice and solutions in the areas of risk, strategy and people. With 57,000 employees worldwide and annual revenue exceeding $13 billion, Marsh & McLennan Companies is also the parent company of Marsh, a leader in insurance broking and risk management; Guy Carpenter, a leader in providing risk and reinsurance intermediary services; and Oliver Wyman, a leader in management consulting. For more information, visit www.mercer.com.au. Follow Mercer on Twitter @MercerAu