Objectives of Super

Objectives of Super



On 1 July 2017, the Federal Government’s latest amendments to superannuation legislation will come into effect. The Superannuation (Objective) Bill 2016 is currently being reviewed by the Economics Legislative Committee and Mercer has lodged a submission to the committee offering our expert opinion on the objectives of the superannuation system.

So what do we think? Mercer strongly supports the government’s decision to state within the legislation the primary and subsidiary objectives of Australia’s super system. We also agree that any future super bills and regulations should include a statement of compatibility with those objectives. We believe that defining clear objectives is vital if the overall system is to provide an adequate and secure retirement income for all Australians. However, we believe the current description of the primary objective is too vague: “to provide income in retirement to substitute or supplement the Age Pension.”

Instead, we recommend that the objectives are outlined with a total retirement income perspective and a long-term view. That means defining the objectives of both superannuation and the Age Pension simultaneously, with the primary objective including a desired level of total income from a combination of superannuation and the Age Pension.

To reflect this, we suggest rewording the primary objective for the overall retirement income system as follows:

To provide the vast majority of Australians with an income throughout their retirement that enables their pre-retirement living standards to be maintained.

By including a desired level of total income from both superannuation and the Age Pension in the primary objective, governments can then make informed policy decisions on the design of the Age Pension means tests, such as:

  • The point at which income from superannuation changes from supplementing the Age Pension to replacing it
  • The appropriate rate of substitution

Mercer’s proposed changes would also inform decisions about the appropriate level of compulsory superannuation savings (the Superannuation Guarantee requirements) and the recommended incentives to encourage people to save voluntarily through super. 

Our submission also notes that there is a precedent for including a desired level of total income from super and the Age Pension — Australia would be following in Switzerland’s footsteps

We will continue to provide updates on the outcome of the Superannuation (Objective) Bill 2016 as further information becomes available.

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