What should the federal government’s super and retirement planning priorities be?

The superannuation world is ever-changing, which is why it’s so important to stay up-to-date with all the rules, caps, rates and thresholds. While many of the changes can be seen as the government fiddling with the rules or shifting the goalposts, many changes can be positive.

Government policy is never flawless and improvements can always be identified. Some policies are designed to be fairer while others may be designed to incentivise Australians to boost their super, or for the industry to cut their fees.

As we see the dawn of a new government, we asked some of Australia’s top experts in superannuation and retirement planning what they think the government should be focusing on.

Sarah Abood

CEO, Financial Planning Association (FPA)

The superannuation system has continued to experience significant changes of late, with legislative reforms putting a spotlight on fund performance and trustee retirement income strategies. We are watching with great interest how these changes, such as the introduction of benchmarks, will deliver better outcomes for consumers.

Financial planners have also been anxiously awaiting the implementation of the retirement income covenant and the development of innovative retirement income products. The stagnation and one-size-fits-all account-based pension model, which has been the only solution for clients over the last 15 years, has led to sub-optimal outcomes for Australians trying to manage their retirement income needs, as demonstrated by the Government’s frequent intervention into draw down levels over this period. 

There has been much discussion of late about accessing superannuation for short-term financial or housing needs, however, the FPA firmly believes that superannuation is for Australians’ retirement. It is critical that before making any decisions, Australians access professional financial advice and think very carefully about actions that could have major consequences for their future prosperity.

We welcome the Government’s commitment to deliver the legislated increases to the superannuation guarantee in full and on time. However, the time has come to close the retirement income gap between men and women that has existed for far too long. Industry and Government must, as a priority, examine initiatives to boost the retirement savings of women, such as the extension of the superannuation guarantee to paid parental and carers leave, so more Australians can achieve their retirement goals.

We look forward to working with the new Government to ensure Australians continue to have access to quality and affordable financial advice for their retirement.

Harry Chemay

Harry is an independent consultant and advisor working with institutions big and small that are committed to improving the retirement outcomes of Australians, as well as Australian ambassador to the Transparency Task Force, a UK-led initiative to bring greater transparency and accountability to financial services.

A change in government presents an opportunity to revisit an issue that has surfaced since the outbreak of COVID, and the commandeering of super into the response via the COVID early release scheme. Add to that the Super Home Buyer Scheme election policy put forward by the Coalition, the purpose of superannuation appears less clear today than at any time since the introduction of SG.

The new government should revisit the recommendation made by the Financial System Inquiry of 2014 to legislate the objectives of superannuation, so that there is policy clarity as to what it is that the superannuation system exists to achieve. This can be done by legislating the Superannuation (Objectives) Bill 2016 which was allowed to lapse in the 45th Parliament. In the absence of such clarity, superannuation will continue to be subject to forces opportunistically pulling it away from its original intent.

Brendan Coates and Joey Moloney

Brendan Coates is the Economic Policy Program Director and Joey Moloney is a Senior Associate at Grattan Institute.

At a time when genuine productivity-enhancing reforms are rare, superannuation reform – including the new underperformance test, stapling super funds to members as they change jobs, and removing duplicate accounts and insurance – is a valuable legacy of the Morrison Government.

But there is still much left for the Albanese Government to do on super. Here’s what its priorities should be.

First, wind back superannuation tax concessions.

These tax breaks go far beyond what is needed to ensure adequate retirement incomes, and their cost vastly outweighs any corresponding savings via lower age pension spending. The super tax breaks serve little purpose but to facilitate tax-planning for high-income households. But the federal budget faces structural budget deficits of about 2 per cent of GDP. Baked-in spending on aged care, defence, and the NDIS leaves us with little choice but to raise more revenue. The 2016 super tax changes cut some of the most egregious rorts from the system. But with these concessions now costing upwards of $40 billion a year, and growing fast, super tax breaks should be first up against the wall now that it’s time for budget repair. Grattan Institute has recommended cutting contribution caps and taxing super earnings in the drawdown phase. These reforms could raise $5 billion a year today, and much more in future.

Second, the new Government should build on, rather than tear down, the former government’s reforms to lower superannuation costs and improve fund performance.

The existing underperformance test can be improved, including via the changes that are underway to extend it to choice products. But the Government should not step back from the idea of objective benchmarking. The Government should also stick with stapling rather than switching to an auto-rollover model proposed by Industry Super Australia, which would add unnecessary costs as members switch super funds each time they change jobs. Most importantly, a new default system is needed to ensure disengaged members are connected to high-performing, low-fee MySuper products.

And third, the Albanese Government should do more out of-the-box thinking about the drawdown phase.

The Retirement Income Covenant will help focus trustee attention on better retirement offerings, but it’s lack of guidance and guardrails risks the proliferation of poor-quality products. We risk creating exactly the kind of mess in the drawdown space that we’re still cleaning up in the accumulation phase. Strong intervention is even more warranted for the retirement phase, where products are much more complicated and consumers risk being stuck with a bad product for a long time.

The new Government should therefore explore how best to help different cohorts of retirees to find efficient draw-down strategies. That could include a set of “best in show” shortlists, where individuals are matched to products by cohort, or the Government could directly offer a limited suite of retirement income products itself.

Some in the super sector may be tempted to think that the big questions in super have been settled. They should think again.

Jeremy Cooper

Chairman, Retirement Income, Challenger

Ideally, all changes to super should be bipartisan. Super is an even longer-term transaction than home ownership for most Australians. People need certainty. They need to be confident that a change made to the rules governing super is very unlikely to be over-turned by a subsequent government.

The incoming Labor government is likely to want to revisit the purpose of super legislation that stalled in 2016. A key reason for the purpose of super not being legislated at that time was that the two major parties couldn’t agree on the wording. They came close but didn’t get there. Let’s hope that better progress can be made the second time around.

Other things to clarify once and for all might be the interaction between super and housing and under what circumstances super can be accessed in times of economic uncertainty. Putting more constraints on the ease with which minimum drawdown rates can be adjusted would be another positive step. Reducing the rates might be electorally popular, but it sends confusing signals about what super is for. The drawdown rates are a tax measure. They ensure that money is withdrawn from super’s concessional tax environment at increasing rates based on age. The rate at which super must be spent, on the other hand, is a matter entirely for retirees themselves. This distinction is important and often gets lost when this issue is discussed. Super is only part, albeit an important one, of a household’s retirement savings.

Labor has already said it wants to tweak the performance test introduced under the Your Future Your Super reforms, without compromising its intent. This seems sensible.

Dr Martin Fahy

CEO, Association of Superannuation Funds of Australia (ASFA)

The aspiration to have 50% of Australians self-funded in retirement by 2050 is now well under way. Underpinning this are the key issues of sustainability and equity. Four priorities to address these issues are:

1. Address the superannuation gap for women: One way to step in the right direction would be to implement ASFA’s proposed Super Baby Bonus – a $5,000 deposit into a person’s superannuation account following the birth or adoption of a child

• Close the gap for gig-economy workers: The removal of the $450 threshold has gone part way to improving retirement outcomes for casual workers, but we’d like to see compulsory universal superannuation extended to dependent contractors to improve coverage for all

• Address unpaid superannuation: With the introduction of Single Touch Payroll now complete, we think it is an opportune time to align the collection of payment of superannuation with the payroll cycle. Additionally, we’d look at the treatment of unpaid superannuation during liquidations and administration of small and medium sized business. To avoid people losing out on their superannuation when businesses get into financial difficulty, contributions should be protected in the same way as wages and receive preferential creditor treatment.

• Orchestrate the regulatory environment for the transition to Net Zero: The efficient deployment of capital by super funds to support the transition to Net Zero (retooling industry, the electricity grid, transport and so on) is dependent on government orchestrating the right regulatory environment.

Jim Hennington

Jim is a consulting actuary who specialises in modern retirement modelling and strategy

In February 2022, legislation was passed for all superannuation funds (other than SMSFs) to implement a ‘Retirement Income Covenant’.

What this means is super funds will have to be more proactive in helping their members once they reach the retirement phase. It’s at this point when members need to turn their balances into sustainable retirement income which supplements any Age Pension income they receive. It’s hard.

The good news is that these policies will increase Australian retirees’ incomes by up to 30% – with no increase to contributions.

The improvement comes from implementing more efficient techniques and products for turning people’s money into monthly retirement income that can confidently last for life. Ultimately it’s a balance between having full access to funds (including as an inheritance) versus having higher income that doesn’t run out. Managing the way super interacts with the Age Pension means testing rules and incentives is also key.

The Government should be cautious about making more changes to superannuation whilst these changes are being implemented. The focus should be on making sure it’s all done well. An example of this is to solve the problems flagged in the ‘Quality of Advice’ review and to not forget the Retirement Incomes Disclosure consultation responses from 2019. We need to reduce the current regulatory impediments that may get in the way of super funds guiding members to make informed choices. 

The world is watching with great interest as Australia continues to take the lead in building an amazing, albeit complex, defined contribution retirement system.

John Maroney

CEO, SMSF Association

To provide a clearer direction for future reform within the superannuation sector, the new Government should legislate the proposed objective of superannuation in the near future. In addition, the Government should legislate the remaining proposals included in the previous Government’s budget announcements in 2021, including improvements to residency arrangements for SMSFs and rationalisation of legacy pension issues.

We encourage the Government to continue with the quality of advice review, with the current terms of reference. We would support an extension of time for the review, if that was considered appropriate. The review should focus on improving the accessibility and affordability of financial advice, especially for those approaching retirement or who have recently retired.

We support the Government’s intention to establish a Council of Superannuation Custodians to provide advice on superannuation policy. The Council should represent all sectors of the superannuation system, including the SMSF sector. Stability is an important prerequisite for increasing efficiency within the superannuation system. We encourage the Government to limit policy changes to those which have bipartisan support, to ensure future improvements to the system are likely to remain for the long term.

Xavier O’Halloran

Director, Super Consumers Australia

People continue to struggle to make the most of their retirement savings. As people approach retirement they’re faced with complex decisions like, will they have enough income, how long do their savings need to last, what types of products can help and how to tell which ones are high quality. We want to see the new parliament focussed on how it can better support people through the retirement planning process so they can make the most of their retirement incomes. The cost of inaction is people taking on a much lower standard of living in retirement and for many retired renters income poverty.

People need greater assistance in the form of advice, basic product design and guidance if they are to meet this challenge. Other jurisdictions, such as the UK, have helped people at this stage by developing a ‘one-stop shop’ for retirement advice. This innovation would bring together and build on the scattered resources Australian consumers must rely on to plan for retirement. 

The products on offer to retirees currently don’t have a quality filter as they do in the accumulation phase. There is an important task for the new parliament in helping to set standards to test more super investment options. Australian retirees need to be given some comfort that they are in a super fund which can pass a fitness test. We need to be looking at solutions that make sure everyone can get a good outcome from the retirement system regardless of wealth or level of financial knowledge.

Eva Scheerlinck

CEO, Australian Institute of Superannuation Trustees (AIST)

As the peak body for the $1.6 trillion profit-to-member superannuation sector, AIST congratulates Labor on its Federal election win and looks forward to working with the new government.

Women should be front of mind for the Albanese Government in setting superannuation policy given on average they earn less than and have lower super balances than men, take more time out of the workforce to care for children and other relatives, are more likely to work part time. These systemic factors mean too many end up living in poverty in retirement.

Data shows women earn 23% less than men and have retirement balances which are 40% lower than men’s and they live longer, which is hardly a recipe for the comfortable retirement that they deserve.

We continue to call for superannuation to be paid on paid parental leave because women account for more than 90% of all parental leave taken by primary carers and yet it is the only paid leave that does not include super.

The 2020 Retirement Income Review estimated it would cost the Government about $200 million a year to pay superannuation on its Government Parental Leave Pay, which cost $2.2 billion in 2018-19.

We will also continue to advocate for other policy changes we believe are in the best interests of our members including:

• amending superannuation and tax law to ensure children adopted under traditional Aboriginal and Torres Strait Islander law are treated like other children
• extending the Your Super, Your Future performance test to all Australian Prudential Regulation Authority-regulated superannuation products and including their details in the Australian Taxation Office YourSuper tool
• legislating the objective of the retirement income system to ensure superannuation is used only for retirement savings (except in exceptional circumstances)
• improving the equity of tax concessions and support to achieve financial security in retirement for all Australians
• strengthening action against superannuation guarantee non-compliance to address unpaid and underpaid super, and
• applying a gender lens to the retirement incomes system with a view to closing the gender gap.

Although Australia can rightly be proud of its retirement savings system, it can still be improved to ensure it acts for the benefit of all Australians, regardless of their gender, culture, education or socio-economic background.

David Williams

Founder, MyLongevity

Unless we stop treating our older community as a liability, we will repeat the policy failures that have led to this situation.

Our society created the remarkable longevity bonus already being enjoyed by baby boomers. Half of them alive today will live over 30% longer than their birth life expectancy.

One view is that this will not continue. In developed countries expected lifespans beyond the late eighties are declining. The growing incidence of obesity at midlife is a contributor, along with other lifestyle and environmental factors. Alongside this is a growing possibility that significant increases in longevity will be enabled for some by developments in epigenetics, which influences the way genes function.

Our superannuation system is world class. Our age pension system is relatively good but badly flawed by failure to increase the age of ‘entitlement’ in line with community longevity increases. For far too long we have been resting on our laurels – witness the aged care debacle, ignorance-based age discrimination in employment and a health system focused on cure rather than prevention – expensive and short-sighted approaches. There is also a serious disconnect between our national disability approach before and after age 65.

This helicopter view suggests we need a major lift in strategic thinking. Since the older community is a major asset, what could we do to maintain not only its value but its sense of self-worth?

1. Develop and promote a National Longevity Strategy. This would take account of all major influences, rather than the current piecemeal, silo-based approach. Its goal would be to maximise the community and personal benefits from increasing longevity.
2. Mandate the involvement of all federal departments and ensure their recommendations are reviewed by an independent Longevity Commission. This will require vigorous and healthy trade-off discussions between the separate entities pursuing their own interests – which the present silo-based funding and execution avoids.
3. Educate everyone from midlife in how their own longevity may evolve, why and what they can do about it. We know enough to do this well. Encourage and incentivise engagement. We have spent a fortune on encouraging financial literacy and tidying up financial planning but have failed to improve longevity awareness – which underpins all life decisions, including financial ones.
4. Foster longer productive lives for those who can contribute while improving support for those who cannot. We are facing a significant employee shortage for years. Better employer awareness, conditions and incentives could make a significant difference to extending many working lives. Enlightened grandparenting and better organised volunteering could provide productive alternatives.
5. Establish a national annuity scheme funded by increases in the current superannuation contribution. The success of the Future Fund shows the investment side can be capably managed. The distribution side needs work but in principle we know there will be winners and losers. We cannot predict individual outcomes, but the community outcome will be to support those who survive longer through not having to fund those who don’t. This could also reduce concerns over intergenerational asset transfers of surplus super.
6. Take a longer-term view of funding aged care. Debate over levies to fund present aged care failures will run their course, but we must manage the future better by supporting healthier older generations to contribute well beyond the ‘entitlement age’ emphasised by the present age pension approach. A National Longevity Strategy would aim to influence demand for residential aged care and improve self-sufficiency, empowering people to stay longer at home.

There are many other opportunities from seeking to make the most of the rest of our life. It’s time to get them front of mind.

On the way, we can reform ‘retirement’– a concept which has outlived its original social purpose.

What were viewed as the priorities in 2019?