The Objective of Superannuation – letters to the Editor

Geoff Dunsford gives his opinion on feedback the Institute provided to the Government on its March Discussion Paper on the Objective of Superannuation. Andrew Boal, Convenor of the Institute’s Superannuation Practice Committee (SPC), replies below.

The Actuaries Institute letter of April 6 provided feedback to the Discussion Paper released by the Government on March 9 in relation to the Objective of Superannuation.

The Superannuation system has evolved over many years and the objective of each of its elements for the community, together with its relationship with the Age Pension may be presented as:

* The Objective of Superannuation is to provide income in retirement.

* The Objective of tax concessions for Superannuation is to encourage saving for retirement.

* The Objective of the Age Pension is to provide a safety net for those whose income sources in retirement are considered inadequate.

* The Objective of the Superannuation Guarantee system is to provide a base for employees to manage their own retirement savings and to reduce the cost of future Age Pensions.

The Actuaries Institute letter suggested that one of the objectives of superannuation should be “To supplement the Age Pension in order to provide a combined level of income that allows Australians to live a dignified retirement”.

This statement suggests that the Age Pension is a fixed (universal) amount, whereas for most people on retirement, and for many years after, it will only be a part pension they receive. This is provided in accordance with the Means Test rules then current and there are no guarantees how these might change from time to time –  for then existing pensioners as well as new ones. To suggest that a part pension is the primary element in the superannuation system is arguably misleading.

A further point is that it is the objective of the Superannuation Industry to persuade individuals to provide for a “dignified” retirement. The Government merely provides the legislative framework for the encouragement of this objective.

Andrew Boal, Convenor of the Actuaries Institute’s SPC, response

I can confirm that the Actuaries Institute statement does not suggest the Age Pension is a fixed (universal) amount as we clearly understand and agree that for most people on retirement, they will only be eligible for a part pension. Also, the Actuaries Institute has not suggested that the part pension will be the primary element in the superannuation system.

As the statement says – the objective of superannuation is to supplement the Age Pension (whether it be a part or full pension amount at various stages of life) in order to provide a combined level of income, (after all, it is the combined level that will determine a person’s standard of living) that allows Australians to live a dignified retirement (we wouldn’t want to advocate less than a dignified retirement, and anything more than that is up to the individual to choose). 

I would encourage interested Members to have a look at the Actuaries Institute submission on the Objective of Superannuation. 

On page one of that submission, directly above our statement on what the objective of superannuation should be, we state that:

Research also shows that, based on the Age Pension means tests that will apply from 1 January 2017, saving a sufficient amount of superannuation to avoid qualifying for any Age Pension payments during the period from age 67 up to life expectancy will be beyond most Australians.  Superannuation will therefore act as a supplement to improve their standard of living in retirement.

Further, on page two the submission says that:

The Institute’s ‘For richer, for poorer’ White Paper revealed that there is a strong reliance on the Age Pension for half of the population. It comprises 93% of retirement income for those in the bottom 5% income bracket and 44% for ‘middle Australia’. Significantly, although those in the top quartile income bracket will achieve a comfortable retirement, many will still qualify for at least a part-Age Pension at some stage during their lifetime. Single women are likely to experience the worst outcomes under the current system.

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