A consultation paper released by Treasury has sparked a national debate about the role, purpose and access to superannuation ahead of the 2023-24 Federal Budget.
What is the purpose of superannuation?
At first glance, the consultation released by Treasury in February titled Legislating the objective of Superannuation sounds innocuous enough. The consultation seeks to anchor future policies relating to superannuation to a legislated objective:
The objective of superannuation is to preserve savings to deliver income for a dignified retirement, alongside Government support, in an equitable and sustainable way.
But what seems self-evident has opened a Pandora’s Box of what superannuation is not. If superannuation is to “preserve savings”, that is, restricting access to superannuation savings to retirement only, by default it is not a means of accumulating wealth in a concessionally taxed environment. It is not a strategy to manage intergenerational wealth. The definition would also prevent initiatives such as the COVID-19 early access scheme used widely during the pandemic to give those in financial distress access to quick cash (over 3 million people withdrew $37.8 billion from their superannuation funds). And, it is not a method of purchasing a home sooner.
As an aside, the Treasurer points out that the average super balance in Australia is $150,000 – taking account of all those with a super balance including new entrants into the workforce. For those 65 and over, the average balance is around $400,000 across all income brackets.
Superannuation and national building
The second component of the Treasury consultation is national building. At a recent speech, the Treasurer stated, “to my mind, defining super’s task as delivering income for retirement isn’t to narrow super’s role in our economy…it’s to elevate it, and broaden it.”
The consultation states:
“There is a significant opportunity for Australia to leverage greater superannuation investment in areas where there is alignment between the best financial interests of members and national economic priorities, particularly given the long‑term investment horizon of superannuation funds.”
The compulsory superannuation guarantee (SG) was introduced in 1992 at a rate of 3% rising to 9% by July 2002. Now, Australia’s superannuation pool has grown from around $148 billion in 1992 to over $3.3 trillion. It now represents 139.6% of gross domestic product (GDP) and is projected to grow to around 244% of GDP by 30 June 2061. Australia’s pool of pension assets is now one of the largest in the world, and the fourth largest in the OECD.
The consultation does not define how “leveraging greater superannuation investment” would be achieved.
*The Treasurer has ruled out changes to the existing early access hardship provisions for super.
The Federal Budget is released on 9 May 2023. Look out for our update with all the relevant news to you, your business and your super.