The SMSF Association has told the Productivity Commission that a lack of stability in the superannuation system is an impediment to an efficient superannuation system that can deliver the best retirement savings outcomes for fund members.
“The system needs a sustained period of stability free from significant changes, especially changes to taxation settings, to allow members to have confidence in the system and make long-term savings plans,” SMSF Association CEO John Maroney says.
To achieve this critical outcome for the system, he says it’s imperative for the Government to get industry consensus on the objective for superannuation and to remove superannuation from the annual budget policy cycle.
Quoting from the Association’s submission to the Productivity Commission’s Superannuation Issues Paper, Maroney says: “The objective for the superannuation system should be based around the provision of retirement income, as recommended by the Financial System Inquiry, and supported by a set of guiding principles that can be used to give context to the primary objective.
“It is essential that the objective not only has a focus on providing retirement income but also ensures that retirees are able to build adequate retirement savings through the superannuation system to manage the financial risks of aging and retirement.”
He says the Association has long advocated removing superannuation policy from the annual budget policy cycle to promote stability, competition and efficiency for the system.
“Superannuation policy changes can then potentially be undertaken through a review of superannuation settings linked to the Intergenerational Report which is required under the Charter of Budget Honesty Act 1998 to be completed every five years and released by the Treasurer at the time.
“Having the Intergenerational Report released once every five years will allow the Government, industry and consumers to take a ‘health check’ on the superannuation system to see whether it is attaining its goals and whether any adjustments/changes to policy settings are required.”
In its submission, the Association says political instability and ongoing change to the superannuation laws have created a level of distrust and instability in the system.
“When superannuation changes occur at the whim of budget policy and when consistent tinkering occurs, these activities affect the public trust in superannuation that can lead to individuals becoming disengaged with the system.
“They may withhold from making contributions and managing their superannuation savings in the most appropriate way for them (either in an SMSF or APRA-regulated fund) to maximise their retirement benefits.”
Maroney says that Association research papers over recent years have shown that legislative change and speculation has resulted in many Australians losing confidence in the superannuation system and reducing their contributions to superannuation.
“The 2015 ‘Intimate with Self-Managed Superannuation Report’ showed that advisers most commonly cite regulatory/legislative change as the greatest challenges they face in advising SMSF clients. Similarly, a Vanguard/Rice Warner survey of SMSF trustees noted that 88% of respondents were concerned that they will be significantly impacted by changes to superannuation or taxation law.
“We think there is a clear message in these reports. Constant changes to the superannuation system undermine confidence and will hinder the system achieving its primary objective – to provide income in retirement to substitute or supplement the age pension, delivering a financially secure and dignified retirement for Australians.”