NEW: The Australian government has announced proposals to enshrine the purpose of #superannuation in law. “Preserve savings and deliver a retirement income” are at the core of the proposed objective unveiled in a consultation launched today. #pensions pic.twitter.com/MBDacgZaxI
— Josephine Cumbo (@JosephineCumbo) February 20, 2023
We are lucky to have the FT’s global pensions correspondent “on holiday” in Australia this week.
The “Super-Wars” that have been raging in Australia for over a decade are over the purpose of workplace saving.
The UK Guardian carries the headline this morning
Jim Chalmers is the Australian Treasurer.
The particular flashpoint is “early access” but as Jo Cumbo points out , the consultation is about much more than that.
Jens Van Egmond, a Dutch economist makes the critically important point
Just like in the Netherlands, Australia makes it explicit that the pension system should aim to deliver an income in retirement. This acknowledges that DB and DC systems should have the same objective, despite the different legal structures
Purpose that overrides freedoms
If the consultation that the Australian government is about to conduct, preserves this common purpose, it will mean rolling back certain freedoms that have been available to savers looking to take advantage of Government reliefs and incentives to spend their Super as they pleased
The Aust Govt has foreshadowed a clampdown on tax perks for #superannuation savers.
The Treasurer, Jim Chalmers, said tax concessions for #superannuation are set to be higher than spending on the Age Pension by around 2050.
— Josephine Cumbo (@JosephineCumbo) February 20, 2023
We may find it ironic that it was the UK Treasury that encouraged “early access”.
Shifting the emphasis of saving from wealth creation to income generation means that Australia is restoring a pension culture. I have argued for some time that need that alignment of policy between Treasury, Work and Pensions in the UK.
A case of Deja – vu?
We have been here before, specifically in 2016 when Pension Age ran this headline
However, the
Superannuation (Objective) Bill 2016
never made it onto the Australian statute books. It could not achieve consensus then.
There is no certainty that the Australians will bow to a curtailment of freedoms this time either.
However, there appears to be a considerable head of steam built up by the Government’s Retirement Income Covenant and a realisation that Super is rather better being built up than being spent.
Implications for the UK
The DWP watch Australia closely and the creation of a legally enshrined objective for Superannuation and Government Support in Australia could lead to a similar “common purpose” for workplace and state pensions in the UK.
This may not lead to the suppression of the pension freedoms granted to us by the relaxation on the need to annuitize pension pots announced in 2014 but it may well lead to a directive for workplace pensions to deliver income whether DB or DC.
As the DWP gropes towards a means of embedding “non-guaranteed pension arrangements” in the UK pension system, Australia enshrines them in law. There is no mention of guarantees, there is mention of dignity. We have yet to establish whether either our system of guaranteed pensions or our reliance on cash drawdown is providing us with that dignity.
The implication of this radical legal measure proposed in Australia is that it will inform on the DWP and Treasury’s pension policy.
If we are to have an open workplace pension system over the next 50 years it looks likely to be less guaranteed than our DB pensions but more secure than what is offered by a DC pension pot.
Want to know more?
The consultation will be published today (20/02/23). I will append a link to it for those who follow these matters. We will see if a new Bill emerges and if that Bill leads to an Act (Australian law seems to be made rather quicker than UK law)
In Australia , opinion still appears to be divided by liberals who consider that Super is a general funding mechanism against those who see retirement income as the sole “preserve” of Superannuation funds.
This comment helpfully informs on the Australian political situation – thanks to Peter Carey from Brisbane (our special correspondent)
The tax concessions in superannuation (accumulation and pension phases) are called “foregone tax revenue” by Treasury themselves. That sets the tone to begin with.
It was intended to help offset some of the Government costs of the Age Pension, but it will be another 20-30 years until a full career of contribution at meaningful rates will finally make up a person’s full retirement balance.
Labour (left) sees this as a holy grail retirement savings tool. Liberals see this as a cost to tax revenues and a general revenue play tool.
“Sole purpose” exists, but there are too many secondary allowances that the funds can be used for.
The laws will be tweaked to suit the flexibility/restrictions desired by the political party of the day. Because Labour doesn’t have Senate majority, they need this Treasury report to convince the independent Senators.
But the headlines suggest that opinion seems to be shifting behind the Government’s approach.
We will watch with interest.
Henry, I commend your enthusiasm for watching this affair with interest. As a jaded local, my expectations are harder to excite.