Home' Superfunds : Superfunds October 2015 Contents Superfunds October 2015
THE NEED TO STATE THE OBVIOUS
Over the last few years, I have been speaking
to many industry participants on presenting
information on the outcome of superannuation in
the form of retirement income projections. In my
mind, this would be informing members
about their outcome relating to the purpose
of superannuation in simple language they
can understand. This has been met with much
interest, but not as much forward action. I
assumed the purpose of superannuation was
obvious and clear.
Last year at a conference, it became obvious to
me in a large discussion group that the purpose
of superannuation was not clear to many, so to
clarify that, I asked for various people’s expression
of the purpose of superannuation. That question
was poorly answered. This then reoccurred when
I participated in a roundtable discussion on
superannuation in preparation for their response
to the interim Financial System Inquiry (FSI) report.
I think perhaps the purpose of superannuation
needs to be clarified to the industry. At a forum
on retirement incomes that I chaired, one speaker
thought that it would take many years to define
the purpose of superannuation.
So we shouldn’t waste time, but move forward
and define the objective of superannuation.
The FSI report provides a great reference point
and states that the: “Government should seek
broad agreement on the following primary
objective for the superannuation system: To
provide income in retirement to substitute or
supplement the Age Pension”.
The FSI ‘objective’ can be viewed to have two
components in my opinion; one is to provide
an income in retirement, and the second is to
substitute or supplement the Age Pension.
When I discuss the objective of superannuation
I usually get responses such as “tax concessions”,
or “supplement the Age Pension”, or “pay
down outstanding debt in retirement”. I believe
these answers are not to be confused with the
purpose of superannuation. Rather, they are a
means of, or a consequence of, superannuation
delivering an adequate or ‘comfortable’
retirement income stream.
THE BENEFITS OF A CLEAR STATEMENT
Once superannuation has a clear purpose,
the benefits of any actions by participants
can be measured via the impact of that action.
Hence that may focus participants on what
makes a material difference to the purpose
From a member’s perspective, if funds focus
on providing members tools to assess the impact
of member actions on the retirement outcome,
then they will be much better served. A pre-
retiree has only a few levers they can adjust:
contributions, investment strategy and when they
start drawing down from their accounts. Providing
members with an estimate of the additional
retirement income they may receive from higher
contributions enables a member to balance
expenditure now, with expenditure in retirement,
and all in language they can understand; their
paycheque. Most pre-retirees would see that an
asset allocation heavily weighted to low volatility
cash and bonds is more risky to the purpose of
superannuation since it delivers a lower range
of retirement outcomes than appropriately
structured, more volatile, higher growth assets.
There are many benefits from a fund’s
perspective. For example, if a fund has two
competing projects, each of which will use some
finite limited resources, then relating the outcome
of each project to its benefit, relative to the
purpose of superannuation for its members, may
well guide project selection.
From the government’s perspective, policy
decisions on superannuation can also be
measured with respect to their impact on the
purpose of superannuation. However, I am
mindful that the reality here is much more
complex, as policy decisions may have collateral
benefits, or damage, in other areas affecting
members outside superannuation.
I believe the sooner the government and
the industry resolve the objective of the
superannuation system for all to understand,
the sooner members will benefit.
Peter Vann is an associate professor
for the Applied Finance Centre at
Do you have something to say about
this article? Let us know.
Links Archive Superfunds September 2015 Superfunds November 2015 Navigation Previous Page Next Page