Superannuation review must be on the cards

It is with anticipation and some trepidation that the financial services industry greets the upcoming election, as both major parties have pushed superannuation onto the election agenda.

In doing so, the public can be assured that sometime after November 11, the subject of superannuation will enter the party room, which will add a measure of uncertainty for those who work with and have superannuation funds.

Both the Liberal and Labor parties have at different times promised to undertake a wide-ranging review of superannuation, signalling that substantial changes to the super system could be just around the corner.

As a result, various groups within the financial services industry have spent much time over the last 12 months in discussions about exactly what a review of superannuation might mean, although the exact nature of the review itself is still a point of debate.

It is David Shirlow’s view, for example, that a formal review is not entirely needed, but instead only a tidy up of certain issues. Shirlow, division director of Macquarie Investment Management Limited (MIML), says the bulk of the reform could be done in the absence of a formal review by targeting the glaring weaknesses.

He says Australia has potentially one of the greatest superannuation frameworks in the world, by ensuring the advance funding of future retirement incomes.

Shirlow says there are a few key areas that need a tidy up, with complying pensions, asset test exemptions, pensions that help people qualify for the pension, and reasonable benefit limit (RBL), topping his list as some of the glaring weakness in the rules surrounding superannuation.

“The key issues that I’ve been focusing on, in Macquarie’s own lobbying, is rules around complying pensions. The Government should have rules in place which encourage longer-term income streams, and not lump sums,” he says.

“The Government also wants a marketplace environment in which the streams that are offered are competitive. Current rules encourage people into some longer-term retirement incomes that don’t necessarily have rules. A range of industry bodies have put forward a growth pension product which would provide a better set of rules for asset test exempt pension streams and RBL income streams.”

The product Shirlow is talking about is IFSA’s growth pension product. Last year, IFSA proposed to the Government a new type of complying superannuation income stream — growth pensions.

According to IFSA, the products will allow retirees to select growth assets in their portfolio, within an account-based complying product. It will also offer the benefits of allocated products in complying income streams.

In line with IFSA’s proposal, Shirlow says Macquarie is proposing a pension similar to an allocated pension. It will enable clients to invest in growth assets and as a result, the income stream paid would be higher than the income streams coming out of current compliant pensions.

The Financial Planning Association (FPA) is another industry body that has a strong stance when it comes to a review of superannuation. FPA senior manager of public policy Con Hristodoulidis says a review of superannuation is necessary, as people are not saving enough.

Hristodoulidis says a broader level of retirement incomes is needed, with the FPA seeing it as a priority for the Government to take into account the level of national savings in any review of superannuation.

He says the FPA is also working on two key proposals that could help clients and investors save through superannuation.

Firstly, the association is pushing to make advice on investments, such as seeking financial planning advice, tax deductible.

Secondly, the FPA is seeking for schools to include a ‘how to save’ subject as part of its education curriculum. Hristodoulidis says, as there is no specific subject on savings, a new subject teaching children 10 to 15 years old the benefits of savings, including through superannuation, would be advantageous.

“We’ve had some positive reactions. The issues relating to deductibility of fees are beneficial for low-income households who would not normally seek financial advice compared to medium to higher income brackets. Also, this idea doesn’t have a significant impact on the Budget,” he says.