Superannuation (law): the future is now

Measured as a proportion of GDP, the assets of Australia's superannuation industry are now the largest in the world.

Along with almost universal workforce coverage resulting from the mandatory Superannuation Guarantee, superannuation plays a crucial part in the economic and social life of our country.

As of 30 June 2015, Australians have over AUD$$2.02 trillion in superannuation assets. Over the 12 months to June 2015, there was a 9.9 per cent increase in total superannuation assets.

Fund trustees thus occupy an increasingly important and visible role managing increasingly substantial assets.

For most legal advisors, their focus is usually on navigating Australia's quite complex superannuation prudential framework. That degree of complexity seems unlikely to abate. A recent study of the superannuation industry by the Australian Institute of Superannuation Trustees and BNP Paribas Securities Services found that over 70% of respondents expect there will be even more regulation in a decade.

Still, regulatory change is not the only issue which requires attentiveness from lawyers. Indeed, the  Chief Justice of the High Court of Australia himself has remarked on the complexities confronting advisors of superannuation fund trustees:

“On its face it sounds like a narrow field of practice. In truth it requires a generalist’s skills.  It straddles private and public law. It involves the application of equitable doctrines, particularly the law relating to trusts and fiduciary obligations. It involves contractual relations between employers and employees and is affected by statutory regimes specific to superannuation and of more general application. Its development has been linked to that of industrial relations law. From time to time it engages with the Constitution. Overlapping regulatory arrangements affect the administration of superannuation funds and impact on the rights and duties of trustees and beneficiaries.The relevant regulators include APRA, ASIC, and the Commissioner of Taxation. The exercise of their powers may attract the application of that branch of administrative law which involves judicial review.”

And that's still not all. I argue that, to properly manage and anticipate the myriad of issues trustees and members will confront, lawyers need to develop a deeper and wider understanding of the commercial and political stresses on the supernnuation system.

Earlier this month, the Association of Superannuation Funds of Australia (ASFA) argued for the development of principles and quantifiable goals to guide the future development of the system.

ASFA's own proposal argued for the following principles:

  • Adequacy: as many people as reasonably possible should have an adequate income in retirement;
  • Universality: the retirement income system must be comprehensive in its coverage and inclusive of people in different types of employment structures, stages in the employment lifecycle and levels of income;
  • Equity: outcomes must have both intra-generational and inter-generational equity and taxation must reflect the principles of a progressive tax system;
  • Simplicity: it must be easy to understand and implement;
  • Sustainability: delivers on its intended objectives within the fiscal constraints of the government and taking into account demographic factors that contribute to fiscal outcomes;
  • Three-pillar: retains the three existing pillars of the retirement system – the safety net of the Age Pension, mandatory Superannuation Guarantee contributions and voluntary savings, both inside and outside superannuation;
  • Sole purpose: the system is about replacement income in retirement, and opportunities for accumulating excessive superannuation balances in a concessionally-taxed environment (for example, with a view to generational transfer) should be minimised;
  • Prudentially regulated: Given the mandatory nature of superannuation, systemic risks within the superannuation industry, as well as individual entities that manage other peoples’ money, must be supervised by a prudential regulator.

[A fuller explanation is provided in ASFA's paper, The future of Australia's super: a new framework for a better system, which can be accessed here.]

Note that prudential regulation and oversight is (only) the last issue on that list!

Adequacy, fairness and sustainability concerns undoubtedly engage punters across the political and economic spectrum. They emerge from the realisation that at its inception, universal superannuation was designed (only) to augment Australia’s safety-net public age pension, especially for low and middle income earners. Today, $1 million retirement balances are far from the norm: most people retire with a lot less super and most still enjoy their retirement. The median superannuation balance for Australians approaching retirement is currently only around $100,000.

Further, despite women’s increasing workforce participation, when men and women retire in Australia, their fortunes are vastly different.  A recent study found Australian women are retiring with just half the superannuation of men, and that older women are the fastest growing group of homeless people in the country.

The gender retirement income gap is a persistent and serious flaw in the superannuation system. The Australian Institute of Superannuation Trustees-Mercer Super Tracker – which measures 10 key super system metrics including gender bias – rates the current gender gap at 6.3 out of a maximum score of 10.

A new Senate inquiry will investigate why.

Other pressing issues are wide and varied. They include:

There can be no doubt that for superannuation (law): the future is now.

6 September 2015

Dominique Hogan-Doran is an Australian barrister and advisor. As part of her practice, she routinely advises trustees including the corporate trustee of a major industry superannuation fund.

This blog post does not constitute legal advice.
Liability limited pursuant to a scheme approved under professional standards legislation.