By Peter Kelly on 20 September 2023
At the end of March 2023, there was a massive $3.5 trillion held by everyday Australians in superannuation.
That is $3,500,000,000,000.
For any government with ambitious spending plans, this could be an attractive pool of money to target.
In our previous blog, “What is the purpose of superannuation?” I mentioned one idea being circulated that would see superannuation potentially being used to fund the cost of providing aged care.
The word being used in this context was “ring-fencing”.
The concept of ring-fencing could see a situation arise where a portion of one’s superannuation savings are set aside to cover potential (future) aged care costs. If this was ever introduced, it would mean a person would only have access to a portion of their superannuation savings to fund their general retirement living expenses. Part of their savings would need to be quarantined to fund future aged care needs.
But let’s not get too far ahead of ourselves. I think this is a long way off and is unlikely to be a politically palatable pill for any present or potential government to swallow.
The legislation to enshrine an objective in superannuation is currently open for consultation. It appears to be innocuous in its current form.
As mentioned in our previous Realise Your Dream post, the objective of superannuation is proposed to be:
“To preserve savings to deliver income for a dignified retirement, alongside government support, in an equitable and sustainable way.”
The explanatory materials accompanying the draft legislation include the following paragraph (paragraph 1.8):
“The superannuation system is an important source of capital in the economy which can support investment in capacity-building areas of the economy where there is alignment between the best financial interests of members and national economic priorities.”
While the statement addresses the “best financial interests of members” (of superannuation funds), this is balanced with “national economic priorities”.
Does this mean that superannuation could be targeted as a source of investment in specific areas, including housing, infrastructure, technology, community, and the like?
Put simply, could a government mandate our superannuation be invested in areas other than those we might voluntarily choose to participate in?
This raises an interesting academic question and one that I am sure will be pondered by experts for many months and years to come.
Incidentally, for those who might suggest the government would never dictate how our superannuation should be invested, here is a quick history lesson.
In 1961, the “30/20 rule” was introduced. Superannuation funds were required to invest at least 30% of their assets in public securities, with 20% being invested in Commonwealth-issued securities (e.g. Government bonds), if the funds were to receive concessional tax treatment.
The 30/20 rule was eventually abolished in 1984.
While the 30/20 rule was a “soft compulsion” – that is, superannuation funds received tax concessions in return for compliance – it is an example of how governments may implement policy to achieve outcomes consistent with their policy objectives.
With superannuation now comprising of such a large component of the economy, it will continue to remain the focus of all potential governments, irrespective of their political persuasion.