Why investing for retirement isn't just about super


Financial advisers understand the value of setting long-term objectives.

Which is why there should be general support for the notion of setting a long-term objective for the superannuation system and enshrining it in legislation.


The Financial System Inquiry chaired by David Murray recommended that the primary objective of the Australian system ought to be "to provide income in retirement to substitute or supplement the age pension".

The Federal Government has begun the process of consulting on what both the primary objective ought to be along with several subsidiary objectives that get down into more detail that would ultimately allow future policy changes to be evaluated against.

The government has also flagged a number of other issues for discussion - one of which is the critical element of adequacy which fundamentally underpins ideas of how to measure if the super system is meeting its core objective.

There are two quite different perspectives. There is the government's public policy perspective and the notion of how much of the age pension is effectively being replaced by private savings - both mandatory and voluntary - via superannuation. 

Then there is the individual perspective - what does an adequate retirement income look like to you.

A key issue is that there is no consensus on how to measure adequacy - for instance, the OECD uses a replacement rate measure. For example, it could be to aim for 70 per cent of your final salary before retirement. That by its nature is a blunt measure given the retirement income of someone on average weekly earnings versus someone earning a high salary will be vastly different in dollar and lifestyle terms yet have the same replacement rate.

An alternative is to aspire to giving everyone a target level of income which is perhaps in line with measures like the ASFA comfortable retirement index that is currently $43,184 a year for a single retiree who owns their own home.

They are two very different approaches and outcomes. 

There is a common point of tension in much of the debate around super issues - be it adequacy or tax concessions - because it becomes a tug of war between the collective versus the individual.

Enshrining the core objective of superannuation in legislation is long overdue and it carries with it the hope that it will help provide some distance for superannuation from the short-term pressure of the annual federal budget/revenue cycle, because there is no doubt that the constant tinkering with rules is undermining confidence in what is by nature a long-term contract of trust between government and fund member.

We will know the government's position on the core objectives of superannuation in a matter of weeks along with any changes to tax concessions.

Once the collective guard rails are in plain sight, the focus will inexorably shift to the individual impacts and objectives. 

Superannuation naturally plays a key role in most Australian's planning for retirement. But it is by no means the only form of saving for retirement - just ask any small business owner.

At the end of the day, superannuation is simply a tax wrapper. It makes good sense to have money inside super to take advantage of the concessional tax rates, but depending on what the government decides, there may well be tighter limits on how much you can contribute or other reasons to invest more outside the super system.

For individual investors, the government's impending policy announcements are likely to be a catalyst to review existing arrangements. Inevitably, when super rules change, there will be technical issues to work through, but for individual investors the value will come from developing an overall plan for retirement savings and not just a super strategy.


By Robin Bowerman
Smart Investing 
Principal & Head of Retail, Vanguard Investments Australia
21 March 2016