Recent changes to superannuation legislation may affect your retirement planning. On 28 November 2024, both Houses of Parliament passed a bill that defines the official “objective” of superannuation. This change aims to ensure that future superannuation policies align with this objective.
What is the “objective” of superannuation?
The new objective of superannuation is to preserve savings to deliver income for a dignified retirement, alongside government support, in an equitable and sustainable way.
The 6 concepts emphasised in this definition are the key principles that policy-makers will need to consider in helping deliver on the objective – that is, the equitable and sustainable operation of the super system and a recognition of the interaction of super with government support, particularly the Age Pension, in delivering income for a dignified retirement.
Let’s break down what this means for you
Preserve savings: Your super is primarily for your retirement. This means that super savings shouldn’t be accessed for purposes outside of retirement, apart from in exceptional circumstances. By preserving savings, the compound returns help grow your nest egg over the long term. Early access will still be available in exceptional circumstances such as compassionate grounds, severe financial hardship or terminal medical conditions.
Deliver income: Your super’s meant to provide you with income during retirement. This means that super savings should be drawn down to provide people with a source of income in retirement, which is derived from contributions made to the account and investment returns on those assets. The objective doesn’t tell you how to take income in retirement; that’s up to you – you can take your savings as a lump sum or choose financial products that provide an income stream. What you do with your income is also up to you – it’s expected that most income will be spent meeting retirement needs (eg housing, utilities, heath and aged care).
Dignified: Everyone’s idea of a dignified retirement is different. Under the new super laws, “dignified” means a standard of financial security and wellbeing in retirement that lets you participate economically and socially in your community. It doesn’t mean the same level of income for all Australians – many people will rely on a combination of super, government support and private savings to have a dignified retirement.
Government support: While more people are expected to retire with larger super balances over time, many people will still rely on government support to replace or complement their super and private savings for a dignified retirement. Government support is provided by all levels of government and may include the Age Pension, Commonwealth Rent Assistance and Home Equity Access Scheme. Not everyone will need to draw on government support.
Equitable: The inclusion of this concept reflects the fact that super policy can have a distributional impact across Australian society, and policy-makers need to be aware of those impacts when making changes to the super system.
Sustainable: This concept signifies that the super system should be robust to demographic and economic change and cost-effective in achieving the objective. It’s about ensuring super policy meets the needs and expectations of the community, and how policy responds to external factors that can impact retirement incomes. It doesn’t change how or what super funds can invest in.
While this legislation doesn’t immediately change how you manage your super, it sets a clear direction for future policies. It’s important to remember that superannuation is just one part of your overall retirement plan. Consider discussing your individual circumstances with a financial professional to ensure you’re on track for the retirement you envision.
