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2022-2023
THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA
HOUSE OF REPRESENTATIVES
SUPERANNUATION (OBJECTIVE) BILL 2023
EXPLANATORY MEMORANDUM
(Circulated by authority of the Treasurer, the Hon Jim Chalmers MP)
Table of Contents
Glossary................................................................................................. iii
General outline and financial impact ...................................................... 1
The objective of superannuation .................................. 3
Statement of Compatibility with Human Rights .......... 15
Glossary
This Explanatory Memorandum uses the following abbreviations and acronyms.
Abbreviation Definition
APRA Australian Prudential Regulation
Authority
Objective Bill Superannuation (Objective) Bill 2023
Superannuation (Objective) Bill 2023
General outline and financial impact
Legislating the Objective of Superannuation
Outline
The Objective Bill legislates the objective of superannuation to codify a shared purpose
of superannuation. The Objective Bill enshrines the objective of superannuation in
legislation, requiring policy makers to assess future changes to superannuation
legislation for compatibility with this objective. A statement of compatibility with the
objective will be included in the explanatory materials accompanying all
Commonwealth bills and regulations relating to superannuation (unless an exception
applies).
Date of effect
The Objective Bill will commence 28 days after Royal Assent.
Proposal announced
The Objective Bill fully implements the Government's commitment to legislate the
objective of superannuation announced on 20 February 2023.
Financial impact
Nil.
Human rights implications
The Objective Bill does not raise any human rights issues. See Statement of
Compatibility with Human Rights -- Chapter 2.
Compliance cost impact
Nil.
1
The objective of
superannuation
Table of Contents:
Outline of chapter .................................................................................. 3
Context of amendments ......................................................................... 3
Detailed explanation of new law ............................................................ 4
The objective of superannuation ..................................................... 4
Statement of compatibility with the objective of superannuation ..... 9
Procedural matters ........................................................................ 12
Commencement, application, and transitional provisions .................... 13
Outline of chapter
1.1 The Objective Bill legislates the objective of superannuation to codify a shared
purpose of superannuation. The Objective Bill enshrines the objective of
superannuation in legislation, requiring policy makers to assess future changes
to superannuation legislation for compatibility with this objective. A statement
of compatibility with the objective will be included in the explanatory
materials accompanying all Commonwealth Bills and regulations relating to
superannuation (unless an exception applies).
Context of amendments
1.2 The three pillars of the retirement income system - superannuation, the
Age Pension and private savings - work together to support Australians in
retirement. The superannuation system plays a central role, through the
compulsory savings of individuals' income during their working life,
encouraged by substantial tax concessions, and then through the drawdown of
these assets to fund their retirement.
1.3 More than 15 million Australians are now benefiting from having a
superannuation account. Australia's superannuation pool has grown from
around $148 billion in 1992 to $3.5 trillion in 2023. The system is expected to
3
The objective of superannuation
continue to grow in coming decades relative to the economy, even as the
system matures and more Australians enter the retirement phase. There are
over five million Australians at or approaching retirement age.
1.4 Despite the growing importance of the superannuation system, both for the
economy and for individuals' retirement standards, there has not been a
broadly agreed purpose or objective for the system.
1.5 Legislating an objective of superannuation will provide stability and
confidence to policy-makers, regulators, industry, and the community, that
changes to superannuation policy will be aligned with the purpose of the
superannuation system. It will also ensure members and funds have more
certainty over future changes to the superannuation system throughout both the
accumulation and retirement phases.
1.6 The 2014 Financial System Inquiry recommended the Government "seek broad
political agreement for, and enshrine in legislation, the objectives of the
superannuation system and report publicly on how policy proposals are
consistent with achieving these objectives over the long term".
1.7 The 2020 Retirement Income Review broadly agreed with the findings of the
Financial System Inquiry that an objective for the retirement income system
was required to "anchor the direction of policy settings, help ensure the
purpose of the system is understood, and provide a framework for assessing the
performance of the system".
1.8 The wording of the objective in the Objective Bill builds on those two
recommendations by integrating concepts of: income in retirement, providing a
minimum standard of living in retirement, and the interaction with government
support, equity and sustainability. The objective is also intentionally
formulated to be succinct and written in plain English to assist understanding
and clarity for all Australians.
Detailed explanation of new law
The objective of superannuation
1.9 The Objective Bill enshrines the objective of superannuation in legislation.
1.10 The objective of superannuation is to preserve savings to deliver income for a
dignified retirement, alongside government support, in an equitable and
sustainable way (the objective).
[Section 5]
1.11 The objective will provide a shared understanding of superannuation and
ensure that the focus of superannuation is on preserving savings to deliver
income for a dignified retirement.
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Superannuation (Objective) Bill 2023
1.12 The objective also includes the key principles which policy-makers should
consider in delivering on this purpose, that is, the system should operate in an
equitable and sustainable way and recognise the interaction of superannuation
with forms of government support, particularly the Age Pension.
1.13 The key concepts within the objective are not intended to be considered in
isolation. Policy-makers will need to consider and make informed decisions on
the trade-offs that may be required between the different concepts to ensure
that superannuation policy delivers on the broader objective in a cohesive way.
1.14 The intent of the Objective Bill is to require policy-makers to demonstrate to
the Parliament, and Australians, how future changes to superannuation law are
consistent with the legislated objective. The objective is not intended to change
the operation or interpretation of existing superannuation law, prudential
standards or governing rules of superannuation entities. For example, it will
not change or prevent how members can currently access their superannuation
such as the payment of a lump sum on retirement or early access to their
superannuation in exceptional circumstances.
[Subsection 5(2)]
1.15 Further, the objective does not impact regulatory supervision activities. While
aligned with, it is separate from trustees' fiduciary duties and is not intended to
guide the regulation of trustees' conduct or change existing trustee obligations.
The objective can however serve as a reminder to trustees of superannuation
entities (which includes all APRA-regulated superannuation funds, approved
deposit funds and pooled superannuation trusts and self-managed
superannuation funds) of their role in the superannuation system, including to
support members holistically during their working life and through retirement.
1.16 While the obligations of trustees and rules governing each type of fund differ,
all superannuation funds serve the same purpose in preserving contributions
made by or on behalf of the member during their working life (accumulation
phase) and then distribute the member's contributions and earnings back to
them in retirement (retirement phase).
Context on the broader benefits of the superannuation system
1.17 As at 30 June 2020, 86 per cent of Australians aged 25 to 64 have
superannuation coverage. Together the system manages more than $3.5 trillion
in Australians' retirement savings, with this figure expected to grow over time.
1.18 The size and coverage of Australia's superannuation system has created a
range of benefits for superannuation fund members and the Australian
economy.
1.19 Superannuation is also an increasingly important source of capital in the
economy and the significant scale of the superannuation system contributes to
the strength of Australia's financial markets through capital deepening. There
is a significant opportunity for Australia to leverage greater superannuation
investment in areas where there is alignment between the best financial
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The objective of superannuation
interests of members and national economic priorities, particularly given the
long-term investment horizon of superannuation funds.
1.20 Given its broad reach, access to affordable group insurance is an important
benefit of the superannuation system and its provision is generally consistent
with the objective. Through group insurance, the superannuation system
provides a safety net that can deliver valuable protection to the community and
meets members' needs at reasonable cost.
1.21 In this vein, insurance in superannuation can help members achieve a dignified
retirement, for example where they experience early retirement due to
incapacity or interrupted work patterns during their working life. There are also
other circumstances where superannuation members or their dependants may
access insurance benefits through superannuation, including being diagnosed
with a terminal medical condition or death.
Explanation of key concepts
Preserve savings
1.22 'Preserve savings' means superannuation savings should not be accessed for
purposes outside of retirement income, apart from in exceptional
circumstances.
1.23 This recognises that superannuation exists first and foremost as a savings
vehicle to provide income in retirement and is not a pool of individuals'
savings to meet other lifetime costs prior to retirement. When savings are
preserved, the compound returns on superannuation helps individuals' savings
to grow over a long period of time and enhance financial security in retirement.
1.24 In exceptional and unforeseen circumstances, there is an existing legal
framework for the early release of superannuation which allows preserved
superannuation savings to be released as a last resort for reasons for acute and
rare incidents, such as permanent and temporary incapacity (including
insurance payments), terminal medical conditions, compassionate grounds for
specific expenses, and severe financial hardship. This principle is not changed
by legislating the objective of superannuation - members will maintain
recourse for early access for genuine and exceptional hardship.
Deliver income
1.25 'Deliver income' means superannuation savings should be drawn down to
provide individuals with a source of income during their retirement. The
'income' delivered in retirement is derived from both contributions made to the
member's superannuation account and the investment return on those assets.
1.26 The objective is not prescriptive about how income is provided to individuals.
Some may elect to receive their superannuation as a lump sum from which
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Superannuation (Objective) Bill 2023
they can draw income from directly, or choose other financial products which
are designed to ultimately provide an income stream during retirement.
'Deliver income' can also mean the provision of an income stream via
insurance payments, for example when an individual has retired early due to
injury or illness.
1.27 Superannuation savings belong to the member and the objective is not
prescriptive on what must happen with this income, as this is a decision for
individuals. It is expected most income will be spent to fund consumption or
other costs and services that need to be met during retirement, including
housing, utilities, transport, health and aged care.
1.28 The focus on delivering income in the objective makes it clear that
superannuation is not for minimising tax on wealth accumulation or enabling
retirees to leave tax-effective bequests.
1.29 In this regard, the objective complements core trustee obligations under
superannuation legislation: the best financial interests duty, the sole purpose
test and retirement income covenant.
Dignified
1.30 In the context of the objective of superannuation, 'dignified' denotes a standard
of financial security and wellbeing in retirement which allows the person to
participate economically and socially in their community.
1.31 'Dignified' does not mean the same level of income in retirement for all
Australians and many Australians will rely on a combination of superannuation
savings, government support and private savings to achieve a dignified
retirement.
1.32 As a subjective concept, 'dignified' allows individuals to apply their own
values and judgements about what a dignified retirement is to them.
Accordingly, community expectations of a dignified retirement may change
over time which should be reflected in policy-makers' assessment of this
concept.
1.33 An important consideration relevant to a 'dignified' standard of living is an
individuals' capacity to smooth their income over their lifetime, while
balancing their needs throughout working life.
1.34 The inclusion of dignified in the objective indicates there is a certain standard
of living in retirement in which the superannuation system should strive to
deliver for Australians, alongside Government support. This standard of living
is supported by efficiency in the superannuation system. In this regard, factors
like returns and fees are central to delivering appropriate income in retirement.
1.35 'Dignified' also reinforces the concept of 'delivering income' and clarifies the
need for trustees to ensure they know their members' needs and support
members to optimise their standard of living in the retirement phase.
7
The objective of superannuation
Government support
1.36 As Australia's superannuation system continues to mature over time, more
individuals are expected to retire with larger superannuation balances, but
many Australians will continue to rely on government support to substitute or
complement their superannuation and private savings to achieve a dignified
retirement.
1.37 Government support is provided by all levels of government and may include
the Age Pension, Commonwealth Rent Assistance, and the Home Equity
Access Scheme. While many Australians rely on government support to
achieve a dignified retirement, it is noted that not every Australian will draw
upon government support.
1.38 The inclusion of Government support in the objective reflects the crucial link
between superannuation policy and government support. Policy-makers need
to consider this interaction in making policy decisions relating to the
superannuation.
Equitable
1.39 The inclusion of the concept of equitable in the objective reflects that
superannuation policy can have a distributional impact across Australian
society, and policy-makers need to be aware of these impacts when making
changes to the superannuation system.
1.40 While equity is a subjective concept, in this context it captures the importance
of a system that delivers similar outcomes to people in similar situations and
targets support in the superannuation system to those most in need. It does not
mean that every policy change to superannuation must be aimed at affecting
the equity of the system. However, policy-makers should give appropriate
consideration to the system-wide impacts on equity of proposed changes.
1.41 'Equitable' does not mean that all individuals will receive the same benefit
from the system, nor can superannuation address every perceived inequity.
Differences in demographic factors and structural inequities can flow through
to outcomes in the superannuation system. This includes intergenerational
inequity and outcomes for different groups including women, First Nations
Australians, vulnerable members and low-income earners.
1.42 In this context, it also acknowledges the important role of policy action outside
the superannuation system to address underlying factors that can flow through
to superannuation outcomes.
Sustainable
1.43 'Sustainable' signifies that the superannuation system should be robust to
demographic and economic change and cost-effective in achieving its
objective.
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Superannuation (Objective) Bill 2023
1.44 It is about ensuring superannuation policy meets community needs and
expectations, and responds appropriately to external factors that impact
retirement incomes. For example, policy-makers will need to consider how
superannuation evolves over the long term to reflect the changing needs of
Australians due to increasing life expectancies and an ageing population.
1.45 Sustainability also reflects the Australian economy's capacity to support the
system and the need for it to be fiscally sustainable for the Commonwealth
Government from both a budgetary cost from tax expenditures and government
contributions.
1.46 Superannuation plays an important role in enabling Australians to save for
their retirement, reducing reliance on the Age Pension. Tax concessions have a
role in incentivising Australians to save for retirement but come at a significant
and growing cost to the revenue required to fund services. Policy-makers will
need to weigh up these types of factors when assessing future superannuation
policies against the objective of superannuation.
1.47 The inclusion of 'sustainable' in the objective does not change how
superannuation funds invest, or what they can invest in. Trustees must continue
to comply with existing legal obligations when formulating investment
strategies, particularly acting in the best financial interests of members.
1.48 The inclusion of sustainability acknowledges that superannuation system can
only deliver on its objective in the long term if it is underpinned by a robust
framework and is economically sustainable.
Statement of compatibility with the objective of
superannuation
1.49 A statement of compatibility with the objective of superannuation must be
prepared for a bill or regulation that relates to superannuation (unless an
exception applies).
[Sections 6 and 7]
1.50 For bills relating to superannuation, the member of Parliament introducing the
bill into a House of Parliament is responsible for ensuring that a statement of
compatibility with the objective of superannuation is prepared. The statement
of compatibility with the objective of superannuation must be presented to the
House of Parliament by the member of Parliament who introduces the bill, or
another member acting on his or her behalf.
[Subsections 6(1) and (2)]
1.51 For regulations relating to superannuation, the rule-maker for that instrument is
responsible for ensuring that a statement of compatibility with the objective of
superannuation is prepared. The statement of compatibility with the objective
of superannuation must be included in the explanatory statement relating to the
regulation. If a statement of compatibility is not required because an exception
9
The objective of superannuation
applies under the Objective Act, the explanatory statement should contain a
reference to the applicable exemption or exemptions.
[Subsections 7(1) and 7(5)]
1.52 The term rule-maker has the same meaning as in the Legislation Act 2003. For
regulations (made by the Governor-General), the rule-maker is ordinarily the
Minister responsible for administering the provision of the enabling legislation
under which the regulations are made.
[Section 4 (definition of rule-maker)]
1.53 The statement of compatibility with the objective of superannuation must
include an assessment by the member of Parliament or rule-maker as to
whether the bill or regulation is compatible with the objective. This is similar
to the statement of compatibility with human rights that is currently included in
explanatory materials.
[Subsections 6(3) and 7(2)]
1.54 The statement of compatibility with the objective of superannuation should
include consideration of the proposed policy against the key concepts within
the objective and a determination on compatibility with the objective as a
whole, based on these assessments. There may be times when there are
trade-offs between the key concepts within the objective.
1.55 The legislation does not prescribe what information must be included in the
statement of compatibility and it may take whichever format and structure is
most conducive to the nature, size, and complexity of the bill or regulation to
which it applies. Superannuation policy has a broad remit and that the
information and analysis in the compatibility statement will need to be flexible
enough to reflect this. For example, whilst data or modelling will be
appropriate and useful for analysing some superannuation policies, it would
not be suitable in all circumstances.
1.56 Requiring a statement of compatibility with the objective of superannuation to
be included in the explanatory materials will help inform parliamentary
scrutiny and debate on future superannuation legislation, by focussing on how
that legislation would be consistent with the objective of superannuation. This
provides a key mechanism for accountability, in addition to public consultation
processes for any amendments to legislation.
Meaning of 'relating to superannuation'
1.57 Statements of compatibility with the objective of superannuation are only
required for bills or regulations relating to superannuation. 'Relating to
superannuation' is not a defined term so takes its ordinary meaning.
1.58 A bill or regulation will relate to superannuation if it amends a law that is
relevant to superannuation, irrespective of whether the relevant law being
amended predominantly relates to superannuation (such as the Superannuation
Guarantee (Administration) Act 1992) or merely contains some provisions that
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Superannuation (Objective) Bill 2023
deal with superannuation (such as the Taxation Administration Regulations
1976 or the Fair Work Act 2009). It is the subject matter of the amendment that
is relevant as to whether it relates to superannuation, rather than the Act or
regulation being amended.
1.59 The statement of compatibility need only address those parts of the bill or
regulation that relate to superannuation. For example, if an omnibus bill
implements several measures, one of which relates to superannuation, a
statement of compatibility need only be prepared in relation to that measure.
[Paragraphs 6(4)(a) and 7(3)(a)]
When is a statement of compatibility not required?
1.60 A statement of compatibility with the objective of superannuation will not be
required where the nature of the legislation, regulation, or amendment does not
involve a substantial change in policy in the law relating to superannuation.
1.61 This includes bills and regulations that relate to superannuation where:
• the provisions are minor or technical in nature (such as consequential
amendments or a repeal of spent legislation);
• the regulations remake sunsetting regulations, where the new
regulations do not involve a substantive change in superannuation
policy;
• the amendments deal with the allocation of a superannuation interest
between spouses following relationship breakdown; or
• they deal with superannuation arrangements (schemes and governance)
for Australian Government civilian employees, members of parliament
and members of the Australian Defence Force and retirement benefits
for Federal Judges and Governors-General. Legislation dealing with
these superannuation arrangements perform a similar role to trust
deeds in the broader superannuation industry and do not have industry-
wide application nor represent substantive changes in superannuation
policy.
• any other thing prescribed by regulations
[Section 4 (definition of excepted matter), subsections 6(4), 7(3)
and (4)]
1.62 Regulation-making powers have been inserted to provide for the ability to
carve-out specific Acts and/or regulations, or specific provisions within an Act
or regulations, from the requirement to prepare a statement of compatibility
with the objective of superannuation. This enables an Act and/or regulation to
be prescribed, or specific provisions within an Act or regulations to be
prescribed, where they do not deal with broader superannuation policy.
[Paragraphs 6(4)(d) and 7(3)(d) and (e)]
11
The objective of superannuation
1.63 The regulation-making power provides a flexible approach to safeguard the
regime by ensuring it works appropriately and only requires a statement of
compatibility to be prepared for legislation for which an assessment of the
impact on superannuation policy would be beneficial. That is, to help inform
parliamentary scrutiny and debate on legislation which impacts superannuation
policy.
1.64 Any regulations carving-out specific Acts and/or regulations from the
requirement to prepare a statement of compatibility with the objective of
superannuation would be subject to parliamentary scrutiny, including
disallowance and sunset after no more than 10 years.
1.65 If a bill or regulation relates to superannuation and a statement of compatibility
with the objective of superannuation is not required, the explanatory materials
should include a sentence to that effect, by referring to the relevant legislative
authority which provides the exemption.
1.66 Whether a bill or regulation relates to superannuation and requires a statement
of compatibility to be prepared will ultimately be a decision for the relevant
member of Parliament or rule-maker.
1.67 A statement of compatibility with the objective of superannuation is not
required if the bill or regulation does not deal with matters relating to
superannuation.
1.68 A statement of compatibility with the objective of superannuation is not
required for legislative instruments that are not regulations. This includes
legislative instruments made by regulators, for example determinations made
by the Commissioner of Taxation regarding the Superannuation (Unclaimed
Money and Lost Members) Act 1999 and superannuation prudential standards
made by APRA under section 34C of the Superannuation Industry
(Supervision) Act 1993. This is because bills and regulations are more likely to
contain measures implementing Government policy decisions than legislative
instruments made by regulators such as APRA. The intent of the Objective Bill
is to guide the development of superannuation policy, it would be unnecessary
to require regulators instituting such legislative instruments to comply with the
requirement to prepare a statement of compatibility.
Procedural matters
1.69 The simplified outline of the Objective Bill states that a statement of
compatibility with the objective of superannuation is required for all bills or
regulations relating to superannuation (unless an exemption applies). This
reflects that a statement of compatibility is not required under some
circumstances. The statement of compatibility must include an assessment of
whether the bill is, or the regulations are, compatible with the objective of
superannuation.
[Section 3]
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Superannuation (Objective) Bill 2023
1.70 Simplified outlines are non-operative provisions that are used to assist readers
understand the legislation. They are not intended to be comprehensive, and the
substantive provisions of the bill must be relied upon.
1.71 The statement of compatibility will not be binding on any court or tribunal.
This is not intended to exclude the operation of section 15AB of the Acts
Interpretation Act 2001, which deals with the use of extrinsic materials in the
interpretation of an Act or legislative instrument. A statement of compatibility
could be used by a court or tribunal to ascertain the meaning of provisions in
the Act or regulation to which the statement relates, where the meaning of
those provisions is unclear or ambiguous.
[Subsection 8(3)]
1.72 The Objective Bill does not create any rights or duties that are enforceable in
judicial or other proceedings. Lack of a statement of compatibility with the
objective of superannuation will not affect the validity, operation, or
enforcement of any bill, regulation or any other law of the Commonwealth.
This provision is necessary to give legal certainty that a lack of a statement of
compatibility will not invalidate the bill or regulation.
[Subsections 8(1) and (2)]
1.73 The 'no invalidity' clauses reinforce that enshrining the objective in legislation
is intended to serve as a true north for policy-makers, government, regulators,
industry, and the wider community, on the purpose of superannuation and its
role within the broader retirement income system. It is not intended to create
any rights or obligations for participants in the superannuation industry (for
example, it is not to be considered in assessing the conduct or liability of a
trustee of a superannuation fund). These clauses do not limit the availability of
judicial review under section 75(v) of the Constitution and section 39B of the
Judiciary Act 1903 where a failure to meet procedural requirements would
amount to a jurisdictional error.
1.74 The Governor-General may make regulations prescribing matters required or
permitted by the Objective Bill to be prescribed by the regulations, or
necessary or convenient to be prescribed for carrying out or giving effect to the
Objective Bill.
[Section 9]
Commencement, application, and transitional
provisions
1.75 The Objective Bill commences 28 days after Royal Assent.
[Section 2]
1.76 For bills relating to superannuation, the requirement for a statement of
compatibility with the objective of superannuation applies to bills introduced
13
The objective of superannuation
into the Parliament on or after the commencement of the Objective Bill.
[Subsection 6(5)]
1.77 For regulations relating to superannuation, the requirement for a statement of
compatibility with the objective of superannuation applies to Regulations made
on or after the commencement of the Objective Bill.
[Subsection 7(6)]
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Statement of Compatibility
with Human Rights
Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny)
Act 2011.
Superannuation (Objective) Bill 2023
Overview
2.1 The Objective Bill is compatible with the human rights and freedoms
recognised or declared in the international instruments listed in section 3 of the
Human Rights (Parliamentary Scrutiny) Act 2011.
2.2 The Objective Bill legislates the objective of superannuation to codify a shared
purpose of superannuation. The Objective Bill enshrines the objective of
superannuation in legislation, requiring policy makers to assess future changes
to superannuation legislation for compatibility with this objective. A statement
of compatibility with the objective will be included in the explanatory
materials accompanying all Commonwealth bills and regulations relating to
superannuation (unless an exception applies).
2.3 The intent of the Objective Bill is to require policy-makers to demonstrate to
the Parliament, and Australians, how future changes to superannuation law are
consistent with the legislated objective. The objective is not intended to change
the operation or interpretation of existing superannuation law, prudential
standards or governing rules of superannuation entities.
Human rights implications
2.4 The Objective Bill does not engage any of the applicable rights or freedoms, as
it does not change the operation or interpretation of superannuation law,
therefore there is no material impact on a person interacting with Australia's
superannuation system.
Conclusion
2.5 The Objective Bill is compatible with human rights as it does not raise any
human rights issues.
15