Recent changes to superannuation legislation could have an impact on your retirement planning. On 28 November 2024, both Houses of Parliament passed a bill defining the official “objective” of superannuation. This change aims to guide future superannuation policies and ensure they align with this defined objective.
What is the “Objective” of Superannuation?
The newly defined objective of superannuation is to preserve savings to provide income for a dignified retirement, alongside government support, in an equitable and sustainable manner. Six key concepts are emphasized in this definition, which will guide policymakers in shaping future superannuation policies. These principles focus on the equitable and sustainable operation of the super system, as well as the interaction between super and government support, particularly the Age Pension, in ensuring a dignified retirement.
Let’s break down what this means for you:
Preserve Savings
Superannuation is primarily designed to save for your retirement. This means that super savings should not be accessed for purposes outside of retirement, except in exceptional circumstances. By preserving your savings, you allow compound returns to help grow your retirement nest egg over time. Early access will still be possible under exceptional circumstances, such as on compassionate grounds, in severe financial hardship, or due to terminal medical conditions.
Deliver Income
The primary purpose of superannuation is to provide income in retirement. This means that you should use your super savings to generate income once you retire, drawing from contributions made to your account and investment returns on those assets. The objective does not dictate how you should take this income; that decision is up to you. You can choose to take your savings as a lump sum or opt for financial products that provide a steady income stream. How you use your income is also your choice. It’s expected that most of the income will be spent on retirement needs such as housing, utilities, health, and aged care.
Dignified
Everyone has a different idea of what a dignified retirement looks like. Under the new laws, “dignified” means a standard of financial security and well-being in retirement that allows you to participate economically and socially in your community. This does not imply the same level of income for all Australians. Many people will rely on a mix of super, government support, and private savings to achieve a dignified retirement.
Government Support
While more Australians are expected to retire with larger super balances in the future, many will still rely on government support to complement or replace their super and private savings for a dignified retirement. Government support includes resources from all levels of government, such as the Age Pension, Commonwealth Rent Assistance, and the Home Equity Access Scheme. Not everyone will need to access government support.
Equitable
This principle highlights the need to recognize the distributional impact of superannuation policies across Australian society. Policymakers must consider these impacts when making changes to the super system.
Sustainable
Sustainability refers to ensuring that the super system remains robust in the face of demographic and economic changes and remains cost-effective in achieving its objectives. It is about ensuring that superannuation policies meet the needs and expectations of the community, while also adapting to external factors that could impact retirement income. This does not affect how super funds can invest but ensures that the system as a whole remains resilient.
What Does This Mean for You?
While this new legislation does not immediately change how you manage your super, it sets a clear direction for future superannuation policies. It’s important to remember that super is only one component of your overall retirement plan. To ensure you’re on track to achieve the retirement you envision, consider discussing your individual circumstances with a financial professional.
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