The way forward for Australia’s superannuation system is to combine two key pieces of legislation according to Challenger’s chair of retirement income, Jeremy Cooper.

Cooper suggested the flaws in the country’s $2.8 trillion superannuation system could be partially fixed by folding the Retirement Income Covenant into the government’s still pending Superannuation (Objective) Bill 2016 at Investment Magazine’s Retirement Conference in Sydney last Tuesday.

“The politicians couldn’t agree on wording so it is stuck,” he said referring to the Objective Bill as something of “a stranded asset”.

“It [The Bill] was a worthwhile exercise that came from the Murray Inquiry which aimed to define the objective of superannuation,” added the retirement specialist who reviewed the superannuation system for Canberra in 2009.

Speaking at the conference, Cooper, who is a long-time critic of the nation’s accumulation-centric view of the sector, lamented that leadership is not engaged with the retirement income phase.

“The way to quickly move this forward is to put the Retirement Income Covenant into the Purpose of Super Bill,” he argued.

“After all, if you think about it, the purpose of super is to supplement or replace the aged pension with retirement income.”

Put simply, the trustees have the duty to look after retirees and the covenant would help them understand this responsibility a lot more once the purpose of super is defined.

“If Australia hasn’t defined retirement income and we don’t yet have duty to produce that income, why don’t we put that obligation in the parent bill – The Objective for Super Bill – and kill two birds with one stone?”

The industry is also still waiting on legislation relating to the Retirement Income Covenant and comprehensive income products for retirement (CIPR).

Cooper pointed out that just 31 per cent of people retiring now are getting the full aged pension and this percentage is declining.

“The aged pension was the huge pillar in retirement and is not going to be in the future. This demands that the super industry start seeing itself as the private aged pension provider.”

A further problem according to Cooper is that when the industry talks about retirement income, it is referring to aged pension entitlement and income streams from investments such as rent, dividends and bank interest on deposits.

“We think solely in term of asset allocation and investment income and are not focused on the consumption phase of retirement” he said.

Cooper blames excess dividend franking credits for this mentality calling them the “canary in the coalmine”.

For franking credits to mean anything, people need to have between $600,000 and $1.6 million in high dividend yielding equities, he told delegates to the conference.

He finds it odd that people are complaining they are going to miss out on $10,000 worth of accounting income each year when in fact they could spend $10,000 from their capital in perpetuity and never run out of money.

Excess franking credits have become very controversial as Federal Labor has promised to abolish franking credit refunds to non-tax payers in a move that it has predicted will save the budget $11.4 billion over four years.

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