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- Pension Loans Scheme rebranded and rate reduced
- 12% Superannuation Guarantee guaranteed
- Super fund merger news
- Super mergers completed
- Australians want to work for longer…
- …but younger Australians not confident about their retirement
- Switching decisions don’t pay off for superannuants
- Superannuation funds and Nukes
Pension Loans Scheme rebranded and rate reduced
The Federal Government is rebranding the Pension Loans Scheme as the Home Equity Access Scheme and reducing the annual interest rate from 4.50% to 3.95% from 1 January 2022.
Minister for Families and Social Services Anne Ruston announced on 15 December, saying “The Home Equity Access Scheme allows Australians over the Age Pension age – whether they are pensioners or self-funded retirees – to unlock this equity using a trusted Government product to boost their disposable income in retirement.”
The Scheme allows older Australians to get a voluntary non-taxable fortnightly loan from the Government up to a maximum value of 150% of the rate of the Age Pension.
To be eligible for the Home Equity Access Scheme, retirees must have reached Age Pension age, own real estate in Australia and meet residency and certain other requirements, but do not need to be receiving a pension payment.
The changes builds on a package of proposed improvements from 1 July 2022, introduced into Parliament earlier in December, to introduce a No Negative Equity Guarantee and allow users of the Scheme to access capped lump sum advance payments.
12% Superannuation Guarantee guaranteed
At an Industry Super Australia event Superannuation Minister Jane Hume confirmed a re-elected Coalition government would lift the super guarantee (SG) rate to 12%, in line with the current legislated schedule.
The SG rate rose from 9.5% to 10% from 1 July 2021, and is due to rise by 0.5% each year until it reaches 12% from 1 July 2025. The SG had risen to 9.5% from July 2014 and subsequent increases were delayed by the Coalition government.
Minister Hume said the government would not unpick the legislated increase or allow a portion to be taken as wages instead, and acknowledged the need to end the tinkering with the super system’s fundamentals.
Super fund merger news
There has been a plethora of merger announcements and completions over the past month. Perhaps one of the more interesting is the announcement of a name for the merged QSuper and Sunsuper – Australian Retirement Trust.
If all goes to plan, the merger would create the biggest super fund in Australia at $230 billion. The two funds said their merger was on track to proceed on 28 February next year, pending final board, regulatory and legislative approvals.
UniSuper and Australian Catholic Super have also announced they are exploring a potential merger. UniSuper has over $100 billion in funds under management, while Australian Catholic Super has $10 billion. Australian Catholic Super chair David Hutton said such a merger would provide members with a niche fund and scale. The next stage of any merger would be a heads of agreement (a non-binding agreement setting out key terms and conditions) in the second quarter of next year.
In addition, Hostplus and Statewide Super have signed a Successor Fund Transfer deed which will allow Statewide Super to transfer their members and investments to Hostplus. The combined fund will have $85 billion in funds under management and over 1.5 million members. The funds said the transfer is expected to take place on 1 April 2022.
“We are absolutely delighted today as we continue to create a national fund of greater size and scale, supporting the best financial interests of our broadening membership. We are really proud of what we continue to build at Hostplus and we look forward to welcoming Statewide Super’s members, employers and staff in 2022,” Hostplus chief executive officer, David Elia said when announcing the signing of the deed.
And finally, the Australian Prudential Regulation Authority (APRA) has imposed additional license conditions on the trustee of Christian Super that will require it to merge with a larger, better performing fund by 31 July 2022.
“Christian Super has a legal obligation to protect the best financial interests of its members. In light of its ongoing underperformance, APRA’s assessment is that the optimum way for Christian Super to do this is to move its members to a better performing and more sustainable product as soon as possible,” APRA member Margaret Cole said.
Super mergers completed
During the past month, Aware Super completed its merger with Victorian
Independent Schools Superannuation Fund (VISSF). As a result, the $155 billion Aware Super now supports more than 200,000 members in the education sector. The merger is the third for Aware Super in the past 18 months, following similar deals with VicSuper and WA Super.
AustralianSuper also completed its merger with the $3 billion Club Plus in December, and Hostplus has completed its merger with the $3 billion Intrust Super.
Australians want to work for longer…
More than half of Australians want to work past age 67, according to a new report from Fidelity International. The report, Retirement: The now and the then found enjoying work was the top reason (22%).
Other reasons for working longer include maintaining a sense of purpose (18%), avoiding boredom (15%), financial need (14%), keeping social (11%) and maintaining community connections (9%).
But the research also found that a degree of control in retirement was very important in terms of life satisfaction. On a scale of 0 to 10 with 10 being the highest possible life satisfaction, those retirees that felt they were in control had the highest average life satisfaction at 7.7, but those who felt it was completely out of control had the lowest at 5.
Interestingly, the top advice that experienced retirees would give others facing retirement is to be positive and optimistic in their outlook and to invest in their health.
…but younger Australians not confident about their retirement
Another survey by Challenger Life has found that only 35% of people under 55 expect to have a comfortable or better lifestyle in retirement. Overall, just 40% of Australia’s super fund members expect to have a comfortable or better retirement.
For those aged over 55, 46% were confident they could experience a comfortable or better retirement with 54% of those already retired saying their lifestyle was comfortable.
The disparity among age groups could potentially be explained by older people having more savings and younger members not yet seeing the benefits of compounding returns, according to Challenger’s head of retirement income research, Aaron Minney.
“Many members did not know what longevity risk [outliving their retirement nest egg] means and importantly how it can be managed. There is this one-sided concern that they might outlive their savings rather than also thinking about solutions that can provide secure lifetime income,” he said.
People with a financial plan (either formal or mental) were less likely to be concerned about outliving their savings, with 39% of those with a plan saying they were not concerned compared to 17% of those without a plan.
The Investment Trends 2021 Retirement Income Report revealed similar results concerning preparedness for retirement, with 16% of pre-retirees feeling very well prepared and another 45% feeling somewhat prepared. Those figures are an increase on the 10% and 36% in 2020.
But many are concerned about regulatory change, up from 19% in 2020 to 41% in 2021.
“For the first time in five years, one in two retirees expects their retirement savings will outlast their years in retirement. As of September 2021, pre-retirees expect their savings to last on average 22 years, seven years longer than only a year ago,” associate research director at Investment Trends, Kurt Mayell, said.
Switching decisions don’t pay off for superannuants
Covid-19 saw a near tripling of super members switching investment options, with 18% of the average member base switching between 1 January 2019 and 31 March 2021. This compares to just 6% during the global financial crisis, according to research by IRESS and Griffith University.
The research, which analysed 42,000 switching decisions during the period, found a near 50% increase in poor switching decisions, with a poor decision defined as one having a worse impact on balances over the period relative to not switching.
“While better superannuation switching access and financial control is a good thing, that very access could also be putting the retirement needs of those with lower levels of financial literacy and without access to advice at risk. It’s imperative that superannuation trustees and policymakers consider strategies to support members making more effective decisions about their superannuation,” Griffith Business School’s senior lecturer, Dr Kirsten MacDonald, said.
Superannuation funds and Nukes
Despite the movement towards ESG investing, most super funds in Australia have holdings in nuclear weapons companies, according to a report by The Australia Institute and Quit Nukes.
Analysing the policies and practices of 22 funds that hold over 80% of all superannuation money under management, the report found that just six Australian super funds have already divested from all companies that derive revenue from nuclear weapons. They are Active Super, Australian Ethical, Christian Super, Crescent Wealth, Future Super and Verve Super.
HostPlus has also committed to include nuclear weapons in their definition of controversial weapons from January next year, while Aware Super has committed to review their policy in early 2022. AustralianSuper, at the other end of the spectrum, currently has over $1 billion in nuclear weapons companies, according to the report.
The Australia Institute Polling also found that 69% of Australians agree that their super fund should not invest in companies that are involved in nuclear weapons production and the same percentage would expect nuclear weapons to be included in ‘controversial weapons’.
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