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Pension payment relief extended for another year
The Federal Government has extended the temporary reduction in minimum pension drawdown rates by 50% for another 12 months, until the end of June 2022.
“For many retirees, the significant losses in financial markets as a result of the COVID-19 crisis are still having a negative effect on the account balance of their superannuation pension,” the Prime Minister’s office said when announcing the extension.
This means that retirees under 65 who previously had a minimum drawdown rate of 4%, prior to the pandemic, will be able to continue with the halved drawdown rate of 2% for another 12 months.
Minimum pension drawdown rates are based on age.
Super bills pass
The government’s contentious Your Super, Your Future package was passed by the Senate on 17 June, paving the way for far-reaching changes to the $3 trillion superannuation system.
The legislation will ‘’staple’’ members to the first fund they join, rather than being defaulted into a new fund each time they change jobs. A new performance test will also prevent poorly performing funds from accepting new members.
However, an amendment was passed that will delay stapling and benchmarking until November. While stapling will help reduce multiple accounts, critics argued it could also tie members to an underperforming fund or one that leaves people who move into high-risk jobs underinsured.
It hasn’t been plain sailing for the government though. It was earlier forced to amend the bill to include administration fees in its fund performance test and remove the Treasurer’s veto over super funds’ investments.
The government’s More Flexible Superannuation Bill also passed through the Senate on 17 June, with amendments.
The bill allows people aged 65 and 66 to make up to three years of non-concessional super contributions under the bring-forward rule. It was passed with amendments that include higher concessional contributions for individuals aged 65 and over and being able to recontribute COVID-19 early release super amounts.
And in a bumper day for super, the Self-managed Superannuation Funds Bill – which increases the maximum number of members in self-managed and small APRA funds from four to six – was also passed.
Retirement costs rise
The cost of living for a retiree in Australia rose marginally during the March 2021 quarter – by 0.4%, according to the Association of Superannuation Funds of Australia (ASFA) Retirement Standard.
A retired couple aged around 65 living a comfortable retirement can now expect to spend $62,828 a year, while singles can expect to pay $44,412. Couples living a modest retirement – which ASFA defines as better than the aged pension, but still only able to afford fairly basic activities – can expect to spend $40,829 a year, while singles can expect to spend $28,254.
The increase of 0.4% was lower than the overall increase in the March CPI of 0.6%, as retirees are protected from some increases in components of the All Groups CPI, such as the price of education and childcare. Petrol saw the biggest increase over the quarter – up 8.7%, while takeaway foods and restaurant meals rose by 0.6% and 0.5% respectively.
“We saw a return to more normal conditions in the March quarter. In the previous few quarters there were suspensions or delays in certain price increases but now price increases are returning to a more standard pattern,” ASFA deputy chief executive officer, Glen McCrea, said.
March super stats show super increase
There are now 597,396 self-managed superannuation funds in Australia, according to the Australian Taxation Office’s March quarterly SMSF data.
That is up from the 591,489 funds in the December quarter. In those total funds there are now 1,120,936 members of SMSFs, also up from the 1,110,568 members in SMSFs at the end of the December quarter.
The ATO said total estimated assets of SMSFs are now just over $787 billion, up from $763 billion in the December quarter, and the most popular asset class for SMSFs is listed shares, which account for 26% of total estimated SMSF assets.
In terms of demographics, 53% of SMSF members are male and 47% are female, unchanged from the previous quarter, with 86% of SMSF members aged 45 years or older.
The Australian Prudential Regulation Authority (APRA) also released its quarterly superannuation statistics for the March quarter, with overall superannuation assets in Australia increasing by 13.9% over the 12 months to $3126.9 billion. Assets in MySuper products rose by 19.3% to $850 billion, while total SMSF assets rose by 13.4% over the year.
Total contributions for superannuation entities with more than four members rose by 0.8% over the year to $121.2 billion, while total benefit payments rose by 31.9% to $110.1 billion.
Running out of money in retirement is a major concern for retirees
More than half of Australians (51%) are concerned they will not be able to afford their desired lifestyle in retirement, according to a survey of over 6,700 adults in the UK, Australia and the US by UK-based Smart Pension.
The next biggest concern was healthcare costs at 48%, following by day-to-day living costs at 45%. Just 12% said they did not have any concerns around their finances in retirement.
The report also found that one third of all respondents, and one quarter of those over 55, believe they do not have a good understanding of the available retirement options. More than one third (34%) of respondents approaching retirement said they had never received any advice on retirement.
But a large proportion still want to be able to exercise some control over their retirement savings, with 29% saying they wanted to manage all their retirement finances themselves. Just 11% say they want to fully delegate retirement decision-making to somebody else and 48% say they want to receive some assistance when making decisions.
People’s attitudes to retirement are changing as well, with most now considering it as something that will happen over a period of time. The Smart survey found that 55% of respondents expected retirement to be an event with several stages. Only 16% of over 55-year-olds expected it to be a one-off event, with one third of all respondents expecting they will continue to work part-time during retirement.
While 40% of Australians expect to retire between the ages of 65 and 69, 7% say they don’t think they will ever retire.
Meanwhile, the Roy Morgan Superannuation Satisfaction Report found that Australian’s satisfaction with superannuation rose by 7 percentage points over the year to April 2021. The rating of 71.7% represents a record high level of customer satisfaction with superannuation funds.
Magellan launches fund with reserving strategy
Magellan Financial Group has launched a new, listed, actively-managed fund called FuturePay, designed to protect investors from downside risk by delivering a monthly income that grows with inflation.
The fund invests in a portfolio of high-quality global companies that Magellan believe have the potential for long-term investment returns but which are less volatile than the broader equities market
Magellan has incorporated a reserving trust into the product – called the Support Trust – into which FuturePay will pay funds that it will be able to draw on to meet income payments to members during periods of market falls if necessary.
Magellan spent years considering how to meet the needs of retirees, hiring FuturePay portfolio manager, data scientist and former managing director of BlackRock, Paddy McCrudden, in 2017 to spearhead its efforts.
Magellan suggests a seven to ten year timeframe for holding the fund, which has estimated total management costs of 1.52%.
IOOF completes acquisition of MLC
IOOF Holdings has completed the acquisition of MLC Wealth Management from National Australia Bank, making it one of the largest wealth managers in Australia, with $494 billion in funds under management, administration and advice.
Over 400 MLC advisers will join IOOF as part of the merger, and IOOF says the economies of scale it will achieve via the acquisition will also help it lower the cost to serve its clients.
“This acquisition is truly transformational for IOOF as it positions us as the leader of a new era of wealth management in Australia, giving us a strong platform for future growth,” IOOF chief executive officer Renato Mota said.
“We have the strategic intent, the talent and now the scale to deliver our advice-led wealth management proposition to more Australians than ever before. While this acquisition delivers immediate value to our shareholders, we consider its potential for medium- and long-term value even more compelling.”