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The superannuation world is ever-changing, which is why it’s so important to stay up-to-date with all the rules, caps, rates and thresholds. While many of the changes can be seen as the government fiddling with the rules or shifting the goalposts, many changes can be positive.
Government policy is never flawless and improvements can always be identified. Some policies are designed to be fairer while others may be designed to incentivise Australians to boost their super, or for the industry to cut their fees.
As we see the dawn of a new government, we asked some of Australia’s top experts in superannuation and retirement planning what they think the government should be focusing on.
CEO, Financial Planning Association (FPA)
The superannuation system has continued to experience significant changes of late, with legislative reforms putting a spotlight on fund performance and trustee retirement income strategies. We are watching with great interest how these changes, such as the introduction of benchmarks, will deliver better outcomes for consumers.
Financial planners have also been anxiously awaiting the implementation of the retirement income covenant and the development of innovative retirement income products. The stagnation and one-size-fits-all account-based pension model, which has been the only solution for clients over the last 15 years, has led to sub-optimal outcomes for Australians trying to manage their retirement income needs, as demonstrated by the Government’s frequent intervention into draw down levels over this period.
There has been much discussion of late about accessing superannuation for short-term financial or housing needs, however, the FPA firmly believes that superannuation is for Australians’ retirement. It is critical that before making any decisions, Australians access professional financial advice and think very carefully about actions that could have major consequences for their future prosperity.
We welcome the Government’s commitment to deliver the legislated increases to the superannuation guarantee in full and on time. However, the time has come to close the retirement income gap between men and women that has existed for far too long. Industry and Government must, as a priority, examine initiatives to boost the retirement savings of women, such as the extension of the superannuation guarantee to paid parental and carers leave, so more Australians can achieve their retirement goals.
We look forward to working with the new Government to ensure Australians continue to have access to quality and affordable financial advice for their retirement.
Harry is an independent consultant and advisor working with institutions big and small that are committed to improving the retirement outcomes of Australians, as well as Australian ambassador to the Transparency Task Force, a UK-led initiative to bring greater transparency and accountability to financial services.
A change in government presents an opportunity to revisit an issue that has surfaced since the outbreak of COVID, and the commandeering of super into the response via the COVID early release scheme. Add to that the Super Home Buyer Scheme election policy put forward by the Coalition, the purpose of superannuation appears less clear today than at any time since the introduction of SG.
The new government should revisit the recommendation made by the Financial System Inquiry of 2014 to legislate the objectives of superannuation, so that there is policy clarity as to what it is that the superannuation system exists to achieve. This can be done by legislating the Superannuation (Objectives) Bill 2016 which was allowed to lapse in the 45th Parliament. In the absence of such clarity, superannuation will continue to be subject to forces opportunistically pulling it away from its original intent.
Brendan Coates and Joey Moloney
Brendan Coates is the Economic Policy Program Director and Joey Moloney is a Senior Associate at Grattan Institute.
At a time when genuine productivity-enhancing reforms are rare, superannuation reform – including the new underperformance test, stapling super funds to members as they change jobs, and removing duplicate accounts and insurance – is a valuable legacy of the Morrison Government.
But there is still much left for the Albanese Government to do on super. Here’s what its priorities should be.
First, wind back superannuation tax concessions.
These tax breaks go far beyond what is needed to ensure adequate retirement incomes, and their cost vastly outweighs any corresponding savings via lower age pension spending. The super tax breaks serve little purpose but to facilitate tax-planning for high-income households. But the federal budget faces structural budget deficits of about 2 per cent of GDP. Baked-in spending on aged care, defence, and the NDIS leaves us with little choice but to raise more revenue. The 2016 super tax changes cut some of the most egregious rorts from the system. But with these concessions now costing upwards of $40 billion a year, and growing fast, super tax breaks should be first up against the wall now that it’s time for budget repair. Grattan Institute has recommended cutting contribution caps and taxing super earnings in the drawdown phase. These reforms could raise $5 billion a year today, and much more in future.
Second, the new Government should build on, rather than tear down, the former government’s reforms to lower superannuation costs and improve fund performance.
The existing underperformance test can be improved, including via the changes that are underway to extend it to choice products. But the Government should not step back from the idea of objective benchmarking. The Government should also stick with stapling rather than switching to an auto-rollover model proposed by Industry Super Australia, which would add unnecessary costs as members switch super funds each time they change jobs. Most importantly, a new default system is needed to ensure disengaged members are connected to high-performing, low-fee MySuper products.
And third, the Albanese Government should do more out of-the-box thinking about the drawdown phase.
The Retirement Income Covenant will help focus trustee attention on better retirement offerings, but it’s lack of guidance and guardrails risks the proliferation of poor-quality products. We risk creating exactly the kind of mess in the drawdown space that we’re still cleaning up in the accumulation phase. Strong intervention is even more warranted for the retirement phase, where products are much more complicated and consumers risk being stuck with a bad product for a long time.
The new Government should therefore explore how best to help different cohorts of retirees to find efficient draw-down strategies. That could include a set of “best in show” shortlists, where individuals are matched to products by cohort, or the Government could directly offer a limited suite of retirement income products itself.
Some in the super sector may be tempted to think that the big questions in super have been settled. They should think again.
Chairman, Retirement Income, Challenger
Ideally, all changes to super should be bipartisan. Super is an even longer-term transaction than home ownership for most Australians. People need certainty. They need to be confident that a change made to the rules governing super is very unlikely to be over-turned by a subsequent government.
The incoming Labor government is likely to want to revisit the purpose of super legislation that stalled in 2016. A key reason for the purpose of super not being legislated at that time was that the two major parties couldn’t agree on the wording. They came close but didn’t get there. Let’s hope that better progress can be made the second time around.
Other things to clarify once and for all might be the interaction between super and housing and under what circumstances super can be accessed in times of economic uncertainty. Putting more constraints on the ease with which minimum drawdown rates can be adjusted would be another positive step. Reducing the rates might be electorally popular, but it sends confusing signals about what super is for. The drawdown rates are a tax measure. They ensure that money is withdrawn from super’s concessional tax environment at increasing rates based on age. The rate at which super must be spent, on the other hand, is a matter entirely for retirees themselves. This distinction is important and often gets lost when this issue is discussed. Super is only part, albeit an important one, of a household’s retirement savings.
Labor has already said it wants to tweak the performance test introduced under the Your Future Your Super reforms, without compromising its intent. This seems sensible.
Dr Martin Fahy
CEO, Association of Superannuation Funds of Australia (ASFA)
The aspiration to have 50% of Australians self-funded in retirement by 2050 is now well under way. Underpinning this are the key issues of sustainability and equity. Four priorities to address these issues are:
- Address the superannuation gap for women: One way to step in the right direction would be to implement ASFA’s proposed Super Baby Bonus – a $5,000 deposit into a person’s superannuation account following the birth or adoption of a child
- Close the gap for gig-economy workers: The removal of the $450 threshold has gone part way to improving retirement outcomes for casual workers, but we’d like to see compulsory universal superannuation extended to dependent contractors to improve coverage for all
- Address unpaid superannuation: With the introduction of Single Touch Payroll now complete, we think it is an opportune time to align the collection of payment of superannuation with the payroll cycle. Additionally, we’d look at the treatment of unpaid superannuation during liquidations and administration of small and medium sized business. To avoid people losing out on their superannuation when businesses get into financial difficulty, contributions should be protected in the same way as wages and receive preferential creditor treatment.
- Orchestrate the regulatory environment for the transition to Net Zero: The efficient deployment of capital by super funds to support the transition to Net Zero (retooling industry, the electricity grid, transport and so on) is dependent on government orchestrating the right regulatory environment.
Jim is a consulting actuary who specialises in modern retirement modelling and strategy
In February 2022, legislation was passed for all superannuation funds (other than SMSFs) to implement a ‘Retirement Income Covenant’.
What this means is super funds will have to be more proactive in helping their members once they reach the retirement phase. It’s at this point when members need to turn their balances into sustainable retirement income which supplements any Age Pension income they receive. It’s hard.
The good news is that these policies will increase Australian retirees’ incomes by up to 30% – with no increase to contributions.
The improvement comes from implementing more efficient techniques and products for turning people’s money into monthly retirement income that can confidently last for life. Ultimately it’s a balance between having full access to funds (including as an inheritance) versus having higher income that doesn’t run out. Managing the way super interacts with the Age Pension means testing rules and incentives is also key.
The Government should be cautious about making more changes to superannuation whilst these changes are being implemented. The focus should be on making sure it’s all done well. An example of this is to solve the problems flagged in the ‘Quality of Advice’ review and to not forget the Retirement Incomes Disclosure consultation responses from 2019. We need to reduce the current regulatory impediments that may get in the way of super funds guiding members to make informed choices.
The world is watching with great interest as Australia continues to take the lead in building an amazing, albeit complex, defined contribution retirement system.
CEO, SMSF Association
To provide a clearer direction for future reform within the superannuation sector, the new Government should legislate the proposed objective of superannuation in the near future. In addition, the Government should legislate the remaining proposals included in the previous Government’s budget announcements in 2021, including improvements to residency arrangements for SMSFs and rationalisation of legacy pension issues.
We encourage the Government to continue with the quality of advice review, with the current terms of reference. We would support an extension of time for the review, if that was considered appropriate. The review should focus on improving the accessibility and affordability of financial advice, especially for those approaching retirement or who have recently retired.
We support the Government’s intention to establish a Council of Superannuation Custodians to provide advice on superannuation policy. The Council should represent all sectors of the superannuation system, including the SMSF sector. Stability is an important prerequisite for increasing efficiency within the superannuation system. We encourage the Government to limit policy changes to those which have bipartisan support, to ensure future improvements to the system are likely to remain for the long term.
Director, Super Consumers Australia
People continue to struggle to make the most of their retirement savings. As people approach retirement they’re faced with complex decisions like, will they have enough income, how long do their savings need to last, what types of products can help and how to tell which ones are high quality. We want to see the new parliament focussed on how it can better support people through the retirement planning process so they can make the most of their retirement incomes. The cost of inaction is people taking on a much lower standard of living in retirement and for many retired renters income poverty.
People need greater assistance in the form of advice, basic product design and guidance if they are to meet this challenge. Other jurisdictions, such as the UK, have helped people at this stage by developing a ‘one-stop shop’ for retirement advice. This innovation would bring together and build on the scattered resources Australian consumers must rely on to plan for retirement.
The products on offer to retirees currently don’t have a quality filter as they do in the accumulation phase. There is an important task for the new parliament in helping to set standards to test more super investment options. Australian retirees need to be given some comfort that they are in a super fund which can pass a fitness test. We need to be looking at solutions that make sure everyone can get a good outcome from the retirement system regardless of wealth or level of financial knowledge.
CEO, Australian Institute of Superannuation Trustees (AIST)
As the peak body for the $1.6 trillion profit-to-member superannuation sector, AIST congratulates Labor on its Federal election win and looks forward to working with the new government.
Women should be front of mind for the Albanese Government in setting superannuation policy given on average they earn less than and have lower super balances than men, take more time out of the workforce to care for children and other relatives, are more likely to work part time. These systemic factors mean too many end up living in poverty in retirement.
Data shows women earn 23% less than men and have retirement balances which are 40% lower than men’s and they live longer, which is hardly a recipe for the comfortable retirement that they deserve.
We continue to call for superannuation to be paid on paid parental leave because women account for more than 90% of all parental leave taken by primary carers and yet it is the only paid leave that does not include super.
The 2020 Retirement Income Review estimated it would cost the Government about $200 million a year to pay superannuation on its Government Parental Leave Pay, which cost $2.2 billion in 2018-19.
We will also continue to advocate for other policy changes we believe are in the best interests of our members including:
- amending superannuation and tax law to ensure children adopted under traditional Aboriginal and Torres Strait Islander law are treated like other children
- extending the Your Super, Your Future performance test to all Australian Prudential Regulation Authority-regulated superannuation products and including their details in the Australian Taxation Office YourSuper tool
- legislating the objective of the retirement income system to ensure superannuation is used only for retirement savings (except in exceptional circumstances)
- improving the equity of tax concessions and support to achieve financial security in retirement for all Australians
- strengthening action against superannuation guarantee non-compliance to address unpaid and underpaid super, and
- applying a gender lens to the retirement incomes system with a view to closing the gender gap.
Although Australia can rightly be proud of its retirement savings system, it can still be improved to ensure it acts for the benefit of all Australians, regardless of their gender, culture, education or socio-economic background.
Unless we stop treating our older community as a liability, we will repeat the policy failures that have led to this situation.
Our society created the remarkable longevity bonus already being enjoyed by baby boomers. Half of them alive today will live over 30% longer than their birth life expectancy.
One view is that this will not continue. In developed countries expected lifespans beyond the late eighties are declining. The growing incidence of obesity at midlife is a contributor, along with other lifestyle and environmental factors. Alongside this is a growing possibility that significant increases in longevity will be enabled for some by developments in epigenetics, which influences the way genes function.
Our superannuation system is world class. Our age pension system is relatively good but badly flawed by failure to increase the age of ‘entitlement’ in line with community longevity increases. For far too long we have been resting on our laurels – witness the aged care debacle, ignorance-based age discrimination in employment and a health system focused on cure rather than prevention – expensive and short-sighted approaches. There is also a serious disconnect between our national disability approach before and after age 65.
This helicopter view suggests we need a major lift in strategic thinking. Since the older community is a major asset, what could we do to maintain not only its value but its sense of self-worth?
- Develop and promote a National Longevity Strategy. This would take account of all major influences, rather than the current piecemeal, silo-based approach. Its goal would be to maximise the community and personal benefits from increasing longevity.
- Mandate the involvement of all federal departments and ensure their recommendations are reviewed by an independent Longevity Commission. This will require vigorous and healthy trade-off discussions between the separate entities pursuing their own interests – which the present silo-based funding and execution avoids.
- Educate everyone from midlife in how their own longevity may evolve, why and what they can do about it. We know enough to do this well. Encourage and incentivise engagement. We have spent a fortune on encouraging financial literacy and tidying up financial planning but have failed to improve longevity awareness – which underpins all life decisions, including financial ones.
- Foster longer productive lives for those who can contribute while improving support for those who cannot. We are facing a significant employee shortage for years. Better employer awareness, conditions and incentives could make a significant difference to extending many working lives. Enlightened grandparenting and better organised volunteering could provide productive alternatives.
- Establish a national annuity scheme funded by increases in the current superannuation contribution. The success of the Future Fund shows the investment side can be capably managed. The distribution side needs work but in principle we know there will be winners and losers. We cannot predict individual outcomes, but the community outcome will be to support those who survive longer through not having to fund those who don’t. This could also reduce concerns over intergenerational asset transfers of surplus super.
- Take a longer-term view of funding aged care. Debate over levies to fund present aged care failures will run their course, but we must manage the future better by supporting healthier older generations to contribute well beyond the ‘entitlement age’ emphasised by the present age pension approach. A National Longevity Strategy would aim to influence demand for residential aged care and improve self-sufficiency, empowering people to stay longer at home.
There are many other opportunities from seeking to make the most of the rest of our life. It’s time to get them front of mind.
On the way, we can reform ‘retirement’– a concept which has outlived its original social purpose.
What were viewed as the priorities in 2019?
In 2019 we asked the same question and you can see the responses from then by clicking the box below.
View responses from 2019
President of the Profession of Independent Financial Advisers (PIFA), formerly known as the Independent Financial Advisers Association of Australia (IFAAA)
People who are looking to plan their retirement (whether it’s 5 years away or 30 years away) ought to have access to the experience, skills and sophisticated financial forecasting tools that independent financial advisers possess. So we want high calibre advice to be more accessible and more affordable. To that end, here are the two keys we want the government to act on immediately:
- Quality advice: the government to keep its promises to implement the Royal Commission’s recommendations, particularly 2.2 (warning as to lack of independence of financial adviser)
- Affordable advice: make financial planning advice fees tax deductible if the adviser is a member of a government-recognised financial planning profession (i.e. an association operating a Professional Standards Scheme)
Director, DBA Lawyers
- The transfer balance account (TBA) should become a self-assessment exercise for SMSFs rather than the complex reporting now. The reporting is not working and a lot of re-reporting is required and the ATO are experiencing a lot of errors. Many SMSF advisers are having lots of issues with the TBA reporting system and find this the worst part of the mid-2017 reforms.
- Contribution caps should be increased. The concessional cap should increase to $50,000 per member and the non-concessional contribution cap should increase to $150,000 per financial year.
- The gainful employment test should be removed as it no longer has relevance to the modern super system. The changes announced in the April 2019 Federal Budget should go further and remove any link to gainful employment altogether rather than just for those under 67 years
- The superannuation guarantee (SG) rules need greater flexibility. Currently the complexity of getting the right calculation for contributions to satisfy the minimum 9.5% of ordinary time earnings is extremely complex given Australia has the most complex workplace set of rules and the most restrictive work practices in the world where multiple awards or industrial agreements may apply to the same employee and similarly different classifications under these multiple awards may apply to the same employee. Employers should not be hit with such a crushing penalty regime for making honest mistakes. The penalty regime needs to encourage voluntary compliance. An SG amnesty should be introduced for a 2 year minimum period so employers can rectify any past issues. Employers should be given an annual reconciliation period rather than getting caught out if each quarter is not precise. There is plenty of work on SG that is needed.
- A genuine effort be made for ATO-Treasury-Industry to work together to cut down on wasteful and inefficient practices to reduce any red tape, eg, the TBAR system which has been and continues to be a real problem for SMSF practitioners. Further effort is required in reducing the red tape and paperwork associated with super which eats up retirement savings and is non-productive.
- The Government should proceed with SMSFs having 6 members as soon as possible.
- That the super system be treated with ‘respect’ and it is not there for Governments to readily raise tax from, and that successor governments must have regard to the long term goals of members and the super system rather than making changes that cut across members long term retirement goals for Government to extract further tax to balance its budgets from year to year.
Rafal Chomik and John Piggott
Senior Research Fellow at CEPAR and CEPAR Director and Scientia Professor of Economics at CEPAR (Centre of Excellence in Population Ageing Research)
Australia’s retirement income system is in pretty good shape. It is expected to deliver adequate incomes to Australia’s retired population for many decades to come, with sustainability assured in the face of an ageing population.
But there is nevertheless plenty of room for improvement, so a comprehensive review is welcome. It’s an opportunity to resolve issues that have weighed on the system for years.
At the ARC Centre of Excellence in Population Ageing Research (CEPAR), we conducted our own review of research into the retirement income system in a series of Research Briefs. These also identify policy gaps that the Government’s review should revisit.
Whatever form the Government’s review takes, it is vital that it considers the interaction between different components of the system. Too often in the past, one aspect of the system has been examined without giving weight to the way in which it intersects with other parts. A comprehensive review provides an unusual opportunity to look at these together.
In doing so it should assess the current and projected adequacy of the safety net, the need for higher contributions, the framework that allows lump sums to be converted into retirement income, and the appropriateness of taxation settings.
When considering whether the safety net is adequate, it is important to anticipate future trends in the asset holdings of those who are less well off. Retirees without housing security are vulnerable under current policy settings, so we need to make sure that they are adequately supported by public payments such as the Age Pension and Commonwealth Rent Assistance. The role of housing as a retirement asset more generally will also need to be considered.
The review ought to consider the appropriate contribution rate mandated under the Superannuation Guarantee. In addition, more comprehensive mechanisms should be considered to draw non-employees into the superannuation system.
Retirement incomes can not only be increased by higher savings, but also by improving the efficiency of the system and better drawdown strategies. The Productivity Commission, in a recent review, has already suggested several policies that would help keeping costs down, and there are no doubt other possibilities. A comprehensive review must give this issue serious consideration.
The drawdown phase of retirement requires special attention. This should be an important part of the review – how to make drawdowns efficient, especially the management and sharing of risks people face in retirement.
Finally, the retirement income system sits within a broader taxation framework, and that framework must better accommodate settings that support the operation of the system we have adopted.
A comprehensive review provides the opportunity to assess the system against the objectives of adequacy, sustainability, efficiency, fairness, and simplicity and to make Australia’s retirement income system even better.
SuperConcepts Executive Manager SMSF Technical and Private Wealth
The Federal election and the conservative reaction of voters to proposed significant and inequitable change is a clear signal that stability with superannuation is essential.
What needs to be done is that the superannuation objectives bill should be passed to incorporate the superannuation objectives in legislation to moderate large swings in policy settings over time.
The legislation proposed prior to the election should be examined in light of the objective of superannuation so that it encourages people to save for their retirement. Relevant proposals are those that would clarify some of the Super Reform legislation for pensions, the superannuation guarantee changes and the extension of contributions as announced in this year’s Federal Budget.
Chairman, Retirement Income, Challenger
The Superannuation (Objective) Bill 2016
Legislating the objectives of the super system was a key recommendation of the 2014 Murray Inquiry and it was a powerful one. Unfortunately, the Superannuation (Objective) Bill 2016, which sought to do this, was not passed during the life of the 45th Parliament. The major parties were unable to agree on the wording. This is a serious bit of unfinished business for the new Morrison government.
Here are a few thoughts on this.
Super is social infrastructure that transforms some of today’s wages into capital for spending as ‘retirement wages’ far into the future. In this way, household consumption can be smoothed out over a lifetime. The first dollar a worker contributes to super at age 25 might remain in the system for 50 or more years, until it is ready to be spent.
This is an epic maturity transformation; deferring a fortnightly wage and turning it into a 50-year compounding asset.
But, at some point, each dollar of super capital needs to be turned back into ‘retirement wages.’ It is not permanent capital. Super’s purpose is to create retirement income, but the sooner we work out what ‘retirement income’ means, via the Superannuation (Objective) Bill, the better.
The system is currently squibbing on this, at least in part because it suits the agents to hang onto the money. The result is that retirees are underspending and experiencing a lower standard of living than they can afford.
Sean has worked in the superannuation industry for more than 20 years and has a specialist knowledge of annuities
1. Amend the indexation of the $1.6 million pension transfer limit
I can see some justification for imposing this limit in terms of limiting the benefits accruing to the “rich” but it’s indexation needs to be amended in order to achieve that aim rather than eventually punishing everyone.
What is particularly interesting about this limit is that it is indexed by inflation, unlike all the other limits on contributions to superannuation that were included in the same suite of changes, which are indexed by wages.
The amount that someone saves in superannuation for their retirement is linked to their wages. Wages generally grow faster than inflation, so people’s superannuation balances at retirement will increase faster than inflation over time. Therefore, people’s super balances at retirement will increase faster than the limit will increase. This will lead to more and more of people’s superannuation savings when they reach retirement exceeding the limit.
The tax on earnings that is applied to pension accounts within superannuation is nil, while the tax on earnings that is applied to non-pension accounts is 15%. The limit constrains the amount of superannuation at retirement that can be transferred to a pension account. Because the limit won’t grow as fast as people’s retirement balances, over time more and more people will have more and more tax applied to their superannuation savings in retirement.
At some point in the future the failure of the limit to keep up with people’s superannuation balances when they reach retirement will lead to an increase in tax that will not just apply to the “rich”, it will apply to the average person and, over the very long run, it will apply to everyone.
Higher taxes on retirement savings mean that those savings will either provide a lower level of income or they will provide an income for a shorter period or a combination of the two. More and more people will therefore be forced to rely on the Age Pension in retirement, increasing the burden on the government and working taxpayers.
As a solution, at the very least the limit should be indexed to AWOTE and increased by much smaller increments than the ridiculously high increment of $100,000, which will be reached less often in a low inflation environment.
2. Reverse the changes to the taper rate for the assets test
This change resulted in the rate at which the Age Pension was reduced as you saved more superannuation being doubled. It therefore introduces a very strong disincentive for people to save more superannuation for retirement.
The change resulted in retirees going from a situation where they received most of any additional super they saved back as total income over retirement (income from super plus Age Pension income) to a situation where they get back much less of any additional savings as total income in retirement.
Furthermore, people with more super who try to draw a regular income from their superannuation that will last for their retirement and index that income to keep up with inflation will find that their total income in the earlier years of retirement will be lower than people with less super.
This is true across a very broad range of balances at retirement from around $400,000 to over $1 million which covers what many retirees can expect to have at retirement in their superannuation.
This change manages to both overly punish those who attempt to save more super in order to provide a better life for themselves in retirement without relying on the working taxpayer / government and encourages people to dissipate their super more quickly in retirement.
As a solution, the change should be reversed and the taper rate that prevailed before the change reinstated.
John Daley and Brendan Coates
John Daley is CEO and Brendan Coates a Fellow at the Grattan Institute
The Morrison Government confronts a big agenda when it comes to retirement incomes. They need to implement the superannuation recommendations of the Hayne Royal Commission and respond to the Productivity Commission inquiry into superannuation costs. And Treasurer Josh Frydenberg hopes to establish an independent review of the retirement incomes system.
Here’s what their priorities should be:
- Australia needs a new retirement incomes standard
- Scrap the increase in compulsory super to 12 per cent
- Reduce Australia’s woefully high super fees
Dante de Gori
CEO of the Financial Planning Association (FPA)
The super system has undergone significant changes in recent years, with participants adjusting to new rules and requirements. As a first principle, the Government should be cautious with any further reforms to superannuation to ensure the benefits of reform aren’t overwhelmed by short-term disruption.
The proliferation of multiple accounts and underperforming super funds continues to be a drain on Australians’ retirement savings and should be a focus for the Government’s policy work. Initiatives to improve Australians’ engagement with their superannuation well before they reach retirement age will help them make better decisions and should form part of any solution. The lack of portability of insurance is a common obstacle to reducing multiple superannuation accounts and needs to be addressed.
Boosting the retirement savings of women is a priority and the Government should report on the retirement income gap between men and women. Extending the superannuation guarantee to paid parental leave and carers leave would be a good step towards closing the gap.
The FPA welcomes the Government’s interest in a review of the role of superannuation in retirement income and we encourage the review to consider the role that professional financial planning plays alongside superannuation in supporting Australians achieve their retirement goals.
Let’s bore you with some numbers to start, to show you how the world will change in the next three decades. I’ve chosen 30 years because the life expectancy of a female born today is 94. Retirees at 65 today need to plan not to run out of money until at least 2050.
- According to actuaries Milliman, health issues now comprise 24% of the spending of 85-year-olds, up from 12% for 65-year-olds.
- ABS data shows there are 7.3 million Millennials in Australia, versus 4.8 million Baby Boomers.
- The Intergenerational Report says that in 1975, there were 7.3 workers (or people aged 18-65) for every retiree, but by 2050, it will fall to only 2.7.
- The same Report says 5% of the population will be over 85 by 2050.
So what? Well, where will government revenue come from in future? Baby Boomers are now aged between 55 and 73. Many have led blessed lives of free education, strong economic growth, generous superannuation rules, cheaper housing and world peace and trade. The younger generations know this, and they will increasingly outvote the old folk. Gradually, age pensions will pay less, entitlement will become stricter, super rules will tighten, health will be more user-pays and aged care will rise in price. The Baby Boomers who are not self-funding their retirement will struggle.
There’s a solution right on the doorstep: the equity tied up in the family home (which at some point will no longer be exempt from the assets test). The fact that a person can own a $5 million house and claim a full pension, plus associated health benefits, is inequitable with increasingly cash-strapped budgets. We are seeing an early move with the enhanced Pension Loan Scheme. AMP’s modelling suggests a single person can borrow on this scheme up to $36,000 a year, and a couple $54,000, paid in fortnightly instalments.
This is the start. It will not be long until it is expected that anyone who owns their own house will be expected to draw on home equity rather than receive an age pension, and a chunk of the money will go into health rather than the next trip to Europe.
Director, Strategy and Solutions, Milliman
Now that the dust has settled on the change in government, and policy making can move forward again post-election, it’s time for the Morrison Government to take stock on all things super. 2018 was a busy and high profile year with the 2017 and 2018 budget changes, the Productivity Commission and the Royal Commission. It’s important now to not only ensure that the lessons learned are not forgotten, but that also we conversely sift through all the noise to get to the heart of the issues: retirement is a long term game, and it cannot be viewed with a short term policy lens.
As a result, to my mind, all of last year’s issues point to three key things: we must not lose sight of truly putting the member first, we must remember that doing so is not purely about fees and returns, and we must not let some bad eggs ruin the overall notion that people will always need financial advice.
This means that the government needs to ensure that the upcoming regulations for the member outcomes regime, clearly outlines what is expected of a fund’s knowledge and that they have a true understanding of their member’s needs and retirement goals. The government needs to also prioritise overhauling the advice rules and outcomes from the Royal Commission, allowing new forms of adviser technology to complement advice and enable better service for the public – at a time when they need more options than traditionally, advisers have been able to provide.
Executive Director, Heffron SMSF Solutions
One of the first things Josh Frydenberg did after the Coalition’s shock election win last week was to express his support for the Productivity Commission’s recommendation of (yet another) review into our retirement incomes system. Unfortunately, however, a review into retirement incomes in isolation is at risk of missing the point.
The societal challenge of an ageing population is well known and has been widely discussed. The increase in longevity creates three separate but linked high level needs:
- Health care
- Aged care (including accommodation)
- Retirement income provision
In most developed countries these three needs are partly funded by the state and partly funded by the individual. Often, the proportion of public versus private funding depends on an individual’s means. At any rate, all three needs are increasingly expensive and complex areas for state and citizen alike that require strong co-ordinated policy responses. Sadly, this co-ordination is currently lacking in Australia.
At least the Productivity Commission’s recommendation was to look at retirement incomes holistically rather than just superannuation but given the nature of the problem, we need to be even broader than that and look at the problems presented by aging overall. If we are going to go through the time, expense and pain of another review, wouldn’t it be great if we engaged with the problem at the right altitude and in a coordinated fashion?
National Sector Leader, Asset & Wealth Management and National Leader, Customer, Brand & Marketing Advisory, KPMG Australia
The Federal Government’s key focus area for superannuation should be providing certainty around a retirement income framework.
While the accumulation phase within our super system is well developed and globally leading, there are significant opportunities to develop innovative retirement products to meet the diverse range of needs of members transitioning to retirement.
The government has consulted over the past year around a Retirement Income Covenant and Comprehensive Income Products for Retirement (CIPRs) and disclosure to facilitate consumers to self-select a retirement product, however has yet to provide a framework. The sooner certainty is provided by government, the sooner funds can act and further develop our retirement income system.
Stephen is an independent consultant and advisor working with institutions big and small that are committed to improving the retirement outcomes of Australians.
The primary objective of the superannuation system is not to accumulate retirement savings but to provide retirement income. The areas where the superannuation and retirement income system needs work are:
- Helping Australians increase their retirement savings; and
- Helping Australians convert their retirement savings into appropriate retirement incomes.
Most of the focus for the last couple of decades has been on the former – and that work has not yet finished. However, saving for retirement is necessary but not sufficient to improving outcomes in retirement.
We need tweaks to the current SGC system to make it more relevant to broader parts of society. A lot has been written about the gender gap in both salaries and therefore retirement savings. As well as addressing the salary gap, there are a range of initiatives to address the retirement savings gap including SGC payments on parental leave and improving SGC coverage of part-time and casual workers. The latter will address a broader issue than just the gender gap.
Another high priority to increase retirement savings must be to address the epidemic of unpaid superannuation. Recent reports have highlighted the extent of this problem and it needs to be addresses so all workers receive their entitlements.
Whilst Australia has done a good job of increasing the size of retirement savings compared to other countries, there is still a long way to go to help people convert their retirement savings into appropriate retirement income streams. These needs to be done via a range of products and services that assist retirees understand their needs and preferences, and then match them to appropriate products.
The Government should continue where it left off prior to the election with the introduction of the Retirement Income Covenant including the requirement for superannuation funds to offer a broader range of products at retirement, especially those that provide protection against longevity risk.
Acting Director – Superannuation Consumers’ Centre
Before the election the Government passed great consumer protections to clean up the glut of erosive duplicate accounts, saving Australians millions of dollars for their retirement.
We support the reintroduction of its legislation to protect people from inappropriate insurance, which entirely wipes out the savings of many young people. It’s completely unacceptable that for some young people their first experience of superannuation is to discover their savings have been eaten away by zombie insurance policies.
We are going to need a two pronged attack if we want to see people moved out of poor performing funds and into the best. APRA’s new powers directed at weeding out funds that aren’t delivering for members is going to take time. APRA needs a bright line test in the regulations if it is really going to turn up the heat on merger activity.
Getting rid of the poor performers alone won’t solve the problem of poor competition, we need to be helping people find funds with the best likelihood of success. Therefore we want to see urgent action on fixing the default superannuation system. This is where the biggest potential savings lie for people. The Productivity Commission found that those ending up in a poor performing fund stand to be half a million dollars worse off when the retire, compared to a top fund. The PC’s recommendation of ‘best in show’ is worth trialling and refining in the real world, so that people aren’t left to languish in underperforming funds.
Family Trust and SMSF Specialist Advisor, Verante
I believe that we need some stability and restraint when it comes to any further superannuation legislation. What people want is some certainty that if they forego salary and wages to save for retirement that this will benefit them in the long term not disadvantage them. The average mum and dad who have saved (as opposed to the average couple who just have employer contributions) have basically lost out since the changes to the Age Pension tapering rate. Often a couple with $860,000 of savings has a worse annual income outcome than a couple with $387,500 who get the full pension. Don’t try to tell someone at 65 that they should spend their capital because frankly the prospect of 25+ more years of life and the increased costs of healthcare, aged care and possible GFC events scares the living daylights out of them. Remember these are people who have lived through recessions as adults unlike anyone under 45.
If we want people to be able to plan for retirement and have the confidence to use some of their capital earlier in retirement then better education on budgeting, medical and aged care costs needs to be provided like on the MoneySmart website but promoted much more so people know it is there and it becomes a go to source for unconflicted guidance. The introduction of the ASFA Retirement Standard has provided great information to use in those conversations with people entering retirement who have never really budgeted. The Government needs to take the lead and promote this sort of data and do the same for Aged Care costs and pros and cons of downsizing or the alternative of access the Pension Loans Scheme.
International bestselling author, finance and investment expert, radio broadcaster, newspaper columnist and public speaker
People are sick of the continual changes to the superannuation regulations. The first thing the government should do is enact legislation, with the support of the opposition, that no fundamental changes will be made to the system within the next five years. This would allow retirees to have more confidence in planning their future.
Most retired people are in pension mode. This requires a minimum drawdown from their pension fund each year which is based on the balance at the previous 30 June. The percentage to be drawn increases with age. For example it is 6% of the balance for those aged between 75 and 79 and 9% of the balance for those aged between 85 and 89. There has been a massive increase in life expectancies is since these numbers were legislated, and there is good reason to reduce them to help retirees make sure that their capital lasts as long as they do.
Under existing rules, a person cannot contribute to superannuation once they turn 65 unless they can pass the work test which involves working 40 hours in 30 consecutive days in the financial year in which they make the contribution. Repeated efforts to simply raise the contribution age 75 have been resisted by Labor and the Greens. The age limit should be raised to 75.