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China needs its 1.4 billion citizens to start spending. But its ageing population is reluctant to loosen the purse strings, especially while the social security net remains inadequate.
It’s time to make retirement work for Australians, Labor says. Are we ready?
After 30 years and with a pool of assets now topping $3.5 trillion – the fourth biggest globally – Australia’s superannuation system is about to undergo a major transformation, as Treasury signals a shift in focus to decumulation. That is, it’s time for Australians to think about spending their retirement funds, rather than just saving them.
That could be a big ask for a population zeroed in on accumulation, particularly as Australians, worried about running out of money in their increasingly long post-work lives, struggle to shake a nest-egg mentality about their super – even as the government urges them to get spending.
Citing the need to make the superannuation system better provide the security and income required to ensure Australians a dignified retirement – in line with the Objective of Superannuation the government is currently seeking to enshrine in legislation – Treasurer Jim Chalmers and financial services minister Stephen Jones on Monday unveiled a discussion paper, Retirement Phase of Superannuation, that aims to improve how income works in super.
The paper examines ways to help members of super funds navigate the retirement income system, help funds deliver better retirement income products and services, and make lifetime income products more accessible.
“More Australians are looking to their super to play a greater role in providing for their retirement,” Chalmers and Jones said, noting that the number of retirees with a super account is expected to more than double over the next 10 years, to 2.5 million.
“The welcome and important focus on the accumulation phase of super needs to be matched by a similar focus on the retirement phase,” Chalmers and Jones wrote.
A key concern is that retirees lack access to products that can maximise their superannuation, they said, with 84 per cent of retirement savings held in account-based or allocated pensions and just 3.5 per cent in annuities.
“Unlike account-based pensions, annuities offer the option of receiving regular payments for life, regardless of how long a person lives,” they explained.
“Super funds need to do more to understand their members’ retirement needs and provide products and services tailored for their retirement. We also recognise there is a role for government and regulators in creating an environment that supports these changes.”
Ditching the nest-egg mentality
The consultation, which is open to submissions from interested parties until February 9, continues a frequent refrain from the Labor government about the need to optimise how Australians use super in retirement, enabling them to manage longevity concerns while enjoying their golden years, rather than just building nest-egg savings.
That might be a challenge, with research showing many older Australians don’t understand how super is taxed or how the retirement system works. And more than six in 10 retirees drew down their super accounts at the minimum legislated rate in the 2022 financial year, according to a recent Super Consumers Australia survey.
Moreover, one-fifth of respondents who were drawing down at the minimum rate said they thought that is what the government recommends, highlighting the gap in understanding. Of those, 37 per cent say they are following expert advice in how much they draw down.
“Our research clearly shows that the retirement system is not working well for everyone,” said Gerard Brody, acting director of Super Consumers Australia.
“The system is complex, demanding consumers to possess high levels of knowledge and engagement to maximise their retirement outcomes,” Brody said. “Yet our research also found that only 43 per cent of older Australians have sought some kind of advice about money in retirement, and only 21 per cent expressed trust in advice from a super fund.
“As the government seeks ways to enhance retirement outcomes, it should begin by having an independent agency link Australia’s government-provided retirement planning services and tools on one website. Additionally, there’s a pressing need for consumer protections to make the retirement system safer for everyone, including default products and performance testing, mirroring the safeguards in the accumulation phase.”
