The government and ASIC are demanding banks and financial service providers strengthen their scam and fraud defences. With this nefarious activity costing Australians $318 million in the past 15 months alone, the industry’s positive response has not come quickly enough.
With industry funds feeling the heat from APRA, it’s likely more members will look for a better option, especially if they are nearing or in retirement. Those choosing to do so need to tread warily.
Sub-standard superannuation advice has retirees paying excess tax
The government’s move to enforce higher standards on the superannuation industry could not come sooner in the wake of a research report showing about 700,000 retirees could be paying more tax than legally required.
The report, commissioned by the Super Members Council (SMC), has found that many retirees who have stopped working full time are unaware they can save themselves an average $650 a year in tax by switching their superannuation account to the tax-free retirement phase.
These retirees, who are sitting on an estimated $90 billion in accumulation accounts, are paying excess tax because they haven’t received basic advice to switch their super account, says Misha Schubert (pictured), chief executive officer of the SMC.
“If someone keeps $100,000 in an accumulation account instead of moving it to a pension account, they could pay up to an extra $4,500 in super taxes over their retirement. For $200,000 balances – the average balance for people retiring – the extra tax could be $9,000,” Schubert tells The Golden Times.
“Some inactive accounts belong to people who are still working and adding to other accounts or keeping an accumulation account as a back-up. However, research shows many people don’t act because they are disengaged or don’t know what to do.”
A consumer survey of retirees found about six in 10 Australians with lower balances (less than $100,000) who have an inactive account keep it because they haven’t decided what to do with superannuation or don’t know what to do with their account.
Schubert says the research highlights the need to quickly implement the second tranche of the Delivering Better Financial Outcomes reforms to help retirees access quality information at low cost.
“Not knowing enough about superannuation can lead to poor decisions, such as leaving accounts inactive or withdrawing funds without proper planning. Making simple information and advice available to more Australians is a big missing piece of the retirement puzzle. The coming financial advice reforms will help make advice more affordable.
“The package of reforms will enable the 2.5 million Australians on the runway to retirement to get the high-quality information they need to plan wisely at a much lower cost – and we urge government to introduce legislation swiftly.”
No doubt legislating Delivering Better Financial Outcomes – the government’s response to the Quality of Advice Review – will assist those on the cusp of retirement make better decisions, particularly by allowing large superannuation funds to be able to offer simple and affordable advice about members’ retirement incomes.
The research shows that retirees with low balances, the main reason for leaving funds in the accumulation phase, is because they don’t know what to do with it or how (39 per cent).
“This is the group that would most benefit from superannuation funds being able to offer simple and affordable advice relating to their retirement income, as a detailed financial plan may be too costly,” says Schubert.
“It would allow superannuation funds to better guide members at key life stages with personalised prompts to support them for retirement. It would also create a new type of adviser who can give simple but quality advice on APRA-regulated products.”
Only 17 per cent of Australians – and just 26 per cent of retirees – say they have sought financial advice from their superannuation fund. Compounding the situation is research showing four out of five Australians aged between 45 and 54 need financial advice but cannot afford it.
No doubt superannuation funds being able to offer simple, qualified advice would be extremely beneficial to many Australians, especially those with lower balances on retirement. But it will be to no avail if the funds cannot service these members, highlighting why the government move to enforce higher service standards on the industry is so critical.
