Super must deliver in retirement phase

Currently, 1.6 million people aged 65 and over receive income from a super product. This will more than double over the next decade as a further 2.5 million people are expected to retire with a super account.

Australians will increasingly retire with higher balances, as they will benefit from receiving the super guarantee for a longer portion of their careers and at a higher rate.

As people rely less on the age pension, superannuation will be the primary source of income for many more future retirees.

However, at the time of retirement, people often lack the support they need to make the most of their super nest eggs.

With Australians increasingly living longer and healthier lives, many retirees are naturally concerned about outliving their savings.

As this year’s Intergenerational Report showed, men and women on average can expect to live at least an extra four years by 2062-63.

The problem is that most retirees do not have access to the appropriate products to help them maximise their super over their lifetime.

In fact, 84 per cent of retirement savings are held in account-based or allocated pensions, and only 3.5 per cent are held in annuities. Unlike account-based pensions, annuities offer the option of receiving regular payments for life, regardless of how long a person lives.

Holding back more than necessary

Uncertainty about expenses in the latter part of retirement, including aged care, can also lead to retirees holding on to more of their super than they need to.

It’s no wonder then, that in the face of complexity and concerns around not knowing how much income they’ll need or have, about half of all retirees draw down from their pensions at the minimum rate and aren’t able to enjoy the higher standard of living that they have worked so hard for and deserve.

Funds have an obligation to support their members in obtaining the best outcomes in retirement under the Retirement Income Covenant – a regulatory framework that requires funds to assist their members in managing risks to the stability and sustainability of their retirement income.

But the recent APRA and ASIC review of the covenant found that although there were pockets of better practice, overall, there was a lack of progress and insufficient urgency from funds in embracing the covenant to improve members’ retirement outcomes.

More work needs to be done. The government and industry, along with the wider community, need to work together to form a complete understanding of the issues to inform and deliver better solutions.

The discussion paper we’re releasing on Monday seeks views on how retirees can be better supported to navigate superannuation and interactions with the broader retirement income system, giving them confidence about the income they can expect to receive.

It also asks whether the settings are right to enable super funds to provide help and guidance to retirees when needed.

Finally, the paper canvasses pathways for making well-rounded retirement income products more accessible to ensure that retirees have products that appropriately manage risk, and provide stable and predictable income and flexible access to capital.

We need to ensure we have the right settings in the retirement phase of super and the right environment for both funds and members.

Our work on the retirement phase of super aligns with our efforts to enshrine super’s objective in legislation.

It also aligns with our efforts to encourage more investment in areas of national economic priority where it aligns with the best financial interests of members – a topic that will be central to the discussions at Tuesday’s Treasurer’s Investor Roundtable in Canberra.

Super is a national success story. By optimising its retirement phase, we can ensure that it delivers on its foundational promise to provide a dignified retirement for more Australians.