Super ‘must abandon nest egg mindset, focus on income’
Reduced complexity, better access to advice and a rounded approach to supporting retirees are essential as the population ages, says the Actuaries Institute.
Superannuation policy must move away from a “nest egg” mentality towards savings strategies that generate income to support retirement, according to the Actuaries Institute.
It said reforms to financial advice were welcome but the government also had to develop policies that encouraged retirees to support themselves, and that included nudging people “towards well-rounded default solutions”.
The institute’s Treasury submission welcomed the government’s shift in policy focus on super but CEO Elayne Grace said the “most fundamental barrier to overcome is shifting the national mindset”.
“Superannuation policy settings to date have focused on the accumulation stage, which are now starting to reach maturity, and larger groups of Australians are moving into the retirement phase,” she said.
“Superannuation is integral to the financial and broader wellbeing outcomes of 16 million Australians, who face complex challenges on their journey to retirement. We need to make navigating these important life decisions as easy as possible, for as many people as possible.”
Chair of the institute’s Superannuation and Investments Practice Committee Tim Jenkins said the nest egg mentality made retirees too cautious about drawing down on their savings and reluctant to embrace broader possibilities.
“Beyond the welcome fixes to financial advice for those Australians, we should be thinking about a holistic help, guidance and advice framework to remove the caution that many people feel when drawing down on their superannuation,” he said.
The institute said top-ranking pension systems globally nudged workers towards well-rounded default solutions for funding retirement although notions of “a standardised product” need to be approached with care.
“No single solution, that covers a mix of regular income and savings to draw down, and which lasts a lifetime, suits everyone,” Mr Jenkins said.
“A broad frame is required to consider super alongside any sources of government support, income from part-time work and home equity to fund a dignified retirement.”
The institute said this would include considering eligibility for the means-tested age pension, healthcare card concessions and other entitlements as well as earned income or accessing equity in the family home.
It said demand for lifetime income products was a demand rather than supply issue and improved take-up would require easier access to advice and refocusing the savings mindset.
“Some degree of standardisation could help to reduce the level of complexity that non-advised retirees have to consider,” the submission said. “An income stream requirement is a common feature of top-ranked systems globally, and its introduction would serve to emphasise that Australia’s system is focused on income, not nest eggs.”
The institute also highlighted the need to raise financial literacy with guidance and education along with a “proactive approach to encourage financial planning from early years to and through retirement”.
“This could be done together with initiatives to improve the consistency and comparability of disclosures, such as standardising definitions of key features of retirement income products.”
“The current complexity of the system makes it difficult to understand for many people and restricts the freedom of trustees and life insurers to improve their offerings.”
