In its submission to the Treasury consultation on best-practice principles for superannuation retirement income solutions, the institute said that the guidance retirees now receive is “unhelpful”, steering them into account-based pensions that require them to manage their spending to avoid the risk of outliving their savings.
“Half of those using an account-based pension draw their super at the legislated minimum rates, leaving two-thirds unspent by average life expectancy. And despite the higher stakes, account-based pensions are less well-regulated than the products offered to working-age Australians,” the submission read.
It continued that while the proposed best-practice principles for retirement income solutions are a step in the right direction, they will ultimately fall short, and more structural change is needed to ensure the system fully delivers on its promise of more comfortable retirements.
“Rather than steering retirees into account-based pensions drawn at the minimum, retirees should be guided – by both the government and their super fund – to use 80 per cent of their super balance exceeding $250,000 to purchase an annuity,” it read.
“Retirees’ remaining super would be drawn via an account-based pension, giving them flexible access to capital. This reform could boost retirees’ incomes by up to 25 per cent, while also ensuring that the bulk of retirees’ incomes – irrespective of their super balances – would be guaranteed to last for the rest of their lives.”
The submission also recommended that the federal government directly offer retirees a suite of annuities called “Lifetime Super”, which should include a simple lifetime annuity as the baseline offering, as well as alternatives such as investment-linked annuities.
“These annuities should be priced at fair and sustainable rates and managed by an independent agency. People struggle to understand annuities, which can make it difficult for retirees to scrutinise products for their value and make rational decisions,” it continued.
“And annuities are typically ‘one-shot games’ – a retiree typically cannot switch to a better deal if they see one. Designing a wholesale market that overcomes these issues would be challenging. Government-provided annuities are the best option.”
Furthermore, the institute said the federal government should establish a free guidance service that “sums-the-parts” of the retirement income system for retirees.
“That service could be directly administered by government, or the government could fund third parties to provide it, as already occurs with the PensionWise retirement advice service in the United Kingdom,” it added.
“A government-funded guidance service would be less likely to be conflicted than the advice offered by super funds, and therefore more likely to be trusted by many retirees. It would be much better placed than super funds to help couples plan their retirement income, and to service people with diverse linguistic or other needs.”
Moreover, it said such a service could consolidate existing government services, integrate with the myGov online portal, and also assist retirees to apply for the age pension.
Finally, the submission said the government should direct APRA to performance test account-based pensions and develop product assessments for account-based pensions and private lifetime-income products.
“The government should also create a top 10 list of the best super funds, and then steer retirees towards those funds.”
The problem with annuities is they only as good as the organisation that provides them. Who can predict how that organisations including governments will fare for the life of the annuity which may be 30 to. 40 years. And really what is being proposed is a higher aged pension paid for by people’s super saving. That will get a big no from most voters.
Perhaps the Grattan Institute could suggest ways to make good financial planning affordable which is another way to sort this out. I refer you to Bengen’s recent book A Richer Retirement.
Comments thus far are hilarious…. where have we landed as a country that these leftist institutions are even given any consideration at all??
I think if you polled the bulk of Australia right now, their confidence in their leaders, and the companies they employ for “ideas”, there would be next to no confidence that our futures are secure! Ideas from people with little to no real world experience, who only look at the big picture and ignore the repercussions for those ideas.
How about considering incentives if you want people to behave a certain way… rather than legislating people into submission? I’m already seeing some of the older generation jumping ship to other countries… that is real wealth moving off shore because our government is a literal joke.
I’ve already discussed setting up a financial emigration business with an accounting friend. My only condition was we advertise heavily. Not to make more money but to embarrass the incompetent bureaucrats and the completely useless political class into rethinking their Stalinist policies.
My biggest issue is convincing my wife to leave this beautiful country but it’s going to get worse.
Money on it. Death duties will be promoted by Grattan and the other communists in the next few years.
I pay a mountain of tax at the moment and employ 25 people across the 3 businesses.
If they put anymore restrictions or increase taxes further I’m giving up, shutting while lot down and considering which country to live in.
I’ll just come here in the future as a tourist.
This is terrible for the country but the UK is leading the charge. Biggest number of millionaires emigrating the last two years. Second only to China. NOT per capita, in total.
The ridiculous policies and direction of this country are creating the same problem.
The biggest shame of it is if the idiots in Canberra stopped buying votes and giving so much money to the older generations, and of course NDIS debacle, then everyone could prosper. Their own selfishness is ruining the country for everyone.
Google: ‘tax system explained by beer’ to see the future of this country. Very sad.
More nonsense from the gratuitous think tank.
Its our money but they think it is their right to control how we use it.
Lets go communist.
Gratton is a captive of the socialist Left. But… If the government offered me a legally binding (on behalf of taxpayers!) lifetime guaranteed 10% annual return on the annuity, I might be tempted to let them FAFO with 20% of my super balance. On second thoughts, nah, it would need to be 15% return, given annuities usually do not offer a capital return on death.
Now here is an actual example of ‘artificial intelligence’
Nobody with real intelligence could possibly come up with such an absurd and ignorant proposition.
Now wait a minute!!!! not unless you are a ‘bought and paid for’ pawn of the Chalmers Swan Corporation.
An example of the Grattan Institute in guiding us to Trumps’s Australia. Totally outrageous proposition, that all political parties should reject!
of COURSE the Gratton Institute wants to get their hands on superannuation on behalf of the Government. How else are they going to fund the ever increasing deficit? Talk about heading towards communism.
Welcome to the communist utopia as envisaged by the Grattan Institute.
“… leaving two-thirds unspent by average life expectancy”. Guess what you morons, people live longer, sometimes quite longer, than their life expectancy.
Secondly have they reviewed the costs of aged, especially if you need residential aged care as you lived longer than this stupid so called institute believes you should be allowed live for!!
How is the annuity going to pay for the entry fees for aged care residential accommodation costs and the additional increased weekly care fees? With Western Governments credit ratings on the slide just how secure is your annuity asset base anyway? They will always be able to pay of course, just with newly minted currency….that is accelerating in it’s depreciation. Don’t worry about shooting yourself in the foot and damage yourself slowly, just go out the back and hang yourself now.
These morons should just shut their trap, they are actually quite myopic and ignorant in the their pronouncements and anyone who listens to them is potentially going to end up way worse off.
All they are doing is further undermining confidence in one of the best super systems in the world. What are the “best super funds”? Would they all be controlled by unions?
You don’t even need to pull the curtain back a little to see the cold hand of the Fabian Society and the political control they seek over all the aspects of our free society to see the Grattan Institute for the shallow and scheming communist front that it is.
Thank you Gratton Institute for wanting to turn superannuation into a Stalinist state operation.
Superannuants should have the freedom of choice to spend or save their money as they choose. As they approach their final conclusion do not take this freedom from them.
Grattan Institute giving advice to government that funds them? Say no more!