In a report released over the weekend, the institute called for a list of top super funds, a lifetime government annuity for retirees, and a free guidance service for retirement planning.
The Grattan Institute highlighted that retirees are struggling to draw down their super, resulting in the system functioning more like an inheritance scheme than a retirement income plan.
Unlike other countries that provide automatic lifetime income, Grattan said Australia’s system offers little guidance, leaving retirees to navigate complex decisions about spending, investment performance, and the age pension.
The institute described the “little” guidance available as “unhelpful”, often pushing retirees towards account-based pensions, which require careful management to avoid outliving their savings.
“Half of those using an account-based pension draw their super at legislated minimum rates, which leave 65 per cent of super balances unspent by average life expectancy,” the report reads.
As such, Grattan has proposed a three-pronged reform strategy to simplify super in retirement.
“First, retirees should be encouraged to use a portion of their super to buy an annuity from the government, which would pay an income that lasts retirees the rest of their lives,” Grattan said.
According to the institute, 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. This, it argued, 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 the rest of their lives.
“Retirees remaining super would be drawn via an account-based pension, giving them flexible access to capital”.
Second, Grattan called for the government to fund a free service to provide personalised retirement income advice for retirees and those approaching retirement.
“This service should aim to advise at least one-third of new retirees, and would cost about $360 million over its first four years and $50 million a year thereafter, which should be funded by a levy on super fund balances,” it explained.
Lastly, Grattan suggested the government create a list of the top 10 super funds, selected by an independent expert panel, and then steer retirees towards those funds.
“The performance test and comprehensive assessments of fund performance by APRA should be extended to account-based pensions. These reforms could boost the incomes of future retirees who continue to opt for an account-based pension by up to $70,000 over their retirement.”
Elaborating on the top 10 listicle, Grattan said it would implement the 2018 Productivity Commission recommendation to create a single ‘best in show’ shortlist of funds, compiled by an independent expert panel and extended to retirees’ offerings.
Funds should be selected on their capacity to deliver strong risk-adjusted returns in the long term, sound governance, and capacity to provide the best guidance and advice, the institute said.
“‘Best-in-show’ would encourage all super funds to lift their game, because funds would compete to make the top 10 and stay there. Market discipline would come from experts who have the time, resources, and expertise to decide which funds to list, rather than individuals who don’t.”
“It would also create a safe and simple choice environment for retirees, in contrast to the complex and perplexing one retirees currently face.”
Touching on the government’s Delivering Better Financial Outcomes package, Grattan urged that the package should proceed only once account-based pensions are performance-tested and all retirement products are included in APRA’s assessments.
“The complexity of the retirement income system means funds should be able to help their members on a more personal level. But if these moves are to work in the interests of retirees rather than funds, the government should first create a stronger market design,” it said.
According to Grattan’s statistics, about 80 per cent of Australians find retirement planning complicated and about 60 per cent expect their retirement will be financially stressful.
So the Grattan institute wants the Government ‘to fund a free service to provide personalised retirement income advice to retirees and those approaching retirement.’
Haven’t they heard of the Financial Information Service (FIS)?
The Government has provided a free service since 1989 to assist retirees, and explain the inter-relationship between superannuation, pensions, and the tax treatment of both.
A key point of difference with the Grattan proposal – the FIS cannot provide advice. Instead, they explain the rules as set by the Government, and help retirees to make informed decisions.
In many cases, retirees will not need advice, once they are aware of their options.
If their situation is complex, such as family splits, succession planning, trusts, companies, investment properties and succession transfers, then they can pay to seek advice.
It is not the job of Government to tell people what to do with their money.
More bad ideas from he socialist left. The last person you would want to control your pension is the government
One can always trust???? the Grattan Institute to ‘pedal’ agendas for those, in whom they seek favour, and then go backwards to create a narrative to support absurd propositions and flawed assumptions.
Wow, socialism rules OK!!
Questions:
1. I’m sure the ‘expert panel’ won’t be politically charged!
2. 80% over $250k??? Only if you want to destroy faith in the system and hence destroy super.
3. I thought fee for no service was a concern? That’s what a super levy is on all super funds to fund the service that only a few will utilise. Honestly, if it’s that inexpensive ($50m ongoing) it should be funded by consolidated revenue.
In summary everybody loves being told what to do by the government, this will be soooo popular…NOT.
Instead of these ideas what about these alternatives I came up with in 10 minutes:
a. One transfer balance cap for all. We presently have 301 different transfer balance caps for member and about to go to 401.
b. Increase concessional contributions to $50k at least. If you have paid off a mortgage and educated the kids there’s not a lot of time left usually to build a balance.
c. Just refund excess contributions for amounts less than $100k. No one is trying to scam the system with small overpayments.
d. Bring in div 296 as the principle is not unfair. Allow the trustee to elect the tax on TSB or fund income.
e. Remove the medicare levy on direct super payments to super beneficiaries who are not tax beneficiaries.
f. Remove refundable franking credits (yes contentious but Australian listed companies end up having their profits remain tax free when owned by pensioners). This is grossly unfair to younger generations and a distortion to the budget especially as the population continues to age.
g. Remove lifetime pensions (thank god we saw movement here).
h. Provide access for planners to the superannuation section of the tax portal. The stubbornness of the ATO on this matter is literally costing 10’s of millions of dollars in lost productivity per annum.
i. Allow additions to pension accounts. This restriction was brought in due to deductible amount and Centrelink reasons. With deeming all these rules are now anachronistic, serve no purpose and drive cost and complexity into the system.
j. Incorporate a governemnt ID system for financial accounts that individuals and professionals can access. The industry cost would be 10’s to 100’s of millions of dollars per annum for AML. All we essentially do is prove to the government that government issued documents exist. This is Twighlight zone stuff.
l. Make all funds (esp union funds) comply with executor/member directives when they are compliant with law and not decline simply as it’s ‘not procedure’.
m. Allow advice to be provided without compliance overburden by licenced persons when no remuneration is received.
n. Remove all tax on TPD payments. If someone is that unfortunate to succeed in a TPD claim, AND they took themselves off of the public purse by having insurance then let them have this ‘tax advantage’ of deductible premiums. I’m sure not many will ‘scam’ the system making themselves qualify for TPD claims.
o. Remove the any/own distinction in the SIS Act. This is a totally unnecessary complication.
p. Make all advice deductible to the tax payer. Even if it’s mostly super advice a personal deduction motivates people, and makes it more affordable, to get advice. This will be cashflow positive for the Commonwealth in the long run due to lower aged pension liabilities that would result.
You’d think the boys and girls at Gratten have a paymaster or a political ideology rather than actually trying to improve the systems in Australia. Apparently this is not supposed to be the case but I’m struggling with this given these announcements.
Any proposal that compels or forces certain behaviours will rejected by many many people and will further erode confidence in the system at a time when want confidence to be increasing not decreasing.
Many years of experience behind those 10 minutes of thought!!