Deloitte has long expressed concern that superannuation will not provide adequate support in retirement for most Australians unless they work longer or contribute more to their super.
Speaking to SMSF Adviser, Deloitte’s superannuation partner Russell Mason suggested compulsory annuities could work towards addressing longevity risk.
“I’m in favour of compulsion, and that’s what would make it a bit different. It’s a bit like superannuation: if we didn’t have compulsory super, despite all the incentives under the sun, the vast majority of people would not save for retirement,” Mr Mason said.
“The only other alternative is you bring in the age pension as a universal right at a certain age; the government seems to have moved away from that. So deferred annuities would be my way to go.”
Mr Mason said compulsion will encourage competition in the market in the same way that compulsory superannuation saw more competition amongst APRA-regulated funds.
“I think you’d find there’d be new products, new innovations, new players in the market,” he said.
It doesn’t have to be compulsion to buy commercial annuities. Account based age-adjusted SMSF pensions would be equally fine. the main thing is to have private income replace a public charity one. A $1 for $1 income test could then be applied against all Commonwealth income support payments. If super were paid this way, you would no longer have any need for preservation ages, since no one would be able to manipulate affairs much to claim the age pension or sole parent pension etc.
Super is meant to be forward lifetime income averaging for tax purposes
Deloittes are suggesting Annuities in addition to super pensions. I think that this would be a complication. Why have another enforced method of retirement savings when super is more tax efficient and the system is already in place.
Give all employees the choice of fund not just some. I had a client try and have their employer contribute their super contributions to another fund but they refused as it is legislated that it must go into a union fund fund. Sorry I meant an industry fund. On looking up the funds rollover policy – only one rollover a year allowed and it costs a fee to rollover. Ironically this fee is right next to an advertisement that tells members to avoid using funds that charge a fee to roll out your super money. This type of forced commitment in this day and age is just wrong and amounts to no more than legalised extortion of clients money.
If the Governments would stop messing around with super more would have confidence in it. Compulsory SG is flawed because of union interference and fraud and the public are waking up to the rorts. Get rid of the industry fund rorts and enhance super for the better and that will resolve the problem. And bring back member engagement.
It is generally accepted that a superannuation savings gap exists in this country and for most, living a dream retirement will be just that, a dream.
While there is an argument that supports some form of compulsory annuitisation of retirement income streams, this can only be achieved once there is far greater maturity and competition in the annuity market.