SMSFs a case study for retirement success
The SMSF sector could be used as a case study for the government’s retirement income review due to the effectiveness with which trustees are engaging and using the super system, leading to improved retirement outcomes for members, according to the SMSF Association.
In its submission to the retirement income review, the association said the degree to which SMSF trustees engaged with the system — with 49 per cent of all voluntary super contributions coming from SMSFs — allowed them to get more out of super as a retirement vehicle, with the majority of members not reliant on the aged pension.
“Holistically, [the statistics] highlight the SMSF sector is able to generate adequate retirement balances which a high majority convert into account-based pensions for their retirement,” the submission said.
“The retirement income system is currently working well for SMSF members because they have a history of consistent contributions, engagement with super and are generally financially literate.”
The SMSFA argued that this was not the case for the broader member population, where employers primarily handled contributions and around 50 per cent of men and 65 per cent of women were financially illiterate, according to the 2016 Household Income and Labour Dynamics in Australia (HILDA) survey.
“Financial literacy is an essential component in being able to understand the interaction of the three pillars of the retirement system,” the association said.
“The lack of financial literacy in the population is exacerbated by the fact that employers are responsible for administering super contributions and, as a result, individuals have little engagement with their retirement savings. Evidence for this is the $17.5 billion of unclaimed super.”
However, the association said more could be done on a broader level to make the super system easier for most members to understand and engage with, including ensuring no further changes were made to super rules for revenue-raising purposes.
“The SMSF Association believes that for a successful retirement income system, the superannuation pillar must have an agreed objective introduced, be simplified and not be subject to potential significant change every budget cycle,” the submission said.
“In addition to enshrining the objective of super in legislation, the SMSFA has advocated for removing super policy from the annual budget policy cycle to promote stability, competition and efficiency for the system.”
A number of other simplifications could also be made to improve understanding of the system, including aligning the definitions of a dependant in the SIS Act and Tax Act to simplify death planning, removing the work test to streamline contributions for retirees and amending SIS regulations to require trustees to have an exit strategy for their SMSF, the association said.
