Use it or lose it: Call for legislation to make retirees spend more

The Finology Summit, which is run under the umbrella of the Portfolio Construction Forum, is now in its seventh year, and at this year’s meeting in Sydney, there were calls by leading investment advisers to stop the increasing “underspending” of superannuation.

Earlier this year, the government also called for Australian retirees to spend their superannuation savings, but volatile and uncertain economic forecasts have seen older Australians hanging on to their money.

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As reported in The Australian, one of the speakers at the summit, Allianz Retire Plus head of product Mark Lapedus said the retirees no longer have the confidence that their superannuation will sustain “a level of income” for a long period.

“A lot of research has been done to look at how much retirees are actually taking, and the (federal Treasury department) retirement income review talks about the fact that people are underspending,” he said.

Currently, under the Superannuation Industry Supervision Act, retirees under 65 must draw at least 4 per cent of their account balance each year, while those aged between 65 to 74 years must take 5 per cent. From the age of 95, retirees have to withdraw 14 per cent of their income.

A Treasury survey found that most retirees draw only the minimum amount.

“The SIS minimum is exactly there as a minimum, but a lot of retirees actually believe that because that’s the amount that the regulators tell them to take, that’s obviously the right amount, and therefore you shouldn’t take any more than that,” Mr Lapedus said.

Another speaker, Fidelity head of client solutions and retirement Richard Dinham said the government minimums anchor people’s spending patterns.

“The government really needs to think about what those minimums should be, and the 4 per cent is probably too low,” he said.

“The statistics and the system back up the fact that they (retirees) are underspending and leaving too much at the point of death.

“It could be that future governments remove some of the tax benefits if there is too much being passed on to the next generation, which is an unintended purpose of super.”