TRANSCRIPT
[[INTRO]]
Australia's superannuation scheme is complex, stressful, and leaves many retirees living on lower budgets than they need to be.
These are the key findings of a new report by the Grattan Institute which was published today [[20 Jan]].
Joey Maloney was one of the authors.
"Fundamentally, the problem is that the superannuation system, while we're working, makes a lot of really big decisions for us. We're forced into the system, we're compelled to contribute eleven and a half percent of our wages, most of us end up in a fund and investment strategy, by default, rather than choosing it, but then once we hit retirement, the system just casts us adrift."
Research by the Grattan Institute finds 80 per cent of Australians say the superannuation system is too complex, and 60 per cent expect retirement to be financially stressful.
Retirees receive too little guidance, according to Mr Maloney.
"We're left with a pile of money and we've got to figure out how we're going to make it last for the rest of our retirements, not knowing how long we're going to live or what's going to happen to our investment returns."
The CEO of National Seniors Australia, Chris Grice says questions about superannuation are a daily conversation for older people, who often struggle with the existing system.
"Whether you are a pensioner, part pensioner, self funded retiree or veteran, very challenging to be able to negotiate, I guess the government systems, in terms of, you know, most of it now is online, it's very difficult to to actually get face to face support and and I guess that, you know, unless you have the, I guess the relative affordability of be able to have a conversation with a financial planner in person, things can be somewhat challenging."
One result of this complexity is that older people tend to manage their money with extra caution.
The system steers more than four in five retirees into account-based pensions - which require retirees to manage their spending so they can avoid the risk of outliving their savings.
And half of those using an account-based pension draw their super at legislated minimum rates, leaving 65 per cent of balances unspent by the average age of life expectancy.
In fact, many retirees become net savers - seeing their super balance continue to grow for decades after leaving the workforce, rather than drawing down on their savings.
That's money they worked for, which they could have enjoyed.
The Grattan Institute has proposed a policy overhaul it says can help.
"So an annuity is really the key piece that we need to give people the confidence to spend their super in retirement."
Joey Maloney again.
"What it is is it's basically you give up a portion of your super - not all of it, just some of it - and in return of giving up a lump sum of that money, you get a guaranteed income at a particular level for the rest of your life. Now this gets rid of the problem of trying to figure out how long you need to make the money last because instead now you've got a promise of receiving guaranteed income for the rest of your life as long as you live. Now, we think that delivering that at scale is basically what's needed to make sure that people have the confidence to spend their superannuation in retirement."
The Grattan Institute report suggests an independent government agency should be established to operate an annuity scheme, rather than the private market.
Retirees would be encouraged to allocate 80 per cent of their super balance above $250,000 towards this annuity - which could boost retiree's incomes by up to 25 per cent.
The Head of Policy at the Association of Super Funds of Australia, James Koval agrees annuities do have a place.
"Annuities are a good option, but they're good as an option. I think that's a key thing to keep in mind. It's not a one size fits all, and it won't necessarily be the best outcome for everyone, but if in doubt, call your super fund and get some information, get some advice. That's the best way to plan, because no one will know exactly what you want for retirement, except for yourself, except for the individual."
National Seniors Australia C-E-O Chris Grice says it is true personalised information is key.
So, what would he like to see?
"I guess, really have a framework in place that does allow, I guess, a blended form of advice, I mean, just to have robo style advice where just everything is online can be quite difficult, because you've got folk who challenges at the moment around cyber safety and in particular around their financial situation. You don't necessarily feel comfortable actually sharing that information with you know just a calculator online. And that's where you know that that trust, you know, in terms of someone's future, it's incredibly important."
The Grattan Institute is recommending the government establish a free guidance service to help people plan their retirement incomes.
It would also help eligible retirees to apply for the Age Pension.
This would be funded by a levy on all super account balances and cost around $360 million over its first four years.
Proposals for a significant overhaul of one of the country's most critical financial systems ... which could make retirement look less like hard work.
