FAAA calls for subsidised advice fees in pre-retirement phase

In response to the government’s consultation on the retirement phase of superannuation, the Financial Advice Association Australia (FAAA) has thrown its support behind government action that would enable positive outcomes for more Australians entering and throughout retirement.

“We believe that improved financial knowledge combined with financial advice is critical to achieve this,” said FAAA chief executive Sarah Abood in the submission.

“Financial knowledge and advice will have a greater impact in achieving positive consumer outcomes than new reporting regimes or product changes. Financial advice is at the core of assisting Australians to make good financial decisions.”

Among the recommendations put forward by the FAAA to improve retirement outcomes is a $2,000 means tested payment to pre-retirees to help pay for financial advice.

“Given that lifting the level of financial knowledge in the Australian population is a long-term process, we recommend as an interim measure, perhaps for a decade, an offer to Australians of a special payment to allow them to seek financial advice,” the FAAA said.

“This could be something in the order of $2,000, potentially subject to means testing, and only available to those beyond a threshold age (possibly 55 or 58).”

The provision of strategic advice is another area that the FAAA believes needs improvement, pointing out that the current regulatory regime makes it “very difficult to provide strategic advice”.

“Often this is where retirees need to start, to allow them to get a sense of their options, without committing to the full advice process. Increased flexibility for the provision of strategic advice would be beneficial,” the submission said.

The FAAA also pushed for a broad initiative to increase financial knowledge across the Australian population, including at school, and specific initiatives to support those preparing for retirement.

“There is so much to consider, and most Australians do not know where to start,” the submission said.

“Superannuation rules and regulations are complex and intertwined. Most people do not know the basics and have no understanding of how to manage their retirement strategy, what they are entitled to or what options are available to them. Accessing guidance, information and advice is essential.”

The FAAA added that improved information and tools for those approaching retirement is vital to better outcomes.

“We imagine that this could be helped by the development of a retirement specific government website (i.e. retirement.gov.au). We would recommend that this education be provided through bite-size elements that can more easily be digested, and then built upon,” it said.

“We also favour the use of scenarios and real-life examples to show how important issues have been considered and addressed. The delivery of this education should be through multiple means to support the different learning preferences of middle to older-aged Australians.”

The submission also made it clear that while the FAAA is in support of “nudges”, it is firmly against default actions.

“The government has suggested that their intent, as part of their response to the Quality of Advice Review, is to better enable ‘nudges’ to encourage people to take action. We support this approach, provided that it is done in a way that is balanced and encourages people to consider independent personal advice relevant to their situation, financial objectives and aims,” the FAAA said.

“We note that ‘nudges’ that encourage a member to consider options that may benefit them are very different to ‘defaults’ that take action on behalf of a member who has not made an active decision. We do not support defaults in retirement planning, as there is a high risk of permanent loss that cannot be recouped.”

Additionally, the FAAA said that it does not support “government intervention into the financial product space where this is likely to come at a significant cost to taxpayers and without any guarantee of voluntary take-up by consumers”.