The government’s intergenerational report has revealed that total assets in the superannuation system are expected to continue to grow strongly over the next four decades reaching approximately 218 per cent of GDP by 2062–63, compared to 116 per cent during 2022–23.
But the government is expressing concerns over a noticeable reluctance among Australians to tap into their retirement savings. As such, ifa understands that Treasury is expected to release a consultation paper in the coming weeks to strengthen the accessibility of retirement products.
The government’s paper, according to Treasurer Jim Chalmers, will canvass problems with financial advice among other things.
“Half of retirees draw down the minimum and, on average, people who draw down the minimum will still have about a quarter of their super remaining when they pass on,” Dr Chalmers said on a roundtable hosted by The Australian Financial Review last week.
“What that really means is people are living more frugally than they need to. There’s not enough confidence in their balances, there’s not enough diversity or flexibility in products in the market or literacy or advice or strategies to match people with these products.”
Speaking to ifa’s sister brand SMSF Adviser, Wattle Partners director Drew Meredith said a lack of financial literacy and education contributes to most retirees not wanting to spend their superannuation.
“The financial services and superannuation sector has been focused almost solely on investment and supporting the growth of accumulators who are entering or part of the workforce,” he said.
“There has been limited, if any, investment into education on retirement, outside of a few resources, which means the basic understanding of superannuation for most Australians, let alone retirees is very low.
“The lack of education and understanding has meant that many entering retirement simply have no idea how long their capital will last, nor how much they can reasonably spend without having a major impact on this.
“The result is a default to what the government says is an ‘appropriate’ amount which in reality, is aimed at ensuring super balances are reduced to zero in someone’s 90s.
“Put simply, most retirees aren’t empowered or informed enough to know how much they can really spend.”
The Treasurer revealed last week that the number of Australians aged 85 and over is expected to more than triple over the next 40 years, while the number of people aged 65 and over is tipped to more than double.
Commenting on the government’s intention to probe Aussies’ unwillingness to spend their super, chief executive officer of the Financial Services Council (FSC) Blake Briggs, said: “Eight hundred Australians are retiring every day, and the government is right to prioritise action to make sure these consumers can choose from a range of products consistent with superannuation’s promise of delivering income for a dignified retirement.
“The Retirement Income Covenant requires superannuation funds to formulate strategies to optimise retirement outcomes for members, however, the FSC believes this framework will be more successful if the government removes regulatory barriers that are inconsistent with the covenant.”
The FSC also commended the intergenerational report’s recognition of “the important role of superannuation in addressing Australia’s financial pressures over the long-term”.
Just checking in with all the advisers here, have you booked your clients in for their death? and for their unexpected medical episodes which cost money? and of course you should know the exact time (in the future) when they will enter aged care? All so, when the client passes away they wont have any super left. The government seem to think the issues faced in retirement are all mapped out. This just seems like a front to peddle annuities.
Look forward to tell my clients that they have to die at age 89 because that is what the Government has planned for them.
Suspect Treasury might be acting for Industry Super? Loads of unlisted assets with valuations perhaps a little high and if members start to retire and take lump sums then the thing might just fall over? History shows it doesn’t take much to bring things apart?
Let’s unpack this:
1. [i]”Half of retirees draw down the minimum and, on average, people who draw down the minimum will still have about a quarter of their super remaining when they pass on”[/i]
Dr Chalmers, have you considerd that people don’t know when they are going to die. The plan for my clients is they die with zero regrets, not necessarily zero money. If they are 87 amd need to spend $10,000 on an operation, I want them to be able to afford it.
2. The FSC is wanting the Government to make it easier for their members to come up with Annuity products (that they make alot of money from) to encourage people to spend all of their money. The issue with annuities is people have their money locked up (or have significant penalties if they withdraw) and you need alot to get an income.
3. They seem to be forgetting that any money left in super will go to their kids who will no longer be tax dependents. The government will get their share.
4. [i]“What that really means is people are living more frugally than they need to. There’s not enough confidence in their balances, there’s not enough diversity or flexibility in products in the market or literacy or advice or strategies to match people with these products.” [/i] One interpretation could be they don’t have enough confidence in the system (that policiticans keep tinkering with), or the other is they are able to live a happy life without having to spend alot of money.
5. If people are having too much super, why the fuss about increasing the super guarantee rate? It sends a very conflicting message that sounds like “people don’t have enough super and they don’t end up spending it all.”
By all means help put in place things that make it easier, but don’t go down the path where you mandate people have to use annuities.
My view has always been that it is obscene to put any limits on how people manage their super – THEIR money. OK, it is certainly up to government which tax concessions they allow BUT that’s not the end of it. [b]Forced [/b]minimum drawdown amounts, [b]forced [/b]maximum allowed contributions, [b]forced [/b][i]maximum allowable balances[/i] in accumulation phase under threat of pecuniary taxes – all simply [i]disgusting and counter-intuitive[/i] to full and voluntary co-operative super building for retirement by individuals for their own betterment.
They want people to be incentivized to save into their super and the self-absorbed idiot government carries on with this sort of restrictive nonsense. What the hell is wrong with government types that they can’t see most of the super ‘challenges’ people face is caused by government restrictions and other government idiocy?!
Pete, the moment tax benefits are included, the entitlement to “their” money is justifiably diluted. The recipients of the tax benefits have an obligation to use it wisely, i.e., adhere to the sole purpose test. Accordingly, non-super investments have no such rules (other than say, the 10-year tax rule for bonds).
So how does QANTAS point for jointing a fund work in with the Sole Purpose Test?
I can’t recall anywhere in the sole purpose test that says “to provide for your retirement as long as you spend it all”
Combine an ABP with a Lifetime Annuity. Simple.
The case of unintended consequences, a reduction in the number of advisers available, an increase in the number of people who need advice and then don’t have any idea why the consumer is confused, like all politicians of all persuasions pandering to the vested interests with their snouts in the trough. I pity the consumer who must rely on a superfund untrained staff member given a few weeks of internal training to promote in-house products. An adviser role does not stop when a client retires it becomes more hands-on with a different focus if you do the job right. But what would I know? I am one of those ex-advisers with 35 years of experience who at 63 decided a degree was not on my agenda. All for professional qualifications and without needing to say ethics but commonsense has been sadly lacking like all areas of public policy.
This Chalmers is a dinosaur, he is totally clueless about what retirees value, i have not read such rubbish since Bill Shortans brain wave to get rid of franking credits
The Govt’s love to meddle, and just can’t keep their hands off it. Through the Liberal’s sheer mismanagement of the budget and gross overspending during Covid with Job Keeper, they have blown a massive hole, and now Labor want to be penny pinchers.
“The result is a default to what the government says is an ‘appropriate’ amount which in reality, is aimed at ensuring super balances are reduced to zero in someone’s 90s.
Really? So why the latest round of reduced minimums?
There’s a noticeable reluctance among Australians to tap into their retirement savings, because they’re not receiving parliamentary pensions inflation-linked for life. Perhaps politicians (and judges, senior public servants, etc.) should live in the real world and just get the 10% SGC like everyone else.
More rubbish from Chalmers to sanction the total control and domination of advice by the industry fund sector.
This is the game that is being played. Yet the advice community is asleep at the wheel.
Why no fuss about the plans by Australian Super for retirement advice control, why no calling out the allowance of group charging for advice services by ISF whether delivered or not to members. This sector is doomed.
As per Retirement Income Review, page 446: Retirees want to: (a) pay-off home (b) hoard wealth and (c) maximise Centrelink entitlements. Longevity risk is a major issue and not adequately addressed by lifetime annuity products. This is exacerbated by most people choosing to DIY and opt for inadequate “solutions”.
Trouble with LIFETIME annuity products is that to get a good/comfortable income from them you need to put a LOT of money into them, at least a ‘lot’ for the average Joe. If retirees do that they lose access if placing all their money in (have to, just to get a good return) and unless they cop a hefty access penalty they have no access as the decades roll on. I am in favour of all types of annuities – I just think the access penalties on the lifetime ones turn people off. A lifetime annuity with significantly lower early access penalty
Wow the Govt is so smart.
It was a great idea to Kill nearly 50% of Financial Advisers over the last 4 years hey Govt.
This Retirement Income Covenant is code for trying to flog / enforce some type of Lifetime Annuities. For some reason the Govt seems to think that is the best retirement product. Probably because most of the morons in Govt Bureaucracy have the top notch CSS Lifetime Annuities.
But wait, the RIC Lifetime Annunities sold with QAR backpackers, that’s going to go well isn’t it.
Cant wait for retirees locked into Lifetime Annunities that then want to access capital and cant.
[b]RIC via QAR = RC2 : – ) [/b]
And what happens when the annuity provider disappears? An advice industry levy funds the shortfall?
Thats what we should expect from a Treasurer with a BA and a Doctorate in Politics and not economics or finance
I do love a politician that will get a pension for life telling those that don’t what they should do with their retirement funds that they already paid tax on while working…. lets get rid of politicians pensions and put that money back into the economy
I do have to correct you. Unless you were elected as a politician before 2004 you just have an accumulation super fund. You find your own pension from all the usual suspects. In 2004 that idiot Mark Latham goaded John Howard about all the long-term backbenchers he had sitting behind him, who were in defined benefit funds, whilst the workers, who Mark Latham claimed to know about but probably never met one, were on accumulation only
Having said that everything else you save our politicians is appropriate. Go getem. As two vested interests getting what they want, it doesn’t matter which side is in power, they all have mates who give generously at election time
The basic issue is that most Australians are encouraged to regard increasing longevity as a problem and seniors as a cost. The Intergenerational Report does little to dispel this attitude although there is a great deal we can do. Sadly, some sources of advice and influence have the same approach. A substantial paradigm shift could make a major difference but it needs a collective national longevity strategy developed by all involved to make the best of the many opportunities available.
Typical of Jim Charmless – bag Advisers and no doubt use this as more ammo to bolster the ability of IF’s to offer ‘free advice’ to their members.
Yep. It’s all our fault
Most people don’t want to overdraw on their super because of two reasons; 1. they are afraid of what aged care will cost; and 2. they want to leave some for their kids.
I don’t see these two reasons addressed here.
Hogwash. Many clients I have known over 20 years don’t spend their balance outright as their goal is to receive an income to sustain a comfortable lifestyle-check and 2- to maintain their balance as much as possible which is a priority for 99% of retirees. If this is not happening, they are NOT happy. Ignorant politicians should consult the industry before making wild assertions life this ie above.
Cant wait for the consultation paper!!!
Who is this Clown Jim Chalmers? Obviously never spoken to a retiree. Such a uninformed and incorrect statement around the state of play in the retiree market.
Seems odd, most financial planners would want clients to spend most of their money in retirement to live the lifestyle they want to live. There is one problem though and that is aged care entry fees. As part of our code of ethics we almost have to plan for this even though it may not occur. If the government wants clients to spend money it may have to remove upfront Refundable Accommodation Deposits.