Congratulations to all sides of politics for passing the bill that enshrines an objective for our superannuation system into law.

The superannuation savings of Australians are sacred and, as the Government said, this objective provides greater confidence in the system. In particular, the word ‘preserve’ establishes stronger guardrails to prevent tinkering and kneejerk initiatives which could deplete super balances. The super system has given Australians the magical gift of compounding investment returns – a benefit that must be safeguarded through thoughtful, long-term policy decisions.

But the real beauty of the objective lies in its simplicity – a clear and concise statement of purpose. It’s this concept of simplicity which should hopefully catalyse efforts to create a simplified, more effective drawdown system, an area we know most Australians continue to grapple with.

If we take a step back, the accumulation phase – the working years – of our super system is a solid case study in simplicity at scale. Regular and fixed contributions are made into diversified, well-governed and competitive investment funds, with generally well understood limitations to how these funds can be accessed. While there is certainly room to improve younger Australians’ engagement with super, the outcome is most Australians end up with a savings nest egg they likely wouldn’t have otherwise accumulated.

It’s what they then do with this nest egg where simplicity gives way to complexity. The system provides Australians with the clear roadmap to reach the destination, but many are unsure what to do when they get there.

While the prospect of not having to work sounds good on paper to many, in reality, the transition to retirement can be confronting. The structure, purpose, and financial security that work provides disappears, leaving retirees to navigate new uncertainties: how long they will live, the level of care they might need, and how to stretch their savings. Coupled with a complex age-pension system and limited understanding of financial products, it is unsurprising that many retirees hold on to their super balances rather than spending them, compromising their quality of life – especially during the active early years of retirement.

Government and industry share a collective responsibility to alleviate this uncertainty by simplifying the consumer experience of the drawdown phase, and ensuring it better meets retirees’ needs.  

One area in need of structural reform is the Age-Pension. Research shows that two in five Australians over 50 are unsure whether they qualify for the Pension, while seven in ten don’t know what an account-based pension is. A unified means test incorporating both income and assets would significantly simplify decision-making for retirees. Additionally, aligning the pension system with other government services, including healthcare, aged care, and taxation, is essential to reduce complexity.

The introduction of the Retirement Income Covenant has spurred the superannuation industry to develop better lifetime income solutions. Innovation in this area must continue to better help retirees turn their savings into an income stream which they know is optimised and, critically, will last as long as they do.

Of course, the drawdown phase will always be more complex than the accumulation phase. While default investment options work well during accumulation, retirement requires more nuanced solutions tailored to individual circumstances. And even with reforms to the Age-Pension system, complexities in this system will remain. It’s why any structural changes to the drawdown phase must go hand in hand with measures to boost financial literacy levels and increase access to financial advice.

While reforms tabled as part of the Quality of Advice Review were a noticeable omission from the host of bills passed through parliament last week, we must continue to prioritise measures which support access to financial advice for more Australians approaching and in retirement. This includes further reforms which simplify face-to-face advice delivery, better enabling a profession which has borne the brunt of over regulation in recent years, to the ultimate detriment of consumers.

A clear objective for super has been a long-time coming and should be welcomed as a beacon for confidence and stability. But let’s also use its clarity and simplicity as a further catalyst for improving the drawdown phase of the system. Because confidence in the superannuation system isn’t just about saving for retirement – it’s about unlocking the benefits from these savings to deliver income in our post working years. 

Ends.

First published in The Australian, Wednesday, 4 December, 2024