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Seven steps to a better retirement system
Super and retirement
18 March 2024

First published in The Weekend Australian, 16 March 2024

The Government is rightly keeping an open and consultative mind about how it can work with industry and regulators to improve Australia’s retirement system to better assist our growing number of retirees. Here are seven suggestions for consideration.

1. Address financial illiteracy – As our nation’s collective superannuation balance continue to rise there remain parts of Australian society that are under-served by the retirement system, and for who retirement is not comfortable, or in some cases attainable. Financial illiteracy is a root cause. It’s a barrier to engagement with superannuation and contributes to conservative drawdown behaviour and lower standards of living in retirement. It also increases vulnerability to financial abuse, investment scams and, critically, lower retirement incomes for women, First Nations peoples and those with lower levels of income and assets.

There’s no quick or easy fix, but a collaborative effort from Government and the superannuation industry to implement more targeted education programs would help. This includes updating the current National Financial Literacy Strategy to ensure it is fit for purpose for those most in need, reviewing high-school curriculums, and supporting the progress of initiatives such as ASIC’s Indigenous Financial Services Framework and First Nations Foundation financial education programs.

2. Simplify the age-pension means test – Research shows that two in five Australians over 50 don’t know if they’ll be eligible for the age pension, while seven in ten don’t know what an account-based pension is. It’s clear that too many retirees struggle with the complexity of our pension system. A single means test incorporating both income and assets (used for age pension, aged care and other relevant regimes) would significantly simplify retiree decision-making.

Part of the confusion is because the retirement system, including the pension, interacts heavily with other services provided by Government, including healthcare, aged care, tax, and others. Navigating these can be cumbersome for retirees. Allowing for a superannuation fund or financial adviser to be a nominated Centrelink agent, in a similar manner that an accountant can be nominated as a tax-agent, will help ease the pension process. 

3. Support lifetime income products – Too many retirees are fearful they’ll run out of their savings before they die. It’s only when they overcome this fear that they’ll have the confidence to spend and fully enjoy their hard-earned savings. Lifetime income solutions provide this peace of mind. Encouragingly, more are starting to be developed and Government policy settings which encourage further innovation are essential. 

4. Provide retirees with choice – Default products are effective for the many young and disengaged Australians in the accumulation phase of superannuation, but retirement is a different story.  Retirees want, and should have, greater control about how they spend and invest their savings to match their specific needs. They require optionality and choice in retirement products to achieve optimal outcomes. Addressing financial literacy, suggestion number one, and access to financial advice, suggestion number seven, are key to empowering retirees to make those choices.

5. Simplify super contribution caps – There is significant complexity in the requirements of annual caps including concessional and non-concessional distinctions, catch-up rules and the various penalties for breaching different caps. And with the transfer balance cap limiting amounts invested in superannuation income streams and upcoming reforms levying additional tax on super balances above $3 million, the need for periodic caps is reduced.

There is opportunity to simplify periodic caps, which would provide greater support for those with interrupted work patterns, particularly women and self-employed workers. It would also allow for greater flexibility in retirement planning, while limiting access to unreasonable tax concessions.

6. Provide access to government data – With appropriate consumer safeguards, providing super trustees and advisers with access to government data, including from Centrelink and the ATO, could assist funds in better understanding the circumstances of their members and customers. This would inform product suitability, innovation, and help improve the support, education and advice they provide their members in planning for retirement. 

7. More accessible financial advice – Comprehensive advice provided by professional financial advisers continues to be the most effective way to make decisions about retirement. Yet, it’s only currently accessible to a wealthy minority. Making quality, personal financial advice more affordable and accessible to the wider population is one of the most impactful ways we’ll improve retirement outcomes. Rapid implementation of the Quality of Advice Review recommendations, including simplifying the advice process and expanding the role of superannuation funds in providing advice, will help. New forms of digital advice will also play a role. It’s up to industry to innovate with the backing of supporting government and regulatory policies.  

By Alexis George, Chief Executive Officer - AMP