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Retirement incomes the new battleground for advisers


The government feels it has adequately dealt with the issue of how financial advisers go about their business. Now it is focused on the advice itself, with retirement incomes the new battleground.

Into the fray yesterday (August 23) the Actuaries Institute launched its new policy document, ‘Securing Adequate Retirement Incomes for an Ageing Australia’ Download PDF, which the Institute described as its “most comprehensive public policy review of retirement savings”, involving 40 actuaries divided into three working groups and obtaining feedback and advice from about 200 in total. It took a year to complete.

  • The subject matter of the retirement incomes debate is complex, covering the three pillars of Australia’s retirement system: age pension; compulsory superannuation; and voluntary savings and investment. It is also politically charged. The central point of how the family home should be treated alongside super and the age pension continually attracts robust debate of itself.

    The funds management industry has also attracted criticism in the past for offering a comprehensive range of quality pension products, although Andrew Boal, one of the leading actuaries studying the issue, believes this should not be an ongoing concern.

    Boal, the convenor of the Actuaries Institute Retirement Strategy Group and a partner at Deloitte Actuarial & Consulting, said when discussing the government guidelines for its Retirement Income Covenant in July (link here) that by the time the Covenant became legislation there would be a new wave of innovative retirement products and more providers. This would be in contrast with 2018 when the government last proposed major changes in the space through its planned ‘CIPRs’ (Comprehensive Income Product for Retirement), which did not eventuate.

    Boal pointed out that a key area for super funds would be communication with members and the take-up rates of any retirement products they have and will offer. There were always issues dealing with legacy products, so it was important for any new products to gain sufficient scale quickly.

    Boal said in a statement yesterday that, apart from the Covenant, the government also needed to provide: “incentives that encourage retirees to take part of their super as a lifetime income stream and disincentives for those who want to leave large bequests from super; and accessible and affordable financial advice and guidance at the point of retirement.”

    In reference to the recent debate over the move to a target of 12 per cent in worker contributions to compulsory super, currently at 10 per cent but with the debate likely to be reignited ahead of the next increase, Boal said the level involved a set of complex trade-offs. Community support was the key to future changes.

    He said improving equity within the retirement income system, including addressing concerns for specific groups that were adversely affected by aspects of the design of the system, was a key plank of the Institute’s recommendations.

    “There is a large gap in outcomes for those who do and those who don’t own their own home at retirement,” he said. “There should be greater assistance for retirees who rent. The system favours home-owners; for example, the principal residence is wholly exempt from the age pension asset test.”

    One recommendation involves consideration that a portion of the value of the home be included in the asset test, while the report notes that there are significant variations in home values across Australia.

    The Institute also warned against the growing number of retirees who use part of their super to pay off a home loan, or other large debts. “The adequacy of the system is now being undermined by the relative ease for older Australians to obtain a mortgage with a long outstanding term”, the report says. “Superannuation benefits are intended to be used for retirement living rather than secure mortgages.”

    Low savings balances for women, who typically retire with super balances that are at least 40 per cent lower than men, needed to be addressed as well as others who miss out on super.

    “Gig workers, and other self-employed workers who may miss out on super entirely, should be considered; super should be paid on paid parental leave; and super must be properly considered in divorce settlements. Equity would also be improved if workers received the SG they are entitled to at the same time their wages are paid. Overtime should be included when calculating the SG rate,” Boal said.

    Elayne Grace

    Elayne Grace, the Institute’s chief executive, said: “Having a robust and effective retirement income system is crucial for the wellbeing of all Australians. The objective of the retirement system must be to provide for retirees so that they have a reliable, secure and adequate income, to live with dignity in retirement.

    “There are equity and intergenerational fairness issues, including for those excluded from the superannuation guarantee. Gaps need to be addressed. While the system is sound and broadly sustainable, it is widely recognised that there is scope for further reform to improve outcomes.”

    The 18-page report is supplemented by an easy-read five-page summary here.

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