4 December 2023

Opinion piece: Super must deliver in retirement


Published in The Australian Financial Review

Superannuation stands as one of our nation’s great public policy achievements. Around 16 million Australians have a super account, and the total value of funds under management is now $3.6 trillion, the fourth largest pool of retirement savings in the world.

While there is an appreciation of super’s importance in saving for the future, there’s been less attention given to how super can actually deliver in retirement.

In other words, the welcome and important focus on the accumulation phase of super hasn’t been matched by a similar focus on the retirement phase.

I first raised this as a priority area for reform at the Superannuation Lending Roundtable hosted by the AFR.

It’s why the Albanese Government is today releasing a discussion paper on optimising the retirement phase of super. The paper seeks community and industry views on how the superannuation system can best provide the security and income Australians need in retirement.

Currently there are 1.6 million people aged 65 and over receiving income from a super product. This number will more than double over the next decade, with a further 2.5 million people expected to retire with a super account.

Australians will increasingly retire with higher balances, as they will benefit from receiving the super guarantee for a longer portion of their careers and at a higher rate.

As people rely less on the Age Pension, superannuation will be the primary source of income for many more future retirees.

However, on reaching retirement, Australians often lack the support they need to make the most of their super nest eggs.

With Australians increasingly living longer, healthier lives, many retirees are naturally concerned about outliving their savings.

As this year’s Intergenerational Report showed, both men and women on average can expect to live at least an extra 4 years by 2062‑63.

The problem is most retirees do not have access to the appropriate products to help them maximise their super over their lifetime.

In fact, 84 per cent of retirement savings are held in account-based or allocated pensions, with only 3.5 per cent held in annuities. Unlike account-based pensions, annuities offer the option of receiving regular payments for life, regardless of how long a person lives.

Uncertainty about expenses in the latter part of retirement, including aged care, can also lead to retirees holding on to more of their super than they really need to. 

It’s no wonder then, that in the face of complexity and concerns around not knowing how much income they’ll need or have, that around half of all retirees draw down from their pensions at the minimum rate and aren’t able to enjoy the higher standard of living that they have worked so hard for and deserve.

Funds have an obligation to support their members in obtaining the best outcomes in retirement under the Retirement Income Covenant – a regulatory framework that requires funds to assist their members in managing risks to the stability and sustainability of their retirement income.

But the recent APRA and ASIC review of the Covenant found that while there were pockets of better practice, overall, there was a lack of progress and insufficient urgency from funds in embracing the Covenant to improve members’ retirement outcomes.

It’s clear more work needs to be done. Government and industry, along with the wider community, need to work together to form a complete understanding of the issues to inform and deliver better solutions.

The discussion paper we’re releasing today seeks views on ways that retirees can be better supported to navigate superannuation and interactions with the broader retirement income system, giving them confidence about the income they can expect to receive.

It also asks whether the settings are right to enable super funds to provide help and guidance to retirees when needed.

Finally, the paper canvasses pathways for making well-rounded retirement income products more accessible to ensure retirees have products that appropriately manage risk, provide stable and predictable income and flexible access to capital.

We need to ensure we have the right settings in the retirement phase of super and the right environment for both funds and members. 

Our work on the retirement phase of super aligns with our efforts to enshrine super’s objective in legislation.

It also aligns with our efforts to encourage more investment in areas of national economic priority where it aligns with the best financial interests of members – a topic that will be central to the discussions at tomorrow’s Treasurer’s Investor Roundtable in Canberra.

Super is a national success story. By optimising its retirement phase, we can ensure super delivers on its foundational promise to deliver a dignified retirement for more Australians.