14 November 2017

Video message to the Financial Services Council's Retirement Income Products Conference - video message


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Hello to everyone gathered in Sydney for the Financial Services Council's Retirement Income Products Conference.

I apologise that I can't be there in person today.

The FSC, and all of you here today, recognise the importance of retirement income products.

Together, you are doing your bit for what is an area of critical importance for all Australians.

I hardly need to tell anyone here that superannuation's changing.

It is adapting and improving — as it always must.

We're a long way from the days of the 1940s, when superannuation was, in the main, the preserve of male public servants.[1]

Gradual progress was made in the following decades, culminating in the Superannuation Guarantee, which came to be 25 years ago.

And from there it has grown in incredible scale.

In March 1992, at the commencement of compulsory superannuation, the pool of accumulated savings was about $136 billion.

Today, it is a $2.3 trillion system[2] — or around a 1,500 per cent increase — and it's still growing.

We do have a truly world-class retirement savings system.

But, as the system grows in scale and importance we need to keep in step with the times.

We need to ensure the foundations of the system are built soley with members' interests in mind so that it can deliver on its promise of providing income in retirement for hardworking Australians.

Moving the conversation forward

Indeed, while we have a world-class savings system, it's fair to say the retirement phase has not evolved alongside the system as a whole.

The Cooper Review identified this.

So, too, the David Murray's Financial System Inquiry.

And I hear it more and more from stakeholders — including, of course, those of you here today.

It's clear that retirees are not a homogenous block.

They have different preferences; different circumstances.

And, given this, we'd expect an effective market would provide a wide selection of retirement income products to meet these different needs.

However, the fact is that the vast majority of Australia's pension assets — at least 94 per cent — are in account-based pensions.

While these pensions provide flexibility, they offer limited protection against longevity and other risks.

Delivering retirement solutions

Clearly, the retirement phase needs some work.

Our system is not managing the most fundamental risk in retirement: outliving your savings.

And with Australia facing the economic and social challenges of an ageing population coupled with a maturing super system, it is time to act.

And that is what the Government is focusing on.

The Government is encouraging trustees to assist their members by designing and offering appropriate retirement income solutions.

We recently removed the tax barriers for innovative retirement income stream products — a change that took effect on 1 July 2017.

And right now I am working closely with my colleague Social Services Minister Christian Porter on the social security treatment of these products.

This is a necessary first step to rolling out the framework to facilitate superannuation trustees developing and offering comprehensive income products for retirement for their members.

Ultimately we want to give future retirees more choice, greater peace of mind and the opportunity to improve their standard of living in retirement.

Engaging with the industry

I want to acknowledge the constructive engagement of industry during our consultation following the release of the discussion paper last December.

These are clearly complex issues about which there are a range of views.

Critically, the consultation highlighted that there is broad agreement on the importance of CIPRs, but there are nonetheless varied views on the design and implementation of key elements of the framework.

Furthermore, there are four key issues that came through from the consultation that we are considering.

First, some stakeholders expressed a desire for funds to hold more than one CIPR — with different CIPRs offered to different segments of the membership.

Second, there was a range of views on who should and shouldn't be offered a CIPR.

Third, there was a broad range of views on likely extent of take-up by trustees and members, and the effectiveness of 'the nudge'.

And fourth the consultation further convinced me of the absolute need to have a retirement income framework.

As it stands, while trustees have a number of important obligations — including to consider the investment strategy, risk and appropriateness of insurance — it is surprising that there is no specific obligation to consider the needs of members in retirement.

That needs to change.

Trustees should be assisting their members by designing and offering appropriate retirement income solutions and by reducing the complexity of member decisions around retirement.

What's more, a retirement income framework would complement the objective of superannuation and align with other countries where retirement savings schemes typically provide a 'decumulation' structure.

Concluding remarks

Of course, we have a way to go. But we've started the journey.

Given the importance of these issues, I believe further consultation is necessary to ensure we get the principles underpinning the retirement phase right.

And, to ensure we are working toward a solution which truly addresses the challenges facing Australians as they move into retirement and make decisions about how to deploy their super savings.

In the meantime, I look forward to hearing some of the ideas that emerge from this conference.

With efforts by the Government and the broader industry, we can build a world-class retirement income system that delivers great outcomes for all Australians.

Thank you.

[1] - Clare, R & Craston, A 2017, 'The Australian Superannuation Industry', Association of Superannuation Funds of Australia Limited (ASFA).

[2] - APRA - Quarterly Superannuation Performance March 2017 (issued 23 May 2017).