Changes to make retirement simpler and easier to navigate

Australians spend all their super in retirement, draw down on super more than the minimum required, find retirement and super overly complex, and crave more information from their funds on how to navigate the system, new research shows.  

The Super Members Council retirement income submission to Treasury, made a series of recommendations to simplify the system for members while ensuring it can accommodate flexibility and sometimes differing needs of Australia’s building wave of retirees.

SMC Chief Executive Misha Schubert said super in combination with the Age Pension has given millions a better life in retirement. But while some Australians get to choose their own retirement date, others end up leaving paid work earlier due to ill-health, caring duties and unemployment.

“Retirement is changing – and super in retirement needs to change with it,” Ms Schubert said. “There’s a huge appetite for high-quality, low-cost and no-cost advice to help people plan wisely for retirement.”  

“We want to ensure retirement is simple, easy and flexible. People should be able to have confidence that they are in a good product that’s right for them.”

“After a lifetime of building savings, people should be free to spend their money how they choose in retirement.” 

“We are on the cusp of a seismic change to retirement, and we will contribute thoughtfully to this important ongoing discussion, which must be based on a sound evidence base. Our submission busts the longstanding myth that retirees are not spending their super.” 

Combining exclusive consumer research, deidentified super fund data and analysis of publicly available information, the submission found that contrary to prevailing commentary retirees were not underspending in retirement. 

In fact, two in three people are drawing income from their super above the minimum required in retirement – and 90 per cent of men and 80 per cent of women have no super left when they reach their life-expectancy age.

While retirees’ stated ambition is to retire at 67, it doesn’t always pan out that way – the data shows that about a third have accessed their super at 63 and about 25 per cent still work into their 70s.

Using ABS data, deidentified information from super funds and consumer surveys conducted by researcher Sue Bell, SMC’s submission found that:

  • While most Australians approaching retirement expect to finish working at 67 (at which point they are eligible for the age pension), one third have accessed their super by 63 and one in four are still working in their early 70s
  • The median balance at retirement was $200,000, SMC expects the median earning 30-year-old to retire with $500,000
  • Two thirds of retirees draw down on their super more than the minimum – in fact on average they draw down 40 per cent more than they are required to, even excluding lump sum withdrawals
  • 90 per cent of women and 80 per cent of men have no super left when they reach life-expectancy age.

Consumer research also shows members have a limited understanding about how to get the most out of super in retirement with less than half confident they understand account-based pensions and annuities.

Australians approaching retirement want more information and advice, with 73 per cent of members stating they would trust advice from their super funds if it were specifically tailored to their circumstances.

Financial advice remains the missing piece in the retirement puzzle and to help members the agreed reforms to financial advice should be legislated this year.

To make retirement simpler while maintaining its flexibility to meet retirees’ needs, the government should:

  • Swiftly consult and legislate the retirement and super component of the financial advice reform package before the end of this year
  • Make it easier for members to switch into retirement products – and end the current ban on being able to add contributions to a retirement phase super account
  • With member permission, the government should notify super funds about their members eligibility for pensions and other government supports, so members can be given tailored information on how to maximise their retirement income
  • A comprehensive retirement test should be developed that measures a broad set of factors including investment performance, flexibility to access funds in retirement, and giving people control over the level of risk they want.
  • And the government should not mandate the use of annuities for members or cohorts of members. Trustees are best placed to create investment strategies for their members.