Cbus pulls the trigger on a superannuation drawdown showdown

‘Big super’ is moving to change the rules on minimum pension drawdowns for retirees.

Big super has joined the call for changes to the superannuation drawdown rates for retirees. Picture: iStock

Minimum drawdown rates, the bane of many retirees, are under challenge from an unlikely source – Cbus, the giant super fund, is pressing for change.

Chaired by former Labor treasurer Wayne Swan, the $86bn fund wants the government to “exempt” selected members from it 910,00 membership base from having to obey the drawdown requirements.

Independent investors have been pressing for reforms to the drawdown requirement for years to no avail.

Stakeholders such as the Australian Independent Retirees group have made multiple submissions to government calling for the rates to be less onerous than at present where older retirees have to take out up to 14 per cent of their total super savings each year.

The contentious issue of being forced to spend your super savings re-emerged over the last year as the rates effectively doubled after being temporarily reduced by 50 per cent during the pandemic.

Under current rules there is an escalating requirement to drawdown a set amount from super each year – the starting rate up to age 65 is at 4 per cent and then moves up in steps as retirees grow older.

Now Cbus is lobbying for more flexibility in the retirement system which will allow the creation of new retirement products. The fund, which represents the construction industry wants builders, to have more options other than trying to make their working age last until retirement age of 67.

The fund says older workers – especially those with modest amounts of super – need a more flexible system. Recent Australian Bureau of Statistics data shows about 160,000 people a year return to work after retirement due largely to “financial need”.

Cbus has raised the concept that drawdown rules would not apply to the first $100,000 held in super savings.

“Working patterns have changed and we believe the entire minimum drawdown system would benefit from a full review,” Cbus chief executive Kristian Fok said.

The drawdown rules have been central to the operations of the retirement system for decades, but greater longevity among Australians has opened the system to widespread criticism.

The Australian Independent Retirees group has similarly lobbied government for changes to the minimum drawdown rules, but it wants reforms based on the age of the retiree rather than the amount of money they might have saved.

The group has campaigned for the drawdown rates to be reduced over the age of 75. Under current rules a 75 year old must take out a 6 per cent “standard minimum” each year.

The recent Retirement Income Review angered many independent retirees when it complained of “a major misunderstanding” over how retirees believed income should come from returns on their capital “rather than drawing down those balances to fund living standards in retirement”.

But many middle-income retirees reject the suggestion they are hoarding money and argue instead they are tying to make a limited amount of savings last for a period of time that cannot be estimated in advance.

There are at least two million older Australians subject to the drawdown rules, but that number will greatly increase in the near future as a new generation retires with compulsory superannuation savings: The key policy lever of compulsory super, the Superannuation Guarantee Charge, is 11 per cent and will rise again to 11.5 per cent on July 1.

Originally published as Cbus pulls the trigger on a superannuation drawdown showdown