Should the government dictate how you spend your super?

If you’ve worried about squirrelling away your super your whole life, only to reach retirement and find out you can’t use it how you want, this week’s news might have set off alarm bells. It did for me.

The Australian Financial Review dropped a bombshell, revealing a government draft proposal that could significantly affect how the next generation of retirees access and spend their superannuation.

The government could mandate that super funds invest in products on your behalf that guarantee an income for life.Credit: Getty

According to the report, the Albanese government is circulating a discussion paper among industry super funds and key financial bodies, proposing that retirees with super balances above $200,000 be required to adopt a drawdown rate underpinned by longevity protection.

In simple terms, this means the government could mandate that super funds invest in products on your behalf that guarantee an income for life – regardless of how long you live.

While this might sound like a safeguard, it raises serious questions about personal choice and control. It’s a move that could restrict how much you can withdraw, force you to take out more than you intended, or lock up part of your savings in a way you didn’t choose.

If this goes ahead, it means that instead of having full control over how you withdraw and spend your super, the government could set a mandatory drawdown rate – locking part of your super away to provide income later in life, while forcing you to spend more now.

Most retirees aren’t making bad decisions because they’re reckless.

The idea behind it is clearly to solve two very real problems that most retirees struggle with. First, it would stop retirees from running out of money too soon and falling back into relative poverty on the age pension without supplementary income. Second, it would prevent people from not spending enough, using super instead as a tax-effective estate planning tool.

But for me, it raises a much bigger question: should the government and your super fund get to decide how you use the money you’ve saved over decades to fund your own vision of retirement?

Understandably, the leaked proposal is said to be causing a stir – particularly among retail super funds, which position themselves around member choice and rely on financial advisers to help retirees navigate their investment and drawdown strategies.

This debate reinforces a long-running divide between those who believe super should be about individual control and those who argue that stronger government intervention is needed to stop retirees from burning through their savings too quickly.

Personally, I believe choice is essential in retirement. We should have a limited but sensible range of options, understand them clearly, and be able to choose what works best for us.

But here’s the thing, the government knows that default settings made the accumulation phase of super simple to implement and easy to oversee. Now that retirement is arriving at scale, they may well be looking to apply the same logic to the drawdown phase – even if that means eliminating choice.

To be clear, guaranteed income streams in retirement – typically in the form of annuities or lifetime pensions – are something Australia’s super system has largely failed to integrate at scale.

While there are five or six key providers offering lifetime income products in Australia, they are available only through financial advisers, many of whom tend to steer clients towards higher-yielding investments and more flexible options instead.

At the superannuation level, only a few funds offer lifetime pensions or structured lifetime income streams, and none have rolled them out at scale with widespread consumer education. This means the assumption that people will make informed choices if given the option has never been truly tested.

Instead of proving whether retirees would embrace structured income solutions, we’ve built a system that assumes they won’t, while leaving them to navigate complex financial decisions on their own.

In other developed nations, retirement income products such as these are standard, and people are well-informed about how they work. There are plenty of people choosing to take them up, and advisers and funds are clear on the advantages and disadvantages of them.

But Australia’s system still relies heavily on the assumption that retirees will manage their own money, with little structured guidance.

The reality? Many retirees are lost when it comes to managing their super. Some spend too quickly so they can qualify for the age pension, while most underspend, unsure how to structure their withdrawals over 25 to 35 years of retirement.

With all the uncertainties that come with ageing, it’s no surprise that many Australians end up hoarding their super out of fear rather than enjoying it. But as big conversations about superannuation reform start to gain momentum, I think we need to ask three critical questions:

1. Should we have the power to choose how our own money is saved or spent in retirement? Superannuation is our money, earned over a lifetime of work, committed by our elected officials into a system that told us we would be able to access it freely.

Proposals like this suggest that once we hit retirement, we may not have full control over it. That raises a fundamental issue: is superannuation a personal asset, or a public policy tool?

If super belongs to us, shouldn’t we be able to choose whether we withdraw it as a lump sum, draw it down flexibly or use a lifetime income product? Or does the government have a right to decide that too much individual choice leads to bad outcomes, and that super should be managed in a way that aligns with broader economic and social goals?

2. Should super funds be able to lock up our long-term savings? Superannuation was designed to give Australians independence in retirement. If proposals such as this become policy, funds could have greater power to lock up portions of our super, with rules dictating when and how we can access it.

Already, there are strict rules on when you can access super before retirement, but what happens if similar restrictions creep into the retirement phase? What if you want to access a portion of your super early to travel, help family, or fund a medical expense, but the rules lock you into a prescribed drawdown rate?

It’s also worth asking who benefits from these rules. If the government forces a portion of super into lifetime income products, will super funds and insurers become the biggest winners as it becomes difficult for consumers to switch funds?

3. Should we be focusing on better education? One of the biggest problems in retirement planning isn’t which products are available – it’s that many retirees don’t understand their options (and their funds haven’t explained them).

There is no structured system that helps Australians navigate their super withdrawals, and as a result, we see some people spending too fast, while others are too afraid to touch their money at all.

Wouldn’t it make more sense for the government to empower retirees with knowledge, rather than forcing them into a prescribed model? I believe better financial education in midlife can help people prepare for the drawdown phase.

I believe that super funds can provide better and clearer guidance on structuring income in retirement, instead of focusing purely on investment returns – and that could be the project to push for. Just imagine what retirement would be like if pre-retirees had more guidance and support, rather than being pushed into a one-size-fits-all solution.

Most retirees aren’t making bad financial decisions because they’re reckless – it’s because they don’t have the right information, tools or confidence to plan for the long term. Why don’t we focus on helping them?

Bec Wilson is author of the bestseller How to Have an Epic Retirement. She writes a weekly newsletter at epicretirement.net and is host of the Prime Time podcast.

• Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making financial decisions.

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