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AustralianSuper pushes government for an ‘account for life’

The country’s largest super fund is urging the Albanese government to combine accumulation and retirement accounts into a single superannuation ‘account for life’.

AustralianSuper chief executive Paul Schroder. Picture: Britta Campion
AustralianSuper chief executive Paul Schroder. Picture: Britta Campion

AustralianSuper wants to combine accumulation and retirement accounts into a single superannuation “account for life” that would also incorporate the age pension into the $3.6 trillion pool of super savings and let retirees recontribute while drawing an income.

Responding to reforms proposed by the Albanese government to improve the experience of retirees and encourage better use of super savings, the nation’s largest pension fund also warned against “mandatory national default” longevity products such as annuities.

“While we believe longevity products have an important role to play and can be a good supplement to a range of retirement pathways, particularly for people with higher balances, they are not the solution for everyone,” AustralianSuper chief executive Paul Schroder said.

“A mandatory national default product risks increasing complexity, stifling innovation and limiting the ability of funds to tailor their offering to meet specific member needs and preferences.

“It may also create unintended consequences, including cross-subsidisation and make the system less attractive.”

A government paper in December highlighted the under­development of the retirement phase of Australia’s super system – the world’s fourth largest pool of retirement savings – and made proposals such as improving information, simplifying the system and empowering funds to offer better options.

With 2.5 million workers due to retire in the next decade, there are concerns about a lack of products designed for optimal outcomes amid growing concerns among retirees about outliving their ­savings.

That paper said “there was support” for a proposed default income product in retirement recommended by the Financial System Inquiry in 2014, where retirees would be automatically rolled into a pension account paired with a “pooled” longevity product that provided regular income and managed longevity risk – the chance that people live longer than expected and outlive their retirement savings.

This would help people manage risks and spend more of their super savings to accommodate better living standards in retirement, after spending decades accumulating super.

Business Weekend | 11 February

But in its submission, AustralianSuper, which counts one in every seven Australian workers as members, says the government’s age pension is already the “default longevity product” in this country. Therefore, the priority should be removing barriers to accessing that for members who need it most.

“We recommend that, where a member requests it, superannuation funds should be able to provide integration of super­annuation income streams with age pension income streams,” the submission says.

It says the sole-purpose test prevents it from charging members collectively or using an intra-fund to finance the development of “administrative capabilities” to be able to apply for the age pension on behalf of eligible members, on request. “Legislative change would be required to facilitate this,” the submission says.

This change would result in significantly more Australians accessing their full age pension benefits compared to the current situation, where only 44 per cent claim it as soon as they’re eligible, inadvertently forfeiting their full entitlements.

The $300bn industry super fund also called for easier access to members’ data to give funds a “holistic” view of their financial situations and better support them.

But one of the key reforms needed is “the implementation of an ‘account for life’, so that Australians can move seamlessly between work and retirement,” Mr Schroder wrote in a letter addressed to the Treasury accompanying the submission.

“This would ease the transition between the ‘saving’ and ‘spending’ phases, and also provide the flexibility for additional contributions while members draw an income. This type of flexibility would support a diverse range of retirement journeys and make the system more member-centric,” he said.

AustralianSuper, with predecessor funds dating back to 1988, has 3.3 million members, and just over 113,000 of them are in retirement accounts with $43bn in assets. A further 239,000 are aged between 60 and 67 and are currently on track to draw down all the capital from their AustralianSuper accumulation accounts and receive a part age pension. That is because their balances are below the standard considered “comfortable” to retire at 67 and about 90 per cent of members in that age bracket are in that situation, the fund said.

The Morrison government’s retirement income covenant, which came into force in 2022, requires funds to develop strategies outlining how they will meet the needs of their members.

AustralianSuper said the covenant, alongside ASIC’s design and distribution obligations for financial products, had made progress in setting clear expectations to consider each member’s circumstances to assist them with “flexible access” to funds in ­retirement.

“We believe that this progress could be undermined by the proposal in the Treasury discussion paper to mandate the distribution of longevity products and create a national mortality credit,” the submission says.

“Every retiree and their circumstances are unique. Some retirees will find longevity products are a perfect fit, which is why AustralianSuper is in the process of developing a longevity product. However, this is likely to be a smaller cohort.” A nationally pooled longevity product would cross-subsidise those with longer life spans at the expense of those with shorter life expectancies.

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Original URL: https://www.theaustralian.com.au/business/financial-services/australiansuper-pushes-government-for-an-account-for-life/news-story/a8d48dd343094c833a814a8a6e649538