Retirement policy is in place, now it’s time for super funds to guide members in the right direction

Superannuation funds will come under pressure to come up with policies to assist Australians moving into retirement, industry leaders have told The Australian’s 2024 CEO Survey.

Australians are good at saving for their retirement but not at spending those savings.

Superannuation funds will come under increasing pressure in 2024 to develop policies to cater for the millions of Australians moving into retirement, industry leaders say.

But the next 12 months offer a unique opportunity to shape the future of the superannuation system for retirees, according to the chief executive of the $300bn AustralianSuper, Paul Schroder.

“In superannuation, we have a world-class savings system – we now need to complete the other piece of the puzzle with a world-class spending system,” Mr Schroder told The Australian’s 2024 CEO Survey.

“There is lots to be done here to make the system work better for those who are approaching and in retirement.”

The chair of the $6.5bn TWUSUPER, former federal superannuation minister Nick Sherry, said superannuation funds’ big focus next year would be on the requirements of the retirement income covenant, which came into force last year requiring funds to develop strategies to help their members in their retirement phase.

TWUSUPER chairman Nick Sherry. Picture: Lyndon Mechielsen

“This includes delivering increased investment advice – and delivering a package in retirement is a very strong focus for all funds,” he said.

While the covenant came into force last year, the federal government has been calling on the sector to lift its game when catering for members moving into retirement, making it clear it expects more detailed retirement policies from individual funds.

Mercer’s senior partner and superannuation specialist, David Knox said Australia had a world-class system when it came to the savings side of superannuation but it ranked much lower than others when it came to the retirement side of the system, particularly the development of retirement income products.

He said policies needed to be put in place to encourage more focus on people receiving an income from their superannuation savings rather than having a system which focused on accumulating a lump sum which people took out on retirement.

“We need to focus on (products which deliver an) income and move away from just having lump sums,” he said.

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Superannuation leaders are preparing submissions for the federal government’s discussion paper on the retirement phase of superannuation, which are due on February 4.

Federal Treasurer Jim Chalmers has sought input from the superannuation industry. Picture: Martin Ollman

Federal Treasurer Jim Chalmers has asked the industry for its thoughts on a range of issues and policy changes needed to provide more products and services to super fund members.

Releasing the discussion paper earlier this month, Dr Chalmers said it would focus on three key areas – supporting members to navigate the retirement income system, supporting funds to deliver better retirement income products and services, and making lifetime income products more accessible.

“More Australians are looking to their super to play a greater role in providing for their retirement,” he said.

“Over the next 10 years, the number of retirees with a super account will more than double, with an estimated 2.5 million Australians set to retire.”

One of the areas of focus will be the reluctance of Australians to take up annuities, which involve a significant upfront payment for a guaranteed income potentially for the rest of the person’s life.

“Some 84 per cent of retirement savings are held in account-based or allocated pensions, with only 3.5 per cent held in annuities,” Dr Chalmers said.

“Unlike account-based pensions, annuities offer the option of receiving regular payments for life, regardless of how long a person lives.

“Super funds need to do more to understand their members’ retirement needs and provide products and services tailored for their retirement.

Mercer superannuation specialist David Knox.

“We also recognise there is a role for government and regulators in creating an environment that supports these changes.”

Mr Schroder said it was “critical” that Australia transformed from having one of the best superannuation systems in the world to one of the best systems that helped people draw down their savings to fund their retirement.

He said the core to the shift was having a simplified system which would give members more confidence to “spend the savings they have spent a lifetime building”.

He said the key was to give people more confidence to spend more of their super.

In December last year, AustralianSuper appointed Shawn Blackmore as its first chief officer retirement to oversee the fund’s policies around retirees.

Mr Schroder said the appointment was “an important step in supporting members through their retirement journey”.

He said AustralianSuper was focused on delivering three things for people in retirement – maximising their expected retirement income, managing expected risks, such as longevity risk, investment risk, inflation risk, and providing flexible access to their retirement savings.

This would involve being able to supply members with personalised information which reflected their specific needs.

“We need to work as a sector, and alongside government, to better help retirees bring together their income in retirement drawn from superannuation, the aged pension and even equity in the home – so that they can have a clearer picture of their finances in retirement,” he said.

Next year legislation following the Quality of Advice Review will be introduced, which will allow super funds to become more active in providing financial advice to their members.

AustralianSuper chief executive Paul Schroder. Picture: Aaron Francis

Mr Knox, who is preparing a paper for the retirement phase of the super review, said the government should be prepared to look at policies which would encourage more focus on people having an income in retirement – including potentially making it compulsory for retirees to keep part of their superannuation savings in a product with an income stream.

He said Australia should consider adopting some of the systems used by some Scandinavian countries which required retirees to take part of their savings as income.

He said while this would need to be phased in over time in Australia, it would encourage a mindset for retirees.

“We don’t want people to lock away their capital,” Mr Knox said. “They have been saving all throughout their working years but when they have retired, they need to learn how to spend it.

“We have to have some rules within a framework which provides some flexibility which could include a lifetime pension or just an income stream for the first five or 10 years of their retirement.”

But he said the next focus needed to be on encouraging the development of retirement income products.

He said the passage of the objective of super, which is currently before federal parliament, and the Treasury discussion paper on the retirement phase of superannuation would provide the next stage for discussing the policies needed for these products.

Association of Superannuation Funds of Australia interim chief executive Leanne Turner said: “Retirement income policy will be a key issue for superannuation next year, with several major reforms taking shape.

“The Treasury’s ‘Super in Retirement’ discussion paper also raises a number of policy options that the government may consider, with submissions on that paper due early next year.

Association of Superannuation Funds of Australia interim chief executive Leanne Turner. Picture: David Geraghty

“The needs of consumers must be paramount in the development of regulatory settings and design of fit-for-purpose retirement products.

“Many Australians still have only a modest superannuation balance at retirement and totally exhaust their superannuation before they die and necessarily rely on the age pension to deal with the financial consequences of longevity.”