The Federal Government should consider legislating to require superannuation retirement benefits to be paid as pensions rather than lump sums, according to leading specialist superannuation barrister Noel Davis.
Writing for Money Management's sister publication Super Review, Davis said he believed such a move was necessary to ensure that superannuation benefits were actually applied towards providing retirement income.
"Under the current, largely lump sum regime, lump sums get spent, in many instances, in ways that have no relationship to retirement income including on holidays, house renovations, purchase of consumables, gifts to family members etc," he said. "The result is that retirees who have had superannuation benefits funded by employers end up receiving the aged pension and associated benefits, when they could have been living off a superannuation pension."
Davis said that at the same time, others invested lump sums in ways that resulted in investment losses — sometimes of the whole amount, with an example being a lump sum spent on acquiring a business that ends up in liquidation.
He suggested that trustees and insurers should also review the payment of total and permanent disablement benefits as lump sums, in circumstances where such amounts were spent quickly and not in a way to provide income to a person who could no longer work.
Financial advice is having a significant impact on how Australians are engaging with the more complex aspects of their superannuation, new findings have shown.
While the Financial Advice Association Australia said it supports a performance testing regime “in principle”, it holds reservations about expanding this scope to retirement products.
In a Senate submission, the Financial Services Council said super funds should be able to nudge members on engaging with their super and has cautioned against default placements.
The Joint Associations Working Group, which counts FSC in its ranks, has issued an urgent warning to the government.
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