Decumulation about “health and wealth” spending

Superannuation in decumulation shouldn’t be about saving but rather about spending and key to this is putting money into healthcare and aged care, but the superannuation industry need to get better at helping members understand that, experts have said at the Conference of Major Super Funds.

“Decumulation is not about ‘wealth’ but a ‘health and wealth’ consideration,” principal of Vanguard’s Center for Investor Research, Steve Utkus, told delegates, saying that health was now key to considering retirement income with the most obvious reason why being cognitive decline.

He said that considerations of health and aged care costs needed to come before retirement income product development even did, as income needs would intersect so heavily with care issues that they needed to be better understood before product was developed.

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Underlying concerns about aged care spending was a deeper issue that individuals in retirement simply don’t want to spend, however, with the industry needing to help members better understand that, as Mercer partner and industry fund and public sector leader, Jo-Anne Bloch, said, “super is for spending”.

“Superannuation funds help members accumulate savings for 40 years, but why don’t we help them spend and spend them beyond just a pension,” Bloch said. “We need to think about how we can help people post-retirement talk about what their options are”.

Utkus backed this up, saying that “people need more help framing that they can spend this money” as many have a psychological aversion to spending money.

Part of this, he believed, again came back to aged and health care needs, as framing what members’ last stage of spending in their life would be would most likely involved aged care services.

Bloch acknowledged that the sole purpose test (SPT) could pose a barrier to superannuation funds offering assistance in these issues, but pointed out that funds were already offering services that were outside of super but within the confines of the SPT.

While it would be more difficult to provide such services when it came to aged care costs, Bloch suggested that this could show that the SPT was too constrained, at least in the decumulation phase.

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I am not so confident about Steve Utkus's conclusions, Hannah. Today's cohort of retirees has generally not had 40 years of accumulation, and, in the case of those who are delaying retirement or are semi-retired but trying to have enough for the future, the effect on them of the gig economy, the non-payment of super on income of less than $450 p.m. from any one employer, under-employment, and stagnant wages, has made for doubtfully adequate balances. It is too easy for speakers in forums of various kinds (where oysters are often shucked and sucked and champagne quaffed to gee up the vibe in the room) to make the statements Steve does to lose sight of the relatively low median balances of 'ordinary Australians' who, having their feet solidly on the ground, see little alternative but to save. What also muddies the water is that statements like Steve's make the huge assumption that the individual is one of two super accumulators (partnered), and is a home owner. The last time I looked the percentage of retired or semi- or about-to-be semi- or full retirees who were renters was over a quarter of all in that category. For those with large balances (a relative term, of course), and for the upcoming cohorts with longer investment times, well... sure, spend. For them it should not be a problem. Good luck...everybody.

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