Actuaries Institute supports reframing of super ‘nest egg’ mindset

As more Australians are taking interest in their super to ensure it plays a greater role in a comfortable retirement, the Institute has applauded the range of retirement income issues that Treasury identified in its discussion paper Retirement Phase of Superannuation in December.  

Namely, the paper detailed how the superannuation system can provide members with the needed security and income in retirement, with an increased focus on the retirement phase by examining:

• Supporting members to navigate the retirement income system.
• Supporting funds to deliver better retirement income products and services.
• Making lifetime income products more accessible.

In its submission, the Institute highlighted that superannuation policy settings to date have focused on the accumulation stage, which are now starting to reach maturity, overlooking the larger groups of Australians now moving into retirement.

“Superannuation is integral to the financial and broader wellbeing outcomes of 16 million Australians, who face complex challenges on their journey to retirement.,” Institute chief executive Elayne Grace said.

“We need to make navigating these important life decisions as easy as possible, for as many people as possible.”

According to the group, shifting the mindset from superannuation being a “nest egg” to an income-generating vehicle is the first step to supporting the needs of Australians in their retirement years.

As such, and in line with top-ranking pension systems globally, the Institute has called for the creation of pathways that help “nudge” Australians towards well-rounded default solutions for funding retirement.

But notions of “a standardised product”, it added, need to be approached with care.

The Institute suggested that for an effective retirement income product, an opt-out feature should transfer part of a member’s super balance to an income stream at a specified age and asset level, despite recognising the benefits of standardisation in simplifying considerations for non-advised retirees.

According to the group, evidence suggests the current small market for various lifetime income products is a “demand” as opposed to a “supply issue”, noting that the greatest barrier to more product development is the risk of inadequate take-up.

As such, the Institute’s Tim Jenkins said that this is contingent on providing holistic and low-cost help, guidance, and advice frameworks.

“No single solution, that covers a mix of regular income and savings to draw down, and which lasts a lifetime, suits everyone. A broad frame is required to consider super alongside any sources of government support, income from part-time work and home equity to fund a dignified retirement,” Jenkins said.

The professional body also supported the government’s plan to incentivise population-wide financial literacy and retirement phase guidance and education, including its commitment to the National Financial Capability Strategy and the introduction of standard definitions for the key features of retirement income products.