Super funds must engage members in pre-retirement phase

Too many Australian retirees risk running out of money by taking a lump sum superannuation payout rather than considering the account based pension (ABP) option, according to BUSS(Q).

A survey of the Queensland superannuation fund’s members found that only 20 per cent of retiring members took the ABP option, with the remaining 80 per cent opting to take their investment in a lump sum.

BUSS(Q) chief executive David O’Sullivan said he was concerned that four out of five retirees were taking all their money at once, rather than choosing an ABP, which distributes money over time and has tax advantages.

“It’s hard to budget with that amount for 20 or more years. Australia runs the risk of having to cope with retirees who have taken lump sums and just run out of money,” O’Sullivan said.

“The temptation is to just stick the money in the bank and try to negotiate the best available interest rate. Unfortunately, there is not capital growth in cash, so this usually starts an ever increasing spiral of lump sum draw downs on their capital,” he added.

He said the onus was on the superannuation industry to do a better job of engaging the 80 per cent of members who take the lump sum — firstly, to save more for retirement and secondly, to understand that a pension could be a smarter choice in the long-term.

O’Sullivan’s comments come following a report by the Association of Superannuation Funds of Australia that found even older retirees still need more than the age pension to live a modest lifestyle.

“It’s a real concern that the ‘old age’ pension won’t be sufficient for the average Australian to have a reasonable retirement lifestyle. It will be up to each individual to bridge the gap to ensure their retirement years are enjoyable,” he said.