Understanding needed of super components

Australians need to have a better understanding of the four pillars of the retirement incomes regime and how they all fit together, according to a new report compiled by Mercer for the Chartered Financial Analysts Institute (CFA).

The report, released this week, advocates a range of measures to improve the superannuation regime including lifetime contribution caps, but a key recommendation is to go further than just outlining the purpose of superannuation as recommended by the Financial System Inquiry (FSI).

According to the author of the report, Mercer's David Knox an understanding of the four pillars is crucial.

"A good system has a range of income sources or pillars for retirement," Knox said.

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"For Australia, think the age pension, compulsory superannuation guarantee (SG), voluntary super, and other savings outside super, including home ownership.

"We need to know the purpose(s) of each pillar and how they fit together."

Knox noted the FSI recommended that the objectives of super should be clear but said that his report urged there was a need to go further in terms of identifying the objective of each pillar and how they fit together.

He suggested there was a disconnect between the principles and objectives of the system and how the community comprehended them and that this had influenced systemic behaviours toward saving for retirement.

"To improve community engagement in superannuation, the Government's response to the FSI must establish a link between the two by providing the community with a comprehensive road map of the retirement system and features such as tax, policy and legislation and by then educating the community on how to use its understanding of the system to proactively build more value into retirement savings," he said.

The report also suggested the benefits provided from the system during retirement should have an income focus but permit some capital payments or withdrawals during retirement, but without adversely affecting overall adequacy.