Independent guidance service to make super sector stronger

Two interrelated consultations are in progress relating to superannuation.

The first, a parliamentary inquiry, seeks to interrogate the Federal Government’s proposed legislation for an objective of superannuation.

The second, a Treasury-led consultation, is seeking feedback on policies to improve the retirement phase of superannuation.

Representing your views, National Seniors Australia’s submissions seek to enhance super as an important financial resource for achieving the retirement goals of older Australians.

The availability of affordable, quality advice is needed. Super funds are being encouraged to fill the gap left by the financial advice sector, which retreated following the Hayne banking inquiry.

While financial advisers play a key role for those who can afford it, the government wants to see super funds playing a stronger role in support of members.

Ultimately, though, what many people need is independent information and guidance. This support could be delivered by an independent superannuation guidance service.

The service should not be delivered by government but through an independent community-based organisation funded by government, industry, and co-contributions.

As a “one-stop shop” for information about financial wellbeing, including information related to health and aged care, the service would increase competition in the superannuation sector and reduce the risk of conflicts of interest.

Such a service is especially important for people with limited super balances who will never be able to afford costly financial advice.

Complementing this is the need for funds to be required to provide standardised product disclosure statements. These provide consumers with key information to easily compare products and performance across the super sector.

The proposed independent guidance service would play a key role in creating tools to compare product information.

While super funds operate default products at the accumulation phase, we believe such a product would be too risky in the retirement/pension phase of superannuation.

Funds do not know enough about members beyond their balance and basic demographics to assess if a product default is truly suitable – unless the member is willing to provide them with this detail.

It is likely that funds couldn’t provide this level of personalisation without significant cost unless fund members were willing to pay for such a service, which would constitute advice.

Funds should instead be required to alert members of the products available to them through the fund and direct members to the proposed independent guidance service or seek independent financial advice.

Like a defined benefit pension, a lifetime annuity provides a secure income for life, which can remove some of the worry associated with retirement planning.

National Seniors’ research shows worry about outliving savings and investments is lower among older people with a lifetime annuity or defined benefit pension product.

However, lifetime annuities may not be suitable for everyone.

A product offering a lifetime annuity component should be one of several product options from which members can choose, with appropriate information provided about costs and benefits.

The proposed independent guidance service could help people decide if this product is right for them and help them compare products (with or without a lifetime annuity component).

There may be a need for consumer protections to ensure that members fully understand the implications of annuity products.

National Seniors supports the intent of defining an objective for superannuation, but we believe the proposed objective is not in line with the public view of superannuation.

The wording of the proposed objective is:

National Seniors instead has recommended this as an alternative objective:

We believe this is more accurate because it acknowledges the importance of the accumulation phase of superannuation.

One of our criticisms of the proposed objective is that that it focuses too much on income at the expense of capital.

Instead, we use the term “comfortable standard of living” to replace the terms “income” and “dignified retirement”. We think this ensures greater flexibility and reflects more accurately the way everyday people view and use superannuation as both a means to deliver regular income and to provide access capital to meet irregular costs in later life.

Our submission also highlights the importance of people drawing on super earlier in life. The superannuation objective should be flexible enough to accommodate this. For example, some people need to access their superannuation before they reach preservation age in situations of ill health.

Similarly, we are also concerned with use of the word “retirement” in the proposed objective. This emphasises a linear life course and reinforces the view that a person’s adult life can be split into two distinct phases – work and retirement. People withdrawing superannuation over the preservation age of 60 (whether eligible for the Age Pension or not) may still be engaged in the workforce (or providing informal care to others).

In using the words “accumulate adequate savings” for “a comfortable standard of life”, means our alternative objective is aspirational, without being unsustainable.

Click on the links to read our full Objective of Super and Retirement Phase of Superannuation submissions. 

Related reading: NSA, Treasury