Why accessing super is not so simple

You’re about to retire and setting up your superannuation pension is easy, right? 

There are these apparently simple options: 

1. Do it yourself. Go directly to your superannuation fund’s easy-to-use online service where you can find all the necessary information, options, and forms.

2. If that’s too difficult, phone and talk to your fund manager; pop into see them personally; or chat to your financial advisor.

3. Don’t do anything, leave your savings in your accumulation account. 

Option 3 assumes you have other income to access in retirement. But, beware, accumulation fund earnings are taxed 15%. 

How about option 2? Works well – have a chat, explain your objectives, and sign off on the strategy you have agreed to. 

Good luck with that. Even if you can find a financial advisor, in or outside your super fund, you might have to pay $4,000-plus to get one-off advice. This is not a cost-effective option for many Australians who have a few $100,000 in super and just want honest, simple, inexpensive guidance. 

Maybe that’s why funds created option 1: an online “do-it-yourself" service. Problem solved? Maybe. 

A new report by the Conexus Institute, and written for the retirement industry, spells out what many people transitioning to accessing their super for retirement have found confusion.

The report is scathing of the super industry, which places so much emphasis on us to save for retirement, then when it comes time to turning our savings (accumulation account) into an income stream (pension), leaves us in the lurch to muddle through the many imponderables the web-based do-it-yourself option presents.

The report looked into 20 of our largest super funds, specifically at system difficulties with:

• How you access your super money in retirement, and how much you access. This is called “drawdown” and includes government mandated minimums that a super pensioner must have withdrawn, and how a super pension integrates with your other sources of retirement income such as the government-delivered Age Pension. 

• Inconsistent language and terminology that funds use to describe super phases and products. 

It found most funds fail. So, let’s start with language, because that even affects how this article is written and the terminology it uses. Sadly, there is no agreed standard agreement or lexicon. There is little consistency in the language, terms, and jargon funds use to present their products and the journey to access your funds, even within their own platforms. 

A prime example of how super language can confuse is industry use of the term “pension” to describe the super retirement income stream resulting from transitioning from the accumulation to the income-stream phase. This is confusing because most of us think a “pension” is the government-paid Age Pension. National Seniors Australia (NSA) has long held concerns about this and is lobbying to limit the meaning of “pension” to government-funded payments only. 

Forms that you must complete to achieve the transition from accumulation phase to pension/income stream phase are difficult and can use terms inconsistent in meaning across the fund’s information resources. 

The report shows that many funds provide few options for setting an amount to draw from an income stream, with most only providing two options. Though some funds offered up to four options, including some that automatically changed the drawdown amount based on age. But there is little consistency between super funds around the language used on these forms. 

The large majority of funds presented the minimum drawdown as the first option on their forms, which the report says could cause people to select this option even when it may not be the most appropriate for their circumstances. 

Limited options and confusing terminology puts responsibility for integrating income from superannuation with other sources onto the individual. Instead, the report calls for a more integrated approach which considers all sources of income in retirement, including the Age Pension. 

NSA wants super funds to be more proactive in assisting members' transition to the pension phase.

Late last year, the Federal Government announced reforms aimed at improving the retirement phase of superannuation and help retirees make the most of their superannuation through accurate information, better products, and greater transparency. 

NSA is the peak consumer body representing older people, with a community of over 230,000 supporters, and our research team shared its insights as part of the Treasury consultation process.  

Ultimately, the system should empower people to make informed choices but not make choices for them. This requires a base level of financial literacy built on independent and high-quality information and guidance. 

While planning for later life can be complex, it is critical that we continue to give people the flexibility to control their financial affairs by giving them the means to make informed decisions and by offering them access to products that deliver positive outcomes with adequate consumer protections. 

Older people need a flexible system that gives them opportunities for regular income streams, but also capital in the form of lump sums, to meet their needs in later life. 

This requires a flexible system with supports that match the resources, knowledge, and expectations of the diverse circumstances of individual superannuants. 

This can be achieved by delivering independent information, education, and guidance to superannuants, complemented by adequate consumer protections to give people the means to manage their consumption in later life in ways that suit their preferences. 

You can read more about our submission to Treasury here.