Retirees are spending their super, research finds
A superannuation industry group counters the belief that senior Australians sock away their super nest egg.
Key points
The Treasury’s Retirement Phase of Superannuation 2024 is a government review into improving super funds’ retirement products and service.
National Seniors Australia and the recently formed Super Members Council of Australia have made submissions.
The Council says Australians do spend their super in retirement, drawing down on it more than the required minimum.
New superannuation industry research disputes long-held claims that many Australians are living frugally so they can pass wealth on to their families.
Instead, most of us draw down and spend much of our super nest eggs.
The research findings come from the recently formed Super Members Council of Australia (SMC) and are contained in its submission to the Federal Government review into making super funds better assist their customers in retirement.
What is Super Members Council of Australia?
SMC was formed in October through the merger of two industry bodies: Industry Super Australia and Australian Institute of Superannuation Trustees.
Media analysts have said it could be an influential super industry voice as it marries the more politically and union-aligned AustralianSuper, Cbus, HESTA, REST and Hostplus with the historically less Labor-linked UniSuper, Aware, and Australian Retirement Trust.
Connect recently reported on National Seniors Australia’s recommendations for a better super system as submitted to the government review – the Treasury Retirement Phase of Superannuation 2024 discussion paper.
In our submission, we called for an independent guidance service to help superannuants make informed decisions about their super.
National Seniors is encouraged that the thrust of the SMC submission and many of its recommendations align with its own recommendations.
To read the NSA submission, click here.
SMC chief executive, Misha Schubert, says the SMC submission “busts the longstanding myth that retirees are not spending their super”.
SMC found many Australians spend all their super in retirement, draw down on super more than the minimum required, find retirement and super overly complex, and crave more information from their funds on how to navigate the system.
SMC says two in three people are drawing income from their super above the minimum required in retirement, leaving many with no super later in life.
This finding supports National Seniors’ submission to Treasury, which is calling for more research into superannuants behaviour before any more changes to super occur.
While retirees plan to retire at 67, about a third have accessed their super at 63, while about 25% continue to work into their 70s.
Other key points:
The median super balance at retirement is currently $200,000. SMC expects the median earning 30-year-old worker to retire with $500,000.
Two-thirds of retirees draw down on their super more than the minimum. In fact, on average they draw down 40% more than they are required to, even excluding lump sum withdrawals.
90% of women and 80% of men have no super left when they reach life-expectancy age.
SMC and National Seniors agrees on the need to address members’ limited understanding of how super works and how to get the most out of it.
SMC says consumer research shows less than half of super members are confident they understand account-based pensions and annuities.
“Australians approaching retirement want more information and advice, with 73% of members stating they would trust advice from their super funds if it were specifically tailored to their circumstances,” the SMC says.
Affordable quality financial advice is the key, and SMC wants the government to:
Swiftly consult and legislate the retirement and super component of the financial advice reform package before the end of this year.
Make it easier for members to switch into retirement products – and end the current ban on being able to add contributions to a retirement phase super account.
With member permission, the government should notify super funds about their members’ eligibility for pensions and other government supports, so members can be given tailored information on how to maximise their retirement income.
A comprehensive retirement test should be developed that measures a broad set of factors including investment performance, flexibility to access funds in retirement, and giving people control over the level of risk they want.
Not force retirees to spend more in retirement by increasing minimum drawdown rates for super funds.
Also, SMC says government should not mandate the use of annuities for members, and that trustees are best placed to create investment strategies for their members.
In contrast, National Seniors wants more independent information and guidance available to members, so they don’t have to rely solely on information provided by the funds.
This could be provided through an independent community-based organisation funded by government, industry, and member 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.
