Australia’s pension system receives a wake-up call from pension experts

‘The big role of pension funds at the end of the day is about paying pensions, not about investment.’

australian coins with an australian flag in the background

Pension experts from around the world recently gathered to critique Australia’s pension and superannuation system.

The International Centre for Pension Management, a research-based organisation with 42 global partners, held its 15th discussion forum, From MySuper to MyRetirement, in Australia last month.

The key message was that Australia needs to realise its pension system is a giant complex bank account that is leaving its investors – Australia’s retirees and workers – confused and disempowered.

“This is our main message: Pretending people can choose in such a complex situation is fake, even misleading. People are utterly lost going into retirement,” said economic psychologist and group chair Andre Snellen.

“You know the words, it’s all there. It’s not the technicalities that are the problem. It’s wrapping your head around going from accumulation to decumulation, from a returns-based system to a replacement rate, from savings to an income stream.

“This is a very large pot, but there’s only a very small income system, that is what it is all about. You have to set the goal – from MySuper to MyRetirement. Members are happy in Australia because the system never promised anything. The system is there for a purpose and it’s not just saving.”

 


>Mr Snellen described Australia’s pension system as “an adolescent with growing pains”.

“When looking from the outside I’d say the super industry is in puberty or adolescence,” he said.

“You had a baby at three per cent in the 1990s, then a toddler at nine per cent compulsory for all employees moving to 12 per cent. And now it’s at adolescence with 135 per cent of GDP. Very good, very well done. It has the potential to be a splendid human being. But as an adolescent, if you hang out with the wrong friends it can go horribly wrong.

“You need to ask the existential question, who am I? The royal commission and the Productivity Commission acted like parents guiding you and telling you what direction to go in, and it really rocked the boat. All these issues are on the radar, there is a lot to be solved. But that’s not the problem we see. Going from accumulation to decumulation – everyone sees it and says it but what does it mean – that’s the real growing pain.”

Mr Snellen highlighted the complexity of Australia’s means-tested system, as well as the interaction between superannuation, the Age Pension, aged care, healthcare and home ownership as reasons most Australians feel powerless to make decisions for their future.

He also suggested that politicians may not be best suited to set goals that decide how retirees should live or spend in retirement, but was ambiguous about who should set these goals.  

 “Politics is extremely divided in Australia, and maybe politicians should not set the goal. But if not them, who should set it?” he asked.

“We feel trustees should not want that responsibility. If the political parties can’t do it, and trustees shouldn’t, then there is a risk of the regulator becoming an implicit and unintended dealmaker, firefighting on the edges.”

The group also criticised the way super funds market to 40-year olds and leave its biggest customer base – retirees – out in the cold.

“They focus on the 40-year-old in their marketing, but they shouldn’t be focusing on them. In Australia, retirees are considered to be customers leaving the shop, and not seen as the essence of the system. But that is what it’s all about, the focus of what you do. Why are you focused on 40-year-olds?” he asked.

Mr Snellen believes most funds would do well to have retirees sitting on trustee boards.

He wants Australian super funds to give retirees a seat at the trustee board, suggesting a ‘pension board’ separate from political turmoil that would include employees, employers, retirees and industry experts who could assess policies and goals.

He also highlighted the importance of risk management in decumulation as opposed to accumulation.

“The fact the super system is 135 per cent of GDP and growing, is a serious pot of money, could seriously harm Australia if you do it wrong,” he said, adding that, if done right “in 10 years, you would have bought everything in Australia”.

He sees the government’s retirement income review as a step in the right direction, but questions why Treasury is running the review.

“In other countries you would have welfare or social affairs in there as well,” he said.

Fernando Larrain, chief of the Association of AFP (AAFP) of Chile – an organisation that brings together pension fund management companies – referred to what the Chilean system learnt after being critiqued last year.

“We didn’t ask ourselves why pension funds were created,” he said. “For many years, we thought the purpose was savings. You have to ask what the real purpose is.

“The big role of pension funds at the end of the day is about paying pensions, not about investment.”

What do you think the biggest problem is with Australia’s pension system? Is too much focus placed on accumulation? Do you think superannuation is serving its purpose as a pension system rather than an investment plan?

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COMMENTS

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TREBOR
11th Nov 2019
10:52am
I thought The Trebor Scheme gave all the answers..... must've been wrong... nobody's rushing to take it up...
Horace Cope
11th Nov 2019
11:01am
You OK up where you are? The fires are close.
TREBOR
11th Nov 2019
12:23pm
Nah - ours are out - just the ones up the road about five km or so and further... currently ripping towards the ex's daughter's caravan in a park - where she plans to move to live...

Just a few smouldering bits here... still got stuff in the car ready and stocks in in case ... fresh case of beer for emergencies.... and a bit of food..
Mariner
11th Nov 2019
10:59am
As long as you can take your funds out of the system in a lump sum when reaching pension age, Super remains an investment vehicle. Example: Being a non home owner with a $750'000 balance in Super after a lifetime of working I certainly would convert that money into my own home and collect the age pension. Super has not helped me to fund my retirement but it enabled me home ownership, it did not save the Commonwealth one cent. That super account was investment only; if people were forced to get their money in an annuity they'd be lucky to qualify for age pension. Get my drift?
VeryCaringBigBear
11th Nov 2019
11:21am
Super is and should stay an investment vehicle. Not allowing you to take out 100% is nothing but theft of your money.
Horace Cope
11th Nov 2019
11:36am
I agree Mariner, it's your money so you should be able to use it as you wish. There is a number of people who reach retirement age and because of divorce, ill health, moving from state to state for employment or any number of factors who want to own a home in retirement. I don't agree that any funds should be allowed to be withdrawn until retirement age.
VeryCaringBigBear
11th Nov 2019
11:42am
Many young people today work as contractors because they don't want super as the money is much better and a lot safer invested in their mortgage. If you have an illness than needs money then you should be able to access your super as it's of no use to you if you never reached retirement age. I recently helped a young man of 35 dying of cancer access his super so he could use it to make his palliative care more comfortable and less stressful on his relatives.
TREBOR
11th Nov 2019
12:24pm
Good points that time, Bear.. is The Force working on you?
Chris B T
11th Nov 2019
12:56pm
Do what the Politicians Do, that is Play By The Rules.
Example allowed to claim living away Allowance in wife's/partner/friend/each other's home so long it's not in Your Name.
At the moment there are No Defining Rules on how to use your super.
No Rules Do What You Like.
Don't Forget 1992 was the start of Compulsory Super it has another 20 years to run before that full Benefit be Realised.
BrentonG
11th Nov 2019
10:59am
Interesting reading on the article ‘ Australia’s pension system receives a wake-up call from pension experts’ As a retiree I couldn’t agree more, the focus is not with the retiree base but competing for new subscribers. I also think that there should be a change of term, the term pension is clear in the dictionary, as a payment from the state. The payments or income received by superanuants is not a pension, but a draw down on what we have worked to accumulate in preparation for retirement, either self funded or in conjunction with a pension. Personally I resent my draw down being referred to a pension. So there are two seperate issues at the top of the retirement debate, firstly the level of pension from the state and its sustainability, and secondly the respect for retirees drawing down as self funded with no demand on the government. Isolating fully self funded retirees and assessing concessions for them is important, they are significant contributors to our community and local economy and yet do not receive any funding support from our government, but often are continuing to have to fund the welfare system through our saving and ever changing rules over our savings...
VeryCaringBigBear
11th Nov 2019
11:24am
By definition your draw down of super is a pension however the old age pension is not a pension at all but welfare and should be renamed the Seniors Welfare Payment. A true pension needs to have equity behind it and the old age pension does not.
Mariner
11th Nov 2019
11:33am
The old OAP had equity behind it before it was incorporated into general tax receipts. Was told in 1970 that OAP was payment for a working life, also had company super which normally was used to retire mortgages (we paid close to 10% interest then). Still do not call the age pension welfare. You are welcome but.
VeryCaringBigBear
11th Nov 2019
11:38am
Old age pension today has nothing behind it as it is paid out of current taxpayer revenue. Old age pension is welfare as you only get it if you have no other means of support. Save for your retirement and you get zilch.
TREBOR
11th Nov 2019
12:26pm
That's the price the government paid when it absorbed the funds into consolidated revenue - at that time government also accepted the duty to pay out of CR...

Can't have it both ways..... sorry 'bout that...

Thank you again for coming...
ex PS
15th Nov 2019
11:29am
You can't sell the cow and then complain about having to buy milk.
Horace Cope
11th Nov 2019
11:14am
The question are: "What do you think the biggest problem is with Australia’s pension system? Is too much focus placed on accumulation? Do you think superannuation is serving its purpose as a pension system rather than an investment plan?"

I think that the biggest problem is the under performing funds that are allowed to continue to attract fees that are higher than the returns on average. Second to that is those funds which have a high number of board members, large remuneration and high fees even though a lot of them achieve a high rate of return.

I don't think too much focus can be placed on accumulation as the more super a person has, the easier retirement should result. However, the criticism about handling those who have reached retirement being ignored has some merit. In our case, we have no dispute with the way our super fund advised us but, sadly, that is not the norm. We are in a seniors club and some of the stories are not good. Some super funds are not interested in retirees but are hell bent on attracting those paying in, not taking out.

I don't think that a full response to the third question can be given until Keating's compulsory super scheme has reached the stage where retirees have been a part of it all of their working life. I note that the 12% target will be reached in a few years but I wonder why there is a cap on those who wish to have a larger super fund than the $1.6M that is in place. Maybe allow those who have the funds to deposit more funds but change the tax system for those people who may want to use that as a tax dodge.
VeryCaringBigBear
11th Nov 2019
11:26am
Now you know why the biggest pot of super is in SMSFs as that is why all the smart money is going.
VeryCaringBigBear
11th Nov 2019
11:27am
No body should be allowed to have more the $1.6 million in super. $50 million plus is just a tax dodge Mr Smith.
Blinky
11th Nov 2019
11:28am
The MAIN problem is that the current system does not reward, but punishes, those Aussies who have a small super account by deducting $3 x every $1000k people have over the tiny asset test.
To REWARD people x saving into super, the first $100000k in super should not be counted as an asset.
Many pensioners are losing money by having saved into super, which was a system meant to help people enjoy a better retirement, not to punish them.
VeryCaringBigBear
11th Nov 2019
11:36am
All super is is a tax advantaged investment with strings attached so once you get to retirement age it should not matter where your money is invested as it is the same as having your money in the bank.
Mariner
11th Nov 2019
11:38am
Amen to that, Blinky. What you are saying $100'000 under the bed is worth $300 more per fortnight? If that is correct old PM Fraser was right. He told us to put our money under the mattress, was in 1983 before he lost to Bob Hawke.
VeryCaringBigBear
11th Nov 2019
11:45am
I recently witnessed pensioners carry in bags of cash from their mattress banks into a travel agency to pay for their cruises. It certainly put a whole new meaning into cash in Aldi bag.
Mariner
11th Nov 2019
11:58am
VCBB - surprised that the agent took it. In a car dealership when signing papers a bloke came in with $20'000 in a satchel to buy a new car. Dealer refused unless the bloke filled in a lot of paper work first. Businesses are a bit uneasy having cash on the premises these days.
VeryCaringBigBear
11th Nov 2019
12:14pm
They just counted it and accepted it. Must of been well over $50,000 in cash in those bags. The travel agency also had a safe full of 10s of thousands in foreign currency as well. I asked if it was unusual and they told me it was more the norm now with pensioners.
Mariner
11th Nov 2019
12:18pm
Our travel agent is attached to a foreign currency trader and of course they would have a safe full of cash, local and foreign. Sell travel cash cards as well. Now no longer surprised about your tale, VCBB.
KSS
11th Nov 2019
12:22pm
Its not the cash on premises that dealers are afraid of, afterall that can be soon dealt with, its where the money came from in the first place and whether they may get caught up in money laundering that is the real issue.
TREBOR
11th Nov 2019
2:36pm
You're certain these were 'pensioners'???? Did you mug them demand they hand over their wallets and check their pension cards?

Maybe pensioners of the "this block flat no mine.. only I collect rent ... no mahney ... belong my cousin/uncle/son/friend - he travel Siberia - no hear for long time now .."
Sceptic
11th Nov 2019
2:38pm
Any cash payment of $10,000 or more must be reported to Austrac. Failure to do so is a criminal offence against the cash transactions act. This has now been in place for more than twenty years.
Mariner
11th Nov 2019
3:35pm
Sceptic - that I have always wondered about, any amount of $10'000 and the 20 years. Do you remember what that amount was worth then? We build all these Casinos all over the place and the punters are in trouble for bringing in cash. Overseas people do not want the losses and winnings known all over the place is the reason they place their bets in places where there is no reporting about cash. Casinos in Australia are just here to fleece Aussies. Remember Kerry Packer (Las Vegas where they have pokies at the Airport) loved it there. Nevada doesn't ask for cash transfer tokens.
For me I have no problems going to Europe filling in the forms as it is the 2 of us leaving, meaning $20'000 or under. It is only 12'000 Euros, which will never go very far over there. Time to update the amount for people without mobile banking and a fear of being hacked.
Curious
11th Nov 2019
12:34pm
Our Superannuation system is asset rich and income poor. Both politicians and Treasury have no idea how to transform the accumulation into the decumulation process because it doesn't have a purpose for the fund management, i.e. to replace our OAP and to provide a comfortable retirement for an average person. The current fee charges, government duties, and GST are not transparent and readily accountable. Poorly performed funds are not checked and culled. Penalties for exit is not clearly defined. Our superannuation system is like a maze with lots of minefields. How can any retirees make any decisions for their retirement, lets alone a comfortable one? Getting a retiree or employers on the board of trustees is not the complete answer. We need a road map and education for these people before we can expect them to perform as intended.
VeryCaringBigBear
11th Nov 2019
1:21pm
The problem is that super funds lose money when they pay out your super as they have less to invest and make money with fees and arbitrage between buy and sell prices.
GeorgeM
11th Nov 2019
3:48pm
Much of the content of this article is good, including the need for retirees to be represented on the boards (but not based on how much they have). However, where I find this article off the mark is that it is trying to change the name of Superannuation funds to Pensions funds. That is overseas thinking driven by people familiar with systems such as in USA, and also maybe an attempt to allow the Govt to meddle into how the system works here, with benefits for private vested interests.
Here, other than the compulsory part, it is a voluntary system which allows you to pay extra (with limits) and withdraw as needed on reaching the Super drawdown age. That MUST continue. We DO NOT want the Govt to meddle in this matter of how much you can withdraw and when (once you reach the appropriate drawdown age), and it is the account holders money to use as they please - these so-called experts should stop trying to feed the vultures (private vested interests & Govts) eyeing the trillions in Super and how to get access to it!

Also, the Super aspect of Retirement Income needs to be limited - with more severe caps on benefits for the rich, only allow say $600K per person in Super without tax, and have marginal rate taxes on the rest. Time to stop the massive rorts using Super.

Age Pension is far more simply delivered by making it an Universal Age Pension for all based on Age (65 yrs) and Residency (say 15 yrs), while allowing the Home as an exempt asset as at present, as the other sensible pillar for retirement. The importance of Super must be reduced to make it suitable only for a reasonable level of support from the Govt, not excessive as at present. Note that these private vested interests are not saying that!
Mariner
11th Nov 2019
4:17pm
Agree with most, George. Just think that the residency requirement should be more than 15 years. Note that the pension payment in full for people going abroad to live depends on 35 years of residency. By all means pay the pensions to people with mutual agreements from other countries, otherwise we could be flooded with people from non pension countries. Our recent immigration comes from countries with non pension countries and bringing parents in here will cost us a mozza. Let their children foot the bill, or at least help along. Aussies have been too generous for too long.
TREBOR
11th Nov 2019
5:17pm
"change the name of Superannuation funds to Pensions funds. That is overseas thinking driven by people familiar with systems such as in USA, and also maybe an attempt to allow the Govt to meddle into how the system works here, with benefits for private vested interests."

Here we go with the old Newspeak again - change the meaning of something by changing its name - the feminists wee right when their Delphic Oracles began to preach that 'words have power' - it's just that their context was too narrow and one-sided and was thus wrong in an egalitarian, democratic society.

Couldn't agree more with you there, Geroge - like 'social security' became 'welfare (even to YLC - the hidden propaganda arm of the Real Right here - Stalinism and Uberkontrol by an elite all in one) ...obviously YLC is an LNP plant to test the waters...

Welcome to around the world with Trebor.... catch me if you can...
GeorgeM
11th Nov 2019
8:31pm
Good points, Mariner, my suggestion was only one option, and I accept it may need to be modified suitably to remove the carrot effect for immigrants.

Yes, Trebor, with Feminists (toxic masculinity - just being male), Climate Change (was Global Warming, etc), the Govt / Politicians and Financial experts are all quite adept at modifying words to then change people's thinking (part of the brainwashing) to then make them accept their next Agendas. Another term mentioned recently in the retirement incomes context is decumulation to hide the fact that these strategies are meant to strip assets off the savers (rather than let savers spend their hard-earned money as they like or hand over what's left to the heirs).......and so on. The price of freedom (for the Retirees in this case) is eternal vigilance! And, making themselves heard!
TREBOR
12th Nov 2019
12:15am
You speak my language, George.
Bundabergian
11th Nov 2019
4:40pm
Has anyone suggested getting rid of the overly complicated means testing system and the nasty unhelpful centrelink people who administer it?
TREBOR
11th Nov 2019
5:18pm
About a million times, Bundy... we've been at it for a long time now and an means and assets tests... and quite a few other drastic changes needed to right the ship of retirement..
TREBOR
11th Nov 2019
5:19pm
.. damn - touchy keyboard - that was 'and all level heads here agree on abolishing the mean' (means and assets test).....
Bundabergian
11th Nov 2019
6:26pm
Hmmm so you are all well ahead of me (newby). What do you think will happen about it? Sweet Fanny Adams? Anything we can do to change that?
GeorgeM
11th Nov 2019
8:42pm
Been pushing for it well over 2 years now.....
What can you do about it?
Firstly, definitely write to your local MP and threaten to have all Retirees vote him / her out at the next election if they don't push for Universal Age Pension, with NO tests and NO Centrelink admin (ATO can do it easily). This may help sway voting in the desired direction when the Review below comes up for parliamentary review & approval.

Secondly, very important now (don't be swayed by people who discourage it, as politicians & bureaucrats often glibly claim no knowledge of our views because people fail to bring matters to their notice) - Write to the Treasurer i.e. Submission to the Retirement Incomes Review just getting under way in Canberra as decided by the Treasurer - the Terms of Reference are already up on the web - just search for Retirement Income Review 2019.
Being the eternal optimist, I am hoping for a flood of such Submissions to wake them up!
TREBOR
11th Nov 2019
5:19pm
Why do we need 'experts' to tell us that? We already know - why doesn't the 'government'?
the prof
11th Nov 2019
5:49pm
the opinion is incorrect, the superannuation system should have matured as it did not start in the 1990's, the superannuation system started on the 1-1-1946, it was a pension fund because the term superannuation had not been coined, so if the politicians did not steal the income, which is still being collected, we would have a guaranteed non means tested income stream aside from any investments
TREBOR
12th Nov 2019
12:18am
Got it!
Farside
15th Nov 2019
4:09pm
‘The big role of pension funds at the end of the day is about paying pensions, not about investment.’ This should be reflected in bold in the licensing of every super or pension fund.
GrayComputing
16th Nov 2019
9:57am
NO ASSET TEST FOR A PENSION EVER AGAIN!
A pension is not welfare.

Now is the season for discontent, so do something about it!
It is time to kill off this insane hugely expensive pensioner whacking bureaucracy.

It is time for all of us (yes that means you) to rant at our MPs and Senators daily to take action for human decency and a huge stress reduction for pensioners

Most economist say we will save taxpayers money by dropping asset testing because of the massive overheads cost in running Centrelink and the 10,000 conflicting rules.

Hiring more Centrelink staff will only increase taxpayer’s costs for processing the creeping insane red tape monster system politicians and well paid bureaucrats have created.

Help scrap it now. Become a hero.

Even the UK and poorer New Zealand has a NO ASSET pension so it is cheaper and user friendly.

Why worry that few million$ earners get it too. That is peanuts to them, not enough for a good vintage champagne.

Do retired and retiring people really look forward and want 100++ visits to/from Centrelink and be part of 3 million waiting queues and lost calls?

We all (that means you) need to tell our MP and senators every day that these criminal asset tests for a pension must be dropped now.