Pension system needs to ‘grow up’

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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Written by Leon Della Bosca

Publisher of YourLifeChoices – Australia's most-trusted and longest-running retirement website. A trusted voice on Australia's retirement landscape, including retirement income and planning, government entitlements, lifestyle and news and information relevant to Australians over 50. Leon has worked in publishing for more than 25 years and is also a travel writer and editor, graphic designer and photographer.

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