According to recommendations made by the Treasury’s Financial System Inquiry, Australians entering retirement are likely to be prevented from taking their superannuation in one lump sum and will instead have it made available to them in a self-funded ‘pension’ styled income stream.
And Treasury Chief Operating Officer John Lonsdale believes that the inquiry’s plans to overhaul the current system of superannuation are more than likely to proceed.
“Superannuation trustees should be cautiously optimistic that the framework will go towards something like what is outlined by the inquiry. That said there are still a lot of details that need to be understood,” said Mr Lonsdale.
The inquiry, designed to lay out a blueprint for the financial system over the next decade, was given to government for consideration in December, and proposed that retirees, once they’ve reach the age of retirement, should not be given unbridled access to their superannuation savings in one lump sum.
Instead, the inquiry suggests that superannuation savings should be transferred to a managed fund, with the purpose of providing a more lasting stream of income throughout retirees’ later years.
The proposed change would better align the default fund allocation and settings which are applied to compulsory super contributions during the accumulation phase.
The inquiry’s recommendations to strengthen the superannuation system aim to:
- Set a clear objective for the superannuation system to provide income in retirement.
- Improve long-term net returns for members by introducing a formal competitive process to allocate new workforce entrants to high-performing superannuation funds, unless the Stronger Super reforms prove effective.
- Meet the needs of retirees better by requiring superannuation trustees to pre-select a comprehensive income product in retirement for members to receive their benefits, unless members choose to take their benefits in another way.
- These recommendations seek to improve the outcomes for superannuation fund members and help Australia to manage the challenges of an ageing population.
The findings of the report highlight increasing pressure on the government to fund an aged pension system along with other costs required to support an ageing population.
The inquiry’s suggestions have been backed by many investment and superannuation specialists, most of whom feel that a default option for managing the retirement phase of superannuation is truly in the best interest of consumers. It is hoped that a default pension fund would provide a better outcome for people who don’t have access to good quality financial advice.
“Expecting a 65-year-old who has never managed a bucket of money before to suddenly know how to do so is exposing them to too much risk,” says Superannuation Consumers Centre Chairwoman Jenni Mack.
How do you feel about such a move? Would you be happy receiving your superannuation as a managed income stream, rather then risking your hard-earned savings on investments that may not deliver? Or are you happy with the current lump sum situation? Why not tell us what you think?
Read more about this at The Age.
Read the Financial System Inquiry report.