An expert’s guide to decumulation

Kirby Rappell, executive director of superannuation and research company SuperRatings, explains what you should know before you decide how to use your superannuation.

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YourLifeChoices: First, can you explain what pension means in reference to superannuation because that can be confusing?

Kirby Rappell: Obviously the government provides an Age Pension and, as we all know, that can be pretty challenging to live off. But for people who have built up their super savings, when they get to retirement, they can start a retirement income stream or an account-based pension. That will allow them to draw down on their super savings over time and give them a regular stream of payments.

Depending on your age, there’s a certain percentage of your account that you need to draw down. But with COVID and everything that’s been going on, that has been reduced at the moment. At a minimum, it was 4 per cent for some of the younger retirees and that’s been reduced to 2 per cent at the moment.

YLC: A lot of people get to retirement and go, ‘I can take a lump sum so watch me do this’. But should they?

KR: The key challenge for people at the moment is they’ve built up this money and so what do they do? When you do retire, you’re probably going to need to live off your super for another 20 or 30 years. So the super funds have set up products that allow you to … draw regular payments into your bank account. Super funds are there to help you draw down on your accounts over time.

YLC: SuperRatings essentially reviews the performance of super funds. You’re measuring how different funds perform, you’ve also measured pension products.

KR: Yes. So the really good news is that over the long term, funds have been returning about 5 per cent to 7 per cent in pension products. And that’s a lot better than you’re getting in cash. And so, there’s a couple of things to look at. How do you get reasonable fees? How do you make sure you get good returns after all fees and taxes? And how do you make sure that your retirement income stream provider is giving you an easy way to draw down on your money?

One is – rating firms, such as ourselves, have lists onsite showing the best rate for pension products. Second, talk with your provider because you may not know what they’re offering you in that pension payment stream.

About two thirds of funds now let you have a pension payment fortnightly, some will only let you do it monthly. Some will let you do it more frequently. And then within that, some will let you choose which date to take your money out and some will say you have to take it out on this date. It’s a really interesting one. How do you get it so your pension’s working for you rather than you having to be running around, trying to figure out how to make you work for your pension?

YLC: Can you share the finalists in the best pension product of the year?

KR: At a high level there are about 180 different account-based pension products on the market – a bewildering choice and the reality is most funds will offer a pension. That doesn’t mean all of them are as good as each other. The ones that have really shone through in recent years have been AustralianSuper, BUSSQ, which is a Queensland-based fund, Cbus, Equip, HESTA, Sunsuper, Telstra Super, which is only open to Telstra employees and their families, UniSuper, which is there for the university sector, but not everyone can join, and Big Super. What those funds have been doing differently is they have more tailored solutions.

They might have specific retirement strategies for pension members that helped with the ups and downs of the market and they’re hopefully pretty flexible. So they make it easy for you to control your own money. You’ve worked so hard all your life to build up that money and then it’s a matter of how good a fund is at helping pay that money back to you to have the retirement that you’re desiring.

A fascinating statistic is how long does it take a pension provider to pay your one-off payment? The reality is there will be unexpected costs that come up from time to time. So does your provider allow you to get that $5000 or $10,000 withdrawal when you need it? How quick and easy is it to get that withdrawal?

Super funds are finally making sure they come into the 21st century on these things. Eighty per cent of providers will pay you in three business days or less, but there is still that 20 per cent of providers that are taking over a week to get that money into your account.

YLC: Do all the funds you just mentioned, the finalists in the pension product of the year, offer advice?

KR: Yes. So, there’s two main types of advice here. One is more single-issues simpler advice. That’s probably $250 to $350 if there’s a cost and it will be about how do I set up my retirement pension? How do I choose the right investment option? That pretty simple stuff. A lot of them will offer that internally so you can just call them and they can help you out. Or there’s more comprehensive advice. Most will offer you comprehensive advice or they have referrals to other advisers they’ve validated based on their qualifications and things like that. So talking to your super fund can help demystify this. I think for a lot of people, the simple advice is what they probably need and the funds are there to help them with that.

YLC: What other guidance can you give?

KR: On superratings.com.au, we have a list of all the different funds that we rate, which is just about everyone in the market, and what our rating is. So if they’re in the top quarter of the industry, they get a platinum rating. And if they’re a finalist that’s shown on the website, and we also have lowest fees and top returns across the number of different options that people can play around to try and make sense of it all.

Do you believe you understand everything you need to know about super? Have you sought financial advice? Do you regularly check to see which are the best performing funds?

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https://www.yourlifechoices.com.au/finance/superannuation/expert-calls-for-super-funds-purge
https://www.yourlifechoices.com.au/finance/superannuation/older-aussies-at-risk-of-dud-insurance

Written by Janelle Ward

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