Former federal treasurer Peter Costello believes compulsory super has failed Australians, pointing out major flaws in the system and the need for reform in the sector.
Speaking at the Citi annual investment conference, Mr Costello claimed that the major mistake of compulsory super was the focus on accumulation, but when it came to decumulation “there wasn’t a lot of thought given to how it would be managed once it was in these funds and how it would come out”.
He also pointed out the shortfalls of fund structure after nearly 30 years of use.
“We realise [now] that fees were extraordinarily high, some of the products were no good, and at the end of all this, when you get your entitlement, there’s still this huge gap as to ‘what do I do now?’” he said.
“You’re at that stage of your life where you are trying to wind down and you don’t really know what to do with it, and I think this is where we’ve failed Australians.
“We haven’t had the right exit products; we haven’t had the ability to move between funds as easily as we should have, and we haven’t had fees as low as they should be.”
With low interest rates also negatively affecting many retirees, the nation’s longest-serving treasurer said it was time the Government reconsidered deeming rates, saying “he feels very sorry for retirees at the moment”.
“Everyone would say to you [that] a retiree should have most of their wealth in liquid assets – particularly in cash – and they get no return,” he said.
“I think this is where cuts in interest rates actually have a negative effect; they have a negative effect on these people.
“Borrowers save two for every one that savers lose on a rate cut, so overall a rate cut is effective for the economy.
“That’s if there’s immediate pass through and full pass through, and we’re now seeing rates are so low that you don’t get that.
“I think for those people, they’re starting to squeal.
“Deeming rates are very high and they don’t really reflect what the retirees are able to get. But, you tell me where you can get those sorts of rates any more? I think [the Government] has to have a look at that.
“It’s very hard for those people,” he concluded.
Do you agree with Mr Costello’s opinion? Are you finding it difficult to live a comfortable retirement at the moment? Should the Government revisit deeming rates?
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