John Deeks (JD) and Kaye Fallick (KF) are joined by Kirby Rappell, the executive director of Super Ratings to talk about decumulation.
JD: Kirby Rappell, the executive director of Super Ratings has been with Super Ratings since 2008, and he knows all about it. Kirby, welcome. Tell us what we need to know.
Kirby Rappell: I think for today – talking about how people get the most of getting their account based pensions, or their pension settings right on their super. And helping people to have more confidence and comfort when they’re drawing down on their money.
KF: So Kirby, just to confuse the issue so you can, ‘unconfuse’ it: the word ‘pension’ is misleading. People think Age Pension, but the pension we’re talking about today is the retirement income stream from your own superannuation.
KR: Yeah. So there are probably three topics here.
Obviously the government will provide an Age Pension and as we all know, and that can be pretty challenging to live off.
For people who’ve built up their super savings when they get to retirement, they can start a thing called a retirement income stream or an account-based pension with the super pump. And that will allow them to draw down on their super savings over time and give them a regular stream of payments.
JD: Isn’t there a certain amount that one must take from their superannuation fund if you’re over a certain age?
KR: Yes, so 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’s actually been reduced at the moment. So at a minimum it was four per cent for some of the younger retirees and that’s been reduced to two per cent at the moment.
KF: So the question around pension products is – a lot of people will get to retirement and go ‘oh, well I can take a lump sum so watch me do this’. But how should people think about whether they take a lump sum? Or they take a small lump sum and they turn the rest into a regular income stream?
KR: I think the key challenge for people at the moment is you’ve built up all this money and so what do I do? You don’t have to take it all out in cash.
Obviously, if you’re earning a very small amount on interest in the bank account, that might not be that much use to you. Even when you do retire, you’re probably going to need to live off your super for another 20 or 30 years. And so the super funds have set up products that allow you to keep those investments, you can get a little bit more conservative investment, but keep that exposure to say Australian and international shares over the long-term. And then draw that regular payment out into your bank account. But the reality is with cash at the moment, it’s very hard to keep pace with inflation, let alone build up your nest egg. So the super funds are there to help you draw down on your accounts over time.
KF: Super Ratings essentially reviews the performance of super funds. Provides information to super funds as well, but what you’re doing every tick of the clock is measuring how different funds perform. You’ve also measured their pension products.
KR: Yeah. So the really good news is that over the long-term for a lot of those long-term options, they’ve been returning about five per cent to seven per cent over the long-term in pension products.
And that’s a lot better than you’re getting in cash.
And so there are 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?
KF: How do consumers find answers to those questions?
KR: There are going to be two factors.
One is, rating firms – like ourselves – have lists on our site per the best rate for pension products.
Secondly, by looking and talking to your provider because you may not know what they’re offering you in that pension payment stream. So, about two thirds of funds now let you have a pension payment fortnightly, some will only let you get 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. So, it can be a challenge to get it so your pension is working for you rather than you having to be running around, trying to figure out how to make you work for your pension.
KF: Would you share who were the finalists in the best pension product of the year?
KR: Yeah, sure. So at a high level there are about 180 different account based pension products on the market. So there’s a bewildering choice and the reality is most funds will offer a pension.
One of the really interesting pieces of our research is learning that a key challenge for retirees is that they don’t actually know that a fund offers an account based pension, but the reality is just about everyone does.
That doesn’t mean all of them are as good as each other.
So from outside, the ones that have really shone through in recent years have been Australian Super, BUSSQ, which is a Queensland based fund. Cbus, Equip, HESTA, Sunsuper, Telstra Super which is only open to Telstra employees and their families. Uni Super which is there for the university sector, but not everyone can join. And Big Super look pretty good.
What those funds have been doing differently is they’ve had 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.
They make it easy for you to control your own money. It’s really funny that you’ve worked so hard all your life to build up that money, so hopefully your fund is good at helping pay that money back to you so you have the retirement you’re desiring.
The really fascinating statistic is how long does it take a pension provider to pay your one off payment? One of the questions earlier was ‘do you take out part of your lump sum?’ And the reality is there is going to be unsustained costs that come up from time to time.
And so does your provider allow you to get that $5000 or $10,000 withdrawal out when you need it? How quick and easy is it to get that withdrawal out?
Super funds are finally making sure they come into the 20th century on these things. But 80 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. So it can make a big difference when you really need access to your own money.
JD: I know that my fund actually pay me a monthly amount, which just comes in regularly, which is very, very handy.
KF: Well, people can budget and manage when they’re dealing with something regular. The thing that I think must be challenging is when the amount you have is low. So if say you’re on a full Age Pension, you may think, ‘oh, I’ll just take all of that in a lump sum’ But a lump sum is not as manageable as knowing that you’re getting say $300 a fortnight or whatever, as a top up.
So, it’s a very personal choice. In terms of advice, do all the funds you just mentioned, the finalists in the pension product of the year, do they all offer advice as well?
KR: Yeah. 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 of them will offer you comprehensive advice or they have referrals over to other advisors they’ve validated based on their qualifications and things like that, to be able to help you out.
Talking to your super fund can help demystify this a little bit. You can get help there with the advice piece, but 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.
KF: And the simple advice is have a look at your super, look at the balance and ring the fund and say, how do I maximise this? And put it back onto them to come up with some good ideas.
JD: Kirby, how can people know more from your side?
KR: So on the www.superratings.com.au website, we’ve got 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 it’s a top quarter of the industry, they get a platinum rating. And if they’re a finalist – that’s all shown on the website there, and we also have lowest fees and top returns across the number of different options that people can play around with there to try and make sense of it all. Look out for our top 10 part of the page.