The federal government’s proposed Retirement Income Covenant legislation, which outlines a pathway to develop the retirement phase of superannuation, overlooks the majority of retirees, according to a leading industry group.
In its submission to Treasury on the legislation, the Australian Institute of Superannuation Trustees (AIST) called for greater recognition for the majority of Australians who would retire on either a full or part Age Pension.
The consultation process for the Retirement Income Covenant closed on Friday, and the AIST submission said that the while the main focus of the legislation was encouraging retirees to spend their superannuation before they died, over the coming decades most retirees would not be passing on large super bequests.
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AIST chief executive Eva Scheerlinck reiterated her support for a flexible, principles-based Retirement Income Covenant but believed greater focus was needed on retirees who would not leave a large bequest.
“While AIST supports superannuation being for retirement rather than bequests, it’s important retirement income strategies recognise that there won’t be large numbers of Australians leaving significant bequests of unspent super,” Ms Scheerlinck said.
The submission explains that the legislation must balance the ‘need’ to have retirees spend their super, with the recognition that having adequate superannuation to spend is just as important.
“The implication of the position paper is that a retirement income covenant will translate into super fund retirement income strategies that encourage or require retirees to consume most of their superannuation before they die,” the submission reads.
“AIST agrees that a covenant should be structured to give retirees greater confidence to spend their superannuation. However, it should also be about ensuring retirees have adequate superannuation to spend in retirement based on their circumstances.”
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Ms Scheerlinck said the proposed legislation assumed that account-based pensions were inferior to annuities, which was not correct.
She explained that existing products, such as account-based pensions, would continue to provide the most effective retirement income stream for most retirees who had modest super balances rather than annuities and other longevity-type products, which are part of the covenant legislation.
“It would be fundamentally wrong to force retirees with lower account balances and possibly shorter longevity into products where they would effectively subsidise the retirement of those with higher account balances and higher than average life expectancy,” the submission states.
The AIST submission also calls for the government’s planned review of financial advice surrounding retirement income strategies in 2022 to be fast tracked, so it can work in tandem with the development of the covenant.
It also wants intra-fund advice to be expanded to include transition to retirement arrangements for members and their spouses, as well as including advice on optimising entitlements to social security benefits.
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The proposed legislation, which calls on super funds to collect and use member data such as home ownership to formulate a retirement income strategy, could also face problems as most of that data is currently not available to funds, Ms Scheerlinck said.
The AIST submission also said that retirees would feel more comfortable spending their superannuation before they died if they had confidence they would be looked after by government-provided safety nets.
“The government can best provide the confidence needed for retirees to spend their super by committing and clearly communicating that all Australians will be able to access quality health and aged care in the later years of their life and emphasising that the Age Pension will continue to provide a longevity safety net,” the submission stated.
Do you feel confident enough to spend your superannuation throughout your retirement? Why or why not? Why not share your thoughts in the comments section below?
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