The superannuation minister has said the superannuation discourse needs to pivot to how members spend rather than accumulate savings, as the July deadline for increasing mandatory super contributions rate creeps closer.
Jane Hume, Minister for Superannuation, Financial Services and the Digital Economy has echoed colleague Treasurer Josh Frydenberg, who had earlier declared that the government is mulling over freezing the superannuation guarantee rate at 9.5 per cent, rather than continuing with its legislated increase to 10 per cent in July.
The hotly contested increase for mandated super contributions would come out of workers’ wages, Ms Hume argued in an address to the National Press Club, which could see workers spend less over their lifetimes and forgo benefits such as paying off a home.
“We have to make considerations for our current workers, who are the future retirees,” Ms Hume said, in an address at the COTA (Council on the Ageing) Australia’s National Policy Forum on Friday.
“This is the point that the superannuation lobby never mentions, ever-increasing amounts of superannuation contributions for your future retirement savings come at the expense of slow wage rises in your working life.”
The RBA, Grattan Institute, Treasury and the Retirement Income Review have all argued a higher SG rate would come at the cost of workers’ wages.
While Liberal backbenchers have also raised doubts around whether the increase should proceed, players at the top, such as Minister Hume, Treasurer Frydenberg and the Prime Minister have only more recently begun to reveal their wavering on the path of the rate. But the party is yet to confirm a freeze.
“The Prime Minister has consistently noted that the planned increase in SG to 12 per cent is already legislated and if there was a decision to change that it would be much, much closer to the time, in the context of the economic circumstances of the time,” Ms Hume said.
The Retirement Income Review concluded that retirees would benefit more from spending their retirement savings efficiently rather than an increased contribution rate.
For Ms Hume, the industry is set to hit a tipping point where it is set to have as many dollars being dispersed in the decumulation phase as there are being collected in the accumulation phase.
The government, superannuation funds and retirement income providers, she said, need to push for flexible retirement income stream products, as well as improved understanding and confidence.
The Retirement Income Covenant will require trustees to develop a retirement income strategy for members and to provide guidance. It was proposed in 2018 and scheduled to roll out in 2020, before the legislation process was delayed through COVID-19.
From July 2022, funds will also need to begin offering Comprehensive Income Retirement Products (CIPRs), an annuity-style product that is supposed to provide a steady stream of income to members throughout their retirement.
“The private sector can better innovate and develop flexible products, an area that we’re seeing a significant uptick in, in fact you’ll hear some announcements next week,” Ms Hume said.
“The government needs to create an environment that encourages that market to develop retirement income products, and provide guidance to deliver better outcomes for members.
“Increased access to retirement income stream products will play a role in managing longevity risk, in particular, by paying a regular income stream, giving people greater confidence to spend their time and savings.”
The goal is to overcome low rates of financial literacy, to give retirees the confidence to spend their savings, rather than drawing down on the interest earned on their superannuation.
“Many trustees are already taking action in this area and those that are ahead of the curve should rest assured that the covenant will be principles-based and not prescriptive,” Ms Hume said.
“With proper accountability and frameworks, trustees of super funds are best placed to manage their funds and develop the best products for their members.”
But the products will not be prescriptive, the minister insisted.
“It’s not about forcing retirees, whether they be current or future, to draw down on their savings through rigid policy settings that restrict choice and restrict agency,” Ms Hume said.
“This is about navigating the barriers that are preventing people from doing so right now, which more often than not come down to fear and inaccessibility.”
Sarah Simpkins is a journalist at Momentum Media, reporting primarily on banking, financial services and wealth.
Prior to joining the team in 2018, Sarah worked in trade media and produced stories for a current affairs program on community radio.
You can contact her on [email protected].