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Government initiates superannuation overhaul to enhance retirement outcomes

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The consultation will build on financial advice reforms, with the aim to improve the retirement phase of superannuation to deliver a better retirement for more Australians, according to the government.

In a joint statement, Treasurer Jim Chalmers and Financial Services Minister Stephen Jones announced the release of a consultation and discussion paper on the retirement phase of superannuation.

“While there is recognition of super’s importance in building nest egg savings, there has been less attention on optimising its role in retirement. There’s a clear need for better information, support and well-rounded income products to help retirees make the most of their super,” the statement said.

“We want to ensure super delivers on its foundational promise of providing a dignified retirement for more Australians.”

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The discussion paper seeks to enable this by examining three key areas: supporting members to navigate the retirement income system; supporting funds to deliver better retirement income products and services; and making lifetime income products more accessible.

The discussion paper also includes specific mentions of the role advice plays in retirement and cites the Retirement Income Review from 2020, which found that the complex retirement landscape is made more challenging when individuals lack access to the information and guidance they need or have trouble comprehending it.

“Around a quarter of people seek advice as they approach retirement age,” the paper said.

“The review found that a lack of assistance, guidance or advice, low financial literacy, and inherent complexity makes it hard for people to make well-informed choices about their retirement income.”

Moreover, the consultation paper touches on the government’s response to the Quality of Advice Review, and details some of the mechanics that will be part of the upcoming second tranche.

“Separately, the government has committed to expanding the provision of advice by superannuation funds through its Delivering Better Financial Outcomes package,” the paper said.

“This would include ‘nudges’ that allow funds to communicate basic information about retirement to members at certain ages or times during their working lives before they reach retirement, for example at ages 50 and 55, and checking in throughout retirement.

“It would also support the use of digital tools provided by superannuation funds such as calculators and retirement income projections.”

The paper added that it would also focus on some of the “additional actions that would build on this financial advice package to improve the member experience during, and in transition to retirement”.

“This might include basic factual information, education, or information produced by government,” it said.

While the paper noted that “assistance through advice and guidance is one way that funds support members”, adding that this will continue to play a role, it also acknowledged that there are limitations to the effectiveness of advice without improved retirement products.

“The government is already acting to expand access to retirement income advice for members through their superannuation fund, as part of the Delivering Better Financial Outcomes package,” the paper said.

“However, advice has its limits if retirement income products are not available to meet members’ needs. Funds need to provide well-rounded products that are appropriate for the complex risks and decisions members face, and that balance all three of the retirement income covenant objectives.

“The approach funds take will also need to recognise that some members will not be proactive or seek advice, and their retirement income interests must also be upheld.”

Additionally, Mr Chalmers and Mr Jones said that funds need to do more to understand their members’ retirement needs and provide products and services tailored for their retirement.

“We also recognise there is a role for government and regulators in creating an environment that supports these changes.”

Back in August, InvestorDaily’s sister brand, ifa, learnt that Treasury was planning to release a consultation paper to strengthen the accessibility of retirement products, a paper which would canvass problems with financial advice, among other things.

“Half of retirees draw down the minimum and, on average, people who draw down the minimum will still have about a quarter of their super remaining when they pass on,” Dr Jim Chalmers said on a roundtable hosted by The Australian Financial Review at the time.

Commenting on the government’s intention to probe Aussies’ unwillingness to spend their super, chief executive officer of the Financial Services Council (FSC) Blake Briggs said at the time: “Eight hundred Australians are retiring every day, and the government is right to prioritise action to make sure these consumers can choose from a range of products consistent with superannuation’s promise of delivering income for a dignified retirement.

“The retirement income covenant requires superannuation funds to formulate strategies to optimise retirement outcomes for members, however, the FSC believes this framework will be more successful if the government removes regulatory barriers that are inconsistent with the covenant.”

Submissions to the consultation are open until 9 February 2024.

Vanguard applauds consultation

Responding to the government’s announcement on Monday, Vanguard Australia said it welcomes the consultation.

Managing director of Vanguard Investments Australia, Daniel Shrimski, said: “While Vanguard Super is a new superannuation fund, as the US market leader in target date funds, improving retirement outcomes for individuals has been a focus for The Vanguard Group from early on”.

“Retirement is a critically important but complex phase of life for many Australians. The individual circumstances, needs, and preferences of retirees can vary widely and involve factors both inside and outside the retirement system.

“This complexity can deter Australians from adequately planning for their retirement, or worse, disengage them entirely. This is concerning – we know from recent Vanguard research that planning and preparation are the keys to a successful retirement, with Australians who have a detailed retirement plan six times as confident as those who don’t.”

Mr Shrimski added that it’s imperative for the remaining advice reforms, aimed to increase accessibility and affordability of financial advice, to progress as soon as possible.

“Australia’s super industry on the whole to improve retirement outcomes and better ensure Australians are retiring confidently. We look forward to contributing to this important consultation and continuing our own efforts to drive the best possible retirement outcomes for Australians.”

Government initiates superannuation overhaul to enhance retirement outcomes

The consultation will build on financial advice reforms, with the aim to improve the retirement phase of superannuation to deliver a better retirement for more Australians, according to the government.

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Maja Garaca Djurdjevic

Maja Garaca Djurdjevic

Maja's career in journalism spans well over a decade across finance, business and politics. Now an experienced editor and reporter across all elements of the financial services sector, prior to joining Momentum Media, Maja reported for several established news outlets in Southeast Europe, scrutinising key processes in post-conflict societies.

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