Retirement system should be fairer and simpler

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The federal government has released its Retirement Income Covenant position paper, which aims to codify the obligations of super fund trustees to improve retirement outcomes.

In response, the Actuaries Institute has issued a major public policy review calling for the retirement system to be fairer, simpler and more efficient.

It says "carrots and sticks" should be used to encourage efficient use of lifetime savings and the role of guidance and advice should be enhanced.

retirement income review retirement should be easier

"The 'three pillars' of compulsory superannuation, the age pension and voluntary savings mean that individuals are required to make complex choices about how much to save and consume, and how to invest," says Elayne Grace, the institute's chief executive.

"We support simplifying age pension means testing, improving the interaction between the retirement income and aged care systems, encouraging innovation in retirement products, and developing best practice in the provision of financial advice and guidance," she says.

"We would also like to see structural changes such as the removal of disincentives for older Australians who want to continue to work, and greater flexibility for the role of the family home in retirement income provisioning."

The extensive policy document also considers: the level of the superannuation guarantee in the context of overall retirement adequacy; greater flexibility for the role of the family home in retirement income provision, coupled with its inclusion (above a certain threshold) in the age pension means test; and greater support for renters for whom super and the age pension can fall short.

It says the low savings balances of women, typically 40% lower than men, must also be addressed. Gig workers, and other self-employed workers who may miss out on super entirely, should be considered.

The institute argues that super should be paid on paid parental leave and properly considered in divorce settlements.

"Equity would also be improved if workers received the SG they are entitled to at the same time their wages are paid. Overtime should be included when calculating the SG rate," says Grace.

It also strongly supports continued development of lifetime retirement income stream products:

"Incentives that encourage retirees to take part of their super as a lifetime income stream (annuity) and disincentives for those who want to leave large bequests from super," she says.

Melissa Birks, general manager, advocacy, at the Australian Institute of Superannuation Trustees says funds are continuing to develop retirement strategies for their members, recognising that more 
of them are moving into retirement but that not all their needs or circumstances are the same.

"Personal circumstances such as whether they are partnered, own their own home as well as their superannuation balance all contribute to designing an appropriate strategy.

"While longevity risk is a consideration, retirees also need some flexibility in accessing their savings and so there is no 'one size fits all' and fund retirement products and strategies will reflect this," says Birks.

"Right now, allocated pensions are the most popular product but there is always room for further innovation."

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Vita Palestrant was the editor of the Money section of The Sydney Morning Herald and The Age. She has worked on major metropolitan newspapers here and overseas and has won several prestigious journalism awards including the 2001 Citigroup Award for Excellence in Journalism, Personal Finance Category.