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Australian Retirees and Superannuation

Super is not Simple, and neither is managing Retirement. Super funds are failing retirees.

This is an opinion piece, which follows directly from having recently attended a pre-retirement seminar run by Australia's largest superannuation fund, AustralianSuper.

Firstly, in general, it must be said that Australia's superannuation industry has been a stunning success, if you simply focus on funds under management and investment returns. However, it can be argued that this was the simplest phase, with an almost singular focus on the investment of a "golden river" of super contributions.

However, the tide is beginning to turn, with many superannuation members now reaching retirement age and focusing on how super can provide income during retirement. With few exceptions, their concern is largely whether they have enough money to last them through what is an unknown period of time, perhaps beyond 30 years. These individuals are faced with what is an undeniably complex system, as a consequence of which many simply decide to take an account based pension, live on the minimum drawdown requirements and "hope it lasts" - knowing that the age pension provides some form of safety net.

Is this the best or most optimal approach, sometimes ... but often not. Instead, as we have said for many years, and this is just being realised in the wider environment - it means that retirees become extraordinarily conservative in terms of their spending, concerned to ensure that they have enough funds to meet future costs, such as entry into retirement accommodation or medical bills. They then often die with their superannuation largely intact, not having enjoyed themselves as much as they should, and with the funds passed on as inheritances. This is extraordinarily costly for both the individuals and the wider economy.

And the comment needs to be made that superannuation funds broadly, with few exceptions, have been far too slow to pivot towards assisting members in retirement - look at the ponderous response to their obligations under the Retirement Income Covenant.

Having made some attempt to explain the problem, or challenge, how do we think things might be improved?

Financial Education

Given the yawning lack of experienced advice available to retirees, which is part demographic in origin and partly a consequence of both government inaction and overreaction, the focus needs to be on fundamentally improving the financial knowledge and capacity of retirees - and this should not simply occur in the year prior to retirement, as often seems to be the case.

Almost regardless of how competent any presenter is at a pre-retirement seminar, they are weighed down by the relatively short time available and the complexity and relative "dryness" of the subject matter. The only way this can be addressed is to put the knowledge and training in a personal context - simply speaking to crowds of 30 or 40 people does little in practice but "tick the compliance box" - regardless of the 9/10 scores provided by grateful attendees.

In principle, there is no reason why training of this nature to a much higher quality can't be provided through an online training program based around people's individual circumstances - moderated if possible. And while I might find it tempting to suggest that this education should be a requirement for accessing super, that probably wouldn't fly ....

And no, this is not the "robo advice" you may have read about - which is almost entirely focused on investment advice - and nor should we allow comments about the "potential of AI" , to provide an excuse for continuing inaction by super funds. The training program needs to be able to explain the interface between superannuation, Centrelink in terms of pension access and taxation - particularly given that more people are working in retirement. Complicated, yes - but not impossible. The real challenge is to achieve the maximum level of simplicity with the maximum level of retentive information. And access to the education facility should be lifelong, not confined to pre-retirement.

Is this going to cost a bit of money, the answer again is yes. However, we are talking about a multi-trillion dollar industry and it makes no sense for the various superannuation funds to compete on basic member education - they should compete on product, returns and service. Education should be addressed on a cooperative basis, perhaps by an independent foundation supported by the super funds.

Financial Advice

There is simply an inadequate number of experienced financial planners in Australia capable of providing retirement advice, particularly in relation to more complicated matters, and the cost of advice has risen significantly in recent years, largely on the back of increasing compliance requirements.

There is now a realisation – it has been extraordinarily slow - that the compliance regimes have put advice, particularly in relation to relatively simple matters, outside the reach of many in "middle Australia". That may be resolved to some degree by changes underway and by the provision of some advice by super funds, but there needs to be considerably more progress made considerably faster.

However, a criticism I would make of many retirees is that they adopt a "penny wise pound foolish" approach when it comes to advice. Even when it comes to the cost of advice prior to retirement around investments and structures over a period of 30 years, many are not willing to even pay 1% of their superannuation balance - preferring to "muddle through" for want of a better expression. That is not rational except in the simplest of circumstances and the focus needs to be not on the price, but on ensuring that any financial planning generates sufficient "value". And value in this context needs to extend beyond investment and tax efficiency, to "peace of mind" in terms of effectively managing their affairs.