Why the IPA is advocating for retirement reform

As anyone with retirement savings knows, superannuation funds offer plenty of advice – and spruik plenty of products – relevant to building a nest egg. 

However, when retirement rolls around, information is less forthcoming. 

The Federal Government has released a discussion paper, calling for industry and community to comment on the retirement phase of superannuation – and how services in this phase could better serve Australians.

“The problem is most retirees do not have access to the appropriate products to help them maximise their super over their lifetime,” Treasurer Jim Chalmers and Minister for Financial Services Stephen Jones said when announcing the consultation. 

“In fact, 84% of retirement savings are held in account-based or allocated pensions, with only 3.5% held in annuities. Unlike account-based pensions, annuities offer the option of receiving regular payments for life, regardless of how long a person lives.”

The IPA has submitted a response to the discussion paper, advocating for a system that will better serve consumers, with a focus on SMSFs. 

Such a system is simpler, has less red tape and allows for innovative product development. 

Further, it removes regulatory roadblocks, enabling accountants to provide affordable advice to their clients. 

Remove regulatory roadblocks so accountants can provide quality, affordable advice

Unlike the accumulation phase, the retirement phase requires retirees to make decisions with immediate consequences and without runway ahead to recoup any investment losses. 

These decisions involve variables such as superannuation balances, pensions and assets; and risks including the possibility of aged care and the prospect of outliving savings.  

Consequently, most retirees need financial advice. However, because regulatory roadblocks limit who can give such advice, accessing it is expensive. Retirees who can’t afford it simply go without. These are many.

The IPA submits that these roadblocks should be removed as soon as possible, so that accountants can advise their clients. 

Broadening the pool of advisers would give retirees more options and bring down costs. 

In previous submissions, including to ASIC, Treasury and the Review of the Tax Practitioners Board, the IPA has repeatedly recommended that accountants could, and should, help meet the financial advice needs of Australian consumers – particularly given the current shortage of advisers. 

Simplify and educate 

Before making decisions, retirees should understand a range of information, including:

• The complexities of trade-offs, such as drawing income earlier versus later, and boosting expected income versus limiting risk
• The impact of various factors, such as income requirements, health care and a partner’s assets
• How various factors interact, such as social security, aged care and income 

However, very little information is publicly available. 

The IPA submits that the Government should provide simpler, clearer and more accessible information. 

This might include an up-to-date checklist on the MoneySmart website (or similar resource) and a calculator, enabling retirees to explore various scenarios.

Innovate and incentivise product development 

As the discussion paper notes, the take-up of lifetime income products is low and the market is undeveloped. 

One of the problems is that many products, such as conventional annuities, are seen as expensive, inflexible and too-heavily regulated. 

It is the IPA’s view that, to be effective, products should be easy-to-understand, require uncomplicated regulation and provide access to capital as well as income. 

Hence, regulations should be relaxed, paving the way for both advisers and trustees of superannuation funds to develop products themselves, or in partnership with dedicated retirement income providers. 

Ideally, issuers of income stream products should be able to structure them to ensure the retiree receives appropriate value – and is not disadvantaged in terms of tax and social security law. 

The Government could take the lead in incentivising product development, by guaranteeing insolvency and offering long-dated assets, which a product issuer could use to match income stream liabilities. 

Hands off the regulation of SMSFs

SMSFs are already sufficiently regulated by the ATO and under the Superannuation Industry (Supervision) Act 1993 (SIS Act). 

It is appropriate that the retirement income covenant, set out in Sections 52(8A) and 52AA, does not apply to SMSF members. 

This is because members are themselves trustees, which means they have an inherent understanding of a member’s needs. They also usually receive financial advice. 

They consider how to make decisions about the retirement phase, particularly regarding the suitability of investments and access to capital, which must be considered as part of the existing investment covenant. 

There is no need for data collection, member segmentation or greater consumer protection for this segment – a new set of processes and regulations would increase the burden of compliance, resulting in costs to the consumer without proportionate benefit. 

A unique opportunity 

It is pleasing that the Government has acknowledged the urgent need for reform in respect of the retirement phase of superannuation.

The IPA is seizing this unique opportunity to call for less complex regulation, broadening the adviser pool to include accountants, and incentivisation and innovation in product development. 

A dignified retirement for all should be the priority – and this means equipping all consumers with the information they need to make the best decisions for their financial wellbeing.

Read the IPA’s response to the Retirement Phase of Superannuation Discussion Paper.