The latest industry research examining the drawdown phase of superannuation has shown an adjustment to the spending habits and attitudes of Australians could increase their retirement income by 10 per cent or $397 billion by 2050.
The study, conducted by NMG Consulting on behalf of the Financial Services Council (FSC), proposes a different approach to the use of superannuation benefits during an individual’s retirement years that would potentially raise living standards, reduce the amount of money passed on to subsequent generations and ease the need for government spending to support this cohort of Australians.
Specifically, the report recommends three changes to the current superannuation system that will enable this end result.
The first of these is to change the mindset of individuals so their superannuation benefits are used primarily for spending during retirement. A key to achieving this aim would be to make financial advice more accessible and affordable.
The second is for the government to remove barriers hampering the development of innovative retirement income products. According to the study, this would involve implementing a simpler process allowing people to move out of closed legacy products and improving disclosure requirements, which would enable consumers to properly compare product features and fees.
The final key proposal is for simplifying how the superannuation system interacts with the age pension, aged care and healthcare.
“A retirement system that is designed around the needs of retirees, providing them the products and advice they need at retirement, and encouraging them to enjoy their savings in retirement will enhance the long-term sustainability of the superannuation system and take pressure off future tax settings,” FSC chief executive Blake Briggs noted.
“The FSC’s research shows that if our road map was implemented, annual benefits paid out by superannuation as retirement income would be 10 per cent higher each year, increasing to $38 billion more per annum by 2050. The higher income paid to retirees would total $397 billion by 2050, when compared to current policy settings.”
The research also indicated the suggested new direction would halve the amount of retirement savings left as a bequest by 2060 and on average 100,000 more people would draw down an additional $100,000 of retirement income annually.
“Realising the superannuation system’s potential to maximise living standards in retirement and higher retiree spending would take the load off a federal budget with a 2 per cent structural deficit partly due to increasing health and aged-care pressures that could be better met from individual savings,” Briggs noted.
