The federal government should be providing greater levels of assurance the pension system will remain a central part of the retirement income system to overcome the current reluctance of retirees to drawdown on their savings, according to a retirement researcher and academic.
Centre of Excellence in Population Ageing Research co-deputy director Hazel Bateman said a lack of awareness of retirement income options, concerns about the future and a lack of government messaging had led to a situation where it appeared many people were maintaining their superannuation and pension to create a bequest.
“We shouldn’t be surprised at all that people are drawing down slowly and appearing to want to leave large bequests because if we look at the system, the account based-pension is like the effective default,” Bateman said during a panel session at the recent Council on the Ageing Australia National Policy Forum 2021 in Canberra.
“Think of an individual getting close to retirement. I look on my super fund’s website and I see this thing called an account-based pension. I don’t see any other products on the menu so I take the account-based pension and tick the box for the minimum drawdown or to take a lump sum.
“People don’t know any different and because this is a mandatory policy and the government has set these drawdown rules, many people think of this implied advice that this is what I should draw down.”
She said the lack of government-supplied information about other options, such as the pension loan scheme or reverse mortgages, meant retirees would continue to use the minimum draw down rates at the same time they remained concerned about their long-term future.
More than 15 years of research and surveys had found many people did not think they would receive the age pension for life and among those who stated they would spend slowly, or even save, in retirement, their main concern was uncertainty about health and aged-care costs, and bequests were ranked last, she said.
“We need to give people confidence to spend down and I think this is a government responsibility,” she said.
“The government needs to give people confidence that they can spend down out of their savings. They need to give people confidence that the age pension is going to be there in the future as the building block of their retirement income.
“They need to tell people about the other forms of support that are going to be there, that the government is going to provide and need to help people understand the different products and strategies that they can use.”
She added retirement income should also be framed in terms of replacement rates of working-age income as done in other pension-paying nations.
“If you talk to the Dutch, they talk about the replacement rate they see in their pension annual statement and in Australia we don’t do this at all,” she said.
“We need to talk about replacement rates and income from the very beginning and not about pension pots.
“We’re going to be helped here if we have income projections in member statements, but also in the accumulation phase and when people get benefits, start putting income projections in their benefit statements as well, so they can understand how much I actually can draw down.”
