Lump sum mentality 'overblown'

The problems of Australian retirees accessing superannuation lump sums and having a "lump sum mentality" have been "overblown", according to Vanguard head of market strategy and communications, Robin Bowerman.

Writing this week, Bowerman pointed to the findings of a recent Productivity Commission report to substantiate his claims that the issue had been overblown and urged the Government not to inappropriately react to the misconceptions around lump sums.

"For the super industry and government policy makers the so-called ‘lump sum mentality' has centred on the notion that – left to their own devices – fund members will squander the lump sum when they retire and along with it the government's tax concessions when they fall back onto the age pension to fund their lifestyle," he said.

"However, the scale of the problem with retirees taking lump sums … seems has been over blown within the industry," Bowerman said.

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Pointing to the Productivity Commission report he said that when lump sum withdrawal amounts were analysed a clearer picture of investor behaviour appeared with the vast majority of the lump sums being taken by people with low account balances – typically those with less than $10,000 in super.

"Where account balances are that low – and we need to remember that people retiring in recent years have not had the benefit of super for a big portion of their working lives – then taking the lump sum is certainly not an abuse of the system but rather an entirely rational decision in the circumstances."

Bowerman said a key finding from the PC report was that the vast majority of super fund members with sizeable balances- i.e. above $100,000 – were making sensible and conservative decisions in terms of retirement income draw-down options rather than taking lump sums.