Small balances to be key focus of CIPR proposals

9 August 2018
| By Nicholas Grove |
image
image
expand image

Small balances remain “stubbornly persistent” within Australia’s superannuation system and how such balances will be handled under the proposed comprehensive income products in retirement (CIPR) regime is one of the key issues to be addressed as this policy initiative develops, according to Willis Towers Watson.

Willis Towers Watson head of retirement solutions Australia, Nick Callil, said that even 25 years after the commencement of the Superannuation Guarantee (SG), accounts at retirement age remain skewed towards small balances.

And given the high incidence of small balances within the system, Callill said it is not surprising that some funds have met an initiative to promote the conversion of retirement balances to income streams with some hesitation.

However, he said there are good reasons why this policy makes sense to pursue – even among funds with a large presence of small retirement accounts.

“First, many low balances arise due to individuals holding multiple accounts, which tend to be consolidated as they near retirement and engage more closely with their savings,” Callil said.

“Second, it is arguable that even low balance retirees can benefit from gradually drawing their retirement savings in income form, notwithstanding that their overall retirement income will be predominantly sourced from the government age pension.”

Lastly, Callil said any policy development should recognise that the system continues to grow, or that the lengthy lead time in implementing change in this area means that retirement account sizes will be higher than current statistics indicate by the time CIPRs come into effect.

Notwithstanding these arguments, he said the proposal to require funds to offer CIPRs needs to acknowledge that, at low account sizes, the age pension will provide a guaranteed, inflation-protected lifetime income stream which will form the majority of a retiree’s income in retirement. 

Read more about:

AUTHOR

Recommended for you

sub-bgsidebar subscription

Never miss the latest developments in Super Review! Anytime, Anywhere!

Grant Banner

From my perspective, 40- 50% of people are likely going to be deeply unhappy about how long they actually live. ...

1 year 1 month ago
Kevin Gorman

Super director remuneration ...

1 year 1 month ago
Anthony Asher

No doubt true, but most of it is still because over 45’s have been upgrading their houses with 30 year mortgages. Money ...

1 year 1 month ago

Global X believes the yellow metal could soar as high as US$3,000 this year, with market flows leading the charge....

3 days 22 hours ago

While Australian companies could face starkly different climate-related reporting regimes depending on which way the election swings, a sustainable investment specialist ...

3 days 22 hours ago

The Association of Superannuation Funds of Australia (ASFA) is calling on the federal government to focus on measures in the upcoming budget that will improve fairness fo...

3 days 22 hours ago

TOP PERFORMING FUNDS