The three major legislative changes to superannuation are unlikely to be the ‘big bang’ needed to revolutionise the super system, according to Mercer’s David Knox.
Knox, senior partner at Mercer, discussed with Super Review the changes in the form of the Retirement Income Covenant (RIC), the objective of super and the higher taxes on $3 million super balances.
“The $3 million super balance tax will affect a few high-net-worth [individuals] and mean they pay more tax, but it won’t affect the average person,” Knox said.
“The objective of super is useful to provide income and dignity as an umbrella, but doesn’t drive policy.
“We pushed for the Retirement Income Covenant and think it will be good, but most of the population are in account-based pensions and I don’t think the RIC will change that.
“These are all steps in the right direction, but we are not there yet, there is nothing big on the horizon yet.”
He said there should be something mandatory that compels people to take retirement income although he was unsure what this would look like. This would prevent people from using their super as a form of estate planning that is not its intended purpose.
“I would like to see the government bite the bullet on compulsion. It wouldn’t be an instant change, it is something that could come in gradually,” Knox said.
“If we get this right then Australia can lead the world in retirement income in a defined contribution system.”
Mercer has previously discussed how a mandatory system would move Australia’s ranking higher in the global retirement system.
The 2023 Mercer CFA Institute Global Pension Index ranked Australia fifth out of 47 retirement systems. This was up by one spot from 2022. It scored Australia a B+ grade, behind the Netherlands, Iceland, Israel and Denmark that received an A grade.
Systems with a B+ grade were classed as those systems that have a system with a sound structure and many good features, but fall short of a “first-class and robust retirement income system that delivers good benefits, is sustainable, and has a high level of integrity” of the top-ranked countries.
“We still don’t compel Australians to take some of their super as an income stream. Retirees in A-grade systems receive regular income in retirement and are therefore encouraged to spend knowing that their income will never run out. This is not yet the mindset in Australia, where we know that many retirees are underspending,” Knox said.