SMC calls for clarity in retirement income system

Super Members Council has warned millions of Australians risk confusion in retirement unless rules are simplified and advice reforms accelerated.

The body representing Australia’s largest superannuation funds has warned that the retirement system has become overly complex, leaving millions of Australians at risk of confusion when making critical financial decisions.

In a submission to Treasury’s consultation on best practice principles, the Super Members Council (SMC) said the rules governing retirement income needed to be simplified to avoid overwhelming retirees with choices around super balances, age pension eligibility, investment returns, and withdrawal requirements.

SMC said that the principles outlined in the consultation paper were well intentioned, but required refinement to ensure they worked in practice for ordinary members. 

Acting CEO Georgia Brumby said complexity itself had become a barrier to confident decision making.

“For many Australians, the retirement system is too complex which can be a barrier to decision making,” she said. “Hardworking Australians need access to simple information, guidance and advice to increase their confidence in the retirement solution that’s right for them.”

The council has pointed to new research suggesting that retirees do not behave in line with assumptions made in Treasury’s paper. 

Data collected from three of the nation’s largest funds during 2023–24 showed that 63 per cent of retirees withdrew more than the required minimum, with younger and lower-balance members most likely to do so. SMC linked the trend to ongoing cost-of-living pressures.

The submission recommended that Treasury explicitly recognise the age pension as a central pillar of retirement income and allow trustees greater flexibility in designing pathways that reflect members’ diverse circumstances. 

It also urged the government to acknowledge lump-sum withdrawals and accumulation accounts as legitimate parts of retirement strategies, rather than exceptions.

Another priority is ensuring smaller super funds are able to adopt best practice approaches without imposing excessive costs on members. SMC said the aim should be a consistent system that remains accessible regardless of fund size.

The council has also stressed that timely access to financial advice remains the “missing piece in the retirement puzzle” and has called for the government’s delayed advice reforms to be legislated without further delay.

SMC confirmed it will publish a major report next month with new modelling and evidence on retirement income behaviour, which it said will support Treasury’s work on building more practical and effective principles.