Driving focus to the retirement phase of superannuation has been termed the government’s ‘next frontier’ following findings of the government’s 2023 Intergenerational Report, with the Treasury to look into incentivising spending and improving retirement income products.
As outlined in the 296-page report, as balances increase, super will become the primary source of retirement income for many future retirees. Drawdowns are estimated to rise from around 2.4 per cent of GDP in 2022–23 to 5.6 per cent of GDP in 2062–63.
Meanwhile, the proportion of people with accounts in the retirement phase, from which they are drawing a superannuation pension, will increase from 8 per cent in 2022–23 to 19 per cent in 2062–63.
The total number of Australians of pension age and over is expected to stand at some 9 million by 2062–63, however, the proportion of those who will receive a government pension or other income support payment will decline around 15 percentage points by 2062–63.
“This reflects a shift towards superannuation as a key source of retirement income and the role of the superannuation guarantee in reducing reliance on the age pension,” the report stated.
Spending on government age and service pensions is projected to fall from around 2.3 per cent of GDP in 2022–23 to 2 per cent of GDP in 2062–63.
In a National Press Club address, Treasurer Jim Chalmers said: “I think the next frontier for us, working closely with [Minister for Financial Services] Stephen Jones and with other colleagues, is to put as much attention into the retirement phase of superannuation as we’ve been putting into the accumulation phase.”
He flagged that a big challenge to be addressed was an absence of literacy and options when it came to retirement products in the drawdown phase.
“People are more frugal than they need to be; they’re more conservative than they probably want to be because there is what the experts call this longevity risk in the superannuation system,” Chalmers said.
Before the end of the year, he remarked the Treasury would try to shape some policy development around retirement income products.
Chalmers added: “Super is one of the big national advantages we have, but it’s not perfect. We need to keep working to try and perfect it and one of the things that we will turn our mind to, Stephen and I and the team, will be in that retirement phase.”
The ‘maturing’ superannuation system, with around 17 million Australians collectively owning around $3.5 trillion in superannuation assets, is expected to continue to grow strongly over the next 40 years.
The Financial Services Council (FSC) has welcomed the announcement to strengthen the accessibility of retirement products.
“Eight hundred Australians are retiring every day, and the government is right to prioritise action to make sure these consumers can choose from a range of products consistent with superannuation’s promise of delivering income for a dignified retirement,” said Blake Briggs, FSC chief executive.
“The Retirement Income Covenant requires superannuation funds to formulate strategies to optimise retirement outcomes for members, however the FSC believes this framework will be more successful if the government removes regulatory barriers that are inconsistent with the covenant.”
Industry Super Australia (ISA) stated that protecting the system with a legislated objective of super that puts preservation at its core is “the key to ensuring the super system can deliver on the IGR’s future projections.”
Deputy chief executive, Matt Linden, said: “While super is still maturing, it is beginning to live up to its promise of delivering a better standing of living in retirement and removing the burden of paying for it by taxing our children and grandchildren.
“With growing balances and more Australians reaching retirement age, there is a focus from the industry to ensure super continues working for members once they themselves stop working.”
The super system is also an important source of financing for the investments needed to lift economic productivity and to ensure intergenerational fairness, said the Association of Superannuation Funds of Australia (ASFA).
It believes further improvements to superannuation policy settings are still needed to ensure that the greatest number of Australians possible can have a comfortable and dignified retirement.
“Many young Australians need to catch up with their retirement savings after emptying their superannuation accounts through the COVID-19 early release arrangements. ASFA has put forward proposals that would particularly assist young people and women more generally,” it stated.
“These include raising the upper income threshold for the payment of the low income superannuation tax offset (LISTO), SG being paid in regard to parental leave, and greater superannuation coverage of gig economy workers.”
