Reforms could see retirees enjoy more of their superannuation savings sooner

Apr 11, 2023
Proposed reforms to superannuation could improve the quality of life for retirees. Source: Getty Images.

The Financial Services Council (FSC) has introduced a set of proposed reforms that could potentially provide retirees with easier and quicker access to a larger portion of their retirement income.

Research conducted by FSC showed that policy reform could boost retirement incomes by 10 per cent each year, take pressure of the budget, and improve the quality of living for retirees.

CEO of the FSC Blake Briggs said the council’s research “demonstrated how we can optimise the superannuation system to allow Australian retirees to confidently draw down $397 billion more in retirement income by 2050.”

“A retirement system that is designed around the needs of retirees, providing them the products and advice they need at retirement, and encouraging them to enjoy their savings in retirement, will enhance the long-term sustainability of the superannuation system and take pressure off future tax settings,” Briggs said.

“The FSC’s research shows that if our road map was implemented, annual benefits paid out by superannuation as retirement income would be 10 per cent higher each year, increasing to $38 billion more per annum by 2050. The higher income paid to retirees would total $397 billion by 2050, when compared to current policy settings.”

The proposed reforms have a concentrated focus on three key areas of action:

  • To help people see and use superannuation as primarily for spending during retirement, including making safe financial advice more affordable and changing consumer disclosure rules to have a more drawdown focus.
  • To remove regulatory barriers to innovative, new retirement income products, including facilitating a simple process for moving consumers out of closed legacy products, reviewing the flexibility of prudential capital requirements and introducing a disclosure regime to allow consumers to easily compare retirement product features and fees.
  • To help people take control of their superannuation by simplifying how it interacts with other parts of the retirement system like the aged pension, aged care and health care.

FSC’s research also found that on average, an additional $10,000 in retirement income per individual annually could be withdrawn, resulting in approximately 100,000 more people benefiting from this increase.

“Realising the superannuation system’s potential to maximise living standards in retirement and higher retiree spending would take the load off a Federal Budget with a 2 per cent structural deficit partly due to increasing health and aged care pressures that could be better met from individual savings,” Briggs said.

The possible financial lifeline being offered to retirees comes shortly after the Association of Superannuation Funds of Australia (ASFA) Retirement Standard found that the rising cost of food, fuel, and electricity prices mean that couples aged around 65 now need $69,691 per year to achieve a comfortable retirement and $49,462 for singles.

Both retiree budgets rose another 2.5 per cent in the final three months of 2022.

Over the past year, retirees have experienced substantial price hikes for essential goods like food, electricity, and automotive fuel.

The spending categories that have seen the most significant annual price increases include:

  • Food: 9.2 per cent
  • Bread: 13.4 per cent
  • Meat and seafoods: 8.2 per cent
  • Milk: 17.9 per cent
  • Electricity: 11.7 per cent
  • Automotive fuel: 13.2 per cent

“Unfortunately, Australians continue to face sharp price increases for essential goods and services,” ASFA CEO, Dr Martin Fahy said.

“Additionally, for retiree households, falling real wages have meant that the Age Pension payments have not benefitted from adjustments linked to wage increases.”

The current financial challenges faced by retirees have also resulted in an upward revision of the superannuation lump sums required to fund a modest or comfortable retirement until the age of 92, according to the latest estimates from ASFA.

For a single retiree, ASFA now calculates that a lump sum of around $595,000 is necessary to sustain a comfortable retirement, representing an increase of approximately 9 per cent from the previous figure of $545,000. Similarly, for a retired couple, the estimated lump sum required has increased by about 7.8 per cent to $690,000, up from the previous estimate of $640,000.

The recent increase to age pension payments is expected to offer some respite from the financial constraints felt by millions of retirees who have been grappling with the mounting expenses of daily life.

Those on the age pension were among the over 4.7 million Centrelink recipients that received a boost to their social security payments on Monday, March 20, 2023.

Those who receive the Age Pension, Disability Support Pension, or Carer Payment received a fortnightly boost of $37.50, while couples together will receive an additional $56.40.

The maximum fortnightly rate of pension increased to $1064 for singles and $1604 for couples, including Pension Supplement and Energy Supplement.

IMPORTANT LEGAL INFO This article is of a general nature and FYI only, because it doesn’t take into account your financial or legal situation, objectives or needs. That means it’s not financial product or legal advice and shouldn’t be relied upon as if it is. Before making a financial or legal decision, you should work out if the info is appropriate for your situation and get independent, licensed financial services or legal advice.

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