We received a question/comment from one of our community members recently that asked if the government was trying to change the rules in regards to super. They had heard that the government wants to stop lump sum payments of super and instead use it to pay a pension, and then only when we have used this pension we can qualify for the government pension. This is apparently to stop retirees from having overseas trip and making large purchases.
Let’s start at the beginning.
Remember your first year at work. I moved to Sydney from country NSW and my first job was in an office. On my first day I got an in tray and an ashtray! Everything was new and different. No more teachers, no more books, no more of anything I had become accustomed to over the last 13 years of institutionalised education. I went from year 12 back to kindergarten in one very small step. I remember making embarrassing mistakes and being very naïve. The great thing was that I had all the time in the world to get it right and get better at my job. I was ambitious and prepared to take on whatever challenges I faced. The point is, I had the advantage of time to make mistakes.
Fast forward to your retirement and it’s been many many years since you were that kid at his or her first job. The problem is the feeling of déjà vu. You look around and realise that everything you had become accustomed to over your working life has changed. The new rules that you have to navigate bear no resemblance to your working experiences and you are back to kindergarten again! The legislative rules are different and the rule of engagement are different.
So, back to our comment from one in our community. Take a deep breath and relax.
Former Commonwealth Bank CEO David Murray was commissioned to chair an inquiry into the Australian Financial System and provide some recommendations. This has been handed to the government in early December. Joe Hockey emphasised that this is not a government report and that the commission was independent in looking at some of the current and future challenges that we face.
The report recognised that people find it difficult to navigate the rules, that they don’t ask for, or have access to, enough high quality advice.
The report addressed, amongst other things, longevity risk in retirement savings. In other words, the problem of running out of money before you run out of time! The report went on to suggest that we could broaden the number of retirement income products available for retirees and also create a default to an annuity style income product upon retirement.
Essentially the report highlights that both our knowledge of how to manage retirement saving and our product choices currently negatively impact on our savings and result in some retirees running out of money.
The report recommends greater choice and that the “default” steers people towards products that provide sustainable income over time as opposed to lump sum products.
The government will be accepting further submissions until March 2015 and will respond to the report mid 2015.
So, to answer the questions specifically;
My final comment is that you should not wait for the results of an inquiry or new government mandated products to protect your retirement nest egg. A high quality financial adviser can assist in overcoming many of the challenges that the report has highlighted however this is a choice and one you have to make yourself. Look for an adviser that is “advice” focussed and not “product” focussed. If they start telling you what to buy before asking you what you need, leave the room!
Strategy is everything.
If this above government proposal was passed, would you be in strife? Do you have enough to fund your own retirement? Tell us your concerns below.