Radical plan could revolutionise retirement

Three million Australians will hit the retirement button in the next decade, supposedly putting pressure on the public purse through the Age Pension and definitely putting pressure on aged care facilities already struggling with staffing and funding.

But … those factors aside, should it be easier to ‘retire’? Is retirement a minefield of uncertainties and concerns? A financial mire even after a visit to an adviser?

The Retirement Income Covenant, which took effect on 1 July last year, sought to ease retirement fears by “support(ing) retirees to have the confidence to spend their hard-earned savings, while enabling choice and competition in the retirement phase of superannuation”.

The markers of success on that front are not exactly thick on the ground, with regulators slamming super funds for neglecting retiring members.

A report last week from the Australian Securities and Investments Commission (ASIC) and the Australian Prudential Regulation Authority (APRA) was scathing in its findings on the progress made in the past year. It concluded that most super funds were falling short on developing ways to help members in or near retirement and had no concrete plans to address those failings.

But, finally, a good idea has surfaced. The boss of Australia’s biggest superannuation fund has come up with a plan that would help retirees through the financial mire.

AustralianSuper chief executive Paul Schroder accepts that the industry needs to do more, and urgently, describing retirement as “a frightening and complex moment for too many people”. But he says the current approach to retirement is piecemeal and needs funds, regulators and the government to work together to develop a better system.

Mr Schroder advocates a more holistic solution to deal with the burning issues of: Can I afford to retire? How do I have the best retirement possible?

“I think most of the other models have basically been designed around selling a financial product to someone rather than thinking about what’s going through that person’s mind,” he told the Australian Financial Review. “We’re not retiree-centric.”

He wants the super sector and the government to bring together retirees’ key sources of income: superannuation, the Age Pension and, potentially, equity in the family home. He says super funds could then offer a single retirement income payment to members from these combined sources.

“I want to give people more confidence to retire,” he says. “And then especially give them more confidence to spend more money. We should be moving from a world-class saving system to a world-class spending system.”

The AFR’s James Thomson explains Mr Schroder’s concept: “It might work like this. When a member approaches retirement, they could sit down and, with the help of their fund, examine their super balance, their eligibility for the Age Pension and other assets such as the family home, and consider their needs and goals in retirement.

“Based on the member’s circumstances and choices (around how much of their super balance they want to draw down and at what rate, for example), the super fund could then handle all the back-end work on behalf of the member (including handling the often painful process of applying for the Age Pension) and administer a single retirement income payment.”

Mr Schroder envisages concerns given the rules around financial advice, but says his plan could substantively work under the current system.

He says that presenting a retiree with information about the Age Pension, or their super balance drawdown options, and then leaving them to “choose their own adventure” doesn’t constitute advice.

“If you think about simplicity and quality at global scale, most people only need two or three choices. I think we’ve got to become consumer-centric for the bulk of the population,” he says.

Would you support this concept? Do you find – or expect to find – retirement complicated? Have your say in the comments section below.

Read also: How much you now need for a comfortable retirement