A lot of us older Australians are luddites when it comes to many aspects of life, pushing back against change.
Most would probably change their tune quickly, though, if it meant more money in their super accounts. The research suggests that modernising super products could deliver a huge financial boon to retirees.
If you’ve already retired, though, here’s just one small hitch – the process of modernising super will benefit future retirees. According to the research, Australians retiring in 2050 could be collectively $16.5 billion better off with the change.
This, in turn, would lift their collective retirement income by $22 billion during their retirement.
CEO of the Financial Services Centre (FSC) Blake Briggs says more than 1.8 million customer accounts would benefit. The FSC released the research results last week. “There is $132 billion invested in superannuation and investment options that could benefit from modernisation.”
Modernising super – what does that mean?
While the term ‘modernising super’ might evoke thoughts of robots or artificial intelligence, the truth of it is more straightforward. The research report, produced for the FSC by Ernst and Young, provides a clear definition in its executive summary.
“Modernisation: Rationalisation of products and investment structures in a pragmatic and efficient manner by Trustees (Responsible Entity or Responsible Superannuation Entity) in the best interests of members/investors.”
So in this context the term means making super more efficient.
In a statement accompanying the release of the report, the FSC said the report builds on current federal government policy.
“Product modernisation is also the natural extension of the government’s Your Future, Your Super reforms,” the media release says. Many consumers stranded in ‘historical products’ cannot be moved out of them due to government-imposed tax and regulatory barriers.
The key to modernising super is the identification and removal of these barriers, according to the FSC.
“The FSC supports performance testing of superannuation products,” says Mr Briggs. “However, flaws in the current design of the Your Future, Your Super framework is having adverse consequences for consumers.”
Could this be a win-win solution?
In many aspects of life, the existence of winners implies a corresponding existence of losers. But according to the new report, the process of modernising super would benefit both the federal government and its people.
Mr Briggs says eliminating the Your Future, Your Super framework flaws would benefit all parties.
“A product modernisation regime would support the government’s fiscal position.”
A bonus of this approach would be “lowering government Age Pension outlays and raising new tax revenue by almost $1 billion in the next decade”. This could be achieved without having to raise new taxes on superannuation consumers, Mr Briggs adds.
However, the process of modernising super would require the removal of tax penalties currently applied to those moving from legacy accounts.
“The FSC encourages the government to act to protect consumers from being trapped in underperforming products that APRA has publicly identified,” said Mr Briggs. This can be achieved “by implementing a product modernisation framework that allows superannuation trustees to transfer consumers to modern products”.
The full report can be accessed via the FSC website.
Are you ‘trapped’ in an underperforming super fund? What do you think of the modernising super concept? Let us know via the comments section below.
Also read: Superannuation systems: how does ours rate?
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