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Remove lump sums and require pensions – lawyer
The Federal Government should consider legislating to require superannuation retirement benefits to be paid as pensions rather than lump sums, according to leading specialist superannuation barrister Noel Davis.
Writing for Money Management's sister publication Super Review, Davis said he believed such a move was necessary to ensure that superannuation benefits were actually applied towards providing retirement income.
"Under the current, largely lump sum regime, lump sums get spent, in many instances, in ways that have no relationship to retirement income including on holidays, house renovations, purchase of consumables, gifts to family members etc," he said. "The result is that retirees who have had superannuation benefits funded by employers end up receiving the aged pension and associated benefits, when they could have been living off a superannuation pension."
Davis said that at the same time, others invested lump sums in ways that resulted in investment losses — sometimes of the whole amount, with an example being a lump sum spent on acquiring a business that ends up in liquidation.
He suggested that trustees and insurers should also review the payment of total and permanent disablement benefits as lump sums, in circumstances where such amounts were spent quickly and not in a way to provide income to a person who could no longer work.
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The future of superannuation policy remains uncertain, with further reforms potentially on the horizon as the Albanese government seeks to curb the use of superannuation as a bequest vehicle.
Superannuation funds will have two options for charging fees for the advice provided by the new class of adviser.
The proposed reforms have been described as a key step towards delivering better products and retirement experiences for members, with many noting financial advice remains the “urgent missing piece” of the puzzle.
APRA’s latest data has revealed that superannuation funds spent $1.3 billion on advice fees, with the vast majority sent to external financial advisers.
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