AustralianSuper proposes single super ‘account for life’

Australia’s largest superannuation fund has recommended the integration of members’ accumulation and retirement accounts towards providing members with a holistic view of their retirement income from different sources.

In a submission to Treasury, AustralianSuper has proposed an “account for life” to allow Australians the ability to “move seamlessly between work and retirement”.

This would ease the transition between the saving and spending phases, it said, and allow people over preservation age to draw an income from their super and recontribute concurrently.

It said as many as 20 per cent of its 3.3 million members, who receive a pension from their super savings, are still in paid work and that the transition from work to retirement is no longer an “off and on” transition.

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“Unfortunately, the key features of the superannuation system still reflect the outdated notion that the move into retirement phase is a permanent one. The most pressing example is that to begin drawing an income from their superannuation, members are required to establish a new retirement or pension account,” the submission explained.

“Some members are reluctant to set up a new retirement account as they feel this decision can’t be reversed; they’re unsure of their future status in the workforce or that they’re reluctant to acknowledge they are entering the final stage of life. This results in members having more than one account, with additional fees.”

With an account for life for both the contribution and drawdown phases, AustralianSuper believed members would “reap significant benefits”.

The fund also noted there are currently 1.6 million people aged 65 and over receiving income from a super product and called for reform to allow super funds to assist members to apply for the age pension and improve integration between super and age pension income streams.

It recommended the tax structure be changed to allow people to draw an income over preservation age and recontribute to their superannuation savings if they choose to work.

“As the relationship between work and retirement evolves, many members are telling us they are struggling to navigate the complexities of a fragmented system, where the interplay of income from multiple income sources, be it from work, government benefits or private savings, is challenging to manage,” explained the fund’s chief officer retirement, Shawn Blackmore.

“Many AustralianSuper members are telling us that they want flexibility and simplicity in the retirement income system as they define what retirement looks like for them and have confidence as they enjoy this next stage of their lives.”

Around 63 per cent of the population aged 65 and over receive income support payments, predominantly the age pension, AustralianSuper observed, and research suggests less than half of people apply for the government age pension immediately when eligible and many members lose out on their full entitlement by delaying their application.

“Having a simple, seamless, and most importantly, integrated, system in retirement, as they do in accumulation, will help retirees to navigate these changes with confidence,” Blackmore added.

Last year, Treasury’s discussion paper on retirement highlighted that over the next 40 years, drawdowns from superannuation are estimated to increase from 2.4 per cent of GDP in 2022–23 to 5.6 per cent of GDP in 2062–63.

Australians need to have access to the right information, advice, strategies and products to help them make the most of retirement through superannuation, it said, and to understand how it integrates with the rest of the retirement income system.

According to AustralianSuper, the “missing piece of the puzzle” for funds is the information required to gain a holistic understanding of a member’s financial situation.

It proposed changes to leverage data sharing between super funds and government, noting that as it currently stands, super funds do not have a way of knowing whether a member has a partner, whether they own their own home, their eligibility for the age pension, and their assets and income outside of superannuation.

“If funds were equipped with an understanding of a member’s assets, income, debts, marital status and dependants during the transition to retirement period, the product or strategy recommended could be more aligned with their objectives, situation and needs,” it suggested.

Addressing the issue of retirement income and product development, an issue previously flagged by Treasury, AustralianSuper said longevity products, while important, may not be the solution for everyone.

Given the age pension is the default longevity product in Australia, the fund proposed that removing barriers to accessing it, and supporting members who need it the most, take precedence. 

“A mandatory national default product risks increasing complexity, stifling innovation and limiting the ability of funds to tailor their offering to meet specific member needs and preferences. It may also create unintended consequences including cross-subsidisation and make the system less attractive,” it said.

In its submission, AustralianSuper’s chief executive, Paul Schroder, highlighted that retirement is a deeply personal experience and that there couldn’t be a one-size-fits-all approach.

“There is no one-size-fits-all, as each retiree has their own wants, needs and expectations of this important phase of their life,” he said.

“It’s important we listen to superannuation members and seek to understand their changing needs, and in response develop holistic solutions which not only build the adequacy of their savings but also their confidence to spend these savings to improve their standard of living during retirement.”