Post retirement: where do we go now?

Super Review joined with MetLife to hold a thought leadership breakfast where some of the industry’s key voices looked at the current policy settings and at where policy needs to be headed to ensure Australia’s superannuation system meets its post-retirement challenges. 

Don Stammer, director, ING 

Twenty-one years ago Australia set up the best framework for retirement policy of any western country – but we haven’t built well on that foundation, in fact we’ve gone backwards in some ways.

The second point is, don’t forget Australia has four pillars to retirement: we have the age pension which is frugal and targeted; we have compulsion; we have tax benefits; and we have a big switch from defined benefits to defined contributions.  

I’d like very briefly to mention the seven changes I think we have to make to retirement policy to make it effective, in no particular order. 

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First, we need a cap that allows people to build an adequate level of superannuation over their working lifetime; the concessional cap is far too low. 

When I was in my ‘50s and my children had left home for the third time, my wife and I could put some additional cash into superannuation, and that’s denied to people now.  

Problem two: Australians are developing a very unfortunate entitlement mentality when it comes to age and retirement. 

Too many of our fellow Australians want the Government to look after their ageing parents or themselves as they get older, and the Government’s meant to look after them – including in aged care – so they can leave their assets to their offspring. 

We’ve got to accept the point that a lot of Australians will need to draw on some more of those assets to cope with ageing.  

Problem three: we need to revisit the case for people in retirement having to take an income stream rather than a lump sum. 

As you know Australia has minimum amounts you’ve got to take out of superannuation – it wouldn’t hurt to have a maximum amount as well. 

Problem four: our ageing population. The good thing for Australians is our population is ageing, we’re living longer. 

The good thing is we’re not nearly at the problems other countries have with ageing populations. 

But if you read the inter-generational reports, those reports never allow for the increasing ageing of the Australian population. And to understand the problem of ageing, we’ve got to be realistic in those assessments. 

Problem five: taxation. When you think about it, and this was discussed a lot in the early ‘90s, there are four possible taxation points for superannuation. These are when money goes in; on the earnings while in super fund; when money’s taken out; and when any superannuation benefits are left to the estate when the person dies. 

We’ve made a real botch of taxing it. Ideally we should tax contributions less, earnings less, tax money when it comes out and continue with the tax on unused superannuation when someone dies. 

But to switch from our present system of taxation to that ideal system is horrendously difficult. However I hope in fact that if there is a change of Government, it’s one you face up to. 

Problem number six: the rules of retirement change too frequently, far too frequently. Which brings me to seven, and the final one I want to mention is a personal crusade. 

One of the dumbest things I think we’ve done in superannuation is to allow those non-recourse loans that can go particularly into property development. 

The next time Australia has a surge in house prices and the traditional spruikers come out and talk a lot of people into using non-recourse loans within their superannuation for property investments, all sorts of things will happen. Let’s clear that up, get rid of it before the next cycle goes up. 

So, they’re the changes I’d make, some are important, some are less so. And thank you for your time. 

Lachlan Baird, CEO, Prime Super 

To me the key issue really is getting back to looking at the long term. We seem to have really moved into a whole discussion about short-termism. 

When we look at the political environment super is a big football; there is a lot of money there so everybody wants to leave their mark. 

We look after the rural sectors, and one of the biggest issues we have there is it’s a very cyclical industry. 

We’ve have some very big years, and that should be the time you could put more money away. But with contribution caps in place that’s all taken away, so we’re not actually allowing members and employers to do what they should be doing for their own long term. 

We’re also in a position right now where we seem to be trying to make a lot of changes right on the back of a GFC. 

A lot of things went wrong there, but there’s a lot of knee-jerk reactions going on in thinking we can fix a lot of these problems. 

We’re never going to take away the time when there’s going to be negative return. We’ll go through it again, at some stage in the future we’re going to go through another financial crisis – whatever the form may take, it will happen. 

You can’t legislate against that, we need to be able to accept that there’ll be times when things are down and be able to manage our way through it. 

There’s a lot of things that need to change within superannuation; the taxation system needs to be reviewed. But what we need to do is ensure that over the long term people have confidence in superannuation and they know what they’re going to get out of it. 

If every time we have an election somebody comes along and changes something else, just tweaking around the edges, it just leads to greater uncertainty and people then lose confidence. 

The other big issue for me is nationally we’re crying out for more infrastructure investments – we’ve got a lot of money in superannuation and we can get the two working together. 

But it needs to be driven at the high level, with the Government providing the opportunities for superannuation funds to actually invest. 

They have their requirements out of infrastructure, we have ours. We’ve got to get a proper return, we can’t just be in a position where we’re forced to go into low-returning investments – it’s got to be a commercial deal. 

So they’re some of the big issues that for me are very important. 

Leanne Turner, CEO, MTAA Super

The short answer that I’d like to see is that where super gets back to, is actually back to its basics. 

That is, that we need to move the debate back to what superannuation was originally intended for, which of course is to provide a comfortable retirement to the majority of Australians in the workforce. 

The question is how do we do that, and Don has eloquently mentioned some aspects to that. 

I think it’s a sign of maturity of our industry that we’re actually having these conversations now because if you think about it, it’s only just been in two decades that we’ve moved from setting up a world-leading compulsory superannuation system to discussions now as to why a world-leading 9 percent (Superannuation Guarantee) isn’t going to be enough. 

That’s probably a great problem to have because it’s a sign of our success. But as the superannuation assets continue to grow to seven trillion in the next 30 years, the temptation to meddle with super just isn’t going to go away.  

I agree entirely with Don that we need reforms to be well thought out, well considered, and not part of the political cycle or a Budget cycle. 

To that extent I think that the concept of a Council of Super Custodians is a step in the right direction. 

Of course the devil is always in the detail and we’ve yet to see anything of that. But I do think we do need to be able to go forward with confidence that the meddling will cease so that people can have confidence in the system again. 

The other, very looming aspect that none of us can ignore – and again Don and others have touched on this as well – is our ageing population. We absolutely need to get innovative about longevity risks and products designed to address that. 

Happily, I can sit here today and say with our great partners with MetLife, MTAA Super has moved in that direction with our MTAA Super RetireSafe product. We need to see a whole lot more of that so that people can actually have peace of mind when they get to their retirement stage. 

Pauline Vamos, CEO, Association of Superannuation Funds of Australia

I wanted to share a few things with you, and I know that this morning we will go through a number of ideas in terms of the changes to the systems that need to be made. 

In Budget week ASFA (Association of Superannuation Funds of Australia) launched a white paper and the purpose of that white paper was to really ramp up the discussion around how we can evolve the system. 

We all know about the ageing population, we all know that we’re living longer, we all know that we’ve got to encourage people particularly with larger lump sums to take income streams in retirement. 

But there’s a few other adjustments we need to make to the system, including possibly introducing a life-time cap, because we can make use of technology now and that will really start to allow people to put in more money when they can. 

But there’s a broader conversation, and it’s all to do with the leaders of the system and how this relates to the aged care system, health care system, access to free health care and of course your family home. 

So with that white paper, the key to it is public consultation. Because one of the issues I think we have as an industry is we’re fantastic at talking to ourselves but we don’t talk to anybody else. 

What we want is to provide the Government that is in power after September with a clear way to go forward in terms of how you adjust the system. 

The second part is the pool is that is we all need to talk about how the system is built. 

It is going to be very big, six trillion by 2037. But the key aspect is where is it invested, how is the pool invested, how do we ensure we maximise capital. 

Because any Government in power is going to question tax concessions that are better off in consolidated revenue because they get more bang for their buck than in a retirement income system. 

That discussion on maximising capital and how we ensure that was subject to another paper that we released last week. It was something we’ve been measuring since 2009; we’ve been talking about what is the economic role of the super pool and how much does it drive the economy. 

That research was done by Deloitte Access Economics, and it shows that the pool is starting to really drive the economy, but it can do better. 

That is the other conversation we have to have; how can we ensure that we invest more broadly in the economy on a risk-adjusted basis to provide better returns for all in the longer term. 

The third aspect, and we’ve done a lot with SuperStream around this, is how the system operates. More and more, and it’s been in the papers all this week, the operational costs of delivering the system are far too high – three billion dollars in operational costs, five billion dollars in terms of investment fees. 

How do we ensure that as a system we can keep those costs low without sacrificing the returns part of SuperStream? All the gateways are on board so at least we’ve got some inter-operability happening. 

The last thing we’ve got to do is we’ve got to engage with those parts of the community that are just left out of the system; independent contractors, females who don’t have a full working life, and the indigenous. 

The more we bring all parts of the community into the system the better off they will be – and as with any system, part of the success of it is its universality. 

Marc Lieberman, CEO, MetLife Australia 

I think the panel has done a fantastic job of laying out a lot of the issues and desires that we all embrace as an industry. 

If I look at one of the biggest things that we need to do as an industry to better serve the public around superannuation it’s talk to the public. 

I think we make a big mistake in that we all assume that the general population is as educated on this topic as we are, and is as motivated to discuss it as we are. 

I think the more we do to raise the level of financial literacy within Australia and raise the debate to the common person out there who doesn’t spend 24 hours a day thinking about superannuation, the better. 

But put it in terms that they can understand, so that they realise why that 9 percent is going into that fund and they have a real true understanding of what it’s designed to do when they go to retire. 

They’ll look at it less as a lottery ticket and as a lump of money they’ve never seen so large before, and more as a way to fund a retirement so they don’t have to change their lifestyle once they stop working.   

I think if we can do that – and take into account a lot of the changes that were discussed here and get the population of Australia engaged in understanding what it is we’re trying to do – I think we’ll be in a much better place.