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Superannuation lump sums – like it or lump it
- Roundtable part 1: Fallout from the Productivity Commission's super findings
- Roundtable part 2: The trouble with default superannuation funds
- Roundtable part 3: Is enough superannuation reform never enough?
- Roundtable part 4: Has the excess contributions regime become excessive?
- Roundtable part 5: Superannuation lump sums – like it or lump it?
In this session from the 2012 Super Review ASFA roundtable, participants discuss the growing concerns surrounding superannuation lump sums and how lump sums fit into the post-retirement landscape.
Mike Taylor, managing editor, Super Review: [Anne Myers, CIO, ING Direct] raises the important point too, of lump sums – and without wishing to unduly undermine the caravan industry in this country, I fear I will be.
Lump sums are clearly something which are problematic to the whole post-retirement scenario, and given that the super industry is increasingly talking about post-retirement and actually really growing into that area, what are the scenarios that we should be looking at? Pauline?
Pauline Vamos, CEO, Association of Superannuation Funds of Australia (ASFA): Well, we’ve come up with three options and that’s a start.
There are many ways to design a system and our starting position was: how do you create a system that becomes tamper-proof?
How do you create a system where the average Australian is so in love with the system, that if any Government stands up and says, “We’re going to make a change,” they are rioting in the streets.
So, that’s the goal and so that means you’ve got to look at the whole of the system, so you do.
You have to move it to an income-only table system, because the research proves time and time again that people want to know how much they’re going to get in retirement, in terms of, “What is my monthly income going to be, so I can plan.”
They want to make sure that they can get access to some kind of lump sum, if they really need to pay off something quickly or something else happens, and they need to have some sort of risk above the age pension in terms of longevity.
So, you can start that design early in the system, the accumulation side, or you can start it later.
That balance – between making it compulsory, to making it a default, to making it a full choice. As Russell said, there are people retiring today with significant lump sums, I mean millions of dollars.
Do you say, “Okay, if you’re taking a lump sum, more than say $2 million, we’re going to tax it, unless you take an income stream.
"Or if you take an income stream and you keep it in the system, it’s tax free. If you take a lump sum over a certain amount – it could even be $150,000 – we’re going to tax it. If you don’t make a choice at the end, then the automatic default is an income stream, not a lump sum?"
So, there are many levers that you can pull and push, and that’s the debate we have to have. We also need to look at some of the other parts of the system, to make it more simple.
A big part of that is confidence, and there’s a lot of significant legacy and historical structures around the system that maybe we can remove.
We may not be supported by all the system, or everybody in the stream, but it might be good.
The other thing is transition to retirement, so you can start taking income stream at 55. Is that too low?
Should it be 60?
Is that one way to start people thinking about that? So, that’s what the debate has to be about.
The biggest part of the debate though, is what should be compulsory and what should not, and the clear prevailing view is, if you make income streams compulsory, then people will just abandon the system.
And if you try and bring it in, say even in 20 years, you speak to enough 45-year-olds and their reaction is, “You baby boomers. It’s okay for you to take a lump sum, but you want us to get an income stream, I don’t think so.”
So, that intergenerational issue is something we have to acknowledge as well.
Peter Smith, head of distribution, Metlife: When do we have this post-retirement debate on the basis that we’re already pretty much snowed under and talking about timeframes, and how we might not even meet the timeframes of what’s already on our plate – and this is going for the next two years.
It’s an interesting one, when we actually have that debate …
Peter Beck, CEO, Pillar: I think it’s going to take a long time to settle this, and the earlier we start the debate, the better.
I think it’s hard to argue against income streams. The only argument really around lump sums is the fact that we’ve always had lump sums, and I don’t think that is a good enough reason.
Given our history, though, I think it’s going to have to be incentives and disincentives to start off with. It needs to – and I say this wisely – it needs to start off with an incentive for people to take income streams and a disincentive to take lump sums.
If that doesn’t work, then compulsion is the only other option, but I think we should give it a try and see if we can’t get people to do these things voluntarily, rather than force people. I think that’s always a better outcome.
I think it’s very Australian to minimise your tax, and I think that if we created the right incentives to minimise or maximise your tax, depending on if you take an income or lump sum, then I think you will get a response that’s appropriate.
Anne Myers, ING Direct: And it does leave in place the aspect of consumer choice – it is, after all, their money.
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