So, we are not spending our super balances. So what!

Without a super system, most people would accept a need to save some money for use in retirement. This need varies for each of us as individuals. Most of us, also accept that for a host of reasons we would like to eventually own a home. Government encourages and supports this need in various ways. Then via the pension system, these two fundamental needs are linked. As of today, home owners can still get the pension and have over $1m in savings. These pension conditions are the base position from which we should discuss super, including Government forced contributions, taxes and savings. And any change in these core conditions should come with financial compensation.

Turning to super now, as pointed out in the recent article by John Kalkman, we all, apart from those few on Government defined benefit pension schemes, take on all of the six risks he identified of investing the forced savings. For roughly 65 years or so, from start of work until death. Some also encourage death taxes and so the investment risk could continue beyond death. I cannot recall if any super changes thus far have included grandfathering of retirement definition, purpose or conditions.

With no risk, the Government takes 15% of our contributions on entry and 15% of earnings over the years until retirement. And since 2017, the Government takes 15% of earnings above a set limit in retirement and we are now facing a further tax change at $3m in super. Super savers therefore are faced with a very high level of financial risk and high rate of control. From a contribution rate point of view, then yes, maybe forced contribution levels to super are too high. Who is best placed to decide this? Perhaps the individual should decide what the level of sacrifice should be, given the biased risk/reward scenario.

My point here is that to make super a viable lifetime (and beyond) investment that gets us into retirement, recognises the sacrifices made over many years and gets us beyond a level of living that is better than survival via the Government pension, we should be demanding more compensation for income loss (and risks taken) along the way. Not less which some are suggesting here and in some political quarters..

Annuities (forced or otherwise) are a side issue here, spending rates are individual responsibilities as they are pre retirement and limits of amounts remaining in super are well covered by current age related withdrawal rates and the fact that on death, remaining capital must be withdrawn.

“The purpose of investing is not for people to simply accumulate wealth but rather to assist them to achieve their optimal pattern of consumption over their life.” From this article I believe that this statement is incorrect. Super is a core part of investing is to accumulate wealth which is then used to achieve optimal patterns of consumption over our lives. That includes having funds for perhaps aged care needs. If we choose to.

I think that people have lost perspective on what the superannuation system is all about. It is about removing reliance on the government pension. The current super system is horrendously complex, ever changing and getting more complex. As people point out it is up to people to invest their money, and lets face it, most people are financially illiterate, or not interested, and how many of those who are financially literate lose their decision making capacity in old age.

The current system provides huge tax benefits to people who don't need them. It is also very wasteful, when you consider the cost of getting financial advice, running SMSF, running industry funds, who spend money advertising etc. What a waste of some of Australia's brightest talent, accountants, investment advisers, auditors, lawyers etc. I could write a whole lot more of the problems with the current system.

In my opinion the current system should be completely dismantled. We should move towards a government run superannuation scheme , administered by a government body like the future first fund. People contribute as they do today based of their wages (no additional contributions), when they turn 67 (ie pension age), they draw a pension from the fund based on their accumulated balance. If the balance is < the government pension, then it gets topped up to the level of the government pension (most people should not be in this category). When they die the pension reverts to their partner, upon death of both the government keeps the balance. The government takes responsibility for the investments, risk about people's longevity and we now have a very simple system, that people don't need to worry about, that is here for them in retirement without needing to know anything about investing. It is simple, streamlined and doesn't need constant changes like the current system. Of course consideration would need to be made around how to transition to this scheme, particularly people in retirement.

Simpler scheme:
. full Age Pension for all age eligible;
.. welfare for those who did not save,
.. abolishes perverse incentives for those who did.
. Future Fund or like opens to all willing.
. Super and private investment rumbles along much as is except;
.. compulsory contributions abolished,
.. taxes on inflationary gains abolished.

I agree with the sentiment that the article is simply stating that people deprive themselves of consumption now because of the fear of running out of money and voluntary government annuities could provide relative certainty and confidence that they will not. The safety of the aged pension could be stronger if Australia’s multi-trillion-dollar compulsory superannuation system was not allowed to increasingly become a massive inheritance scheme. That’s not how super was meant to work.

Why would anyone invest in a lifetime annuity knowing that the capital is lost from one’s control from day one and lifetime annuities pay less than the total return including grossed up dividends of wide moat oligopoly shares on the ASX.

I can see the value of an annuity if it overcomes the fear of running out of money and allows you to actually spend some of your capital. BUT the issue is the poor returns and the profit motives of annuity providers. Most of the nominal value is lost in low returns and fees, so you self fund. And worst of all for me is deliberate opaqueness of annuities- how much of the money you get is just your own capital being returned to you dressed up as something else. Just remove the nominal profit and your payments jump massively. Maybe something for industry super funds to look at.

Annuities are for those who can not manage term deposits.

Banks, receiving and sending, could do more to make term deposit principal transfers cheaper, quicker, simpler and more secure to make term deposits surpass most of the functions of annuities.
A deposit interest rate grace period would help.

A single transfer form containing from details and to details, including term deposit interest rate, periodic interest and maturity instructions, shared and acknowledged by sending and receiving bank. [ Like transfer of telephone number. ]

Yep and TD higher returns come with lower counterparty risk.

Lack of flexibility, funding someone else’s pension, dying early, aged care and zero flexibility after life changes are just some of the reasons people don’t like annuities.

Ron from an academic perspective I get the attraction. Once you speak to real people with real concerns they at best fall to a 30-40% of the portfolio, mostly 0%.

You only have to look at the previous attempt at this. Term allocated/market linked pensions. The poor suckers are still trapped in these failures. They were meant to be a bridging product between ABP’s and annuities in order to over come the unpopularity of annuities and failed miserably.

For me the TSB cap of $2m (from July) is enough. The rest should be compulsorily cashed out. Grandfathering will have to apply esp due to business, farm or property assets. Issue also with hitting $2m, still working and tax. Prob a flat tax is fairer rather than MTR.

People just HATE being mandated anything even if it’s good for them. Personally I’ll never voluntarily use an annuity for any substantive amount of my super.

I find it hard to believe that the Gratton Institute (and Prof Bird, for that matter) should be so blind to the realities of retirement. Not hat I would necessarily expect academics to be in touch with the real world. Governments have eroded the benefit of Medicare, insist on private health cover, and gap costs are escalating. Aged care is essentially privatised and expensive. What retiree would not want to maintain a healthy reserve contingency against medical crises as they age? To put this conversely, I don't worry about future health and aged care costs because I have that healthy reserve, but I'd have many a sleepless night if I did not.

And all of these assumptions take no account of the uncertainty that occurs when one of a husband and wife partnership needs QUALITY aged care and AFFORDABLE located close to where they currently live. These issues are NOT considered by the academics and other recipients of Government CPI indexed pensions for life where there is a residual pension for the other partner. And these pensions are based on FINAL Earnings.
Aged Care also involves the sale of the home (their major asset) to pay the large Aged Care deposits, sometime over $1m. And how does this affect the the couple. Young people are concerned about housing and so too are we older people.
So all of the modelling by these so called experts are hardly worth wasting time reading. Until they actually grasp the real world issues, we will have the continued setting aside of extra capital for that rainy day.

This article should have noted that Grattan Institute is a left wing think tank. 

How much you have saved for retirement or how you choose to spend it, is not in question here. This article is specifically talking about super and super represents tax concessions that are designed to support retirees in retirement and not bequeathed to beneficiaries.

Mandatory super pension withdrawals increase with age so that progressively the pension is funded by capital, not just income. There is no requirement to spend that pension, but once outside super, it has lost its tax concessions.

Note that the tax on super death benefits is a tax on the capital remaining in the fund, not just the income. It claws back the tax concessions that were unused during retirement. Even if the whole super balance is removed early to avoid the tax on death benefits, it achieves the same thing; once outside super, this money has lost its tax concession. Annuities have no residual capital at death.

Commonwealth Government pensions involve capital cost (for average life expectancies) involve an amount of somewhere between $6m and $8m according to some articles in the last two years. These indexed for life pensions mean the individual (husband and wife) are not subject to ‘running out of money risk’. These are ultimately funded by the taxpayers out of tax revenues.
So until I and my wife have sufficient to cover the cost plus the ‘buffer’ for the ‘running out of money risk’ for both longevity and health risks, then I see no issue with our SMSF accumulating somewhere around say $10m. Anything less is treating us like second rate citizens when compared with the public sector employees superannuation. Remember, the public sector employees mostly have these very favourable ‘grand fathered’ arrangements.

Modern lifetime annuities pay a minimum on early death of the amount invested less the annuity payments made to date - in other words a zero rate of investment return.

I have yet to pay income tax on my non-super annuity as the ATO uses the Australian Life Tables to calculate the Deductible Amount - which so far has been higher than annuity payments each year.

Only 60% of retirement benefits are actually applied to reduce future expenses or increase future income. This is NOT the purpose of superannuation - which is to offset the cost of the Age Pension.

The component of each retirement benefit is at least 26% composed of the tax concessions - higher for higher marginal rate payers. So the government has a moral right to say how we should receive that component of our benefits - in order to achieve that tax saving by way of reduced Age Pensions.

Retirees purchasing or being required to purchase under a default (e.g. related to the component of their benefit provided by tax concessions) lifetime annuities has benefit to retiree:-
1. Increased happiness
2. Increased spending power - give them 30% more income
3. They can spend up to twice as much
4. Better budgeting – so insurance against poverty
5. Protection against scammers and elder abuse

and to our taxpayers via the government of:-
1. reduced Age Pension and related costs eventually,
2. Reduces need to tax the life out of our younger people, and
3. Higher amounts invested - to create greater economic growth.

David,
Your 'Optimum Pensions' company would obviously stand to be a major beneficiary if the government were persuaded to make annunities compulsory for us, or to somehow embed these financial products in the already over regulated superannuation system.

No David compulsory super was never designed to make serious inroads into aged pension benefits, and it has not. What it has done is to annually give tax subsidies to the wealthy that now exceed the aged pensions given to the less well off. Where you get the benefits from lifetime annuities reads as coming straight from the marketing material of those selling them

The reason super has made no serious inroads into the age pension is because the age pension is so generous. A couple who own their home can have $470,000 before their age pension is reduced. This couple can have over $1 million and still get a part-pension.
And the rate at which the pension is reduced as their super assets increase, means they are better off putting their super money into a non-assessable asset like the family home, than living off their super.
Show me the incentive and I’ll show you the outcome.

Ron, I’m not sure what you mean by “serious” inroads, but parliament clearly used to think that the reduction of age pension costs was a significant part of the objective of super.
So much so, that the Objective (Superannuation) Bill 2016 stated “The primary objective of the superannuation system is to provide income in retirement to substitute or supplement the age pension”. That Bill was passed but lapsed at the 2019 election without becoming law.
The Superannuation (Objective) Act 2024 takes a different approach, introducing some new concepts: “The primary objective of superannuation is to preserve savings to deliver income for a dignified retirement, alongside government support, in an equitable and sustainable way”. It’s a bit less specific than “supplement or replace”, but the idea is still there.
In any event, the assets test forces age pension savings. As a simple example, consider a single homeowner who retires at 67, with between $340k and $900k in an account-based super pension (from which only the annual minima are drawn), and negligible other assets or income apart from the age pension.
Every extra dollar over $340k at their retirement translates, on average, to a reduction of approximately one dollar in the present value of their lifetime age pension. Retirees beginning with $900k save the government over half a million dollars each.
(Calculated using ABS mortality statistics, for a cohort of initially 50:50 males and females, and using the default assumptions from https://moneysmart.gov.au/retirement-income/retirement-planner )

David, whilst it's natural to want to talk up your own book please stop perpetuating the pure nonsense that life time annuities increases your spending power by 30% in all instances.

You very well know they are priced and will lock in 25% lower ROI over a typical retirement than a more balanced approach. It is not helpful for insiders like you, Challenger, Actuarial Institute etc to continuously push the narrative onto the vulnerable public. They are very inflexible products by design (including new features you highlighted) and just return your capital back to you over your lifetime with minimum ROI. They only sell at present due to Age Pension concessions which highlights another unsustainable flag.

Yes you get a better outcome if you live to 100 but otherwise the opportunity cost will continue to be way too high for 95% of retirees.

It's frustrating to think we can't get basic consensus here given it's so obvious that people can and do manage themselves out of necessity.

There is no such thing as "optimal" so Grattan needs to reflect on the human element not political pontifications.

It seems to me that the Grafton Institute is simply saying that a lot of retirees are afraid to spend the money they have in super because it might run out. They think people deprive themselves of consumption now because of fear. An annuity would provide certainty and confidence that they will not run out of money so they are more likely to be happy to spend what they have. It is just another option that the Grafton Institute thinks people should be aware of and seriously consider. Nobody is forcing anyone into it.

In reply to Alex, as far as I know, the Grattan report was suggesting that purchasing a government annuity with super funds in excess of $250,000 should be compulsory.

Great article Prof Ron Bird - as you have highlighted, sometimes we just have to ask if we are asking the right questions in the first place. My thinking is that people fall back in horror at the thought of needing to deal with Centrelink (helloooo Robodebt) so will they embrace annuities from government when the digital application ('paperwork') is confusing, endless and often serves the wrong result? Not any time soon.

There is no problem if you Die with left over super…death benefit for family just like your estate…so what’s the problem?

To me the problem is the original design of super. It would be much better/simpler if there was a total cap…no more than say $3m, $4m, $5 m…pick a number at which any excess has to be taken out. There has to be a limit on how much you get tax free. the new (not quite before parliament rules with unrealised gains and an extra 15% tax on bits over $3m are simply stupid and complicated)

Alternatively (or concurrently), no tax going in (Keating still wanted some money so made it 15%), no tax on earnings…and the cap above OR tax on withdrawals.

This would avoid all the silly rules and need for accountants, financial super specialists etc

I agree 100% Superannuation should have a Cap applied.

My suggestion is, 20 times average income, (100k) so $2M. 5% drawdown at retirement is, $100k a year (tax free) so more than the average take home pay and a sufficient amount to fund ones retirement,

If your financial requirements are higher than that, there are plenty of investment options outside of Superannuation to use.

After yet another article referencing Grattan Institute, decided to delve its' w/site to see how funded, what else may be in the pot having heard a 6p.m.news report this week re a matter via a Grattan report too. Read report of 19/1/25, titled: Simpler Super, Taking the stresss out of retirement. Point 3 states, "governnment to establish a free, high-quality guidance service to help retirees to plan their retirement. Cost approximately $360M over 1st four years and", wait for it---- "should be funded by a levy on all super account balances". Various comments indicate take G.Inst with grain of salt, induced the look at website. Unimpressed as must be partly funded by donations as there is a Donation button, that shocked me.

Running through the Retirement Income Review, the emotive complaints about “hoarding” that followed it, all sorts of stuff from Grattan and others with an apparently academic bent, this article and hundreds of others - whether the argument is for more spending, or more conservative investing (enabling less spending), for annuities which tie up capital, for more reliance on the age pension or whatever - is the idea that there is an appropriate amount of super at any age.

OK. So what is it? Nobody ever says. Because nobody knows. It doesn’t exist because there no unique answer.

The government and these high flying think tanks should just stay out of this area of retirement funding It has nothing to do with them We have only had the benefit of Super since the mid eighties We have had to make our own way generating our own way to situation of financial security We are now confronted with the situation where if we want to downsize we are facing the penalty of being ripped off by Retirement Village operators and our grandchildren being penalised by government policies relating to over population putting extraordinary pressure on house prices so much so our generation is being called upon to bridge the gap with our so-called excessive wealth
Just leave alone and let us decide what we do with our own money

Why is underspending even an issue and why is anyone ‘sticking their nose’ into my financial affairs and how much of my retirement savings I spend? I’ve worked hard, paid my taxes, made my investment choices and spend as I see fit. Maybe there is ‘rainy day’ event on the horizon; maybe I have a mindset that discourages ‘spending for the sake of spending’; maybe I want to provide a financial boost to our children and grandchildren when that time arrives.
The parents of my generation lived through a depression and a world war - they were frugal and well aware of the uncertainties that global events may present. Perhaps That has influenced the financial choices of my generation. The Government has it’s Future Fund and I have my superannuation. The bottom line is;

It’s MY money and I’ll spend it as I see fit!

I agree with Ray. If we are not encouraged to save for rainy day for ourselves and our families and just rely on government what sort of society do we become ? Terry

Absolutely right here Ray

Ray it's not an issue for retirees rather only Govt and other vested interest.

It's a natural habit to be conservative with your own money particularly for those that are prudent with their money. Most don't even spend the min draw down from ABP and the same would hold if the payments were made from an annuity.

If we've learnt anything from the past 15 years - Royal Commission, Reg Reform FOFA, Strong Super, Protecting Your Super etc - the Govt get it wrong more often the they get it right and the financial services industry is in just one big vested interest where agency risk prevails everywhere.

Here here Ray. We love to complicate life. If you’ve worked hard, been smart with your investments and don’t want government messing with your life good luck to you.

We need more individual responsibility and less reliance on government in this country.

Care for the genuine needy, encourage enterprise, education, community harmony and spend the taxpayer dollars wisely. Pretty simple really!

Alec Edwards has made a great comment. It is one of the items I wanted to draw attention to viz. the need to be able to fund increased medical expenses and the need to pay a RAD if a nursing home should be needed. Retirees need to provide for these things. Alec put it perfectly in his comment. I do not need to add more.

The other point I want to make is that super funds invest super balances in various options. Some of these options are very profitable so much so that super balances grow at a faster rate than one needs to spend even if drawing down more than the minimum amount. In looking at the amounts being left in super accounts and assuming people are not spending the money that has been put into super in accumulation phase an error is being made. Super balances are increasing while super is being taken.

I agree with most of the other comments made criticising the Grattan Institute's proposal of requiring the purchase of a lifetime annuity.

Unfortunately the writer and most comments are clearly written from the perspective of not being close enough to Aged Care to worry about whether the costs of Aged Care will put a large hole in their retirement spending plans. I have a partner with dementia and we have recently paid $750,000 for RAD and looking at another $70,000+ per year for her care. The RAD is refundable on death, so will mainly go to the beneficiaries, a form of estate management but not one that you would choose. If funding is not available for the RAD, then an additional charge of $63,000 pa (8.4%) applies, every year. This means $130,000+ for one person, out of super. RAD does not apply to full pensioners, but the discussion is generally about options for those who are, or will have a reasonable super asset.

The possibility that I may have to go into care at some time in the future means that maintaining the value of superannuation assets is critical.

Having spent all the super having fun, or having a nice annuity, with no residual, is not going to fund reasonable aged care. How confident are you that you will live your life without the need for large medical costs or nursing home care. If you are not certain, hang on to a bit just in case - this is prudent. You have to be older to understand how the older person thinks about their future.

Unfortunately the article is written about economic arguments between those who have no skin in the game.

Scary. Most Australians have nowhere near this much spare cash in their 80's.
What happens to average people who have no possible way to set that much money aside ....?

The perverse thing about age care is that the more money you have in super (but not in the family home) the more it costs you. It’s like drivers of BMWs paying more for petrol than everyone else.
If you are on the full age pension, with limited means, age care costs no more than 85% of the pension, although your choice of facility maybe more limited.

Great article Ron.
I for one strongly disagree with the Gratton Institute. So in their view, a fully self funded retiree should be forced on to an annuity with very little flexibility to draw lump sums and pass on wealth. People in this category are therefore effectively paying for their pensions while others receive the Government OAP (whether due to circumstances or overconsumption).

A more holistic approach is needed including consideration of those who are asset rich and cash poor living in expensive homes but still drawing a full pension. Why just focus on superannuation? -Oh, I know, too many votes lost for the Government to consider.

Why are we not surprised that the study was conducted by The Grattan Institute.
Superannuation in my opinion is all about the "nanny" state and supporting a huge personal finance sector. The under-utilisation of financial advisers says something about people's comfort about managing their own finances. Compulsory superannuation to generate a pot of gold on retirement, to a lot of people, is something to look at rather than something to fund a lifestyle they never had. Compulsory superannuation is reflective of Socialism, in that we're trying to make people equal when people are inherently unequal. Some people will spend every dollar they get, while others will save the same. And there are consequences for those actions. Enforcing a compulsory percentage of income be directed towards saving is about "State" control. And doesn't the "State" love viewing those superannuation savings which will eventually be used through means fair or foul and satisfy the fall of the Socialist state, when they stop spending because they've run out of other people' money.
The superannuation system delays immediate consumption which affects the economy in real time particularly when that same money will be less likely to be spent after retirement. Think deposits for home loans and the money available for home furnishings etc.
The money paid into superannuation every week is astonishing and overpriced equities along with other assets says something about where those funds are being invested by super funds seemingly oblivious to return on investment.
People paying tax on income generated at source rather than pursuing tax incentices to contribute to superannuation may have been a better idea?

If that money was not in Super and was wages, property would be even more obscenely priced. Borrowing power is a multiple of earnings. That money going into wages instead of Super would increase borrowing power, adding to the price of property.

I agree with almost all of your comments John. There is too much socialism in super and too much of the nanny state in policy setting, control and commentary. I used to think that a core idea was for super to allow the little people a means of savings (forgoing consumption) to self fund life from retirement onwards and to reduce the cost to others in the community to fund our age pension. The output from super is unequal as we all go through life with our own spending and savings modes. I think too many so called experts have failed to recognise or accept that in retirement, as in pre retirement, we all have our own, different aims and ambitions and hence an aim for different levels for post 'work' living. We seem to be trying to make the outcome equal ie limits for super savings and zero super on death. Too much social thinking in my view.

Re the article here statement “The purpose of investing is not for people to simply accumulate wealth but rather to assist them to achieve their optimal pattern of consumption over their life. “
I think we should transition from paid work to retirement earning or drawing down post tax, roughly what we were earning the day before retirement. There should be no expectation that suddenly you have a different standard of living. Up to each individual to decide and sure taking appropriate individual advice.

Finally I agree with Alec Edwards comments elsewhere that it is sensible for most to be making sure, as best one can, to have the funds to pay for aged care. That means we all need a level of savings up to the point of leaving the planet.

When the SG was first started at 3% it was during a time of high inflation and unions were persuaded to forego high wage claims as the SG became part of the wage packet and so it appeared as being paid for by the employee. Fast forward to today the SG is just another cost to the employer as employees have become used to living off what they receive each week.
On another note, having the asset available after retirement and being able to spend it as one wishes cannot be measured in purely monetary terms.

One point not mentioned in this debate is the increasing cost of aged care.

Should we spend spend spend in the early stages of retirement and be left with limited choices when aged care becomes an issue?

Or should we keep a decent reserve to give us choices when the time comes?

I know which road I'm taking.

Of course this will leave some with a large estate due to sudden death before aged care became necessary, but so what? In the same way that super enables us to plan for our retirement, so too does keeping some aside for the most likely event in our final years assure a comfortable and financially stress-free last few years.

My exact thoughts.

Agree totally, esp if I’ll health, mental or physical is likely in later stages of life.

How much money is sensible to put aside in your (say) 60s to provide for age care costs in our final years?
And doesn't the value of the home cover it?

I agree with the premise that compulsory annuities are a bad idea.

What I don’t understand is somehow linking the rate of SGC with large super balances not being used during someone’s life. Anyone who has a super balance near the current caps has put far more in to super than just the SGC.

Maybe the SGC is too high, maybe not.

Good answer AlanB. If the government got its policies right and controlled its spending, we would not be heading towards a banana republic and would not need to try and raid retirees' lifetime savings. An economy propped up by one generations savings points towards a poor future for our children/grandchildren.

Good Article Ron.
I agree that guaranteed annuities are unattractive due to the lack of inheritance but also due to their lack of flexibility and high fees- the insurer must charge an additional 1%+ per annum to cover the cost of guarantees.
As a solution, increasing the mandatory withdrawal rate is a simple fix. This encourages (but doesn't force) retirees to spend, and reduces the tax give-aways in the pension phase by moving money out of a 0% tax environment.

Although the government says there is a mandatory withdrawal rate, there isn't for most people

People under 75 can contribute after tax dollars until their super balance reaches a certain figure.

So, although you have to withdraw money from super, you can put it straight back in, so what's the point of a mandatory minimum?

I can't envisage the current federal government lowering the Super Guarantee: more money in industry super funds equals more financial clout of the big unions, and thereby more financial support of the Labor Party.

This view applies equally to the alt party, when incumbent, pressuring the so called "retail funds" to act in "certain ways". Bring on the Teal revolution.
As regards Grattans preference for annuities, these will generally preference the fund providing them as I am sure the advisers have done all the statistical sums and given an answer that will fulfil the "need for greed" of them.

So many ill informed, anti union nit wits espouse the view that industry funds are union funds or controlled by unions when it is simply not the case.

They have an equal number of employer (business) and employee (union) representation.

The royal commission into Superfunds also found Industry Funds to be better than retail funds.

Agree misinformed on structure of Industry Funds. The low cost and good returns as a pension, make them an excellent choice for secure set and forget.

I don't understand why unions need to have ANY involvement with super funds, now that the system is up and running.

@Bill because then the Employer groups would run them similar to retail funds which the Hayne Royal Commission into Superannuation Funds found they under performed fr the most part, the Industry Funds.

Maybe a better option would be, because as you say the Industry Funds are well established, we get rid of employer representation on those funds.

For the record, I am in an Industry fund but not a Union Member.

There was an article in the SMH prior to the RC. A young man died after rolling over most of his funds to buy a property in an SMSF. The reinsurer paid the claim. The union fund retained the claim proceeds as it was discretionary to the trustee and he ‘hadn’t supported the fund’. Look at the absolute mess Cbus is in right now how they’ve treated members so appallingly.

The RC was a BANKING RC. It never investigated union funds other than one week where nothing substantive was done.

When discussing investment committee structures with a multi decade employee he referred to left or right affiliations I asked you don’t mean political affiliations he said yes. So their politics defined whether they would make investment decisions not their intrinsic investment expertise.

I know another person on the verge of engaging barristers to sue another fund as their ‘administrative procedures’ cost him tens of thousands of dollars even though what he’s was asking was fully in accordance with SIS and Tax Acts. Their administrative procedures superseded this new widower.

Love this article!

“they are conditioned to being used to a lesser lifestyle which they do not want to drastically change when they get the pot of gold at retirement.”

For the Gatton Institute’s solution in essence is to presume that lifelong spending and saving habits could readily be changed on the day of retirement and that retirees could/should go full steam ahead and spend their pots of gold, is naive to say the least.

Whilst it’s not wrong to suggest that longevity and investment risk are factors, us mortals are creatures of habit.

And so unless you are a person that through life has “spent spent spent” (and may well not have a pot of superannuation gold), for those of us conditioned over a lifetime to watch the pennies and save, you can’t just switch that off. Even if your head tells you “it’s ok, go for it you’ve earned it”, the conscience that has sat on your shoulder over the course of your working life to monitor your spending and saving habits doesn’t retire!

correct

Well said Mary. Most of us baby boomers (I am 78) were taught the importance of saving by parents who had lived through hard times including at least one world war. Remember those money boxes and the State Bank reps attending schools to bank our savings? These (good) habits are ingrained in us, and as advised by our accountants and tax agents we have used all legal means to increase our savings - negative gearing by renting out holiday houses, family trusts, CGT concessions, and now superannuation. Granted the super contributions allowed by Howard and Costello were ridiculously generous. But to expect us to start spending up big now that our mortgages are paid off, children self-supporting, personal needs are less and travel ambitions receding is totally unrealistic. In addition we want enough put away to amply cover all contingencies and then leave some to our children and grandchildren. Let's face it - we are all going to get sick for a greater or lesser period before we die, requiring good medical attention, expensive if privately funded, and many of us will require a long period of nursing home care or nursing care in our homes. So governments may change the rules and the systems - that is what we expect and require them to do.
But any suggestion that we individuals have a duty to the nation to spend more of our savings/investments (including super) is bunkum.

Good article..

As a 75 year old retiree I have seen six friends of a similar age die in the last 13 months and have an aunt turning 103!! It is the age old quote from the AMP salesman 50 years ago "what happens if you die too soon or live too long?"

Dying too soon is no longer an issue, but living too long certainly is, compounded by the uncertainty of markets and the absolute certainty that Canberra will change the rules upon which I saved for and planned my retirement!!

Were AMP named in the Hayne royal commission ?

An excellent comment by AlanB
In my view the purpose of investing is to accumulate and manage/spend for your life style."Guiding people towards purchasing lifetime annuities “ Really ??

Great question whether SG is too high. Modelling should have been done a while ago to work out the optimum SG rate.
It seems pretty sensible for retirees to want to preserve wealth, and silly to demand it gets spent. If wealth is in super though, they pay less tax. I'm OK with policies that see retirees having to take money out of super, and they can build wealth externally if they wish. A catch is many will leave it in a bank account, or maybe a term deposit, and earn much less than a balanced portfolio.
Maybe a solution is some withdrawals can get paid to a personal account with the same super fund.

These proposals are simply about control.

- Control how much people contribute to super.
- Control how its invested.
- Control how much they take out

And in the end … control how its spent.

"Now we are being told in the latter years of their lifecycle that they are not spending sufficiently, and we need to take steps to ensure that you will spend more.":

Current system prescribes how much must be withdrawn, does not prescribe how much must be spent.

Assets can accumulate outside Super, earnings on which exceed the Tax Free Threshold, resulting in Tax Payable.

Single:
Taxable income $34,655 / y, 0% tax rate. Capital required $34,655 / 5% = $693,100.
Taxable income $190,000 / y, 47% tax rate. Capital required $190,000 / 5% = $3,800,000.

If you don't spend up and accumulate, Commonwealth Government will tax and spend for you.

One would think that Government would like more rich taxpayers, not spendthrifts who become welfare recipients.

So, So what?

Exactly right. Just because you take money out of super (even with a lifetime annuity) does not mean you have to spend it. If the Government wants to get more money out of super then perhaps they need to reverse Costello's change which meant you can leave your money in super forever (you used to have to start a retirement income stream at age 65).

If people with lower balances are not spending (or more likely withdrawing their super), then so what, does it matter. It's their choice. I do however have an issue with those with higher balances not having to withdraw their super as it is simply being used as a tax minimisation tool. I don't see why those with balances in excess of their pension limit should be able to keep the excess in an accumulation account at only 15% tax (you wouldn't keep it their if your marginal tax rate was less than that). Super is for retirement not estate planning or tax minimisation.

“..those with higher balances not having to withdraw their super as it is simply being used as a tax minimization tool”
What exactly is wrong with tax minimization by anyone who has retired after a lifetime of paying high marginal income tax rates while not relying on the public purse by paying extra for private health cover, paying extra for private education and not relying on an aged pension by being a self-funded retiree? It is arguable that such a person has more than paid his/her debt to society and should be left to their self funded devices in retirement.

The issue is George is that Keating's grand plan with Superannuation was for people to be able to fund or part fund their retirement with it and to create a pool of national savings.

Super had limits to it applied.

Howard and Costello removes the limits and also allowed for the wealthy to deposit millions in int Super if they wished, for the very purpose of allowing the rich to minimise their taxes.

The RBL, Reasonable Benefit Limit should have remained (indexed of course) and once you reached that limit one should not be able to contribute anymore to their fund, nor start another.

The SG your employer pays should then become Salary or wages.

If one is lucky enough to have funds above an RBL, then it is invested outside of the Superannuation account

There is nothing wrong with tax minimisation - my objection is that the superannuation system can be used as a tax minimisation tool. Like others have mentioned, there should be an absolute limit on what can be held in superannuation (the pension limit would be a reasonable figure) and you should have to withdraw anything above that limit. You should also have to convert your balance into an income stream after reaching age pension age.

"You should also have to convert your balance into an income stream after reaching age pension age.":

Should. At 67+, withdraw all from super, spend it all on home improvement, claim Age Pension.
Moving home is not tax free or cost free.
Capital remains accessible, gains tax free.
Income stream is Age Pension, capital free, tax free, risk free.

Couple: Age Pension + Yield on capital + capital gains on home;
= (26 * 1725.2) + (((1 + 5%) / (1 + 3%) - 1) * 470000) + (((1 + 6%) / (1 + 3%) - 1) * 1200000)
= $88,932.87 real / y

Great article. Thank you. All retirees and superannuants should tell the Gratton Institute to bugger off. We are not all the same. We have individual preferences and aspirations, different hopes and dreams and varying fears and worries. It's our money and it's our choice what we do with it. Not the Gratton Institute's choice on how we spend or don't spend our money. My whole life I've been frugal and was raised by responsible parents to save for a rainy day. The Gratton Institute et al fail to comprehend that frugal parents may just actually enjoy being financially secure, or may want to use their savings to help their family members into home ownership and that this is somehow unfair. Tough.

I agree with AlanB 100%. There are those of us who didn't have to use the SG to establish our retirement benefits. In my case, I set aside what I thought I could afford to arrive at a retirement lifestyle which didn't have to rely on the receipt of a pension. I achieved that, so I certainly don't like to be told what I should be doing with my money now! My money, my choice!

I don’t think this article aims to tell us to spend more, it’s just pointing out that some retirees might have a better standard of living if they were encouraged to loosen the purse strings and stop worrying about all the uncertainties.
This, of course, is fine for people like myself, without children, but different strokes for different folks.

Darmah, you loosen your purse strings all you like and don't worry about me. The Gratton Institute is quite comfortable with us retirees going to Las Vegas and splurging our savings on casinos, or on the local pokies, but not planning for our future needs or leaving money for our kids. Perhaps the Gratton Institute would also like to impose an inheritance tax/death duties on frugal parents who worked and saved hard, so as to pass a bit of those savings onto people whose parents did not leave them savings at death. Death duties is where this debate will lead.