In 2004, I attended the launch of the Federal Government’s Consumer and Financial Literacy Taskforce (CFLT). The event, held at the State Library in Victoria, featured the ‘who’s who’ of financial services. ‘Money’ host, Paul Clitheroe, was the newly-appointed chair and Mal Brough was the Finance Minister in the Howard Government who held responsibility for the outcomes.
The future of financial literacy for all Australians looked rosy indeed.
A report (shared by Assistant Treasurer, Helen Coonan, June 2004) had identified a major absence of consumer financial literacy and the taskforce had been formed to fix it. During the launch, I asked which specific cohorts would be a focus for this new initiative. The answer was that high school children, Indigenous Australians and those of a cultural or linguistically diverse (CALD) background had been identified as most at risk of low financial literacy.
Fair enough. I then asked, given the demographic spike of some 5.4 million baby boomers hurtling towards retirement, if pre-retirees with scant financial literacy might also become a priority.
"Yes, that’s a good idea, they’re definitely on our radar", was the reply from the Chair.
Well, here we are nearly two decades later and it’s fair to ask how these ambitions have helped financial literacy for retirees in the meantime. Have we made any progress at all?
I fear not. There’s a big fat zero on the Taskforce’s report card.
Where is the financial education?
Along the way we’ve seen a steady stream of government enquiries, many for all the right reasons. Some were politically charged, such as the Tim Wilson-led ‘retiree tax’ parliamentary enquiry which was a thinly-veiled campaign vehicle for the Liberal Party during the 2019 election year (I can say this as I attended one of the local town hall meetings).
The Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry had a broad scope and was forced on a government reluctant to reveal the depths of financial impropriety, which it ultimately did. We’ve also seen initiatives such as Financial Adviser Standards and Ethics Authority (FASEA) come and go with little real impact.
Are consumers any better off, especially as the Quality of Advice Review from lawyer Michelle Levy proposes to unwind some of the consumer protections brought in over the last decade?
Depending upon the esteem in which you hold financial advisers, you may view the departure of nearly 40% of advisers from the industry in the past few years as a good or bad thing. Either way, the number of providers of financial advice has shrunk dramatically and it’s hard to see what has replaced this service.
Understanding superannuation is essential
When the Taskforce was launched in 2004 and compulsory super was just over a decade down the track, there was $649 million of savings held in superannuation. Today that amount is $3.3 trillion, dwarfing nearly all other pots of money in the Australian economy.
It’s easy to think of this money in its aggregated form, but this is essentially the life savings of nearly 16 million individual men and women.
Commentators still cling to the Association of Super Funds Australia (ASFA) estimates for ‘comfortable’ retirements, which means that the oft-quoted target of a $1 million nest egg is generally accepted as necessary to lead a reasonable retirement lifestyle. But this is at odds with ASFA’s own measurements of actual savings: an average nest egg at retirement of $310,240 for males and $246,632 for females or, worse still, the median amounts of $138,337 and $107,897 respectively.
The gap between rich and poor older Australians has widened considerably since 2004 and our retirement income system supports this gap.
Here’s how. The more work income you earn, the more you get from the ‘flat’ Superannuation Guarantee contribution (SG) rate, currently 10.5%.
Say you are Sally, earning $200,000 p.a., then $21,000 per annum is automatically invested in your nominated super account. This balance will compound nicely. Sally may also contribute extra and be able to afford a good accountant, also perhaps the establishment fees for a SMSF.
Or maybe you’re Larry, who does his own tax return, as his salary of $25,000 doesn’t allow for outsourced financial assistance. His SG contribution is also 10.5% per year, but only a $2,625 contribution will hit his super account annually. On such a low salary, he’s unlikely to make extra contributions. Sure his balance is growing, but far below the rate of Sally’s.
Since 2004 there has been a proliferation of fintech products and online advice. Now social media ‘influencers’ are offering guidance on how to grow your wealth. Not only has this added to the noise and confusion around financial advice, as legally questionable as it might be, such ‘influencers’ may also have been the preferred source of information for the (predominantly young) superannuants who withdrew funds during the Covid years, reducing their ultimate super savings to a shadow of what they may have been.
Information needs to reach the right people
Which brings me to the 2020 report from the Retirement Income Review (RIR) and its findings. It seems to be largely satisfied with our system, albeit noting certain pressure points along the way.
I am surprised. As a long-time observer of consumer confusion over shifting retirement planning goal posts and legislation, unlike the RIR, I am far from satisfied with the status quo.
I think financial planning for retirement in Australia is in dire shape. It feels as though we’ve been running up and down on the spot for the last 20 or so years.
The need has never been greater - but who is going to break this strife? Australia is predicted to have more than 10 million retirees in the next 20 years, and according to Money magazine, 40% of super funds’ assets will then be held by retirees. The RIR has called for much more emphasis on decumulation. That’s fine, but the products are complex and product information is even more so. Most Product Disclosure Statements (PDS) can at best be described as the antithesis of plain English.
Some 71% of retirees are still on a full or part age pension. The combined income and assets test for entitlement is far from easy to understand and the application length and process is a nightmare for many, some of whom give up. Others get on the phone and join the 43 million calls a year that Centrelink still can’t manage. For those who are - or will be - self-funded and often self-directed investors with the motivation to seek out information, there is a plethora of material. But ASIC finds that most Australians still don’t know the difference between general and personal advice nor what they can reasonably expect from the product vendor or adviser.
There is too much at stake to get this wrong. The potential for increased income (and therefore life opportunities) for millions of retirees, not to mention the benefits to the wider economy and health savings, deserves urgent attention.
There is much we could do better, starting with widespread government ownership of the need for improved financial literacy. Consistent, authoritative information could be delivered through TAFE institutions, local governments and workplaces, just as we do with language education. The beleaguered Centrelink Financial Information Service (FISO) offering could also be significantly bolstered.
But who has the political will and energy to change this landscape of confusion and complexity? The answer eludes me. If anyone can see a glimmer of light in this depressing and wasteful scenario, I’d be delighted to hear what it is.
Kaye Fallick is founder of STAYINGconnected website and SuperConnected enews. She has been a commentator on retirement income and ageing demographics since 1999. This article is general information and does not consider the circumstances of any person.