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Grattan’s government annuities proposal a sign bold action needed on retirement
With an eye to “taking the stress out of retirement”, the Grattan Institute has proposed that government become a provider of annuities and a “free, high-quality guidance service” to help retirees and those approaching retirement to plan their income.
Still, Grattan concedes that many Australians will stick with their super fund for both advice and a retirement income solution – primarily account-based pensions. To that end, it wants to performance test account-based pensions and introduce a list of “best in show funds”, a controversial measure first advocated by the Productivity Commission and which has been resisted by the industry since as a simplistic measure that fails to account for the individual circumstances of members it’s supposed to help.
“Funds should be selected on their capacity to deliver strong risk-adjusted returns in the long term, sound governance, and their capacity to provide the best guidance and advice in retirement. This would encourage all super funds to lift their game – including the quality of the guidance and support they provide to retiring members – as funds would compete to make the top 10 and stay there.”
For some, Grattan’s proposal is extreme; for Joey Moloney, the thinktank’s deputy program director for economic policy and one of the proposal’s authors, it’s simply recognition of the inertia that has pervaded retirement in the superannuation system. While the proposal appears to remove much of the responsibility for retirement from the superannuation industry, Moloney “doesn’t think of it like that”.
“I think of it as removing a lot of responsibility that we’ve put on members themselves,” Moloney tells ISN. “Right now, it’s up to a member to figure out how to draw an efficient income from their super to last retirement.
“What we’re saying is, let’s do that via risk pooling by the government. Yes, some of the money will be going from super to the government. But in terms of system design, we’re putting too much responsibility on individuals who aren’t well-equipped to navigate this problem – or, more specifically, we’re asking them to navigate an impossible problem. That responsibility can be shifted on to the government.”
Super funds will still play a role in retirement; not everybody wants an annuity, or advice from a government agency. Broadly speaking, super funds have been pretty good at investment management, Moloney says, and they’re the obvious place for most members to look for “guidance advice”.
“We’re on board with the direction of reform for financial advice, which will create a new class of adviser and make it easier to provide simple advice on a narrow set of topics. That matters, because people are going to want answers to their questions about super. And they’ll still want help with their drawdown strategy… Super funds are absolutely critical.”
But Moloney thinks there’s a lot of “exaggerated hesitancy” around the diversity of members’ retirement needs. That’s a paralysing, because it leaves funds with the belief that retirement can’t be ‘one-size-fits-most’.
“If the process that came out of the Murray Inquiry – the process for comprehensive income products in retirement – if funds had embraced that we probably wouldn’t be here today. We wouldn’t have had another Treasury review of the retirement phase. We’d be looking at a bunch of people going into these products at scale, getting good outcomes – though there’s still the challenge of market design.”
“I think that if we all agree that there’s a problem, if we all agree that there needs to be some change to make super work better in retirement, the longer nothing happens, people are going to look for new ideas and bolder ideas. That’s part of what we’ve done.”
Grattan’s proposal occupies similar “big picture” territory to the Conexus Institute’s retirement licencing regime, which would see superannuation funds required to prove that they were able to deliver a retirement income stream. While that idea was viewed as extreme by some parts of the industry, it now looks pretty moderate. Conexus’ David Bell remains an advocate for an industry-led solution, and believes that super funds are the logical providers of retirement solutions, but that not enough is being done to help members.
“We’ve had funds say to us ‘Give us 10 years and the industry will get there’,” Bell tells ISN. “My problem with that is that in the next 10 years you’ll have 3.6 million people retire and not get the best retirement they could. I don’t accept that 10 year notion as good enough – it’s definitely a problem that needs to be addressed.”
