A key architect of the compulsory retirement savings system lauds its many achievements, stretching from the national economy to the individual. Where it’s double faulting is in serving members – and it needs to be addressed promptly.
With performance and diversification driving demand, these funds are expected to experience four-fold global growth over the next decade to nearly $AU65 trillion.
Super funds should offer more MDI-style options
(Pictured: Russell Mason)
In a new report that highlights a high level of inadequacy in the superannuation system, Deloitte calls on superannuation funds to introduce more member-directed investment (MDI) options and the Government to consider compulsory deferred annuities.
“Perhaps SMSFs are so attractive to people when they retire because large institutional funds are not offering them the products that they want,” special superannuation adviser and primary author of the Deloitte report, Wayne Walker, said when launching the report.
Deloitte superannuation leader, Russell Mason, said that MDIs were “part of the answer” and he expected more funds to offer SMSF “look-alike” products.
Overall the report outlined five recommendations for government and eight recommendations for super funds to help address the levels of disengagement and inadequacy.
“We see very little in the superannuation industry to embrace more complex methods to protect people,” Walker said.
According to Deloitte calculations, in addition to a superannuation guarantee of 12 per cent, men need to contribute an extra 5.5 per cent, and women an extra 7.5 per cent, if someone on an average salary is going to be able to self finance a comfortable retirement (in line with the Association of Australian Superannuation Funds comfortable retirement living standard).
Walker and Mason both said that the system had to move away from one that was focused on increasing funds under management, to one that focused on retirement outcomes.
Better tax treatment of deferred lifetime annuities – an annuity that you can buy that kicks in at a pre-determined age – should also be made a priority for government.
“Now is the time for government to really look hard to how it can further access to deferred lifetime annuities,” Walker said. “Frankly, this is the only way to address longevity risk.”
Walker’s preference is for a compulsory deferred annuity. Retirees would have to put aside a percentage of their retirement lump sum to purchase the annuity.
“[The system needs to move] to an income-based system, from a lump-sum based system,” he said.
Other government recommendations in the report included introducing a lifetime limit to superannuation contributions and making it simple and easy for members to access independent advice.
And other recommendations for super funds included the suggestion to view and manage risk from the perspective of members and to combine an efficient and fraud-protected payments system within the post-retirement offering.
