Australia's retirement system is too complex and needs simplification to deliver a better retirement for millions of everyday Australians, the Super Members Council (SMC) says in a submission to Treasury's consultation paper on best practice principles.
SMC broadly supports the intent of the consultation paper's principles, recognising the importance of giving trustees a robust framework to design member-centred solutions.
However, a rethink is needed of the rules and principles, as the current system risks overwhelming retirees with unnecessary complexity.
With 2.5 million Australians set to enter retirement over the next decade, retirees face a maze of decisions — navigating super balances, Age Pension eligibility, investment returns, and drawdown rules — often without the advice or guidance needed to make the best choices.
SMC's research also challenges the assumption in Treasury's discussion paper that most members draw down the minimum.
In the 2023–24 year, 63% of sampled retirees from three large funds withdrew above the age-based minimum rates through regular pension drawdowns. This trend is even more pronounced among those with lower balances and younger retirees, which could be linked to cost-of-living pressures.
SMC's submission made nine key recommendations:
- Make sure the Age Pension is recognised within the principles as a critical part of retirement income for most Australians.
- Understand that longevity products designed to help with managing longevity risk in retirement aren't right for everyone.
- Allow trustees to design flexible retirement pathways for people with different needs from larger groups.
- Use up-to-date information about members to group retirees in cohorts that reflect people's situations.
- Connect retirement tools and advice with Age Pension rules to make things easier to understand and use.
- Recognise that most retirees take out more than the minimum from their super, and lump-sum withdrawals are a normal part of retirement.
- Recognise that retirees may want to keep their super in an accumulation account for extra flexibility in being able to contribute or maintaining separate savings.
- Find ways to keep members informed and involved, so they can trust and understand their retirement options.
- Make sure smaller super funds can use best practice approaches without making things too costly for members.
SMC will release a major report next month with new evidence and modelling on retirement income dynamics, which will further support Treasury's work on best practice retirement principles.
Access to timely information, guidance and affordable financial advice is the other missing piece in the retirement puzzle, and the promised financial advice reforms must be urgently legislated.
Super Members Council Acting CEO Georgia Brumby welcomed the opportunity to work with the Government to strengthen the retirement phase of Australia's super system.
"For many Australians, the retirement system is too complex which can be a barrier to decision making," she said.
"Hardworking Australians need access to simple information, guidance and advice to increase their confidence in the retirement solution that's right for them."
The opinions above are those of the author in their capacity as spokesperson for Super Members Council (SMC). SMC, the authors and all other persons involved in the preparation of this information are thereby not giving legal, financial or professional advice for individual persons or organisations.
