Here’s part two of the roundtable discussion, putting six simple questions to six experts on the retirement system.
Why do we need to reform our retirement income system?
What do you see as the priorities?
What are the key challenges and how do we overcome those?
How do we balance the key imperatives of adequacy, equity, sustainability, efficiency and simplicity?
How do we build public engagement around these issues?
What can your organisation bring to this work?
You can read the panel’s answers to the first three questions here. In today’s edition, we tackle the second three questions.
Question 4: How do we balance the key imperatives of adequacy, equity, sustainability, efficiency and simplicity?
- Stringer, KWM – “This is undoubtedly a challenge, because there will always be perceptions of “winners” and “losers” from structural reforms of this kind. Getting agreement on the objectives of the whole system would be a worthwhile starting point. But even this is unlikely to be free of controversy.”
- Lennon, Dimensional – “I don’t think those imperatives are necessarily contradictory. If we get people focused on income and have products that better manage the relevant risks facing savers and retirees, we are going to look after the adequacy problem. We know now that giving consumers more and more choices does not necessarily lead to better outcomes. So if we get agreement on the goals, we are going to make it easier to build a more efficient and simple system. The government can address both equity and sustainability by better targeting tax incentives and shifting the goal to income.”
- Arnott, First State Super – “Adequacy for the majority of wage earners will be resolved by the maturing of the system at a contribution level of 12%, the proliferation of different longevity products, increasing members’ ability to make appropriate decisions through financial planning and smarter technology tools, removing some of the leakage in the system, and aligning retirement age with increased life expectancy. For the remainder of members, Social Security will provide a safety net. Equity will be perceived to be achieved by curtailing the very large tax concessions that accrue to some superannuation members. Sustainability already exists in respect of the aged pension, though some studies show Australian retirees are among the poorest of developed nations. In terms of efficiency, decreasing the number of superannuation providers appears to be one solution. However, the reluctance of members to switch from a high-cost to lower-cost provider represents a significant barrier. Simplicity is a long-term goal. The chance of success will be greatly enhanced if there is an agreed objective for superannuation, and all parties work towards long-term reform rather than short-term fixes.”
Question 5: How do we build public engagement around these issues?
- Stringer, KWM – “Education is important. The public needs to understand the value of our retirement income policy to our community and that the system needs to be sustainable. We have seen in Europe that citizens will mobilise when their government-funded pensions come under threat. I think most Australians do not appreciate that the same could happen here if we do not ensure that our system is affordable.”
- Pascuzzo, CSRI – “Through communication that makes the highly technical easily digestible. I was reminded recently of the high degree of complexity embedded in apple devises, and yet the functionality is delivered in such a use friendly way that it feels like second nature. We should aspire to making retirement income solutions as easily accessible to members.”
- Lennon, Dimensional – “That in a way is the biggest challenge of all. Most people don’t engage with super because it’s complicated and it’s often a long way away. And even when people do get closer to retirement they often feel overwhelmed. Good advice can help, but not if you’re focused on the wrong goal or stuck with an asset allocation that exposes you to too much equity risk. We believe engagement will come when we communicate in terms people can understand and relate to. And that means focusing on how savings decisions today translate into income in retirement.”
Question 6: What do you think you can bring to this work?
- Stringer, KWM – “I bring deep experience in trying to help clients bring innovative retirement income products to life. I have seen first-hand the challenges of working through the regulatory red tape and I am passionate about any work that seeks to break down these impediments.”
- Pascuzzo, CSRI – “These are important issues that affect every Australian, however not everyone is represented equally in the debate. The CSRI fills this gap by bringing two key ingredients. The first is independence – this is liberating as it allows us to focus on the broader public interest without the constraint of a narrow financial imperative. However, it also carries with it significant responsibility which we are very cognisant of. Second, we’re about integrating expert views from the range of relevant disciplines and consulting with key stakeholder groups to build support for a reform program.”
- Lennon, Dimensional – “Dimensional has been thinking for some time about how to remove unnecessary complexity and how to manage risks relevant to the goal. We’re respectful of the significant dispersion in possible outcomes for people. We have experts like Bob Merton who’s been travelling the world telling anyone who will listen that you need to start with the right goal. And once you know the goal, risk should be measured in terms of that goal. In the US, we’ve launched funds that manage the risks around retirement income. And we’ve helped an index provider to establish new for strategies that manage the transition from income growth to income risk.”
- Arnott, First State Super – “First State Super is committed to providing the best retirement outcomes for its members. This can be achieved only if Australia’s superannuation system is leading-edge. First State Super will always be involved in public policy to improve the system either by working with industry bodies such as ASFA and AIST (and now CSRI) or advocating separately on behalf of our members.”
- Wickham, TAL – “TAL is the largest life insurer in Australia and brings with it the perspective of being a market participant in the system both in the pre-retirement and post-retirement phases. Our client base includes some of the largest superannuation funds in Australia. Within our organisation, we have a number of people who have been active contributors to industry and policy debate – including in the areas of tax reform, age pension reform and retirement issues generally.”