Australians’ growing preference for income streams in retirement over lump sums highlights the need for greater innovation and reform of the retirement income system, according to an independent think-tank.
The Committee for Sustainable Retirement Incomes (CSRI), a non-partisan and non-profit body of academic and policy experts, says while Australians entering retirement are now leaning towards income, available solutions lack the flexibility required to deal with varying life circumstances.
“Change is happening, but the challenge of building a sustainable, equitiable and efficient retirement income system that delivers adequate outcomes for all Australians is just beginning,” CSRI executive director Patricia Pascuzzo said.
In a recent analysis, the Australian Bureau of Statistics (ABS) reported that almost 1.2 million people were receiving an income stream from their super in 2013-14. The proportion over 65 on income streams had risen from 20% to 25% over the past decade.
Even so, average weekly incomes were modest at just over $500 a week or about $25,000 a year. And gender disparity was still an issue. The average value of super balances for men aged 55-64 in 2013-14 was $322,000, or about 80% above women’s average total of $180,000.
“There are no simple answers to the superannuation gender gap,” Ms Pascuzzo said of the ABS survey. “A range of measures is needed if we are to make an appreciable difference to women’s security in retirement.”
In its federal budget in May, the Turnbull government unveiled significant reforms (still to be legislated) to better target superannuation tax concessions in an effort to make the system more fiscally sustainable. The government also intends to legislate an income goal for super.
However, the CSRI says fiscal sustainability is only one objective of reform. Also required are innovative comprehensive income products, as recommended by the Murray financial review, that deal with longevity risk and the significant variation in people’s life circumstances.
And that in turn will require the government to look beyond the affordability of tax concessions to how all parts of the retirement income system interconnect.
“This is a complex challenge as it involves the intersection of the tax, super, age pension and age care systems,” Ms Pascuzzo said. “The risk is that this complexity adds significant cost, favouring sophisticated, well-informed investors over the less financially literate with fewer resources.”
These issues are due to be discussed by public policy, industry and academic leaders at the CSRI’s second annual leadership forum in Canberra on October 12-13.
See details here on the CSRI website.