Battle for the future of superannuation is raging
The battle to manage the $3.5 trillion of superannuation assets is really on in earnest at the moment as different super funds explain the way they think the sector should be reformed.
Possibly the most influential is also the biggest – AustralianSuper, with $300 billion in assets – so its plea to Treasury for changes is really worth a closer look.
Given the range of options being put forward range from giving customers maximum control over their super right through to giving funds a lot of control, it is interesting that AustralianSuper is firmly in the latter camp.
Under its proposed reforms, the fund would be allowed to suggest to customers that they start withdrawing from their account, help them apply for the age pension and integrate that income stream into their super.
Unify accumulation and retirement funds
However, the most radical change it suggested is to abolish separate accumulation and retirement accounts.
This is all in reaction to the Albanese government’s consultations on a reform package that aims to give retirees more confidence to spend their savings and force super funds to drastically improve the support they offer older members.
Virtually all super funds, large and small, admit that they have not done as much as they should have to prepare fund members for the challenges of retirement, at a time when 3.6 million Baby Boomers will be leaving the workforce in the next decade.
That sort of transition to retirement requires all funds to be prepared for moving away from an “accumulation” focus into one in which increasing numbers of their members will be in decumulation mode.
Not only does that mean changing the relationship with the customer, it also means coming up with new products and education materials and possibly even changing the investment focus of their funds.
Super fund for life?
According to AustralianSuper, the best way to ensure that is to produce a “simple, seamless and, most importantly, integrated system in retirement” – effectively a super fund that lasts a lifetime.
According to fund chief executive Paul Schroder, the system needs an urgent focus on the “spending phase”.
“To create enduring change to system settings such that it is fit for the remainder of the century, one of the key reforms needed is the implementation of an ‘account for life’.”
That would include allowing AustralianSuper to help customers apply for the age pension and integrate that income stream in with their superannuation, according to the submission.
At the moment, only about 44% of people apply for the age pension immediately when they are eligible, costing them as much as $43,000 in lost income a year.
Should your super fund apply for the pension?
It may not be an immediately welcome idea for the government to start paying the pension out earlier, although it might be a price it is willing to pay to give retirees more certainty about spending down their super balances, rather than keeping them largely intact until they die.
While AustralianSuper didn’t go as far as recommending that there should be a “hard default” of members into retirement products, it did ask for access to a range of government information about customers so that the super fund could “nudge” people into thinking about making that move and suggest the right sort of product.
While Mr Schroder conceded there can’t be a “one size fits all” approach to retirement, he said it was still important to have an integrated default income system to help Australians navigate the retirement stage.
The best way to do that – he contended – is to remove the divide between accumulation and retirement accounts by allowing customers to both contribute to and draw savings down from a single product.
Problems to be overcome by unifying funds
That would obviously present a number of problems, given that at the moment the accumulation and decumulation accounts have a different tax treatment, along with other differences such as mandated withdrawals depending on age.
However, the one account for life model would help to do away with the current system in which people can often have multiple accounts and pay extra fees.
“Members would reap significant benefits if a simpler system allowed one account for life for both the contribution and drawdown phases,” the submission said.
“They would also benefit from accounts in the retirement or drawdown phase being able to accept more contributions.”
Interestingly, the somewhat paternalistic approach advocated by AustralianSuper is not shared by all of the industry funds, with smaller rival Aware Super with $150 billion under management saying that the government should focus on giving people as much control as possible over their retirements.