Government to look at advice as it probes Australians’ reluctance to spend super

The government’s intergenerational report has revealed that total assets in the superannuation system are expected to continue to grow strongly over the next four decades reaching approximately 218 per cent of GDP by 2062–63, compared to 116 per cent during 2022–23.

But the government is expressing concerns over a noticeable reluctance among Australians to tap into their retirement savings. As such, ifa understands that Treasury is expected to release a consultation paper in the coming weeks to strengthen the accessibility of retirement products.

The government’s paper, according to Treasurer Jim Chalmers, will canvass problems with financial advice among other things.

“Half of retirees draw down the minimum and, on average, people who draw down the minimum will still have about a quarter of their super remaining when they pass on,” Dr Chalmers said on a roundtable hosted by The Australian Financial Review last week.

“What that really means is people are living more frugally than they need to. There’s not enough confidence in their balances, there’s not enough diversity or flexibility in products in the market or literacy or advice or strategies to match people with these products.”

Speaking to ifa’s sister brand SMSF Adviser, Wattle Partners director Drew Meredith said a lack of financial literacy and education contributes to most retirees not wanting to spend their superannuation.

“The financial services and superannuation sector has been focused almost solely on investment and supporting the growth of accumulators who are entering or part of the workforce,” he said.

“There has been limited, if any, investment into education on retirement, outside of a few resources, which means the basic understanding of superannuation for most Australians, let alone retirees is very low.

“The lack of education and understanding has meant that many entering retirement simply have no idea how long their capital will last, nor how much they can reasonably spend without having a major impact on this.

“The result is a default to what the government says is an ‘appropriate’ amount which in reality, is aimed at ensuring super balances are reduced to zero in someone’s 90s.

“Put simply, most retirees aren’t empowered or informed enough to know how much they can really spend.”

The Treasurer revealed last week that the number of Australians aged 85 and over is expected to more than triple over the next 40 years, while the number of people aged 65 and over is tipped to more than double.

Commenting on the government’s intention to probe Aussies’ unwillingness to spend their super, chief executive officer of the Financial Services Council (FSC) Blake Briggs, said: “Eight hundred Australians are retiring every day, and the government is right to prioritise action to make sure these consumers can choose from a range of products consistent with superannuation’s promise of delivering income for a dignified retirement.

“The Retirement Income Covenant requires superannuation funds to formulate strategies to optimise retirement outcomes for members, however, the FSC believes this framework will be more successful if the government removes regulatory barriers that are inconsistent with the covenant.”

The FSC also commended the intergenerational report’s recognition of “the important role of superannuation in addressing Australia’s financial pressures over the long-term”.