‘Massive inheritance scheme’: Calls to reshape the current retirement system

Australia’s superannuation system could become a “massive inheritance scheme” unless the government steps in and supports retirees spending their retirement savings, a new study warns. A new report by the Grattan Institute has found the majority of Australians aren’t using their superannuation funds as intended, due to the overly complex current system. Older Aussies are hoarding their retirement savings, worried they will outlive their nest egg. To encourage retirees to spend without fear, the Grattan Institute is calling for the government to create a lifetime annuity for retirees in exchange for them offering up 80 per cent of their superannuation balances above $250,000. According to the Grattan Institute, retirees should be guided into a simple lifetime annuity which guarantees an income for the rest of their lives, which would see retirees’ income boosted by 25 per cent. The calls for major reforms come as the think tank found 80 per cent of Aussies find the process complex, while a further six in 10 are financially stressed out about retirement. Combined, older Aussies are hoarding their wealth, with superannuation balances growing well after a retiree stopped work. Grattan Institute housing and economic security program director Brendan Coates said the current system wasn’t working with few retirees enjoying the benefits of their hard work. “This is turning Australia’s multi-trillion-dollar compulsory superannuation system into a massive inheritance scheme,’ Mr Coates said. Grattan said under the current system, four in five retirees were in account-based pensions, which requires the retirees to manage their spending and to try and avoid outliving their savings. About 200,000 Aussies retire from the workforce each year with significant retirement balances and almost no guidance on how to use these funds. Half of those using an account-based pension to draw their super at legislated minimum rates, which leave 65 per cent of super balances unspent by average life expectancy. On top of creating a lifetime annuity, Grattan wants the government to create a top 10 list of the best superannuation funds in the country and to steer retirees towards those funds, by asking APRA to assess a performance-test on all account-based pensions. The thinktank’s research shows this would unlock $70,000 in additional retirement funds over a retiree’s lifetime.