RIR finds need to improve understanding of retirement income
One of the key findings of the Retirement Income Review (RIR) was complexity, misconceptions and low financial literacy have resulted in people not adequately planning for their retirement.
The report, released last Friday, said adding to the complexity was the interaction with other systems, such as the aged care and the tax systems.
“People need better information, guidance and good, affordable advice tailored to their needs,” the report said.
“A major misunderstanding is the view that ‘retirement income’ involves the return from investing superannuation balances rather than drawing down those balances to fund living standards in retirement.
“A clear objective for the system, agreed by the Australian community through the Government, is needed to guide policy, improve understanding and provide a framework for assessing performance of the system.
“It is suggested that the objective for the system be developed around the goal: – ‘to deliver adequate standards of living in retirement in an equitable, sustainable and cohesive way’.”
The report said most people died with the bulk of the wealth they had at retirement intact and that the family home was an underutilised source to support living standards in retirement.
“It appears they see superannuation as mainly about accumulating capital and living off the return on this capital, rather than as an asset they can draw down to support their standard of living in retirement,” it said.
Compulsory superannuation allowed people to achieve a retirement income that better reflected their pre-retirement income, but that the Age Pension would still be needed to some extent.
“As the superannuation system matures, people will increasingly fund more of their own retirement,” the report said.
“Nevertheless, the Age Pension will continue to supplement the retirement income of a large proportion of people, but to a lesser degree.”
As at June 2019, around 71% of people aged 65 and over received Age Pension or other pension payments.
“Over 60% of these were on the maximum rate. For most households aged 65 and over, the family home is their main asset,” the report said.
“Superannuation makes up a small share of their net wealth. This will change as the superannuation system matures.”
AUTHOR
Chris Dastoor
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