Super lump sums misrepresented
Australian retirees who take superannuation lump sums are often being misrepresented as frittering their money away on caravans and holidays when, in reality, they are being far more cautious.
That is the assessment of participants in a roundtable conducted by Money Management's sister publication, Super Review, during which Towers Watson managing director, Andrew Boal said it was not uncommon for people taking super lump sums to put the money into term deposits and treat it almost like an income stream.
He said that despite such activity, the superannuation industry continued to be poorly rated over the use of lump sums.
"One of the things that the [super] system gets rated down for is around the retirement income product area, and the lump sum mentality," he said.
"But having said that you look - there's a lot of research starting to emerge now which supports what we thought anecdotally for some time, that if people take the lump sum out they often will stick it in a term deposit and just draw on the income and just draw it down very furtively anyway."
"So they're actually using it as an income stream, they just withdraw it from superannuation and put it somewhere else to do it. So I think we get rated down unfairly on that front," Boal said.
Northern Trust head of sales, Angelo Calvitto, said he did not believe there had been enough analysis of what was really happening with respect to lump sums once they had been withdrawn.
"There's this debate about oh it's just being spent on a family holiday and buying a new car and paying off the mortgage, and I don't know that that's necessarily the case, or it's in the high percentage numbers. But that makes news, so that's what's been talked about. I personally haven't seen a lot of analysis and statistics on what's actually happening when it comes out of super," he said.
Boal also suggested that more attention needed to be paid to retirees accessing equity in their own homes and its impact on means testing.
"…there are people living well below a reasonable standard of living in retirement sitting on a lot of equity. Their children don't need that bequeathed to them, and yet mum and dad aren't living a life that they could," he said
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